<PAGE>
As filed with the Securities and Exchange Commission on May 26, 2000
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. 19 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 21 [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, 18/th/ 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)
[_] on (date) pursuant to paragraph (b)
[X] 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.
<PAGE>
EXCELSIOR INSTITUTIONAL TRUST
INSTITUTIONAL SHARES
PROSPECTUS
AUGUST 1, 2000
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 THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1 of 63
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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.
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 risk and return that is common to each of the
Funds. For more detailed information about each Fund, please see:
PAGE
EQUITY FUND XXX
VALUE EQUITY FUND XXX
OPTIMUM GROWTH FUND XXX
INCOME FUND XXX
TOTAL RETURN BOND FUND XXX
INTERNATIONAL EQUITY FUND XXX
MORE INFORMATION ABOUT RISK XXX
MORE INFORMATION ABOUT FUND INVESTMENTS XXX
THE INVESTMENT ADVISER AND PORTFOLIO MANAGERS XXX
PURCHASING, SELLING AND EXCHANGING FUND SHARES XXX
DIVIDENDS AND DISTRIBUTIONS XXX
TAXES XXX
FINANCIAL HIGHLIGHTS XXX
HOW TO OBTAIN MORE INFORMATION ABOUT
EXCELSIOR INSTITUTIONAL TRUST Back Cover
Page 2 of 63
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INTRODUCTION - RISK/RETURN 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.
The value of your investment in a Fund is based on the market prices 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 the Equity Fund, Value Equity Fund and Optimum Growth Fund
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 combined 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
Page 3 of 63
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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 4 of 63
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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 primarily (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
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 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 response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
Page 5 of 63
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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 large capitalization U.S. equity
securities may underperform other segments of the equity market 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 performance of the Fund's Institutional
Shares from year to year.
1996 19.86%
1997 31.72%
1998 24.95%
1999 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(XX/XX/XX) (XX/XX/XX)
The Fund's performance for the six month period ending June 30, 2000 was X.XX%.
This table compares the average annual total return of the Fund's Institutional
Shares for the periods ended December 31, 1999 to those of the Standard & Poors
500 Composite Stock Price Index.
1 YEAR SINCE INCEPTION
- ------------------------------------------------------------------------------
EQUITY FUND (INSTITUTIONAL SHARES) X.XX% X.XX%*
STANDARD & POORS 500 COMPOSITE STOCK PRICE INDEX XX.X% X.XX%**
* Since January 16, 1995
** Since December 31, 1994
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 6 of 63
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FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
Page 7 of 63
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ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)*
Management Fees X.XX%
Other Expenses
Administrative Servicing Fee X.XX%
Other Operating Expenses X.XX%
Total Other Expenses X.XX%
- ---------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES X.XX%
Fee Waivers and Expense Reimbursements X.XX%
- ---------------------------------------------------------------------
NET ANNUAL FUND OPERATING EXPENSES X.XX%
* The Adviser has contractually agreed to waive fees and reimburse expenses in
order to keep total operating expenses from exceeding [X.XX%], for a period of
one year from the date of this prospectus. For more information about these
fees, see "Investment Adviser and Portfolio Managers."
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, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$XXX $XXX $XXX $XXXX
Page 8 of 63
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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 primarily (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.
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
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 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 response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
The smaller capitalization companies the Fund invests in may be 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
Page 9 of 63
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than those of larger companies. These securities may be traded over the counter
or listed on an exchange.
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 equity securities may
underperform other segments of the equity market 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 performance of the Fund's Institutional
Shares from year to year.
1997 27.31%
1998 20.52%
1999 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(XX/XX/XX) (XX/XX/XX)
The Fund's performance for the six month period ending June 30, 2000 was X.XX%.
This table compares the average annual total returns of the Fund's Institutional
Shares for the periods ended December 31, 1999 to those of the Russell 1000
Value Index.
1 YEAR SINCE INCEPTION
- ------------------------------------------------------------------------------
VALUE EQUITY FUND (INSTITUTIONAL SHARES) X.XX% X.XX%*
RUSSELL 1000 VALUE INDEX X.XX% X.XX%**
* Since June 1, 1996
** Since May 31, 1996
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 10 of 63
<PAGE>
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
Page 11 of 63
<PAGE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)*
Management Fees X.XX%
Other Expenses
Administrative Servicing Fee X.XX%
Other Operating Expenses X.XX%
Total Other Expenses X.XX%
- --------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES X.XX%
Fee Waivers and Expense Reimbursements X.XX%
- --------------------------------------------------------------------
NET ANNUAL FUND OPERATING EXPENSES X.XX%
* The Adviser has contractually agreed to waive fees and reimburse expenses in
order to keep total operating expenses from exceeding [X.XX%], for a period of
one year from the date of this prospectus. For more information about these
fees, see "Investment Adviser and Portfolio Managers."
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, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$XXX $XXX $XXX $XXXX
Page 12 of 63
<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 Optimum Growth Fund invests primarily (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
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 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 response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
Page 13 of 63
<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 market 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 performance of the Fund's Institutional
Shares from year to year.
1997 33.51%
1998 65.23%
1999 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(XX/XX/XX) (XX/XX/XX)
The Fund's performance for the six month period ending June 30, 2000 was X.XX%.
This table compares the average annual total returns of the Fund's Institutional
Shares for the periods ended December 31, 1999 to those of the Russell 1000
Growth Index.
1 YEAR SINCE INCEPTION
- ----------------------------------------------------------------------------
Optimum Growth Fund (Institutional Shares) X.XX% X.XX%*
RUSSELL 1000 GROWTH INDEX X.XX% X.XX%**
* Since June 1, 1996
** Since May 31, 1996
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 14 of 63
<PAGE>
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
Page 15 of 63
<PAGE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)*
Management Fees X.XX%
Other Expenses
Administrative Servicing Fee X.XX%
Other Operating Expenses X.XX%
Total Other Expenses X.XX%
- ----------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES X.XX%
Fee Waivers and Expense Reimbursements X.XX%
- ----------------------------------------------------------------------
NET ANNUAL FUND OPERATING EXPENSES X.XX%
* The Adviser has contractually agreed to waive fees and reimburse expenses in
order to keep total operating expenses from exceeding [X.XX%], for a period of
one year from the date of this prospectus. For more information about these
fees, see "Investment Adviser and Portfolio Managers."
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, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$XXX $XXX $XXX $XXXX
Page 16 of 63
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INCOME FUND
FUND SUMMARY
INVESTMENT GOAL Current income, consistent with moderate
risk of capital and liquidity
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 primarily (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.
Page 17 of 63
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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, 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.
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 market or the fixed income
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.
Page 18 of 63
<PAGE>
This bar chart shows changes in the performance of the Fund's Institutional
Shares from year to year.
1996 2.51%
1997 9.28%
1998 8.46%
1999 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(XX/XX/XX) (XX/XX/XX)
The Fund's performance for the six month period ending June 30, 2000 was X.XX%.
This table compares the average annual total returns of the Fund's Institutional
Shares for the periods ended December 31, 1999 to those of the Lehman Brothers
Intermediate Govt/Corp Bond Index.
1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Income Fund (Institutional Shares) X.XX% X.XX%*
Lehman Brothers Intermediate Govt/Corp Bond Index X.XX% X.XX%**
* Since January 16, 1995
** Since December 31, 1994
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 19 of 63
<PAGE>
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
Page 20 of 63
<PAGE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)*
Management Fees X.XX%
Other Expenses
Administrative Servicing Fee X.XX%
Other Operating Expenses X.XX%
Total Other Expenses X.XX%
- ----------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES X.XX%
Fee Waivers and Expense Reimbursements X.XX%
- ----------------------------------------------------------------------
NET ANNUAL FUND OPERATING EXPENSES X.XX%
* The Adviser has contractually agreed to waive fees and reimburse expenses in
order to keep total operating expenses from exceeding [X.XX%], for a period of
one year from the date of this prospectus. For more information about these
fees, see "Investment Adviser and Portfolio Managers."
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, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$XXX $XXX $XXX $XXXX
Page 21 of 63
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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 primarily (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.
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.
Page 22 of 63
<PAGE>
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 rated securities.
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 market or the fixed income
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 performance of the Fund's Institutional
Shares from year to year.
1996 2.66%
1997 9.23%
1998 9.22%
1999 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(XX/XX/XX) (XX/XX/XX)
The Fund's performance for the six month period ending June 30, 2000 was
X.XX%.
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<PAGE>
This table compares the average annual total returns of the Fund's Institutional
Shares for the periods ended December 31, 1999 to those of the Lehman Brothers
Govt/Corp Bond Index.
1 YEAR SINCE INCEPTION
- ------------------------------------------------------------------------------
Total Return Bond Fund (Institutional Shares) X.XX% X.XX%*
Lehman Brothers Govt/Corp Bond Index X.XX% X.XX%**
* Since January 19, 1995
** Since December 31, 1994
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.
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)*
Management Fees X.XX%
Other Expenses
Administrative Servicing Fee X.XX%
Other Operating Expenses X.XX%
Total Other Expenses X.XX%
- ------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES X.XX%
Fee Waivers and Expense Reimbursements X.XX%
- ------------------------------------------------------------------------
NET ANNUAL FUND OPERATING EXPENSES X.XX%
* The Adviser has contractually agreed to waive fees and reimburse expenses in
order to keep total operating expenses from exceeding [X.XX%], for a period of
one year from the date of this
Page 24 of 63
<PAGE>
prospectus. For more information about these fees, see "Investment Adviser and
Portfolio Managers."
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, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$XXX $XXX $XXX $XXXX
Page 25 of 63
<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 long-term capital
appreciation, 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 primarily (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
Page 26 of 63
<PAGE>
the Adviser believes that such companies' growth/appreciation potential
transcends their location or operations in emerging market countries.
Page 27 of 63
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE INTERNATIONAL 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 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 response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
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. These
various risks will be even greater for investments in emerging market countries
since political turmoil and rapid changes in economic conditions are more likely
to occur in these countries.
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 market 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 performance of the Fund's Institutional
Shares from year to year.
1996 14.75%
1997 -4.59%
1998 10.13%
1999 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(XX/XX/XX) (XX/XX/XX)
Page 28 of 63
<PAGE>
The Fund's performance for the six month period ending June 30, 2000 was X.XX%.
This table compares the average annual total returns of the Fund's Institutional
Shares for the periods ended December 31, 1999 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) X.XX% X.XX%*
FT/S&P - Actuaries World Indices - World Excluding U.S. Index X.XX% X.XX%**
</TABLE>
* Since January 24, 1995
** Since December 31, 1994
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.
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
Shareholder Fees (paid directly from your investment)
Redemption Fee (as a percentage of amount redeemed, if applicable)* 2.00%
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)**
Management Fees X.XX%
Other Expenses
Administrative Servicing Fee X.XX%
Other Operating Expenses X.XX%
Total Other Expenses X.XX%
- --------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES X.XX%
Fee Waivers and Expense Reimbursements X.XX%
- --------------------------------------------------------------------------
NET ANNUAL FUND OPERATING EXPENSES X.XX%
Page 29 of 63
<PAGE>
* This redemption fee is charged if you redeem or exchange your shares within
30 days of the date of purchase. See "How to Sell Your Shares" for more
information.
** The Adviser has contractually agreed to waive fees and reimburse expenses in
order to keep total operating expenses from exceeding [X.XX%], for a period
of one year from the date of this prospectus. For more information about
these fees, see "Investment Adviser and Portfolio Managers."
Page 30 of 63
<PAGE>
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, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$XXX $XXX $XXXX $XXXX
Page 31 of 63
<PAGE>
MORE INFORMATION ABOUT RISK
EQUITY RISK - Equity securities include public Equity Fund
and privately issued equity securities, common Value Equity Fund
and preferred stocks, warrants, rights to Optimum Growth Fund
subscribe to common stock and convertible International Equity Fund
securities, as well as instruments that attempt
to track the price movement of equity indices.
Investments in these securities 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 Funds may invest 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.
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<PAGE>
MID CAP RISK - The medium capitalization Equity Fund
companies that the Funds may invest in may be Value Equity Fund
more vulnerable to adverse business or economic Optimum Growth Fund
events than larger 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 Total Return Bond Fund
interest 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. As the
average maturity or duration of a security
lengthens, the risk that the price of such
security will become more volatile increases.
Duration approximates the price sensitivity of a
security to changes in interest rates. In
contrast to maturity which measures only time
until final payment, duration combines
consideration of yield, interest payments, final
maturity and call features.
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.
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.
Page 33 of 63
<PAGE>
HIGH-YIELD, LOWER RATED SECURITIES (or "junk Income Fund
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.
Page 34 of 63
<PAGE>
MORTGAGE-BACKED SECURITIES - Mortgage-backed Income Fund
securities are fixed income securities Total Return Bond Fund
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.
TECHNOLOGY RISK - The Funds may invest in Equity Fund
securities of issuers engaged in the technology Value Equity Fund
sector of the economy. These securities may Optimum Growth Fund
underperform stocks of other issuers or the Income Fund
market as a whole. To the extent that the Funds
invest in issuers conducting business in the
technology market sector, the Funds are subject
to legislative or regulatory changes, adverse
market conditions and/or increased competition
affecting the market sector. Competitive
pressures may significantly impact the financial
condition of technology companies. For example,
an increasing number of companies and new
product offerings can lead to price cuts and
slower selling cycles, and many of these
companies may be dependent on the success of a
principal product, may rely on sole source
providers and third-party manufacturers, and may
experience difficulties in managing growth. In
addition, securities of technology companies may
experience dramatic price movements that have
little or no basis in fundamental economic
conditions. As a result, a Fund's investment in
technology companies may subject it to more
volatile price movements.
Page 35 of 63
<PAGE>
FOREIGN SECURITY RISKS - Investments in All Funds
securities 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.
Page 36 of 63
<PAGE>
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 37 of 63
<PAGE>
Page 38 of 63
<PAGE>
MORE INFORMATION ABOUT FUND 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.
On January 13, 2000, The Charles Schwab Corporation ("Schwab") and U.S. Trust
Corporation announced that they had signed an agreement to merge (the
"Merger"). The Merger is subject to the approval of U.S. Trust Corporation
shareholders and is expected to close in the second quarter of 2000. Under the
terms of the agreement, U.S. Trust Corporation will retain its name and continue
to provide investment management, fiduciary, financial planning and private
banking services. As a result, U.S. Trust will continue to serve as the
investment adviser to the Funds. The Merger, however, will represent a change
of ownership of the Adviser's parent corporation and, as such, will have the
effect under the Investment Company Act of 1940 of terminating the existing
advisory agreements between Excelsior Institutional Trust and the Adviser.
As a consequence of the Merger and in order to facilitate the investment
management of the Funds, the Board of Trustees of Excelsior Institutional Trust
approved new advisory agreements with the Adviser on March 3, 2000. The new
advisory agreements were subsequently approved by a vote of shareholders of the
Funds at meetings held in May 2000. The new advisory agreements will become
effective on the date of the Merger.
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, 1999,
U.S. Trust had approximately $86 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.
Page 39 of 63
<PAGE>
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, 2000, U.S. Trust received advisory fees, as
a percentage of average daily net assets, of:
Equity Fund X.XX%
Value Equity Fund X.XX%
Optimum Growth Fund X.XX%
Income Fund X.XX%
Total Return Bond Fund X.XX%
International Equity Fund X.XX%
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.
Page 40 of 63
<PAGE>
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 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 purchase, sell (sometimes called "redeem") and
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,
Page 41 of 63
<PAGE>
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]
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. Your broker or 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 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 the net assets of
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
Page 42 of 63
<PAGE>
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 the procedures
established when they opened their account or accounts. If you have questions,
call (800) 909-1989 (from overseas, call (617) 557-1755).
Page 43 of 63
<PAGE>
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
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.
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.
A redemption fee of 2% of the value of the shares redeemed or exchanged will be
imposed on shares in the International Equity Fund redeemed or exchanged 30 days
or less after their date of purchase. The redemption fee is intended to limit
short-term trading in the Fund or, to the extent that short-term trading
persists, to impose the costs of that type of activity on the shareholders who
engage in it. The redemption fee will be paid to the Fund. The Fund reserves the
right, at its discretion, to waive, modify or terminate the redemption fee. No
redemption fee will be charged on redemptions and exchanges that occur as a
result of (i) a bona fide investment policy committee decision of a recognized
financial institution with respect to an asset allocation program, (ii) shares
acquired through the reinvestment of dividends or capital gains or (iii) shares
redeemed as part of a systematic withdrawal plan that represent 4% or less of
the investor's investment subject to the plan account. For purposes of omnibus
accounts, the redemption fee will be determined at the sub-account level.
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 DAYS FROM YOUR DATE OF PURCHASE).
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.
Page 44 of 63
<PAGE>
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 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 DAYS FROM YOUR DATE
OF PURCHASE). This exchange privilege may be changed or canceled at any time.
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.
There is a 2.00% redemption fee on shares exchanged within 30 days of purchase.
See "How to Sell Your Fund Shares" above for more information.
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 Funds
shares. Some of these organizations may charge a fee for these transactions.
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
Page 45 of 63
<PAGE>
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 46 of 63
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Each Fund distributes its income as follows:
<TABLE>
<CAPTION>
Equity Fund Declared and Paid Quarterly
<S> <C>
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 Semi-annually
</TABLE>
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
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. 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.
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.
Page 47 of 63
<PAGE>
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.
It is expected that the Funds will be subject to foreign withholding taxes with
respect to dividends or interest, if any, received from sources in foreign
countries. In the case of the International Equity Fund, it may make an
election to treat a proportionate amount of such taxes as constituting a
distribution to each shareholder, which would allow each shareholder either (1)
to credit such proportionate amount of taxes against U.S. federal income tax
liability or (2) to take such amount as an itemized deduction.
Shareholders may also be subject to state and local taxes on distributions and
redemptions. State income taxes may not apply however, to the portions of each
Fund's distributions, if any, that are attributable to interest on federal
securities or interest on securities of the particular state or localities
within the state.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. Shareholders who are nonresident
aliens, foreign trusts or estates, or foreign corporations or partnerships, may
be subject to different United States federal income tax treatment. You should
consult your tax adviser for further information regarding federal, state, local
and/or foreign tax consequences relevant to your specific situation.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Page 48 of 63
<PAGE>
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about Institutional
Shares of the Fund. This information is intended to help you understand the
Fund's financial performance for the past five years, or, if shorter, the period
of the Fund's operations. Some of this information reflects financial
information for a single Fund share. The total returns in the table represent
the rate that you would have earned (or lost) on an investment in a Fund,
assuming you reinvested all of your dividends and distributions. This
information has been audited by _____________________, independent public
accountants. Their report, along with the Fund's financial statements, are
incorporated by reference into our Statement of Additional Information. You can
obtain the annual report, which contains more performance information, at no
charge by calling (800) 909-1989 (from overseas, call (617) 557-1755).
Page 49 of 63
<PAGE>
EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------
<S> <C> <C> <C> <C> <C>
TEN MONTHS ENDED YEAR ENDED
2000 1999 1998 ------------------- ------------
---- ---- ---- MARCH 31, 1997/(A)/ MAY 31, 1996
------------------- ------------
Net Asset Value, Beginning of Period $ 12.69 $ 9.65 $ 8.93 $ 7.73
------- ------- ------- ------
Investment Operations:
Net investment income 0.04 0.05 0.05 0.11
Net realized and unrealized gain 2.47 4.67 0.86 1.20
------- ------- ------- ------
Total from Investment Operations 2.51 4.72 0.91 1.31
------- ------- ------- ------
Distributions:
From net investment income (0.04) (0.06) (0.07) (0.11)
From net realized gains (0.20) (1.62) (0.12) --
------- ------- ------- ------
Total Distributions (0.24) (1.68) (0.19) (0.11)
------- ------- ------- ------
Net Asset Value, End of Period $ 14.96 $ 12.69 $ 9.65 $ 8.93
======= ======= ======= ======
Total Return 20.13% 51.58% 10.22%/(c)/ 17.04%
Ratios/Supplemental Data
Ratios to Average Net Assets
Net Expenses 0.70% 0.70% 0.70%/(e)/ 0.36%
Gross Expenses /(d)/ 0.90% 0.90% 0.92%/(e)/ 1.49%
Net Investment Income 0.28% 0.46% 0.70%/(e)/ 1.32%
Portfolio Turnover Rate 37% 26% 32%/(e)/ 113%
Net Assets at End of Period (in millions) $180.11 $138.33 $118.56 $23.50
</TABLE>
- -----------
(a) The Fund changed its fiscal year end to March 31.
(b) Commencement of operations.
(c) Not annualized.
Page 50 of 63
<PAGE>
(d) Expense ratios before waiver of fees and reimbursement of expenses (if any)
by the investment adviser and administrators.
(e) Annualized.
Page 51 of 63
<PAGE>
VALUE EQUITY FUND
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------
<S> <C> <C> <C> <C>
June 1, 1996(a)
-----------------
2000 1999 1998 to March 31, 1997
---- ------ ------ -----------------
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.
Page 52 of 63
<PAGE>
(c) Annualized.
(d) Expense ratios before waiver of fees and reimbursement of expenses (if any)
by the investment adviser and administrators.
Page 53 of 63
<PAGE>
OPTIMUM GROWTH FUND
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------
<S> <C> <C> <C> <C>
June 1, 1996/(a)/
-----------------
2000 1999 1998 to March 31, 1997
---- ------ ------ -----------------
Net Asset Value, Beginning of Period $16.33 $10.19 $10.00
------ ------ ------
Investment Operations:
Net investment income -- 0.03 0.05
Net realized and unrealized gain (loss) 11.22 6.15 0.17
------ ------ ------
Total from Investment Operations 11.22 6.18 0.22
------ ------ ------
Distributions:
From net investment income -- (0.04) (0.03)
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/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.
Page 54 of 63
<PAGE>
(b) Not annualized.
(c) Annualized.
(d) Expense ratios before waiver of fees and reimbursement of expenses (if any)
by the investment adviser and administrators.
(e) Amount represents less than $0.01 per share.
Page 55 of 63
<PAGE>
INCOME FUND
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------
<S> <C> <C> <C> <C> <C>
Ten Months Ended Year Ended
2000 1999 1998 ------------------- ------------
---- ------ ------ March 31, 1997/(a)/ May 31, 1996
------------------- ------------
Net Asset Value, Beginning of Period $ 7.23 $ 6.90 $ 6.99 $ 7.33
------ ------ ------ ------
Investment Operations:
Net investment income 0.40 0.44 0.38 0.51
Net realized and unrealized gain (loss) 0.03 0.35 (0.01) (0.27)
------ ------ ------ ------
Total from Investment Operations 0.43 0.79 0.37 0.24
------ ------ ------ ------
Distributions:
From net investment income (0.41) (0.44) (0.38) (0.51)
In excess of net investment income -- /(f)/ -- /(f)/ -- --
From net realized gains (0.25) (0.02) (0.08) (0.07)
------ ------ ------ ------
Total Distributions (0.66) (0.46) (0.46) (0.58)
------ ------ ------ ------
Net Asset Value, End of Period $ 7.00 $ 7.23 $ 6.90 $ 6.99
====== ====== ====== ======
Total Return 5.94% 11.78% 5.39%/(c)/ 3.18%
Ratios/Supplemental Data
Ratios to Average Net Assets
Net Expenses 0.50% 0.50% 0.50%/(e)/ 0.26%
Gross Expenses/(d)/ 0.91% 0.91% 0.96%/(e)/ 1.35%
Net Investment Income 5.57% 6.14% 6.50%/(e)/ 6.99%
Portfolio Turnover Rate 196% 190% 107%/(e)/ 67%
Net Assets at End of Period (in millions) $67.24 $61.38 $51.08 $24.01
</TABLE>
(a) The Fund changed its fiscal year end to March 31.
(b) Commencement of operations.
Page 56 of 63
<PAGE>
(c) Not annualized.
(d) Expense ratios before waiver of fees and reimbursement of expenses (if any)
by the investment adviser and administrators.
(e) Annualized.
(f) Amount represents less than $0.01 per share.
Page 57 of 63
<PAGE>
TOTAL RETURN BOND FUND
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------
<S> <C> <C> <C> <C> <C>
Ten Months ended Year Ended
2000 1999 1998 ------------------- ------------
---- ------- ------- March 31, 1997/(a)/ May 31, 1996
------------------- ------------
Net Asset Value, Beginning of Period $ 7.51 $ 7.16 $ 7.18 $ 7.47
------- ------- ------- ------
Investment Operations:
Net investment income 0.42 0.44 0.37 0.48
Net realized and unrealized gain (loss) 0.03 0.41 0.01 (0.17)
------- ------- ------- ------
Total from Investment Operations 0.45 0.85 0.38 0.31
------- ------- ------- ------
Distributions:
From net investment income (0.42) (0.44) (0.37) (0.48)
From net realized gains (0.20) (0.06) (0.03) (0.12)
In excess of net realized gains (0.02) -- -- --
------- ------- ------- ------
Total Distributions (0.64) (0.50) (0.40) (0.60)
------- ------- ------- ------
Net Asset Value, End of Period $ 7.32 $ 7.51 $ 7.16 $ 7.18
======= ======= ======= ======
Total Return 6.07% 12.21% 5.29%/(c)/ 4.20%
Ratios/Supplemental Data
Ratios to Average Net Assets
Net Expenses 0.50% 0.50% 0.50%/(e)/ 0.32%
Gross Expenses/(d)/ 0.89% 0.90% 0.92%/(e)/ 1.33%
Net Investment Income 5.53% 5.95% 6.08%/(e)/ 6.47%
Portfolio Turnover Rate 234% 196% 200%/(e)/ 127%
Net Assets at End of Period (in millions) $251.61 $167.71 $138.40 $65.02
</TABLE>
(a) The Fund changed its fiscal year end to March 31.
(b) Commencement of operations.
Page 58 of 63
<PAGE>
(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 59 of 63
<PAGE>
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------
<S> <C> <C> <C> <C> <C>
Ten Months Ended Year Ended
2000 1999 1998 ------------------- ------------
---- ------- ------ March 31, 1997/(a)/ May 31, 1996
------------------- ------------
Net Asset Value, Beginning of Period $ 9.67 $ 9.03 $ 8.99 $ 7.88
------- ------ ------ ------
Investment Operations:
Net investment income 0.16 0.09 0.01 0.09
Net realized and unrealized gain (loss) (0.79) 0.79 0.21 1.20
------- ------ ------ ------
Total from Investment Operations (0.63) 0.88 0.22 1.29
------- ------ ------ ------
Distributions:
From net investment income (0.16) (0.07) (0.06) (0.12)
In excess of net investment income 0.00 (0.02) (0.03) 0.00
From net realized gains (0.30) (0.15) (0.09) (0.06)
In excess of net realized gains (0.13)
-------
Total Distributions (0.59) (0.24) (0.18) (0.18)
------- ------ ------ ------
Net Asset Value, End of Period $ 8.45 $ 9.67 $ 9.03 $ 8.99
======= ====== ====== ======
Total Return (6.60)% 9.90% 2.41%/(c)/ 16.58%
Ratios/Supplemental Data
Ratios to Average Net Assets
Net Expenses 0.90% 0.90% 0.90%/(e)/ 0.60%
Gross Expenses/(d)/ 1.53% 1.43% 1.49%/(e)/ 2.05%
Net Investment Income 1.18% 1.05% 0.45%/(e)/ 1.71%
Portfolio Turnover Rate 107% 52% 45%/(e)/ 19%
Net Assets at End of Period (in millions) $ 78.80 $40.44 $38.47 $24.52 $8.80
</TABLE>
(a) The Fund changed its fiscal year end to March 31.
Page 60 of 63
<PAGE>
(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 61 of 63
<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
Funds' managers about strategies, and recent market conditions and trends.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR 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 62 of 63
<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 EDGAR Database on 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 on the operation of the Public Reference Room, call 202-942-8090).
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 20549-0102. You may also obtain this information, upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
[email protected]. Excelsior Institutional Trust's Investment Company Act
- ------------------
registration number is 811-8490.
Page 63 of 63
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
BLENDED EQUITY FUND
LARGE CAP GROWTH FUND
OPTIMUM GROWTH FUND
SMALL CAP FUND
VALUE AND RESTRUCTURING FUND
VALUE EQUITY FUND
ENERGY AND NATURAL RESOURCES FUND
REAL ESTATE FUND
TECHNOLOGY FUND
PROSPECTUS
AUGUST 1, 2000
INVESTMENT ADVISER
UNITED STATES TRUST COMPANY OF NEW YORK
U.S. TRUST COMPANY
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1 of 71
<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, Large Cap Growth, Small Cap, Value and
Restructuring, Energy and Natural Resources, Real Estate and Technology Funds of
Excelsior Funds, Inc. and the Optimum Growth and Value Equity Funds of Excelsior
Institutional Trust (each, a Fund) that you should know before investing. The
Optimum Growth and Value Equity 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 risk and return that is common to each of the
Funds. For more detailed information about each Fund, please see:
PAGE
BLENDED EQUITY FUND............................................. XX
LARGE CAP GROWTH FUND........................................... XX
OPTIMUM GROWTH FUND............................................. XX
SMALL CAP FUND.................................................. XX
VALUE AND RESTRUCTURING FUND.................................... XX
VALUE EQUITY FUND............................................... XX
ENERGY AND NATURAL RESOURCES FUND............................... XX
REAL ESTATE FUND................................................ XX
TECHNOLOGY FUND................................................. XX
MORE INFORMATION ABOUT RISK..................................... XX
MORE INFORMATION ABOUT FUND INVESTMENTS......................... XX
THE INVESTMENT ADVISER AND PORTFOLIO MANAGERS................... XX
PURCHASING, SELLING AND EXCHANGING FUND SHARES.................. XX
DISTRIBUTION OF FUND SHARES..................................... XX
DIVIDENDS AND DISTRIBUTIONS..................................... XX
TAXES........................................................... XX
FINANCIAL HIGHLIGHTS............................................ XX
HOW TO OBTAIN MORE INFORMATION ABOUT EXCELSIOR FUNDS............ Back Cover
Page 2 of 71
<PAGE>
Page 3 of 71
<PAGE>
INTRODUCTION - RISK/RETURN INFORMATION COMMON TO THE 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 prices 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 combined 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
Page 4 of 71
<PAGE>
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 5 of 71
<PAGE>
BLENDED 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 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
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 primarily (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 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
Page 6 of 71
<PAGE>
suffer a decline in 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 market 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.
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%
1999 XX.XX%
BEST QUARTER WORST QUARTER
XX.XX% XX.XX%
(XX/XX/XX) (XX/XX/XX)
The Fund's performance for the six month period ending June 30, 2000 was XX.XX%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999 to those of the Standard & Poor's 500 Composite Stock
Price Index.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 YEAR 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------------------
Blended Equity Fund XX.XX% XX.XX% XX.XX%
Standard & Poor's 500 Composite Stock Price Index XX.XX% XX.XX% XX.XX%
</TABLE>
WHAT IS AN INDEX?
Page 7 of 71
<PAGE>
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 8 of 71
<PAGE>
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)*
Management Fees X.XX%
Other Expenses
Administrative Servicing Fee X.XX%
Other Operating Expenses X.XX%
Total Other Expenses X.XX%
- -------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES X.XX%
Fee Waivers and Expense Reimbursements X.XX%
- -------------------------------------------------------------------------
NET ANNUAL FUND OPERATING EXPENSES X.XX%
* The Adviser has contractually agreed to waive fees and reimburse expenses in
order to keep total operating expenses from exceeding [X.XX%], for a period of
one year from the date of this prospectus. For more information about these
fees, see "Investment Adviser" and "Distribution of Fund Shares."
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, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$XXX $XXX $XXX $XXX
Page 9 of 71
<PAGE>
LARGE CAP GROWTH FUND
FUND SUMMARY
INVESTMENT GOAL Superior, risk-adjusted total return
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 total return, and who are
willing to accept the risks of investing in
equity securities of larger companies
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 primarily (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
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 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
Page 10 of 71
<PAGE>
suffer a decline in 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 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 large capitalization growth stocks may
underperform other segments of the equity market 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.
1998 67.04%
1999 XX.XX%
BEST QUARTER WORST QUARTER
XX.XX% XX.XX%
(XX/XX/XX) (XX/XX/XX)
The Fund's performance for the six month period ending June 30, 2000 was XX.XX%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999 to those of the Standard & Poor's 500 Composite Stock
Price Index.
1 YEAR SINCE INCEPTION
- ---------------------------------------------------------------------------
LARGE CAP GROWTH FUND XX.XX% XX.XX%*
POOR'S 500 COMPOSITE STOCK PRICE INDEX XX.XX% XX.XX%**
* Since October 1, 1997
** Since September 30, 1997
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.
FUND FEES AND EXPENSES
Page 11 of 71
<PAGE>
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
Page 12 of 71
<PAGE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)*
Management Fees X.XX%
Other Expenses
Administrative Servicing Fee X.XX%
Other Operating Expenses X.XX%
Total Other Expenses X.XX%
- ------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES X.XX%
Fee Waivers and Expense Reimbursements X.XX%
- ------------------------------------------------------------------------------
NET ANNUAL FUND OPERATING EXPENSES X.XX%
* The Adviser has contractually agreed to waive fees and reimburse expenses in
order to keep total operating expenses from exceeding [X.XX%], for a period
of one year from the date of this prospectus. For more information about
these fees, see "Investment Adviser" and "Distribution of Fund Shares."
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, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$XXX $XXX $XXX $XXX
Page 13 of 71
<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 Optimum Growth Fund invests primarily (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
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 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 response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
Page 14 of 71
<PAGE>
The Fund is also subject to the risk that medium to large capitalization U.S.
stocks may underperform other segments of the equity market or the equity
markets as a whole.
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."
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 performance of the Fund's shares from year
to year.
1997 33.08%
1998 64.66%
1999 XX.XX%
BEST QUARTER WORST QUARTER
XX.XX% XX.XX%
(XX/XX/XX) (XX/XX/XX)
The Fund's performance for the six month period ending June 30, 2000 was XX.XX%.
This table compares the average annual total returns of the Fund's shares for
the periods ended December 31, 1999 to those of the Russell 1000 Growth Index.
1 YEAR SINCE INCEPTION
- -----------------------------------------------------------------
Optimum Growth Fund (Shares) XX.XX% XX.XX%*
RUSSELL 1000 GROWTH INDEX XX.XX% XX.XX%**
* Since July 3, 1996
** Since June 30, 1996
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.
FUND FEES AND EXPENSES
Page 15 of 71
<PAGE>
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
Page 16 of 71
<PAGE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)*
Management Fees X.XX%
Other Expenses
Administrative Servicing Fee X.XX%
Other Operating Expenses X.XX%
Total Other Expenses X.XX%
- ---------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES X.XX%
Fee Waivers and Expense Reimbursements X.XX%
- ---------------------------------------------------------------------------
NET ANNUAL FUND OPERATING EXPENSES X.XX%
* The Adviser has contractually agreed to waive fees and reimburse expenses in
order to keep total operating expenses from exceeding [X.XX%], for a period
of one year from the date of this prospectus. For more information about
these fees, see "Investment Adviser" and "Distribution of Fund Shares."
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, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$XXX $XXX $XXX $XXX
Page 17 of 71
<PAGE>
SMALL CAP FUND
FUND SUMMARY
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
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 primarily (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
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 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 response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
The smaller capitalization companies the Fund invests in may be 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
Page 18 of 71
<PAGE>
than those of larger companies. These securities may be traded over the counter
or listed on an exchange.
The Fund is also subject to the risk that small capitalization growth stocks may
underperform other segments of the equity market 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.
1993 27.91%
1994 5.30%
1995 22.81%
1996 (2.30)%
1997 14.21%
1998 (12.38)%
1999 XX.XX%
BEST QUARTER WORST QUARTER
XX.XX% XX.XX%
(XX/XX/XX) (XX/XX/XX)
The Fund's performance for the six month period ending June 30, 2000 was X.XX%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999 to those of the Russell 2000 Index.
1 YEAR 5 YEARS SINCE INCEPTION
- ----------------------------------------------------------------------------
SMALL CAP FUND XX.XX% XX.XX% XX.XX%*
RUSSELL 2000 INDEX XX.XX% XX.XX% XX.XX%*
* Since December 31, 1992
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.
FUND FEES AND EXPENSES
Page 19 of 71
<PAGE>
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
Page 20 of 71
<PAGE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)*
Management Fees X.XX%
Other Expenses
Administrative Servicing Fee X.XX%
Other Operating Expenses X.XX%
Total Other Expenses X.XX%
- -----------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES X.XX%
Fee Waivers and Expense Reimbursements X.XX%
- -----------------------------------------------------------------------------
NET ANNUAL FUND OPERATING EXPENSES X.XX%
* The Adviser has contractually agreed to waive fees and reimburse expenses in
order to keep total operating expenses from exceeding [X.XX%], for a period
of one year from the date of this prospectus. For more information about
these fees, see "Investment Adviser" and "Distribution of Fund Shares."
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, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$XXX $XXX $XXX $XXX
Page 21 of 71
<PAGE>
VALUE AND RESTRUCTURING FUND
FUND SUMMARY
INVESTMENT GOAL Long-term capital appreciation
Investment Focus Common stock of U.S. companies
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
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 primarily (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-offs or
reorganizations, 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
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 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
Page 22 of 71
<PAGE>
suffer a decline in response. These factors contribute to price volatility,
which is the principal risk of investing in the Fund.
The smaller capitalization companies the Fund invests in may be 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.
These securities may be traded over the counter or listed on an exchange.
The Fund also may be subject to risks particular to its investments in foreign
and 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 market 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.
1993 39.95%
1994 2.60%
1995 38.80%
1996 25.05%
1997 33.56%
1998 10.32%
1999 XX.XX%
BEST QUARTER WORST QUARTER
XX.XX% XX.XX%
(XX/XX/XX) (XX/XX/XX)
The Fund's performance for the six month period ending June 30, 2000 was XX.XX%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999 to those of the Russell 1000 Value Index.
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------
Value and Restructuring Fund XX.XX% XX.XX% XX.XX%*
Russell 1000 Value Index XX.XX% XX.XX% XX.XX%*
Page 23 of 71
<PAGE>
* Since December 31, 1992
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.
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)*
Management Fees X.XX%
Other Expenses
Administrative Servicing Fee X.XX%
Other Operating Expenses X.XX%
Total Other Expenses X.XX%
- ------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES X.XX%
Fee Waivers and Expense Reimbursements X.XX%
- ------------------------------------------------------------------------------
NET ANNUAL FUND OPERATING EXPENSES X.XX%
* The Adviser has contractually agreed to waive fees and reimburse expenses
in order to keep total operating expenses from exceeding [X.XX%], for a
period of one year from the date of this prospectus. For more information
about these fees, see "Investment Adviser" and "Distribution of Fund
Shares."
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, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although
Page 24 of 71
<PAGE>
your actual costs and returns might be different, your approximate costs of
investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$XXX $XXX $XXX $XXX
Page 25 of 71
<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 primarily (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
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 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 response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
The smaller capitalization companies the Fund invests in may be 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
Page 26 of 71
<PAGE>
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.
The Fund also may be subject to risks particular to its investments in foreign
and 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 its undervalued equity securities may
underperform other segments of the equity market 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 performance of the Fund's shares from year
to year.
1998 20.11%
1999 XX.XX%
BEST QUARTER WORST QUARTER
XX.XX% XX.XX%
(XX/XX/XX) (XX/XX/XX)
The Fund's performance for the six month period ending June 30, 2000 was XX.XX%.
This table compares the average annual total returns of the Fund's shares for
the periods ended December 31, 1999 to those of the Russell 1000 Value Index.
1 YEAR SINCE INCEPTION
- ----------------------------------------------------------------------
Value Equity Fund (Shares) XX.XX% XX.XX%*
Russell 1000 Value Index XX.XX% XX.XX%**
* Since January 15, 1997
** Since December 31, 1996
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 27 of 71
<PAGE>
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)*
Management Fees X.XX%
Other Expenses
Administrative Servicing Fee X.XX%
Other Operating Expenses X.XX%
Total Other Expenses X.XX%
- ---------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES X.XX%
Fee Waivers and Expense Reimbursements X.XX%
- ---------------------------------------------------------------------------
NET ANNUAL FUND OPERATING EXPENSES X.XX%
* The Adviser has contractually agreed to waive fees and reimburse expenses
in order to keep total operating expenses from exceeding [X.XX%], for a
period of one year from the date of this prospectus. For more information
about these fees, see "Investment Adviser" and "Distribution of Fund
Shares."
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, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$XXX $XXX $XXX $XXX
Page 28 of 71
<PAGE>
ENERGY AND NATURAL RESOURCES FUND
FUND SUMMARY
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
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 primarily (at least 65% of its
assets) in equity securities of U.S. and, to a lesser extent, 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 29 of 71
<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.
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 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 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 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
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.
1993 14.69%
1994 (2.70)%
1995 20.11%
1996 38.38%
1997 18.31%
1998 (15.87)%
1999 XX.XX%
BEST QUARTER WORST QUARTER
XX.XX% XX.XX%
(XX/XX/XX) (XX/XX/XX)
The Fund's performance for the six month period ending June 30, 2000 was XX.XX%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999 to those of the Standard & Poor's 500 Composite Stock
Price Index.
Page 30 of 71
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 YEAR 5 YEARS SINCE INCEPTION
- ----------------------------------------------------------------------------------------------------------------
Energy and Natural Resources Fund XX.XX% XX.XX% XX.XX%*
Standard & Poor's 500 Composite Stock Price Index XX.XX% XX.XX% XX.XX%*
</TABLE>
* Since December 31, 1992
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.
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)*
Management Fees X.XX%
Other Expenses
Administrative Servicing Fee X.XX%
Other Operating Expenses X.XX%
Total Other Expenses X.XX%
- ------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES X.XX%
Fee Waivers and Expense Reimbursements X.XX%
- ------------------------------------------------------------------------------
NET ANNUAL FUND OPERATING EXPENSES X.XX%
* The Adviser has contractually agreed to waive fees and reimburse expenses
in order to keep total operating expenses from exceeding [X.XX%], for a
period of one year from the date of this prospectus. For more information
about these fees, see "Investment Adviser" and "Distribution of Fund
Shares."
Page 31 of 71
<PAGE>
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, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$XXX $XXX $XXX $XXX
Page 32 of 71
<PAGE>
REAL ESTATE FUND
FUND SUMMARY
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
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 primarily (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 33 of 71
<PAGE>
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 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 response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
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."
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
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.
1998 (13.55)%
1999 XX.XX%
BEST QUARTER WORST QUARTER
XX.XX% XX.XX%
(XX/XX/XX) (XX/XX/XX)
The Fund's performance for the six month period ending June 30, 2000 was X.XX%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999 to those of the Morgan Stanley REIT Index.
1 YEAR SINCE INCEPTION
- -----------------------------------------------------------------------------
Real Estate Fund XX.XX% XX.XX%*
Morgan Stanley REIT Index XX.XX% XX.XX%**
Page 34 of 71
<PAGE>
* Since October 1, 1997
** Since September 30, 1997
Page 35 of 71
<PAGE>
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.
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)*
Management Fees X.XX%
Other Expenses
Administrative Servicing Fee X.XX%
Other Operating Expenses X.XX%
Total Other Expenses X.XX%
- ---------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES X.XX%
Fee Waivers and Expense Reimbursements X.XX%
- ---------------------------------------------------------------------------
NET ANNUAL FUND OPERATING EXPENSES X.XX%
* The Adviser has contractually agreed to waive fees and reimburse expenses in
order to keep total operating expenses from exceeding [X.XX%], for a period of
one year from the date of this prospectus. For more information about these
fees, see "Investment Adviser" and "Distribution of Fund Shares."
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, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
Page 36 of 71
<PAGE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$XXX $XXX $XXX $XXX
Page 37 of 71
<PAGE>
TECHNOLOGY FUND
FUND SUMMARY
<TABLE>
<S> <C>
INVESTMENT GOAL Superior, long-term growth of capital
INVESTMENT FOCUS Common stocks of technology companies
SHARE PRICE VOLATILITY High
PRINCIPAL INVESTMENT STRATEGY Invests in common stocks of companies expected to benefit
from the development, advancement and use of technology
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 technology companies
</TABLE>
INVESTMENT OBJECTIVE
The Technology Fund seeks superior, long-term growth of capital. This objective
may be changed without shareholder approval. The Fund seeks to achieve its
objective by investing in companies expected to benefit from the development,
advancement and use of technology and whose long-term growth prospects, in the
Adviser's opinion, appear to exceed the overall market. These companies may be
in a variety of industries, and may include computer hardware, software,
electronic components and systems, telecommunications, internet, biotechnology,
media and information services companies or other companies that use technology
extensively in the development of new or improved products or processes.
INVESTMENT STRATEGY OF THE TECHNOLOGY FUND
Under normal market conditions, the Technology Fund invests at least 65% of its
assets in the equity securities of U.S. and, to a lesser extent, foreign
technology companies. The Fund may invest in companies of any size, including
small, high growth companies.
In selecting investments for the Fund, the Adviser takes a long-term approach
and seeks to identify technology companies whose value is not recognized in the
prices of their securities or with characteristics that will lead to above-
average earnings growth.
The Fund seeks capital appreciation as its principal investment strategy.
PRINCIPAL RISKS OF INVESTING IN THE TECHNOLOGY FUND
The Fund is subject to the risk that the securities of issuers engaged in the
technology sector of the economy 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
technology market sector, the Fund is subject to legislative or regulatory
changes, adverse market conditions and/or increased competition affecting that
market sector. Competitive pressures may significantly impact the financial
condition of technology companies. For
Page 38 of 71
<PAGE>
example, an increasing number of companies and new product offerings can lead to
price cuts and slower selling cycles, and many of these companies may be
dependent on the success of a principal product, may rely on sole source
providers and third-party manufacturers, and may experience difficulties in
managing growth. In addition, securities of technology companies may experience
dramatic price movements that have little or no basis in fundamental economic
conditions. As a result, the Fund's investment in technology companies may
subject it to more volatile price movements than a more diversified securities
portfolio.
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 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 stocks may be more volatile
than other equity securities, and the risks associated with them 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
There is no performance information for the Technology Fund because the Fund
does not have a full calendar year of operations.
Page 39 of 71
<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)
Management Fees 1.00%
Other Expenses
Administrative Servicing Fee 0.25%
Other Operating Expenses 0.25%
Total Other Expenses 0.50%
- -----------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.50%
Fee Waivers and Expense Reimbursements 0.25%
NET ANNUAL FUND OPERATING EXPENSES 1.25%*
* The Fund's total annual fund operating expenses and net annual fund operating
expenses are estimated based on expenses expected to be incurred in the
current fiscal year. The Adviser has contractually agreed to waive its
investment advisory fee or other fees during the current fiscal year, in an
amount equal to the administrative servicing fee paid by the Fund.
Accordingly, Net Fund Annual Operating Expenses are expected to be 1.25%. 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, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS
$127 $397
Page 40 of 71
<PAGE>
MORE INFORMATION ABOUT RISK
EQUITY RISK - Equity securities include public All Funds
and privately issued 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 these securities 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 Blended Equity Fund
companies in which the Funds may invest may be Large Cap Growth Fund
more vulnerable to adverse business or economic Small Cap Fund
events than larger, more established companies. Value and Restructuring Fund
In particular, these small companies may have Value Equity Fund
limited product lines, markets and financial Energy and Natural Resources
resources, and may depend upon a relatively Fund Technology Fund
small management group. Therefore, small cap
stocks may be more volatile than those of larger
companies.
Page 41 of 71
<PAGE>
<TABLE>
<S> <C>
MID CAP RISK - The medium capitalization Blended Equity Fund
companies that the Funds may invest in may be Optimum Growth Fund
more vulnerable to adverse business or economic Value and Restructuring Fund
events than larger companies. In particular, Value Equity Fund
these companies may have limited product lines, Energy and Natural Resources Fund
markets and financial resources, and may depend Technology Fund
on a relatively small management group.
Therefore, medium capitalization stocks may be
more volatile than those of larger companies.
MORTGAGE-BACKED SECURITIES - Mortgage-backed Real Estate Fund
securities are fixed income 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.
</TABLE>
Page 42 of 71
<PAGE>
TECHNOLOGY RISK - The Funds may invest in Blended Equity Fund
securities of issuers engaged in the technology Large Cap Growth Fund
sector of the economy. These securities may Optimum Growth Fund
underperform stocks of other issuers or the Small Cap Fund
market as a whole. To the extent that the Funds Value and Restructuring Fund
invest in issuers conducting business in the Value Equity Fund
technology market sector, the Funds are subject Technology Fund
to legislative or regulatory changes, adverse
market conditions and/or increased competition
affecting the market sector. Competitive
pressures may significantly impact the financial
condition of technology companies. For example,
an increasing number of companies and new
product offerings can lead to price cuts and
slower selling cycles, and many of these
companies may be dependent on the success of a
principal product, may rely on sole source
providers and third-party manufacturers, and may
experience difficulties in managing growth. In
addition, securities of technology companies may
experience dramatic price movements that have
little or no basis in fundamental economic
conditions. As a result, a Fund's investment in
technology companies may subject it to more
volatile price movements.
FOREIGN SECURITY RISKS - Investments in All Funds
securities 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
Page 43 of 71
<PAGE>
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 44 of 71
<PAGE>
MORE INFORMATION ABOUT FUND 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.
On January 13, 2000, The Charles Schwab Corporation ("Schwab") and U.S. Trust
Corporation announced that they had signed an agreement to merge (the "Merger").
The Merger is subject to the approval of U.S. Trust Corporation shareholders and
is expected to close in the second quarter of 2000. Under the terms of the
agreement, U.S. Trust Corporation will retain its name and continue to provide
investment management, fiduciary, financial planning and private banking
services. As a result, U.S. Trust will continue to serve as the investment
adviser to the Funds. The Merger, however, will represent a change of ownership
of the Adviser's parent corporation and, as such, will have the effect under the
Investment Company Act of 1940 of terminating the existing advisory agreements
between Excelsior Funds, Inc. and the Adviser and between Excelsior
Institutional Trust and the Adviser.
As a consequence of the Merger and in order to facilitate the investment
management of the Funds, the Board of Directors of Excelsior Funds, Inc. and the
Board of Trustees of Excelsior Institutional Trust approved new advisory
agreements with the Adviser on March 3, 2000. The new advisory agreements were
subsequently approved by a vote of shareholders of each of the Funds at meetings
held on May 3, 2000. The new advisory agreements will become effective on the
date of the Merger.
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, 1999,
U.S. Trust had approximately $86 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
Page 45 of 71
<PAGE>
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, 2000, U.S. Trust received advisory fees, as
a percentage of average daily net assets, of:
Blended Equity Fund [0.69%]
Large Cap Growth Fund [0.71%]
Optimum Growth Fund [0.43%]
Small Cap Fund [0.49%]
Value and Restructuring Fund [0.48%]
Value Equity Fund [0.39%]
Energy and Natural Resources Fund [0.50%]
Real Estate Fund [0.77%]
Technology Fund [0.XX%]*
* The Technology Fund commenced operations on March 31, 2000. The fees given are
the contractual rate of advisory fees.
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.
Page 46 of 71
<PAGE>
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, Optimum Growth Fund, and
the Technology 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, Optimum Growth Fund, and the Technology
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 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 purchase, sell (sometimes called "redeem") and
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
Page 47 of 71
<PAGE>
by wire or through the automatic investment program, write your check, payable
in U.S. dollars, to "Excelsior 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 broker or 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 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.
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<PAGE>
HOW WE CALCULATE NAV
NAV for one Fund share is the value of that share's portion of the net assets of
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 and the Board of Trustees, as the case may
be. 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.
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
the procedures established when they opened their account or accounts. If you
have questions, call (800) 446-1012 (from overseas, call (617) 557-8280).
You may sell your shares by sending a written request for redemption to:
Excelsior Funds
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.
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<PAGE>
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). 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 own your shares through an account with a broker or other institution,
contact that broker or institution to sell your shares. Your broker or
institution may charge a fee for its services, in addition to the fees charged
by the Fund.
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.
Page 50 of 71
<PAGE>
RECEIVING YOUR MONEY
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 DAYS FROM YOUR DATE OF PURCHASE).
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 DAYS FROM YOUR DATE
OF PURCHASE). This exchange privilege may be changed or canceled at any time
upon 60 days' notice.
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<PAGE>
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 52 of 71
<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% (0.25% in the case
of the Technology Fund) of the average daily net asset value of Fund shares held
by clients of a shareholder organization.
DISTRIBUTION OF FUND SHARES
The Optimum Growth and Value Equity 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 0.25%
of the average daily net asset 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.
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.
Page 53 of 71
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
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.
Page 54 of 71
<PAGE>
TAXES
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. 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.
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, shares held in an IRA (or other tax-
qualified plan) will generally not be currently taxable.
Shareholders may also be subject to state and local taxes on distributions and
redemptions. State income taxes may not apply however, to the portions of each
Fund's distributions, if any, that are attributable to interest on federal
securities or interest on securities of the particular state or localities
within the state.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. Shareholders who are nonresident
aliens, foreign trusts or estates, or foreign corporations or partnerships, may
be subject to different United States federal income tax treatment. You should
consult your tax adviser for further information regarding federal, state, local
and/or foreign tax consequences relevant to your specific situation.
Page 55 of 71
<PAGE>
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Page 56 of 71
<PAGE>
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about shares of each
Fund. This information is intended to help you understand: each Fund's
financial performance for the past five years, or, if shorter, the period of the
Fund's operations. Some of this information reflects financial information for
a single Fund share. The total returns in the table represent the rate that you
would have earned (or lost) on an investment in a Fund, assuming you reinvested
all of your dividends and distributions. This information has been audited by
_________________, independent public accountants. Their report, along with
each Fund's financial statements, are incorporated by reference into our
Statement of Additional Information. You can obtain the annual report, which
contains more performance information, at no charge by calling (800) 446-1012
(from overseas, call (617) 557-8280).
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<PAGE>
BLENDED EQUITY FUND
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
---- ------- ------- ------- -------
Net Asset Value, Beginning of Year $ 36.12 $ 25.81 $ 24.43 $ 21.40
------- ------- ------- -------
Income From Investment Operations
Net Investment Income 0.11 0.16 0.18 0.12
Net Gains on Securities (both realized and unrealized) 6.90 12.59 2.50 5.21
------- ------- ------- -------
Total From Investment Operations 7.01 12.75 2.68 5.33
------- ------- ------- -------
Less Distributions
Dividends From Net Investment Income (0.13) (0.16) (0.14) (0.11)
Distributions From Net Realized Gain on Investments and Options (0.49) (2.28) (1.16) (2.19)
Total Distributions (0.62) (2.44) (1.30) (2.30)
------- ------- ------- -------
Net Asset Value, End of Year $ 42.51 $ 36.12 $ 25.81 $ 24.43
======= ======= ======= =======
Total Return 19.65% 50.82% 11.09% 26.45%
Ratios/Supplemental Data
Net Assets, End of Period (in millions) $720.27 $594.91 $306.99 $188.57
Ratio of Net Operating Expenses to Average Net Assets 0.95% 0.99% 1.01% 1.05%
Ratio of Gross Operating Expenses to Average Net Assets/1/ 1.01% 1.06% 1.06% 1.12%
Ratio of Net Investment Income to Average Net Assets 0.29% 0.55% 0.71% 0.55%
Portfolio Turnover Rate 20.0% 28.0% 39.0% 27.0%
</TABLE>
Notes:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
Page 58 of 71
<PAGE>
LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
Year Ended Year Ended Period Ended
-------------- --------------- -----------------
March 31, 2000 March 31, 1999 March 31, 1998/1/
-------------- --------------- -----------------
<S> <C> <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.
Page 59 of 71
<PAGE>
3. Not annualized.
4. Annualized.
5. Expense ratio before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
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<PAGE>
OPTIMUM GROWTH FUND
<TABLE>
<CAPTION>
Year Ended March 31, Period Ended
-------------------------- -------------------
2000 1999 1998 March 31, 1997/1/
---- ------- ------- -------------------
<S> <C> <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.
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<PAGE>
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 62 of 71
<PAGE>
SMALL CAP FUND
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
---- -------- ------- -------- -------
Net Asset Value, Beginning of Period $ 11.95 $ 8.83 10.78 $ 9.77
-------- ------- -------- -------
Income From Investment Operations
Net Investment Income (Loss) 0.00 (0.01) (0.03) (0.02)
Net Gains or (Losses) on Securities (both realized and unrealized) (2.56) 3.13 (1.43) 1.72
-------- ------- -------- -------
Total From Investment Operations (2.56) 3.12 (1.46) 1.70
-------- ------- -------- -------
Less Distributions
Distributions From Net Realized Gain on Investments and Options (0.12) 0.00 (0.10) (0.69)
Distributions in Excess of Net Realized Gain on Investments and Options 0.00 0.00 (0.39) 0.00
-------- ------- -------- -------
Total Distributions (0.12) 0.00 (0.49) (0.69)
-------- ------- -------- -------
Net Asset Value, End of Period $ 9.27 $ 11.95 $ 8.83 $ 10.78
======== ======= ======== =======
Total Return (21.41)% 35.33 % (14.33)% 18.29 %
Ratios/Supplemental Data
Net Assets, End of Period (in millions) $ 43.79 $ 68.55 $ 53.26 $ 78.06
Ratio of Net Operating Expenses to Average Net Assets 0.94% 0.94 % 0.94 % 0.90 %
Ratio of Gross Operating Expenses to Average Net Assets/1/ 1.05% 1.01 % 1.02 % 0.98 %
Ratio of Net Investment Income/(Loss) to Average Net Assets (0.04)% (0.14)% (0.26)% (0.17)%
Portfolio Turnover Rate 115.0% 73.0 % 55.0 % 38.0 %
</TABLE>
Notes:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
Page 63 of 71
<PAGE>
VALUE AND RESTRUCTURING FUND
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
---- ------- ------- ------- ------
Net Asset Value, Beginning of Period $ 23.79 $ 15.93 $ 14.03 $10.55
------- ------- ------- ------
Income From Investment Operations
Net Investment Income 0.13 0.10 0.13 0.10
Net Gains on Securities (both realized and unrealized) 0.21 8.12 2.36 3.71
------- ------- ------- ------
Total From Investment Operations 0.34 8.22 2.49 3.81
------- ------- ------- ------
Less Distributions
Dividends From Net Investment Income (0.11) (0.09) (0.12) (0.09)
Distributions From Net Realized Gain on Investments and Options (0.14) (0.27) (0.47) (0.24)
------- ------- ------- ------
Total Distributions (0.25) (0.36) (0.59) (0.33)
------- ------- ------- ------
Net Asset Value, End of Period $ 23.88 $ 23.79 $ 15.93 $14.03
======= ======= ======= ======
Total Return 1.48% 52.10% 18.09% 36.48%
Ratios/Supplemental Data
Net Assets, End of Period (in millions) $594.62 $388.45 $124.01 $74.05
Ratio of Net Operating Expenses to Average Net Assets 0.93% 0.89% 0.91% 0.91%
Ratio of Gross Operating Expenses to Average Net Assets/1/ 1.07% 0.93% 0.95% 0.95%
Ratio of Net Investment Income to Average Net Assets 0.59% 0.54% 0.90% 0.88%
Portfolio Turnover Rate 43.0% 30.0% 62.0% 56.0%
</TABLE>
Notes:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
Page 64 of 71
<PAGE>
VALUE EQUITY FUND
<TABLE>
<CAPTION>
Year Ended March 31, Period Ended
------------------------ March 31,
2000 1999 1998 1997/1/
---- ------ ------ -------------
<S> <C> <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 (Loss) 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.
Page 65 of 71
<PAGE>
2. Not annualized.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
Page 66 of 71
<PAGE>
ENERGY AND NATURAL RESOURCES FUND
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------------
2000 1999 1998 1997 1996
---- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.66 $11.12 $ 9.55 $ 7.92
-------- ------ ------ ------
Income From Investment Operations
Net Investment Income 0.10 0.09 0.09 0.07
Net Gains or (Losses) on Securities (both realized and unrealized) (1.65) 2.69 2.60 1.63
-------- ------ ------ ------
Total From Investment Operations (1.55) 2.78 2.69 1.70
-------- ------ ------ ------
Less Distributions
Dividends From Net Investment Income (0.09) (0.10) (0.09) (0.07)
Distributions From Net Realized Gain on Investments and Options 0.00 (1.07) (1.03) 0.00
Distributions in Excess of Net Realized Gain on Investments and Options 0.00 (0.07) 0.00 0.00
-------- ------ ------ ------
Total Distributions (0.09) (1.24) (1.12) (0.07)
Net Asset Value, End of Period $ 11.02 $12.66 $11.12 $ 9.55
======== ====== ====== ======
Total Return (12.23)% 24.97% 28.28% 21.60%
Ratios/Supplemental Data
Net Assets, End of Period (in millions) $ 43.02 $46.17 $33.39 $23.29
Ratio of Net Operating Expenses to Average Net Assets 0.98 % 0.99% 0.93% 0.96%
Ratio of Gross Operating Expenses to Average Net Assets/1/ 1.09 % 1.07% 0.98% 1.09%
Ratio of Net Investment Income to Average Net Assets 0.97 % 0.69% 0.84% 0.88%
Portfolio Turnover Rate 96.0 % 88.0% 87.0% 43.0%
</TABLE>
Notes:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
Page 67 of 71
<PAGE>
REAL ESTATE FUND
<TABLE>
<CAPTION>
Year ended Year ended Period ended
-------------- --------------- ------------------
March 31, 2000 March 31, 1999 March 31, 1998/1/
-------------- --------------- ------------------
<S> <C> <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>
Page 68 of 71
<PAGE>
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 69 of 71
<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, 2000 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
Funds' managers about strategies, and recent market conditions and trends and
their impact on Fund performance.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION:
BY TELEPHONE: CALL (800) 466-1012 (FROM OVERSEAS, CALL (617) 557-8280)
BY MAIL:
Excelsior Funds, Inc.
73 Tremont Street
Boston, Massachusetts 02108-3913
BY INTERNET: http://www.excelsiorfunds.com
Page 70 of 71
<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 EDGAR Database on 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 on the operation of the Public
Reference Room, call 202-942-8090). 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 20549-0102. You may also
obtain this information, upon payment of a duplicating fee, by e-mailing the SEC
at the following address: [email protected]. Excelsior Funds, Inc.'s and
Excelsior Institutional Trust's Investment Company Act registration numbers are
811-4088 and 811-8490, respectively.
Page 71 of 71
<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, 2000
This Statement of Additional Information pertains to the Shares
("Retail Shares") and Institutional Shares (together with Retail Shares,
"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,
2000 (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 (Retail
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
______________, independent auditors, contained in the annual reports to the
Funds' shareholders for the fiscal year ended March 31, ______ 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 (Retail Shares) or (800) 909-1989 (Institutional Shares).
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
CLASSIFICATION AND HISTORY .................................. 2
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS ................. 2
Investment Philosophy and Strategies ............ 2
Additional Investment Policies .................. 2
Additional Information on Portfolio Instruments.. 5
Investment Limitations .......................... 28
PORTFOLIO TRANSACTIONS ...................................... 31
PERFORMANCE INFORMATION ..................................... 34
PORTFOLIO VALUATION AND DETERMINATION OF NET ASSET VALUE .... 38
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION .............. 39
Purchase of Shares .............................. 40
Redemption Procedures ........................... 41
Other Redemption Information .................... 42
INVESTOR PROGRAMS ........................................... 43
Systematic Withdrawal Plan ...................... 43
Exchange Privilege .............................. 43
Retirement Plans ................................ 44
Additional Information .......................... 44
RULE 12B-1 DISTRIBUTION PLAN ................................ 44
MANAGEMENT OF THE FUNDS ..................................... 46
Investment Advisory Services .................... 52
Administrators .................................. 55
Shareholder Organizations ................................... 57
Expenses ........................................ 58
Transfer Agent and Custodian .................... 58
INDEPENDENT AUDITORS ........................................ 59
COUNSEL ..................................................... 59
TAXATION .................................................... 59
DESCRIPTION OF THE TRUST .................................... 61
CODE OF ETHICS .............................................. 64
MISCELLANEOUS ............................................... 64
FINANCIAL STATEMENTS ........................................ 64
APPENDIX A .................................................. A-1
</TABLE>
<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.
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
2
<PAGE>
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.
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.
3
<PAGE>
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, 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
4
<PAGE>
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.
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
5
<PAGE>
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 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
6
<PAGE>
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 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
7
<PAGE>
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 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.
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<PAGE>
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.
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
9
<PAGE>
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 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.
10
<PAGE>
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 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.
11
<PAGE>
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 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
12
<PAGE>
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.
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.
13
<PAGE>
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.
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
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<PAGE>
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 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.
15
<PAGE>
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 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
16
<PAGE>
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 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
17
<PAGE>
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.
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
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<PAGE>
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, 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
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<PAGE>
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 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,
20
<PAGE>
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 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
21
<PAGE>
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 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.
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<PAGE>
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.
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
23
<PAGE>
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.
The Funds may also invest in SPDRs. SPDRs are interests in a unit
investment trust ("UIT") that may be obtained from the UIT or purchased in the
secondary market (SPDRs are listed on the American Stock Exchange). There is a
5% limit based on total assets on investments by any one Fund in SPDRs. The UIT
will issue SPDRs in aggregations known as "Creation Units" in exchange for a
"Portfolio Deposit" consisting of (a) a portfolio of securities substantially
similar to the component securities ("Index Securities") of the Standard &
Poor's 500 Composite Stock Price Index (the "S&P Index"), (b) a cash payment
equal to a pro rata portion of the dividends accrued on the UIT's portfolio
securities since the last dividend payment by the UIT, net of expenses and
liabilities, and (c) a cash payment or credit ("Balancing Amount") designed to
equalize the net asset value of the S&P Index and the net asset value of a
Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of
the UIT. To redeem, the Fund must accumulate enough SPDRs to reconstitute a
Creation Unit. The liquidity of small holdings of SPDRs, therefore, will depend
upon the existence of a secondary market. Upon redemption of a Creation Unit,
the Fund will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived from and based upon the securities
held by the UIT. Accordingly, the level of risk involved in the purchase or sale
of a SPDR is similar to the risk involved in the purchase or sale of traditional
common stock, with the exception that the pricing mechanism for SPDRs is based
on a basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by the Funds could result in losses on SPDRs.
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<PAGE>
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.
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
25
<PAGE>
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 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
26
<PAGE>
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.
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
27
<PAGE>
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.
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;
28
<PAGE>
(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
(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
29
<PAGE>
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;
(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
30
<PAGE>
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 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.
31
<PAGE>
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 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, 2000, 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
---- ---------------------- ------------------
32
<PAGE>
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, 2000, 1999 and 1998, the
Funds paid brokerage commissions as follows:
<TABLE>
<CAPTION>
% of Total
Total Amount of
Brokerage % of Transaction on
Total Commissions Total which
Brokerage Paid to Commission Commissions
Commissions Affiliated Paid to UST Were Paid to UST
Paid Persons Securities Corp./1/ Securities Corp./1/
---- ------- ------------------- --------------------
<S> <C> <C> <C> <C>
Fiscal year ended March 31, 2000
Equity Fund $ $
Value Equity Fund $ $
Optimum Growth Fund $ $
International Equity Fund $ $
Income Fund $ $
Total Return Bond Fund $
Fiscal year ended March 31, 1999:
Equity Fund $114,325 $0 0 0
Value Equity Fund $48,291 $0 0 0
Optimum Growth Fund $20,032 $0 0 0
International Equity Fund $248,086 $0 0 0
Fiscal year ended March 31, 1998
Equity Fund $118,960 $9,474 7.96% 8.44%
Value Equity Fund $43,969 $1,377 3.13% 3.93%
Optimum Growth Fund $15,289 $0 $0 0
International Equity Fund $108,548 $0 $0 0
</TABLE>
/1/ UST Securities Corp. is an affiliate of the Adviser.
33
<PAGE>
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, 2000, the following Funds held the following securities of the
Trust's regular brokers or dealers or their parents.
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:
Yield = 2 (ab/cd + 1)to the 6th power
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
34
<PAGE>
the market value of the obligation (including actual accrued interest) at the
close of business on the last business day of each month, or, with respect to
obligations purchased during the month, the purchase price (plus actual accrued
interest). Such yield is then divided by 360, and the quotient is multiplied by
the market value of the obligation (including actual accrued interest) in order
to determine the interest income on the obligation for each day of the
subsequent month that the obligation is in the portfolio. It is assumed in the
above calculation that each month contains 30 days. Also, the maturity of a debt
obligation with a call provision is deemed to be the next call date on which the
obligation reasonably may be expected to be called or, if none, the maturity
date. Each Fund calculates interest gained on tax-exempt obligations issued
without original issue discount and having a current market discount by using
the coupon rate of interest instead of the yield to maturity. In the case of
tax-exempt obligations with original issue discount, where the discount based on
the current market value exceeds the then-remaining portion of original issue
discount, the yield to maturity is the imputed rate based on the original issue
discount calculation. Conversely, where the discount based on the current market
value is less than the remaining portion of the original issue discount, the
yield to maturity is based on the market value.
Expenses accrued for the period (variable "b" in the formula)
include all recurring fees charged by a Fund to all shareholder accounts in
proportion to the length of the base period and that Fund's mean (or median)
account size. Undeclared earned income will be subtracted from the maximum
offering price per share (variable "d" in the formula).
For the 30-day period ended March 31, 2000, the standardized
effective yield for Institutional Shares of the Income and Total Return Bond
Funds was as follows: Income Fund, ____%; and Total Return Bond Fund, ____%.
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:
T = [(ERV/P) to the 1/n power - 1]
Where: T = average annual total return.
35
<PAGE>
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5- or 10-year
(or other) periods at the end of the applicable period
(or a fractional portion thereof).
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in years.
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 the Funds were as follows:
<TABLE>
<CAPTION>
Commencement of
One Year Period Five Year Period Operations*until
Ended March 31, 2000 Ended March 31, 2000 March 31, 2000
-------------------- -------------------- ----------------
<S> <C> <C> <C>
Equity Fund
Institutional Shares
Value Equity Fund
Institutional Shares
Retail Shares
Optimum Growth Fund
Institutional Shares
Retail Shares
International Equity Fund
Institutional Shares
Income Fund
Instrumental Shares
Total Return Bond Fund
Institutional Shares
</TABLE>
* 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;
36
<PAGE>
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
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: Barron's, Business Week, Consumer Digest, Donoghue's Money Fund
Report, Financial Times, Forbes, Fortune, New York Times and Wall Street
Journal.
37
<PAGE>
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 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
38
<PAGE>
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
----------------------------------------------
Distributor
- -----------
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 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.
39
<PAGE>
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.
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.
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.
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, 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
40
<PAGE>
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."
Redemption Procedures
- ---------------------
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. In addition, certain redemptions are
subject to a 2.00% redemption fee. See the Funds' prospectus for further
details. Investors may 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).
As discussed in the Prospectus, 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
41
<PAGE>
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. Institutional
Investors may also redeem Shares by instructing CGFSC by telephone at (800)
446-1012 or by terminal access.
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 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.
42
<PAGE>
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 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.
43
<PAGE>
Shares may be exchanged by telephone or mail and must be made to
accounts of identical registration. There is no exchange fee imposed by the
Trust. In order to prevent abuse of this privilege to the disadvantage of other
shareholders, the Trust reserves the right to limit the number of exchange
requests of Investors to no more than six per year. 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.
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.
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
44
<PAGE>
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 0.25% of the average daily net asset value of
each Fund's outstanding Retail Shares. 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.
45
<PAGE>
For the fiscal year ended March 31, 2000, the Retail Shares of the
Value Equity and Optimum Growth Funds bore distribution fees under the
Distribution Plan of $_____ and $_____, 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:
<TABLE>
<CAPTION>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Trust Other Affiliations
- ---------------- ----- ------------------
<S> <C>
Frederick S. Wonham* Chairman of the Board, President and Retired; Chairman of the Boards (since 1997), and
238 June Road Treasurer President, Treasurer and Director (since 1995) of
Stamford, CT 06903 Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds,
Age: 68 Inc.; Chairman of the Board (since 1997), President,
Treasurer and Trustee (since 1995) of the Trust;
Chairman of the Board (from 1997 until 1999), Treasurer
and Trustee of Excelsior Funds (from 1995 to 1999);
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).
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <C>
Alfred C. Tannachion* Trustee Retired; Director of Excelsior Funds, Inc. and Excelsior
6549 Pine Meadows Drive Tax-Exempt Funds, Inc. (since 1985); Chairman of the Board of
Spring Hill, FL 34606 Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc.
Age 74 (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 Excelsior Funds, Inc. and Excelsior
Tax-Exempt Funds, Inc. (since 1984); Director of UST Master
333 East 69th Street Variable Series, Inc. (from 1994 to June 1997); and Trustee
Apt. 10-H of the Trust (since 1995).
New York, NY 10021
Age: 73
</TABLE>
- ----------------------
* This trustee is considered to be an "interested person" of the Trust as
defined in the 1940 Act.
47
<PAGE>
<TABLE>
<S> <C> <C>
Rodman L. Drake Trustee Trustee of the Trust (since 1994); Trustee of Excelsior
Funds (from 1994 to 1999); Director of Excelsior Funds, Inc.
Continuation Investments and Excelsior Tax-Exempt Funds, Inc. (since 1996); Director,
Group, Inc. Parsons Brinkerhoff, Inc. (engineering firm) (since 1995);
1251 Avenue of the Americas, President, Continuation Investments Group, Inc. (since 1997);
9th Floor President, Mandrake Group (investment and consulting firm)
New York, NY 10020 (1994-1997); Chairman, MetroCashcard International, Inc.
Age: 56 (1999-present); Director, Hotelivision, Inc. (1999-present);
Director, Alliance Group Services, Inc. (1998-present);
Director, Hyperion Total Return Fund, Inc. and three 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 Excelsior Funds, Inc. and Excelsior
913 Franklin Lake Road Tax-Exempt Funds, Inc. (since 1984); Director of UST Master
Franklin Lakes, NJ 07417 Variable Series, Inc. (from 1994 to June 1997); and Trustee of
Age: 74 the Trust (since 1995).
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Wolfe J. Frankl Trustee Retired; Director of Excelsior Funds, Inc. and Excelsior
2320 Cumberland Road Tax-Exempt Funds, Inc. (since 1986); Director of UST Master
Charlottesville, VA 22901-7726 Variable Series, Inc. (from 1994 to June 1997); Trustee of the
Age: 79 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, Inc. and Excelsior Tax-Exempt
558 E. 87th Street Funds, Inc. (since 1996); Trustee of the Trust (since 1994);
New York, NY 10128 Trustee of Excelsior Funds (from 1994 to 1999); Vice President
Age: 60 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>
49
<PAGE>
<TABLE>
<S> <C> <C>
Robert A. Robinson Trustee Director of Excelsior Funds, Inc. and Excelsior Tax-Exempt
Funds, Inc. (since 1987); Director of UST Master Variable
Church Pension Group Series, Inc. (from 1994 to June 1997); Trustee of the Trust
445 Fifth Avenue (since 1995); President Emeritus, The Church Pension Fund and
New York, NY 10016 its affiliated companies (since 1966); Trustee, H.B. and F.H.
Age: 74 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 Drinker Biddle & Reath LLP.
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103-6996
Age: 56
Michael P. Malloy Assistant Partner of the law firm of Drinker Biddle & Reath LLP.
One Logan Square Secretary
18th and Cherry Streets
Philadelphia, PA 19103-6996
Age: 40
Eddie Wang Assistant Manager of Blue Sky Compliance, Chase Global Funds Services
Chase Global Funds Secretary Company (November 1996 to present); and Officer and Manager of
Services Company Financial Reporting, Investors Bank & Trust Company (January
73 Tremont Street 1991 to November 1996).
Boston, MA 02108-3913
Age: 38
</TABLE>
50
<PAGE>
<TABLE>
<S> <C> <C>
Patricia M. Leyne Assistant Vice President, Senior Manager of Fund Administration,
Treasurer Chase Global Funds Services Company (since August 1999);
Chase Global Funds Assistant Vice President, Senior Manager of Fund
Services Company Administration, Chase Global Funds Services Company (from July
73 Tremont Street 1998 to August 1999); Assistant Treasurer, Manager of Fund
Boston, MA 02108-3913 Administration, Chase Global Funds Services Company (from
Age: 32 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 May 18, 2000, 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.
51
<PAGE>
The following chart provides certain information about fees received
by the trustees in the most recently completed fiscal year.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
AGGREGATE COMPENSATION BENEFITS ACCRUED ESTIMATED TOTAL COMPENSATION FROM
FROM AS PART OF TRUST ANNUAL BENEFITS THE TRUST AND FUND
THE TRUST EXPENSES UPON RETIREMENT COMPLEX* PAID TO TRUSTEES
--------- -------- --------------- -------------------------
<S> <C> <C> <C> <C>
Frederick S. Wonham $_____ None None $______(4)**
Rodman L. Drake $_____ None None $______(4)**
Jonathan Piel $_____ None None $______(4)**
Alfred Tannachion $_____ None None $______(3)**
Donald L. Campbell $_____ None None $______(3)**
Joseph C. Dugan $_____ None None $______(3)**
Wolfe J. Frankl $_____ None None $______(3)**
Robert A. Robinson $_____ None None $______(3)**
</TABLE>
- -------------------
* The "Fund Complex" consists of the Trust, Excelsior Funds,
Inc., Excelsior Tax-Exempt Funds, Inc., and, until December 15, 1999,
Excelsior Funds.
** Number of investment companies in the Fund Complex for which
trustee served as director or trustee.
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.
Investment Advisory Services
- ----------------------------
United States Trust Company of New York ("U.S. Trust New York") and
U.S. Trust Company (together with U.S. Trust New York, "U.S. Trust" or the
"Adviser") serve as
52
<PAGE>
co-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.
As discussed in the prospectus, U.S. Trust Corporation, parent of
U.S. Trust, and The Charles Schwab Corporation entered into a definitive
agreement to merge on January 12, 2000. After the merger, U.S. Trust Corporation
will be a wholly-owned subsidiary of Schwab. The merger is anticipated to close
by July 2000; however, it is subject to a number of conditions, including
certain regulatory and shareholder approvals.
U.S. Trust will continue to serve as investment adviser to the Funds
after the merger. The merger, however, will represent a change of ownership of
U.S. Trust's parent corporation and, as such, will have the effect under the
1940 Act of terminating the existing investment advisory agreements (the
"Existing Agreements"). Accordingly, the shareholders of the Funds have been
asked to approve a new investment advisory agreement ("New Agreement") between
the Funds and U.S. Trust. The New Agreement will become effective upon the date
of the merger. If the merger is not consummated, the Funds will operate under
the New Agreement, which will become effective upon the date of the termination
of the merger agreement.
The New Agreement contains substantially the same terms and
conditions as the Existing Agreements, and the advisory fee will remain the same
under the New 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
53
<PAGE>
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 years ended March 31, 2000, 1999 and 1998, the
Trust paid the Adviser fees for advisory services as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
March 31, 2000 March 31, 1999 March 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Equity Fund $684,933 $573,251
Value Equity Fund $135,038 $104,281
Optimum Growth Fund $304,737 $162,368
Income Fund $150,590 $129,938
Total Return Bond Fund $530,461 $375,215
International Equity Fund* -- --
</TABLE>
* U.S. Trust became the Adviser to the International Equity Fund on
December 29, 1998.
For the fiscal years ended March 31, 2000, 1999 and 1998, the
Adviser voluntarily agreed to waive a portion of its advisory fee for certain
funds. During the periods stated, these waivers reduced advisory fees as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
March 31, 2000 March 31, 1999 March 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Equity Fund $298,579 $250,968
Value Equity Fund $91,255 $91,692
Optimum Growth Fund $155,809 $119,069
Income Fund $262,853 $219,452
Total Return Bond Fund $781,974 $600,960
International Equity Fund -- --
</TABLE>
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.
54
<PAGE>
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.
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-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.
Administrators
- --------------
CGFSC, Federated Administrative Services (an affiliate of the
Distributor) and U.S. Trust Company (together, 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
55
<PAGE>
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:
Combined Aggregate Average Daily Net Assets
of the Trust, Excelsior Funds, Inc. and
Excelsior Tax-Exempt Funds, Inc. (excluding
the international portfolios of the Trust
and Excelsior Funds, Inc.)
Annual Fee
----------
First $200 million........................................ 0.200%
Next $200 million......................................... 0.175%
Over $400 million......................................... 0.150%
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 years ended March 31, 2000, 1999 and 1998, the
Administrators were paid the following administration fees:
<TABLE>
<CAPTION>
- ----------------------------- ----------------------------------- --------------------------- ---------------------------
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
March 31, 2000 March 31, 1999 March 31, 1998
- ----------------------------- ----------------------------------- --------------------------- ---------------------------
<S> <C> <C>
Equity Fund $231,504 $194,009
- ----------------------------- ----------------------------------- --------------------------- ---------------------------
Value Equity Fund $53,266 $46,129
- ----------------------------- ----------------------------------- --------------------------- ---------------------------
</TABLE>
56
<PAGE>
<TABLE>
<S> <C> <C>
Optimum Growth Fund $108,405 $66,246
- ----------------------------- ----------------------------------- --------------------------- ---------------------------
Income Fund $83,501 $87,287
- ----------------------------- ----------------------------------- --------------------------- ---------------------------
Total Return Bond Fund $97,318 $82,241
- ----------------------------- ----------------------------------- --------------------------- ---------------------------
International Equity Fund* $308,927 $229,777
- ----------------------------- ----------------------------------- --------------------------- ---------------------------
</TABLE>
For the fiscal years ended March 31, 2000, 1999 and 1998, the
Administrators waived the following administration fees:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
March 31, 2000 March 31, 1999 March 31, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Equity Fund $0 $0
Value Equity Fund $0 $0
Optimum Growth Fund $0 $0
Income Fund $0 $0
Total Return Bond Fund $0 $0
International Equity Fund* $0 $12,243
</TABLE>
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").
57
<PAGE>
Any material amendment to the Trust's arrangements with Shareholder
Organizations must be approved by a majority of the Trust's Board of Trustees
(including a majority of the Disinterested Trustees). So long as the Trust's
arrangements with Shareholder Organizations are in effect, the selection and
nomination of the members of the Trust's Board of Trustees who are not
"interested persons" of the Trust (as defined in the 1940 Act) will be committed
to the discretion of such Disinterested Trustees.
For the fiscal year ended March 31, 2000, payments to Shareholder
Organizations totaled _______________ with respect to the
______________________________ Funds. Of these amounts, $______________ 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 years ended March 31, 1999 and 1998, 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.
58
<PAGE>
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, 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
--------------------
____________________, independent auditors, ____________________
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,
_____ incorporated by reference in this Statement of Additional Information have
been audited by _________________ 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 19103-6996, 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
59
<PAGE>
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 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.
Moreover, if a Fund were to fail to make sufficient distributions in a year, the
Fund would be subject to corporate income taxes and/or excise taxes in respect
of the shortfall or, if the shortfall is large enough, the Fund could be
disqualified as a regulated investment company.
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.
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
60
<PAGE>
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. In addition, in
the case of any shares of a PFIC in which a Fund invests, the Fund may be liable
for corporate-level tax on any ultimate gain or distributions on the shares if
the Fund fails to make an election to recognize income annually during the
period of its ownership of the PFIC shares.
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
------------------------
61
<PAGE>
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 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
62
<PAGE>
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 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
63
<PAGE>
circumstances in which Delaware law did not apply, inadequate insurance existed
and a Fund itself was unable to meet its obligations.
CODE OF ETHICS
--------------
The Fund, U.S. Trust New York, U.S. Trust Company and the
Distributor have adopted codes of ethics that allow for personnel subject to the
codes to invest in securities, including securities that may be purchased or
held by the Funds.
MISCELLANEOUS
-------------
As of May 18, 2000, 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 May 18, 2000, 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: PJM Interconnection
DB Plan, c/o United States Trust Company of New York, 114 West 47th Street, New
York, New York 10036, 9.18%; 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, 82.11%; OPTIMUM GROWTH FUND: U.S. Trust Fund Retirement Fund, c/o
United States Trust Company of New York, 114 West 47th Street, New York, New
York 10036, 50.90%; INTERNATIONAL EQUITY FUND: Planned Parenthood NY, c/o United
States Trust Company of New York, 114 West 47th Street, New York, New York
10036, 5.56%; The Liberty Fund, c/o United States Trust Company of New York, 114
West 47th Street, New York, New York 10036, 13.96%; and The Flourence Gould
Foundation, c/o United States Trust Company of New York, 114 West 47th Street,
New York, New York 10036, 12.92%; INCOME FUND: Eugene Higgins Residuary, c/o
United States Trust Company of New York, 114 West 47th Street, New York, New
York 10036, 56.36%; Persimmom Charitable, c/o United States Trust Company of New
York, 114 West 47th Street, New York, New York 10036, 15.27%; and Planned
Parenthood NY, c/o United States Trust Company of New York, 114 West 47th
Street, New York, New York 10036, 8.80%; 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, 13.30%; and The Liberty Fund, c/o United
States Trust Company of New York, 114 West 47th STreet, New York, New York
10036, 10.43%.
As of May 18, 2000, 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: OPTIMUM GROWTH FUND: U.S. Trust Company
of New York, Trustee, FBO U.S. Trust Plan, U.S. Trust Co. of the Pacific
Northwest, 4380 SW Macadam Ave., Suite 450, Portland, Oregon, 16.86%.
FINANCIAL STATEMENTS
--------------------
The audited financial statements and notes thereto in the Trust's
Annual Report to Shareholders for the fiscal year ended March 31, ________ (the
"______ Annual Report") are incorporated into this Statement of Additional
Information by reference. No other parts of the _____ Annual Report are
incorporated by reference herein. The financial statements included in the
_____ Annual Report have been audited by the Trust's independent auditors,
____________, whose reports thereon also appear in the _________ 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
______ 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.
64
<PAGE>
APPENDIX A
----------
Commercial Paper Ratings
- ------------------------
A Standard & Poor's commercial paper rating is a current opinion
of the creditworthiness of an obligor with respect to financial obligations
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 Standard & Poor's 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.
Local Currency and Foreign Currency Risks
- -----------------------------------------
Country risk considerations are a standard part of Standard & Poor's
analysis for credit ratings on any issuer or issue. Currency of repayment is a
key factor in this analysis. An obligor's capacity to repay foreign obligations
may be lower than its capacity to repay obligations in its local currency due to
the sovereign government's own
A-1
<PAGE>
relatively lower capacity to repay external versus domestic debt. These
sovereign risk considerations are incorporated in the debt ratings assigned to
specific issues. Foreign currency issuer ratings are also distinguished from
local currency issuer ratings to identify those instances where sovereign risks
make them different for the same issuer.
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 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.
A-2
<PAGE>
"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.
"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 best 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 uncertain 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 a capacity for meeting financial commitments which is highly
uncertain and solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
A-3
<PAGE>
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."
"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.
A-4
<PAGE>
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.
"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 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 Standard & Poor's
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.
"c" - The "c" subscript is used to provide additional information to
investors that the bank may terminate its obligation to purchase tendered bonds
if the long-term credit rating of the issuer is below an investment-grade level
and/or the issuer's bonds are deemed taxable.
"p" - The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful, timely completion of the
project. This rating, however, while
A-5
<PAGE>
addressing credit quality subsequent to completion of the project, makes no
comment on the likelihood of or the risk of default upon failure of such
completion. The investor should exercise his own judgment with respect to such
likelihood and risk.
* - Continuance of the ratings is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.
"r" - The "r" highlights derivative, hybrid, and certain other
obligations that Standard & Poor's believes may experience high volatility or
high variability in expected returns as a result of noncredit risks. Examples
of such obligations are securities with principal or interest return indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
N.R. Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy. Debt obligations of
issuers outside the United States and its territories are rated on the same
basis as domestic corporate and municipal issues. The ratings measure the
creditworthiness of the obligor but do not take into account currency exchange
and related uncertainties.
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 in the "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors = giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate
A-6
<PAGE>
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" indicates 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. This is the
lowest investment grade category.
"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.
A-7
<PAGE>
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. This is the lowest
investment grade category.
"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.
"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.
A-8
<PAGE>
"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
resumption 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 denote relative standing within these major
rating categories.
"NR" indicates the Fitch IBCA does not rate the issuer or issue in
question.
"Withdrawn": A rating is withdrawn when Fitch IBCA deems the amount
of information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors
that there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive," indicating a
potential upgrade, "Negative," for a potential downgrade, or "Evolving," if
ratings may be raised, lowered or maintained. RatingAlert is typically resolved
over a relatively short period.
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-9
<PAGE>
"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.
"BB" - A rating of BB suggests that the likelihood of default is
considerably less than for lower-rated issues, although there are significant
uncertainties that could affect the ability to adequately service debt
obligations.
"B" - Issues rated B show a higher degree of uncertainty and
therefore greater likelihood of default than higher-rated issues. Adverse
developments could negatively affect the payment of interest and principal on a
timely basis.
"CCC" - Issues rated CCC clearly have a high likelihood of default,
with little capacity to address further adverse changes in financial
circumstances.
"CC" - This rating is applied to issues that are subordinate to
other obligations rated CCC and are afforded less protection in the event of
bankruptcy or reorganization.
"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 note 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.
A-10
<PAGE>
"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. 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. 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-11
<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).
(c) Articles IV, V and VI of Registrant's Trust Instrument.
(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) Form of Investment Advisory Agreement among Registrant (on behalf
of the Equity, Income, Total Return Bond, Value Equity and
Optimum Growth Funds), United States Trust Company of New York
and U.S. Trust Company (to become effective on the date of the
merger of The Charles Schwab Corporation with U.S. Trust
Corporation (parent company of the investment adviser)) (12).
(4) Form of Investment Advisory Agreement among Registrant (on behalf
of the International Equity Fund), U.S. Trust Company and United
States Trust Company of New York (to become effective on the date
of the merger of The Charles Schwab Corporation with U.S. Trust
Corporation (parent company of the investment adviser)) (12).
<PAGE>
(5) 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).
(6) 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.
(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).
-2-
<PAGE>
(3) Amended and Restated Administrative Services Plan and Related
Form of Shareholder Servicing Agreement (9).
(4) Credit Agreement dated December 27, 1999 by and among Registrant,
Excelsior Funds, Inc., Excelsior Tax-Exempt Funds, Inc., The
Chase Manhattan Bank and the other lenders thereunder (13).
(5) Form of Waiver and Reimbursement Agreement among Registrant,
United States Trust Company of New York and U.S. Trust Company
(13).
(i) Opinion of Counsel (10).
(j) (1) Consent of Drinker Biddle & Reath LLP (13).
(k) None.
(l) (1) 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) 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 (13).
(n) Amended and Restated Plan Pursuant to Rule 18f-3 for Operation of
a Multi-Class System (13).
(p) (1) Code of Ethics of the Registrant (13).
(p) (2) Code of Ethics of U.S. Trust Corporation (including U.S. Trust
Company and United States Trust Company of New York) (13).
(p) (3) Code of Ethics of Edgewood Distributors, Inc. (13).
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.
-3-
<PAGE>
(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.
(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) Incorporated herein by reference to Registrant's Definitive Proxy
Statement pursuant to Section 14 (a) of the Securities and
Exchange Act of 1934, as filed with the SEC on March 22,
2000.
-4-
<PAGE>
(13) 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 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.
-5-
<PAGE>
ITEM 26. Business and Other Connections of the Investment Adviser
--------------------------------------------------------
(a) U.S. Trust Company
U.S. Trust Company ("U.S. Trust ") is a Connecticut state 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, including those who are engaged in any other business,
profession, vocation or employment of a substantial nature.
-6-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust Name Occupation Business
- -------------------------------------- ------------------------- ------------------- --------------------
<S> <C> <C> <C>
Director Tucker H. Warner Co-Founder, Consulting Firm
The Nutmeg Financial Partner &
Group, LLC Director
1157 Highland Avenue
West Cheshire, CT 06903
Director Thomas C. Clark Managing Director, Asset Management,
United States Trust United States Trust Investment and
Company of New York Company of New York Fiduciary Services
11 West 54th Street
New York, NY 10019
Director, Maribeth S. Rahe Vice Chairman, Asset Management,
Chairman United States Trust United States Trust Investment and
of Board 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 Robert C. Bodine Chairman Asset Management,
U.S. Trust Company Investment and
100 West Lancaster Avenue Fiduciary Services
Suite 200
Wayne, PA 19087
Director Howard E.N. Wilson Chairman Asset Management,
U.S. Trust Company Investment and
</TABLE>
-7-
<PAGE>
<TABLE>
<S> <C> <C> <C>
100 West Lancaster Avenue Fiduciary Services
Suite 200
Wayne, PA 19087
Position
with U.S. Principal Type of
Trust Name Occupation Business
- ----- ---- ---------- --------
Director Kenneth G. Walsh Executive Vice Asset Management,
United States Trust President, Investment and
Company of New York United States Fiduciary Services
114 West 47th Street Trust Company of
New York, NY 10036 New York
Director, William V. Ferdinand Managing Director Asset Management,
Managing U.S. Trust Company & CIO Fiduciary Services
Director & 225 High Ridge Road & Private Banking
CIO, CT Stamford, CT 06905
Offices
Director, W. Michael Funck President & CEO Asset Management,
President & U.S. Trust Company Fiduciary Services
CEO, CT 225 High Ridge Road & Private Banking
Offices Stamford, CT 06905
</TABLE>
-8-
<PAGE>
(b) United States Trust Company of New York:
United States Trust Company of New York ("U.S. Trust NY") is a full-
service state-chartered bank located in New York, New York. Set forth below are
the names and principal businesses of the trustees and certain senior executive
officers of U.S. Trust NY, including those who are engaged in any other
business, profession, vocation, or employment of a substantial nature.
<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
4 Arleigh Road of Engineering,
Great Neck, NY 11021 The Cooper Union for
the Advancement of
Science & Art
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 Retired Chairman of Venture
103 Horseshoe Road Venrock, Inc. Capital
Mill Neck, NY 11765
Director Antonia M. Grumbach Partner in Patterson, Law Firm
Patterson, Belknap, 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 Investment and
of the Board Company of New York Executive 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
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Position
with U.S. Principal Type of
Trust NY Name Occupation Business
- --------- ---- ---------------------- ------------------
Director Philippe de Montebello Director of the Art Museum
The Metropolitan Museum Metropolitan
of Art Museum of Art
1000 Fifth Avenue
New York, NY 10028-0198
Director John H. Stookey Chairman of Petrochemicals and
Suburban Propane Pts. Suburban Propane Pts. Propane
P.O. Box 455
Sheffield, MA 01257
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
Wien & Malkin LLP Wien & 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
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Director Ruth A. Wooden President and CEO of Not-for-Profit
60 Gramercy Park North National Parenting
Apt. 2M Association
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 Private Banking
114 West 47th Street and United States Trust Fiduciary Services
New York, NY 10036 Company of New York
Position
with U.S. Principal Type of
Trust NY Name Occupation Business
- --------- ----- ----------- --------
Director and Maribeth S. Rahe Vice Chairman Asset Management,
Vice Chairman United States Trust of U.S. Trust Corporation Investment and
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 Chairman and United States Trust Chief Investment Of- Investment and
Chief Investment Company of New York ficer of U.S. Trust Fiduciary Services
Officer 114 West 47th Street Corporation and United
New York, NY 10036 States Trust Company
** 11 of New York
Director, Jeffrey S. Maurer President and Asset Management,
President, United States Trust Chief Operating Investment and
and Chief Company of New York Officer of U.S. Trust Fiduciary Services
Operating 114 West 47th Street Corporation and United
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Officer New York, NY 10036 States Trust Company of
New York
Executive John L. Kirby Executive Asset Management,
Vice United States Trust Vice President and Investment and
President Company of New York Chief Financial Fiduciary Services
and Chief 114 West 47th Street Officer of U.S. Trust
Financial New York, NY 10036 Corporation and United
Officer States Trust Company of
New York
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 10036 Company of New York
Director Philip L. Smith Corporate Director and Consumer Goods
P.O. Box 386 Trustee
Ponte Verde Beach, FL 32004
Position with Principal Type of
U.S. Trust NY Name Occupation Business
- ------------- ----- ----------- ---------
Director Robert E. Denham Partner in Manger, Tolls Law Firm
Manger, Tolls & & Olson LLP
Olson LLP
355 South Grand Avenue
35/th/ Floor
Los Angeles, CA 90071-1560
Director Carl H. Pforzheimer, II Managing Partner Broker-Dealer,
Carl H. Pforzheimer & Co. Investment
650 Madison Avenue Adviser
23/rd/ Floor
New York, NY 10022
</TABLE>
-12-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Executive John M. Deignan Executive Investment
Vice United States Trust Vice President Management and
President Company of New York Fiduciary Services;
114 West 47th Street Private Banking
New York, NY 10036
</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: Excelsior Funds, Inc., Excelsior Tax-Exempt Funds,
Inc., FTI Funds, FundManager Portfolios, Great Plains Funds, Old Westbury
Funds, Inc., The Riverfront Funds, Robertsons Stephens Investment Trust, WesMark
Funds and WCT Funds.
-13-
<PAGE>
<TABLE>
<CAPTION>
(b) Names and Principal Positions and Offices with Offices with
Business Addresses the Distributor Registrant
------------------- -------------------------- ---------------
<S> <C> <C>
Lawrence Caracciolo Director and President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237- 7002
Arthur L. Cherry Director, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237- 7002
J. Christopher Donahue Director, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237- 7002
Thomas R. Donahue Director and Executive Vice --
5800 Corporate Drive President,
Pittsburgh, PA 15237- 7002 Edgewood Services, Inc.
Ernest L. Linane Vice President, --
5800 Corporate Drive
Pittsburgh, PA 15237- 7002 Edgewood Services, Inc.
Christine T. Johnson Vice President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237- 7002
Denis McAuley, III Treasurer, --
5800 Corporate Drive Edgewood Services, Inc
Pittsburgh, PA 15237- 7002
Timothy S. Johnson Secretary, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237- 7002
Victor R. Siclari Assistant Secretary, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237- 7002
</TABLE>
(c) Not Applicable.
-14-
<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, 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) Edgewood Services, Inc ., Clearing Operations, 5800 Corporate Drive,
Pittsburgh, PA 15237-5829 (records relating to its function as
distributor).
(5) Chase Global Funds Services Company, 73 Tremont Street, Boston, MA 02108-
3913 (records relating to its functions as co-administrator and transfer
agent).
(6) Federated Administrative Services, Federated Investors Tower, Pittsburgh,
PA 15222-3779 (records relating to its function as co-administrator).
(7) The Chase Manhattan Bank, 3 Chase MetroTech Center, 8th Floor, Brooklyn, NY
11245 (records relating to its function as custodian).
(8) Drinker Biddle & Reath LLP, One Logan Square, 18/th/ and Cherry Streets,
Philadelphia, Pennsylvania 19103-6996 (Registrant's Articles of
Incorporation, Bylaws, and Minute Books).
ITEM 29. Management Services
-------------------
Inapplicable.
-15-
<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.
-16-
<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
has duly caused this Post-Effective Amendment No. 19 to its Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and the State of New York on the 26th
day of May, 2000.
EXCELSIOR INSTITUTIONAL TRUST
Registrant
/s/ 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. 19 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.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------- ---------------- ---------------
<S> <C> <C>
/s/ Frederick S. Wonham Chairman of the
- -------------------------
Frederick S. Wonham Board, President May 26, 2000
and Treasurer
* Joseph H. Dugan
- -------------------------
Joseph H. Dugan Trustee May 26, 2000
_________________________
Donald L. Campbell Trustee May 26, 2000
* Wolfe J. Frankl
- -------------------------
Wolfe J. Frankl Trustee May 26, 2000
* Robert A. Robinson
- -------------------------
Robert A. Robinson Trustee May 26, 2000
* Alfred Tannachion
- -------------------------
Alfred Tannachion Trustee May 26, 2000
* Rodman L. Drake
- -------------------------
Rodman L. Drake Trustee May 26, 2000
* Jonathan Piel
- -------------------------
Jonathan Piel Trustee May 26, 2000
*By: /s/ W. Bruce McConnel
-----------------------
</TABLE>
-17-
<PAGE>
W. Bruce McConnel
-----------------
Attorney-in-Fact
-18-
<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 19, 2000 /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 19, 2000 /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 19, 2000 /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 19, 2000 /s/ Wolfe J. Frankl
-------------------
Wolfe J. Frankl
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
W. Bruce McConnel, III 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 19, 2000 /s/ Frederick S. Wonham
------------------------
Frederick S. Wonham
<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 19, 2000 /s/ Rodman L. Drake
-------------------
Rodman L. Drake
<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 19, 2000 /s/ Jonathan Piel
-----------------
Jonathan Piel
<PAGE>
EXCELSIOR INSTITUTIONAL TRUST
EXHIBIT INDEX
EXHIBIT EXHIBIT NO.
- ------- -----------
(h)(5) Credit Agreement dated December 27, 1999 by and among Registrant,
Excelsior Funds, Inc., Excelsior Tax-Exempt Funds, Inc.,
Excelsior Tax-Exempt Funds, Inc., The Chase Manhattan Bank and
the other lenders thereunder.
(h)(6) Form of Waiver and Reimbursement Agreement among Registrant,
United States Trust Company of New York and U.S. Trust
Company.
(j)(1) Consent of Drinker Biddle & Reath LLP.
(m) Amended and Restated Distribution Plan and Form of Distribution
Agreement.
(n) Amended and Restated Plan Pursuant to Rule 18f-3 for Operation of
a Multi-Class System.
(p)(1) Code of Ethics of the Registrant.
(p)(2) Code of Ethics of U.S. Trust Corporation (including U.S. Trust
Company and United States Trust Company of New York).
(p)(3) Code of Ethics of Edgewood Services, Inc.
<PAGE>
EXHIBIT (h)(5)
- --------------------------------------------------------------------------------
EXCELSIOR FUNDS, INC.,
EXCELSIOR TAX-EXEMPT FUNDS, INC.
AND EXCELSIOR INSTITUTIONAL TRUST
ON BEHALF OF EACH SERIES
OR PORTFOLIO NAMED HEREIN
_________
$250,000,000
CREDIT AGREEMENT
Dated as of December 27, 1999
_________
THE CHASE MANHATTAN BANK,
as Administrative Agent,
CHASE SECURITIES INC.,
as Sole Book Manager and Lead Arranger
And
THE BANK OF NOVA SCOTIA,
as Syndication Agent
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS....................................................................................... 1
1.1 Defined Terms..................................................................................... 1
1.2 Other Definitional Provisions..................................................................... 8
1.3 Assumptions Regarding Structure................................................................... 8
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS................................................................... 8
2.1 Commitments....................................................................................... 9
2.2 Procedure for Borrowing........................................................................... 9
2.3 Fees.............................................................................................. 9
2.5 Repayment of Loans; Evidence of Debt.............................................................. 10
2.6 Optional and Mandatory Prepayments................................................................ 11
2.7 Interest Rates and Payment Dates.................................................................. 12
2.8 Computation of Interest and Fees.................................................................. 12
2.9 Pro Rata Treatment and Payments................................................................... 13
2.10 Requirements of Law.............................................................................. 14
2.11 Taxes............................................................................................ 14
2.12 Change of Lending Office; Replacement of Lender.................................................. 16
2.13 Swing Line Commitment............................................................................ 17
2.14 Procedure for Swing Line Borrowing............................................................... 17
2.15 Refunding of Swing Line Loans.................................................................... 17
2.16 Designation of Additional Borrowers; Amendments to Schedule I.................................... 18
SECTION 3. REPRESENTATIONS AND WARRANTIES.................................................................... 19
3.1 Financial Condition............................................................................... 19
3.2 No Change......................................................................................... 19
3.3 Existence; Compliance with Law.................................................................... 19
3.4 Power; Authorization; Enforceable Obligations..................................................... 20
3.5 No Legal Bar...................................................................................... 20
3.6 No Material Litigation............................................................................ 20
3.7 No Default........................................................................................ 20
3.8 Ownership of Property; Liens...................................................................... 20
3.9 No Burdensome Restrictions........................................................................ 21
3.10 Taxes............................................................................................ 21
3.11 Federal Regulations.............................................................................. 21
3.12 ERISA............................................................................................ 21
3.13 Certain Regulations.............................................................................. 21
3.14 Subsidiaries..................................................................................... 21
3.15 Registration of the Funds........................................................................ 21
3.16 Offering in Compliance with Securities Laws...................................................... 21
3.17 Investment Policies.............................................................................. 22
</TABLE>
<PAGE>
<TABLE>
<S> <C>
3.18 Permission to Borrow............................................................................. 22
3.19 Accuracy of Information.......................................................................... 22
3.20 Affiliated Persons............................................................................... 22
3.21 Year 2000........................................................................................ 20
SECTION 4. CONDITIONS PRECEDENT............................................................................... 22
4.1 Conditions to Initial Loans...................................................................... 23
4.2 Conditions to Each Loan........................................................................... 24
SECTION 5. AFFIRMATIVE COVENANTS............................................................................. 25
5.1 Financial Statements.............................................................................. 25
5.2 Certificates; Other Information................................................................... 26
5.3 Payment of Obligations............................................................................ 27
5.4 Conduct of Business and Maintenance of Existence.................................................. 27
5.5 Maintenance of Property; Insurance................................................................ 27
5.6 Inspection of Property; Books and Records; Discussions............................................ 28
5.7 Notices........................................................................................... 28
5.8 Purpose of Loans.................................................................................. 29
SECTION 6. NEGATIVE COVENANTS................................................................................ 29
6.1 Financial Condition Covenant...................................................................... 29
6.2 Limitation on Indebtedness........................................................................ 29
6.3 Limitation on Liens............................................................................... 29
6.4 Limitation on Guarantee Obligations............................................................... 30
6.5 Limitation on Fundamental Changes................................................................. 30
6.6 Limitation on Distributions....................................................................... 30
6.7 Limitation on Investments, Loans and Advances..................................................... 31
6.8 Limitation on Transactions with Affiliates........................................................ 31
6.9 Limitation on Negative Pledge Clauses............................................................. 31
6.10 Limitation on Changes to Investment Policies..................................................... 31
SECTION 7. EVENTS OF DEFAULT................................................................................. 31
SECTION 8. THE ADMINISTRATIVE AGENT.......................................................................... 34
8.1 Appointment....................................................................................... 34
8.2 Delegation of Duties.............................................................................. 34
8.3 Exculpatory Provisions............................................................................ 35
8.4 Reliance by Administrative Agent.................................................................. 35
8.5 Notice of Default................................................................................. 35
8.6 Non-Reliance on Administrative Agent and Other Lenders............................................ 36
8.7 Indemnification................................................................................... 36
8.8 Administrative Agent in Its Individual Capacity................................................... 37
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8.9 Successor Administrative Agent.................................................................... 37
SECTION 9. MISCELLANEOUS..................................................................................... 37
9.1 Amendments and Waivers............................................................................ 37
9.2 Notices........................................................................................... 38
9.3 No Waiver; Cumulative Remedies.................................................................... 39
9.4 Survival of Representations and Warranties........................................................ 39
9.5 Payment of Expenses and Taxes; Indemnification.................................................... 39
9.6 Successors and Assigns; Participations and Assignments............................................ 40
9.7 Adjustments; Set-off.............................................................................. 42
9.8 Counterparts...................................................................................... 43
9.9 Severability...................................................................................... 43
9.10 Integration...................................................................................... 43
9.11 GOVERNING LAW.................................................................................... 43
9.12 Submission To Jurisdiction; Waivers.............................................................. 43
9.13 Acknowledgements................................................................................. 44
9.14 WAIVERS OF JURY TRIAL............................................................................ 44
9.15 Non-Recourse..................................................................................... 45
9.16 Waiver of Conflicts; Confidentiality............................................................. 40
</TABLE>
SCHEDULES:
- ---------
Schedule I Borrowers & Allocations
Schedule II Commitments, Addresses, Etc.
Schedule III Investment Management Agreements
Schedule IV Custodian Agreements
Schedule V Distribution Agreements
Schedule VI Shareholder Services Agreements
EXHIBITS:
- --------
Exhibit 2.5(e) Form of Note
Exhibit 2.16(a) Form for Designation of New Borrowers
Exhibit 4.1(h) Form of Opinion
Exhibit 9.6(c) Form of Assignment and Acceptance
<PAGE>
CREDIT AGREEMENT, dated as of December 27, 1999 (this "Agreement") among (i)
---------
each fund signatory hereto (each a "Fund" and, collectively, the "Funds") on
---- -----
behalf of the series or portfolios of the Fund, which series and portfolios are
listed on Schedule I beside the name of the Fund of which each series or
----------
portfolio is a series or portfolio (each such series or portfolio, a "Borrower"
--------
and, collectively, the "Borrowers"), (ii) the several banks and other financial
---------
institutions from time to time parties to this Agreement (the "Lenders"), (iii)
-------
THE BANK OF NOVA SCOTIA as Syndication Agent, and (iv) THE CHASE MANHATTAN BANK,
a New York banking corporation, as administrative agent for the Lenders
hereunder (in such capacity, the "Administrative Agent");
--------------------
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, each Fund is an open-end registered investment company under the
Investment Company Act of 1940 for which UST (as defined below) acts as an
investment manager;
WHEREAS, each Borrower has requested the Lenders to make Loans (as
hereinafter defined) severally to each Borrower and to make available to it a
credit facility for the purposes and on the terms and conditions set forth
herein; and
WHEREAS, each Lender acknowledges that each Borrower shall be liable
hereunder only for the Loans made to such Borrower hereunder and interest
thereon and for the fees and expenses associated therewith and as otherwise set
forth herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall
-------------
have the following meanings:
"Administrative Agent": The Chase Manhattan Bank, together with its
--------------------
affiliates, as the arranger of the Commitments and as the administrative agent
for the Lenders under this Agreement and the other Loan Documents.
"Affiliate": as to any Person, any other Person (other than a
---------
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with, such Person. For purposes of this definition,
"control" of a Person means the power, directly or indirectly, either to (a)
vote 10% or more of the securities having ordinary voting power for the election
of directors of such Person or (b) direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
"Aggregate Commitment": the total of all Commitments of all Lenders,
--------------------
as may be reduced from time to time in the accordance with the terms of this
Agreement. On the Closing
<PAGE>
Date at the time of closing, the Aggregate Commitment shall be equal to
$250,000,000.
"Agreement": this Credit Agreement, as amended, restated, supplemented
---------
or otherwise modified from time to time.
"Allocation": as to each Borrower, the percentage amount stated in
----------
Schedule I to this Agreement; provided that, if no Event of Default shall have
- ---------- --------
occurred and be continuing, the Funds, on behalf of the Borrowers and without
the consent of the Lenders, by written notice to the Administrative Agent, may
change the Allocations from time to time in the Funds' sole discretion
substantially in accordance with changes in the ratio of each Borrower's Average
Net Assets to the aggregate Average Net Assets of all Borrowers; provided
--------
further, that, after any such change in Allocations, the aggregate amount of all
- -------
Allocations shall equal 100%.
"Applicable Margin": 0.5% per annum.
-----------------
"Asset Coverage Ratio": with respect to any Borrower, the ratio which
--------------------
the value of the Total Assets of such Borrower less all liabilities and
indebtedness not represented by Senior Securities, bears to the aggregate amount
of all Senior Securities representing Indebtedness of such Borrower. For the
purposes of calculating the Asset Coverage Ratio, the amount of any liability or
indebtedness deducted from Total Assets shall be equal to the greater of (x) the
outstanding amount of such liability or indebtedness and (y) the fair market
value of all assets securing such liability or indebtedness.
"Assignee": as defined in Section 9.6(c).
--------
"Available Commitment": as to any Lender with respect to any Borrower
--------------------
at any time, an amount equal to the excess, if any, of (a) the amount of such
Lender's Commitment to such Borrower less (b) the aggregate principal amount of
all Loans to such Borrower made by such Lender then outstanding; collectively,
as to all the Lenders, the "Available Commitments."
---------------------
"Average Net Assets": As to any Borrower at any date, an amount equal
------------------
to the average daily value of the aggregate net assets of such Borrower during
the specified period, determined in the manner and at the times specified in
that Borrower's Prospectus.
"Benefited Lender": as defined in Section 9.7(a).
----------------
"Borrower" and "Borrowers": as defined in the preamble hereto.
-------- ---------
"Borrowing Date": any Business Day specified in a notice pursuant to
--------------
Section 2.2 as a date on which a Borrower requests the Lenders to make Loans
hereunder.
"Business Day": a day other than a Saturday, Sunday or other day on
------------
which commercial banks in New York City are authorized or required by law to
close.
"Chase": The Chase Manhattan Bank, a New York banking corporation,
-----
and its permitted successors and assigns.
<PAGE>
"Closing Date": the date on which the conditions precedent set forth
------------
in Section 4.1 shall be satisfied.
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
"Commitment": as to any Lender, the obligation of such Lender to make
----------
Loans to the Borrowers hereunder in an aggregate principal amount at any one
time outstanding not to exceed the amount set forth opposite such Lender's name
on Schedule II.
-----------
"Commitment Fee": as defined in Section 2.3.
--------------
"Commitment Percentage": as to any Lender at any time, the percentage
---------------------
which such Lender's Commitment then constitutes of the aggregate Commitments of
all Lenders (or, at any time after the Commitments of all the Lenders shall have
expired or terminated, the percentage which the aggregate principal amount of
such Lender's Loans then outstanding constitutes of the aggregate principal
amount of the Loans then outstanding).
"Commitment Period": the period from and including the date hereof to,
-----------------
but not including, the Termination Date.
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
which is under common control with any Borrower within the meaning of Section
4001 of ERISA or is part of a group which includes any Borrower and which is
treated as a single employer under Section 414 of the Code.
"Contractual Obligation": as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Custody Agreement": as to any Fund or each Borrower, as applicable,
-----------------
the Custody Agreement(s) set forth in Schedule IV hereto.
-----------
"Default": any of the events specified in Section 7, whether or not
-------
any requirement for the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
"Distribution Agreement": as to any Fund or each Borrower, as
----------------------
applicable, the Distribution Agreement(s) set forth in Schedule V hereto.
----------
"Dollars" and "$": dollars in lawful currency of the United States of
------- -
America.
"Eligible Lender": an entity that is a "Bank" (as defined in the 1940
---------------
Act) but not an "Affiliated Person" (as defined in the 1940 Act) or a "Principal
Underwriter" (as defined in the 1940 Act) of any Borrower or any "Affiliated
Person" of any such Person.
<PAGE>
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Event of Default": any of the events specified in Section 7, provided
---------------- --------
that any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"Federal Funds Rate": for any day, the "offered rate", as determined
------------------
by Chase, for overnight federal funds, which rate is determined day to day and
will be reasonably representative of the market conditions at the times set.
"Financing Lease": any lease of property, real or personal, the
---------------
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"GAAP": generally accepted accounting principles in the United States
----
of America in effect from time to time.
"Governmental Authority": any nation or government, any state or other
----------------------
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
-------------------- -------------------
any obligation of (a) the guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which the guaranteeing person has issued a reimbursement, counterindemnity or
similar obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
-------------------
of any other third Person (the "primary obligor") in any manner, whether
---------------
directly or indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(ii) to advance or supply funds (A) for the purchase or payment of any such
primary obligation or (B) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that the term
-------- -------
Guarantee Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower of (a) an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee Obligation is made and (b) the maximum amount
for which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary obligation
and the maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee Obligation
shall be such guaranteeing person's maximum reasonably anticipated liability in
respect thereof as determined by such guaranteeing person in good faith.
<PAGE>
"Indebtedness": of any Person at any date, (a) all indebtedness of
------------
such Person for borrowed money or for the deferred purchase price of property or
services (other than current trade liabilities incurred in the ordinary course
of business and payable in accordance with customary practices), (b) any other
indebtedness of such Person which is evidenced by a note, bond, debenture or
similar debt instrument, (c) all obligations of such Person under Financing
Leases, (d) all obligations of such Person in respect of acceptances (as defined
in Section 3-410 of the UCC) issued or created for the account of such Person,
(e) all reimbursement obligations of such person arising out of any letters of
credit and (f) all liabilities secured by any Lien on any property owned by such
Person even though such Person has not assumed or otherwise become liable for
the payment thereof.
"Interest Payment Date": as to any Loan, the Maturity Date for such
---------------------
Loan, or with respect to any prepayment, the date of such prepayment.
"Investment Management Agreement": as to each Fund and each Borrower,
-------------------------------
the Investment Management Agreements set forth on Schedule III hereto.
------------
"Investment Policies": as to each Borrower, the policies and
-------------------
objectives for, and limits and restrictions on, investing by such Borrower set
forth in the Prospectus relating to such Borrower.
"Lenders": as defined in the preamble hereto.
-------
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any Financing Lease
having substantially the same economic effect as any of the foregoing).
"Loan Documents": this Agreement and the Notes.
--------------
"Loans": all loans made pursuant to this Agreement; individually, a
-----
"Loan."
----
"Material Adverse Effect": a material adverse effect on (a) the
-----------------------
business, financial condition or ability to timely perform any of its material
obligations under the Loan Documents of a Borrower or (b) the legality,
validity, binding nature or enforceability of the Loan Documents or the rights
or remedies of the Administrative Agent or the Lenders under the Loan Documents.
"Maturity Date": as to each Loan, the date which is the earliest of
-------------
(a) 30 days after the Borrowing Date for such Loan (except that, with respect to
any Swingline Loan, the Maturity Date shall be the seventh day after the
Borrowing date therefor), (b) the Termination Date and (c) the payment in full
of such Loan.
<PAGE>
"Moody's": Moody's Investor Service, Inc.
-------
"1940 Act": the Investment Company Act of 1940, as amended, together
--------
with all rules and regulations promulgated from time to time thereunder.
"Non-Excluded Taxes": as defined in Section 2.11.
------------------
"Non-Recourse Person": as defined in Section 9.15.
-------------------
"Notes": the collective reference to the Revolving Credit Notes; one
-----
of the Notes, a "Note."
----
"Participant": as defined in Section 9.6(b).
-----------
"Person": an individual, partnership, corporation, business trust,
------
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan covered by
----
ERISA which any Fund or any Borrower maintains.
"Prospectus": as to each Borrower at a particular time, shall mean the
----------
currently effective prospectus(es) and statement(s) of additional information of
such Borrower.
"Register": as defined in Section 9.6(d).
--------
"Regulation T": Regulation T of the Board of Governors of the Federal
------------
Reserve System as in effect from time to time.
"Regulation U": Regulation U of the Board of Governors of the Federal
------------
Reserve System as in effect from time to time.
"Regulation X": Regulation X of the Board of Governors of the Federal
------------
Reserve System as in effect from time to time.
"Required Lenders": at any time, Lenders the Commitment Percentages of
----------------
which aggregate more than 50%.
"Requirement of Law": as to any Person, the certificate of
------------------
incorporation, by-laws, partnership agreement, or other organizational or
governing documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer": the president, treasurer, assistant treasurer,
-------------------
or secretary of each Fund, or, with respect to financial matters, the treasurer
or assistant
<PAGE>
treasurer of each Fund; provided, however, that as used in (i) Section 5.1(c)
-------- -------
and (ii) with respect to the certificate required to accompany the financial
statements referred to in Section 5.1(c) only, Section 5.2(b), "Responsible
-----------
Officer" shall also include the following officers of U.S. Trust Company of
- -------
Connecticut: Brian Schmidt, Vice President; Frank Bruno, Vice President; and
Alice McClave, Financial Officer.
"Revolving Credit Loan": as defined in Section 2.1.
---------------------
"Revolving Credit Note": as defined in Section 2.5(e).
---------------------
"S&P": Standard & Poor's Ratings Group, a division of the McGraw-Hill
---
Companies.
"Senior Securities Representing Indebtedness": any Senior Security
-------------------------------------------
other than stock.
"Senior Security": any bond, debenture, note or similar obligation or
---------------
instrument constituting a security and evidencing indebtedness (including,
without limitation, all Loans under this Agreement), and any share of beneficial
interest of a Borrower of a class having priority over any other class of shares
of such Borrower as to distribution of assets or payment of dividends.
"Shareholder Services Agreement": as to each Fund or each Borrower, as
------------------------------
applicable, the Shareholder Services Agreement(s) set forth in Schedule VI
-----------
hereto.
"Subsidiary": as to any Person, a corporation, partnership or other
----------
entity of which shares of stock or other ownership interests having ordinary
voting power (other than stock or such other ownership interests having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corporation, partnership or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person.
"Swing Line Commitment": the obligation of the Swing Line Lender to
---------------------
make Swing Line Loans pursuant to Section 2.13 hereof in the aggregate principal
amount at any one time outstanding not to exceed $10,000,000.
"Swing Line Lender": as defined in Section 2.13 hereof.
-----------------
"Swing Line Loans": as defined in Section 2.13 hereof.
----------------
"Swing Line Participation Amount": as defined in Section 2.15(c)
-------------------------------
hereof.
"Termination Date": the date which is 364 days following the Closing
----------------
Date or such earlier date on which the Commitments shall terminate as provided
herein.
"Total Assets": at any time, all assets of a Borrower which in
------------
accordance with
<PAGE>
GAAP would be classified as assets on a balance sheet of such Borrower prepared
as of such time; provided, however, that the term Total Assets shall not include
--------
(a) equipment, (b) securities owned by a Borrower which are in default and (c)
deferred organizational and offering expenses.
"Transferee": as defined in Section 9.6(f).
----------
"UCC": the Uniform Commercial Code as from time to time in effect in
---
the State of New York.
"UST": United States Trust Company of New York, a New York state
---
chartered bank and trust company, U.S. Trust Company, a Connecticut state bank
and trust company, and U.S. Trust Company, N.A., a national bank acting as
investment manager for the Borrowers as indicated on Schedule III hereto.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
-----------------------------
therein, all terms defined in this Agreement shall have the defined meanings
when used in any Notes or any certificate or other document made or delivered
pursuant hereto.
(b) As used herein and in any Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms relating to any
Borrower not defined in Section 1.1 and accounting terms partly defined in
Section 1.1, to the extent not defined, shall have the respective meanings given
to them under GAAP (as consistently applied).
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
1.3 Assumptions Regarding Structure. For the sake of clarity and
-------------------------------
construction, the parties hereto hereby set forth their acknowledgment and
agreement that each Borrower is a separate portfolio of the Fund acting on its
behalf and as such is not a separately existing legal entity entitled to enter
into contractual agreements or to execute instruments and for these reasons,
each Fund acting on behalf of a Borrower is executing this Agreement and each
respective Note on behalf of its portfolios, as Borrowers, and that such
portfolios will utilize the Loans thus made on their behalf. No Fund shall make
any designation, provide any notice or take any other action on behalf of any
Borrower that is not an investment portfolio of such Fund.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Commitments. Subject to the terms and conditions hereof, each Lender
-----------
severally agrees to make revolving credit loans ("Revolving Credit Loans") to
----------------------
each Borrower, from time to time during the Commitment Period in an aggregate
principal amount at any one time
<PAGE>
outstanding not to exceed the amount of such Lender's Commitment. During the
Commitment Period each Borrower may use Commitments by borrowing, prepaying
Loans in whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof; provided that at no time may the aggregate principal amount
--------
of Revolving Credit Loans and Swing Line Loans to all Borrowers exceed the
Aggregate Commitment.
2.2 Procedure for Borrowing. A Borrower may borrow under the Commitments
-----------------------
during the Commitment Period on any Business Day, provided that the Borrower
--------
shall give the Administrative Agent irrevocable notice (which notice must be
received by the Administrative Agent prior to 12:00 Noon, New York City time on
the requested Borrowing Date), specifying (i) the amount to be borrowed, and
(ii) the requested Borrowing Date. The aggregate amount of each borrowing by a
Borrower under the Commitments on any Borrowing Date shall be in an amount equal
to $2,000,000 or a whole multiple of $1,000,000 in excess thereof (or, if the
then Available Commitments are less than $1,000,000, such lesser amount). Upon
receipt of any such notice from a Borrower, the Administrative Agent shall
promptly notify each Lender thereof. Each Lender will make the amount of its pro
rata share of each borrowing available to the Administrative Agent for the
account of such Borrower at the office of the Administrative Agent specified in
Section 9.2 prior to 3:00 P.M., New York City time, on the Borrowing Date
requested by such Borrower in funds immediately available to the Administrative
Agent. Such borrowing will then be made available to such Borrower on such
Borrowing Date by the Administrative Agent transferring by wire to the custodian
of and for the account of such Borrower the aggregate of the amounts made
available to the Administrative Agent by the Lenders and in like funds as
received by the Administrative Agent; provided that if, on the Borrowing Date of
--------
any Revolving Credit Loans of a Borrower, any Swing Line Loans to such Borrower
shall be outstanding, the proceeds of such Revolving Credit Loans to such
Borrower shall first be applied to pay in full such Swing Line Loans, with any
remaining proceeds to be made available to such Borrower as provided above.
2.3 Fees. (a) Each Borrower severally agrees to pay to the Administrative
----
Agent for the account of each Lender such Borrower's pro rata Allocation (as
adjusted from time to time in accordance with the terms hereof) of a commitment
fee ("Commitment Fee") during the period which shall begin on the first day of
--------------
the Commitment Period and shall extend to the Termination Date, which Commitment
Fee shall be a quarterly fee, computed at the rate of .10% per annum on the
average daily amount of the Available Commitments of all Lenders in the
aggregate during each calendar quarter. Such Commitment Fee shall be payable
quarterly in arrears on the last Business Day of each March, June, September and
December and on the Termination Date, commencing on the first of such dates to
occur after the date hereof. Solely for the purpose of calculating the
Commitment Fee, Swing Line Loans will not be deemed a utilization of the
Aggregate Commitments of all Lenders.
(b) Each Borrower severally agrees to pay the Administrative Agent
for the account of the Administrative Agent the fees separately agreed to.
2.4 Termination or Reduction of Commitments. (a) Each Borrower shall have
---------------------------------------
the right, upon not less than three Business Days' notice to the Administrative
Agent, to terminate all Commitments with respect to such Borrower. Any
termination of all Commitments to a
<PAGE>
Borrower shall be accompanied by prepayment in full of the Loans to such
Borrower then outstanding, and payment of such Borrower's Allocation of (i) any
accrued Commitment Fees payable by such Borrower hereunder and (ii) any other
accrued fees, expenses or indemnified liabilities payable by such Borrower
hereunder. The amount of the Aggregate Commitment shall not be affected by any
Borrower's termination. Prior to such termination, the Funds shall notify the
Administrative Agent in writing as to the Allocations of the remaining
Borrowers, effective as of the termination.
(b) Interest accrued on the amount of any prepayment relating to such
termination and any unpaid Commitment Fee accrued hereunder shall be paid on the
date of such termination.
(c) Upon the effective date of such termination, the terminating
Borrower shall no longer be obligated to pay Commitment Fees hereunder or any
share of any other fees, expenses, or indemnified liabilities that may accrue
thereafter (except in connection with indemnification obligations with respect
to events arising prior to such termination, payment for which is not sought by
the indemnified party until after such termination), and such payment
obligations accruing after the date of such termination shall be allocated among
the remaining Borrowers.
(d) The Borrowers shall have the right, upon not less than three
Business Days' notice to the Administrative Agent, to reduce irrevocably the
Commitments of the Lenders with respect to all Borrowers. Any such reduction
shall be accompanied by prepayment in full of any amount by which the Loans
exceed the reduced Commitments then outstanding. Prior to such reduction
becoming effective, the Funds shall notify the Administrative Agent in writing
as to the Allocations of the Borrowers, effective as of the reduction.
2.5 Repayment of Loans; Evidence of Debt. (a) Each Borrower hereby
------------------------------------
severally (and neither jointly nor jointly and severally) and unconditionally
promises to pay to the Administrative Agent for the account of each Lender the
then unpaid principal amount of each Loan of such Lender to such Borrower on the
Maturity Date for such Loan (or such earlier date on which the Loans become due
and payable pursuant to Section 7). Each Borrower hereby further severally
agrees to pay to the Administrative Agent for the account of each Lender
interest on the unpaid principal amount of the Loans to such Borrower from time
to time outstanding from the date hereof until payment in full thereof at the
rates per annum, and on the dates, set forth in Section 2.7.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of each Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant to
Section 9.6(d), and a subaccount therein for each Lender, in which shall be
recorded (i) the amount of each Loan made hereunder, (ii) the amount of any
principal or interest due and payable or to become due and payable from each
Borrower to each Lender hereunder and (iii) both the amount
<PAGE>
of any sum received by the Administrative Agent hereunder from each Borrower and
each Lender's share thereof. The Administrative Agent shall provide a copy of
the Register to each Borrower upon request.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.5(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
----- -----
obligations of the Borrower therein recorded, provided, however, that the
-------- -------
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of any Borrower to repay (with applicable interest) the Loans made to
such Borrower by such Lender in accordance with the terms of this Agreement.
(e) Each Fund agrees that, upon the request of any Lender to the
Administrative Agent, such Fund will execute and deliver to such Lender a
promissory note of each Borrower evidencing the Loans of such Lender to such
Borrower, substantially in the form of Exhibit 2.5(e) with appropriate
--------------
insertions as to date and principal amount (a "Revolving Credit Note").
---------------------
(f) The obligations of each Borrower under its Notes shall be several
and not joint or joint and several. Notwithstanding anything to the contrary
contained in this Agreement, the parties hereto acknowledge and agree that the
sole source of payment of the obligations of each Borrower hereunder, including,
without limitation, the principal of and interest on each Loan made hereunder to
any Borrower, the Commitment Fee payable pursuant to Section 2.3 and any other
amounts attributable to the Loans made hereunder to any Borrower shall be the
revenues and assets of such Borrower, and not the revenues and assets of any
other Borrower or the revenues and assets of a Fund acting on behalf of a
Borrower (except to the extent of such Borrower).
2.6 Optional and Mandatory Prepayments. (a) Each Borrower may prepay
----------------------------------
the Loans made to it, in whole or in part, without premium or penalty, upon at
-------
least one Business Day's irrevocable notice to the Administrative Agent,
specifying the date and amount of prepayment. Upon receipt of any such notice
the Administrative Agent shall promptly notify each Lender thereof. If any such
notice is given, the amount specified in such notice shall be due and payable on
the date specified therein. Partial prepayments shall be in an aggregate
principal amount of $100,000 or an integral multiple of $100,000 in excess
thereof.
(b) If, at any time and from time to time, either (i) the Asset
Coverage Ratio for all borrowings of a Borrower shall be less than 300% or (ii)
the aggregate amount of Loans made to a Borrower then outstanding exceeds the
borrowing limits provided in such Borrower's Prospectus, then within three
Business Days thereafter such Borrower shall repay Loans made to such Borrower
to the extent necessary to ensure that (x) the Asset Coverage Ratio of all
borrowings of such Borrower after such payments is in compliance with applicable
covenants concerning minimum Asset Coverage Ratios set forth in this Agreement
or (y) the aggregate amount of Loans made to such Borrower then outstanding does
not after such payments exceed such limits, as the case may be.
<PAGE>
2.7 Interest Rates and Payment Dates. (a) Each Loan shall bear interest at
--------------------------------
a rate per annum equal to the Federal Funds Rate plus the Applicable Margin. In
addition, during the period from December 1, 1999 to January 31, 2000, if a
Lender's cost of funds exceeds the Federal Funds Rate, then the Federal Funds
Rate shall be adjusted upwards in an amount, not to exceed 1.50% per annum,
equal to the excess of such Lender's cost of funding over the Federal Funds
Rate. If any Lender becomes entitled to claim any such additional amounts, it
shall promptly notify the Borrowers (with a copy to the Administrative Agent) of
the event by reason of which it has become so entitled by providing a
certificate setting forth in reasonable detail the basis for the claim for
additional amounts, the amounts required to be paid by the Borrowers to such
Lender, and the computations made by such Lender to determine the amounts;
provided that such Lender shall not be required to disclose any confidential
information. Failure or delay on the part of any Lender to demand compensation
pursuant hereto shall not constitute a waiver of such Lender's right to demand
such compensation; provided that a Lender claiming such compensation pursuant to
this Section 2.7 must have made its demand for such compensation on or before
March 15, 2000.
(b) Notwithstanding any provision to the contrary contained herein,
(i) upon the occurrence and continuance of any Event of Default specified in
Section 7(e) with respect to a Borrower or (ii) upon notice given by the
Administrative Agent or the Required Lenders to the Borrower of any other Event
of Default, all Loans outstanding to such Borrower shall bear interest at a rate
per annum which is the rate that would otherwise be applicable thereto pursuant
to the provisions of section 2.7(a), plus 2% per annum. If all or a portion of
(i) the principal amount of any Loan, (ii) any interest payable thereon or (iii)
any Commitment Fee or other amount payable hereunder shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate per annum which is the rate that would
otherwise be applicable thereto pursuant to the foregoing provisions of this
section 2.7(a) plus 2% per annum from the date of such non-payment until such
amount is paid in full (before as well as after judgment).
(c) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to the second sentence of
--------
paragraph (b) of this section 2.7 shall be payable from time to time on demand.
2.8 Computation of Interest and Fees. (a) Commitment Fees and interest
--------------------------------
shall be calculated on the basis of a 360-day year for the actual days elapsed.
Any change in the interest rate on a Loan resulting from a change in the Federal
Funds Rate shall become effective as of the opening of business on the day on
which such change becomes effective. The Administrative Agent shall as soon as
practicable notify the Borrower and the Lenders of the effective date and the
amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on each Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of a Borrower, deliver to such
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.7(a).
<PAGE>
2.9 Pro Rata Treatment and Payments. (a) Each borrowing by a Borrower
-------------------------------
from the Lenders hereunder, each payment by a Borrower on account of any
Commitment Fee hereunder and any reduction of the Commitments of the Lenders
shall be made pro rata according to the respective Commitment Percentages of the
Lenders. Each payment (including each prepayment) by a Borrower on account of
principal of and interest on the Loans shall be made pro rata according to the
respective outstanding principal amounts of the Loans of such Borrower then held
by the Lenders. All payments (including prepayments) to be made by a Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without set off or counterclaim and shall be made no later than 10:00
A.M., New York City time, on the due date thereof to the Administrative Agent,
for the account of the Lenders, at the Administrative Agent's office specified
in Section 9.2 hereof, in Dollars and in immediately available funds. The
Administrative Agent shall distribute such payments to the Lenders promptly upon
receipt in like funds as received. If any payment hereunder becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day, and, with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension.
(b) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its Commitment Percentage of such borrowing
available to the Administrative Agent, the Administrative Agent may assume that
such Lender is making such amount available to the Administrative Agent, and the
Administrative Agent may, in reliance upon such assumption, make available to
the Fund on behalf of the requesting Borrower a corresponding amount. If such
amount is not made available to the Administrative Agent by the required time on
the Borrowing Date therefor, such Lender shall pay to the Administrative Agent,
on demand, such amount with interest thereon at a rate equal to the daily
average Federal Funds Rate for the period until such Lender makes such amount
immediately available to the Administrative Agent. A certificate of the
Administrative Agent submitted to any Lender with respect to any amounts owing
under this Section shall be conclusive in the absence of manifest error. If such
Lender's Commitment Percentage of such borrowing is not made available to the
Administrative Agent by such Lender within three Business Days of such Borrowing
Date, the Administrative Agent shall also be entitled to recover such amount
with interest thereon at the rate per annum applicable to Loans hereunder, on
demand, from the relevant Borrower (and such Borrower may borrow under the
Commitments or under the Swing Line Commitment to satisfy such demand; provided
--------
that, for purposes of determining the Available Commitment, the Commitment of
any non-funding Lender shall be excluded).
2.10 Requirements of Law. (a) If any Lender shall have determined that the
-------------------
adoption of or any change in any Requirement of Law of any Governmental
Authority regarding capital adequacy or in the interpretation or application
thereof or compliance by such Lender or any corporation controlling such Lender
with any request or directive regarding capital adequacy (whether or not having
the force of law) from any Governmental Authority made subsequent to the date
hereof shall have the effect of reducing the rate of return on such Lender's or
such corporation's capital as a consequence of its obligations hereunder to a
level below that which such Lender or such corporation could have achieved but
for such adoption, change or compliance (taking into consideration such Lender's
or such corporation's policies with respect to
<PAGE>
capital adequacy) by an amount determined by such Lender to be material, then
from time to time, each Borrower shall promptly pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction.
(b) If any Lender becomes entitled to claim any additional amounts
pursuant to this Section, it shall promptly notify the Borrowers (with a copy to
the Administrative Agent) of the event by reason of which it has become so
entitled by providing a certificate setting forth in reasonable detail the basis
for the claim for additional amounts, the amounts required to be paid by the
Borrowers to such Lender, and the computations made by such Lender to determine
the amounts; provided that such Lender shall not be required to disclose any
--------
confidential information. Such certificate as to any additional amounts payable
pursuant to this Section submitted by such Lender to the Borrowers (with a copy
to the Administrative Agent) shall be conclusive in the absence of manifest
error. The agreements in this Section shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
No Borrower shall be responsible to compensate such Lender for additional
amounts attributable to another Borrower's loans.
(c) Failure or delay on the part of any Lender to demand
compensation pursuant to this Section shall not constitute a waiver of such
Lender's right to demand such compensation; provided that the Borrowers shall
--------
not be required to compensate a Lender pursuant to this Section for any
increased costs or reductions incurred more than 270 days prior to the date that
such Lender notifies the Borrower of the change in the Requirement of Law giving
rise to such increased costs or reductions and of such Lender's intention to
claim compensation therefor; provided further that, if the change in the
-------- -------
Requirement of Law giving rise to such increased costs or reductions is
retroactive, then the 270-day period referred to above shall be extended to
include the period of retroactive effect thereof.
2.11 Taxes. (a) All payments made by any Borrower under this Agreement
-----
and any Notes shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding all present and future income taxes and
franchise taxes (imposed in lieu of net income taxes) imposed on the
Administrative Agent or any Lender as a result of a present or former connection
between the Administrative Agent or such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
the Administrative Agent or such Lender having executed, delivered or performed
its obligations or received a payment under, or enforced, this Agreement or any
Note). If any such non-excluded taxes, levies, imposts, duties, charges, fees
deductions or withholdings ("Non-Excluded Taxes") are required to be withheld
------------------
from any amounts payable to the Administrative Agent or any Lender hereunder or
under any Note, the amounts so payable to the Administrative Agent or such
Lender shall be increased to the extent necessary to yield to the Administrative
Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Agreement, provided, however, that a Borrower shall not be required to
-------- -------
increase any such amounts payable to any Lender that is not organized under the
laws of the United States of America or a state thereof if such Lender fails to
comply
<PAGE>
with the requirements of paragraph (b) of this Section. Whenever any Non-
Excluded Taxes are payable by a Borrower, as promptly as possible thereafter
such Borrower shall send to the Administrative Agent for its own account or for
the account of such Lender, as the case may be, a certified copy of an original
official receipt received by such Borrower showing payment thereof. If a
Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, such Borrower shall indemnify the
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Lender as a
result of any such failure. The agreements in this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
(b) Each Lender that is not incorporated under the laws of the
United States of America or a state thereof shall:
(i) deliver to UST and the Administrative Agent (A) two duly
completed copies of United States Internal Revenue Service Form 1001 or
4224, or successor applicable form, as the case may be, and (B) an Internal
Revenue Service Form W-8 or W-9, or successor applicable form, as the case
may be;
(ii) deliver to UST and the Administrative Agent two further copies
of any such form or certification on or before the date that any such form
or certification expires or becomes obsolete and after the occurrence of any
event requiring a change in the most recent form previously delivered by it
to UST; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by UST or the
Administrative Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises UST and the Administrative
Agent. Such Lender shall certify (A) in the case of a Form 1001 or 4224, that it
is entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes and (B) in the case of a
Form W-8 or W-9, that it is entitled to an exemption from United States backup
withholding tax. Each Person that shall become a Lender or a Participant
pursuant to Section 9.6 shall, upon the effectiveness of the related transfer,
be required to provide all of the forms and statements required pursuant to this
Section, provided that in the case of a Participant such Participant shall
furnish all such required forms and statements to the Lender from which the
related participation shall have been purchased.
2.12 Change of Lending Office; Replacement of Lender. (a) Each Lender
-----------------------------------------------
agrees that if it makes any demand for payment under Section 2.10, or 2.11 it
will use reasonable efforts (consistent with its internal policy and legal and
regulatory restrictions and so long as such efforts would not be disadvantageous
to it, as determined in its sole discretion) to designate a
<PAGE>
different lending office if the making of such a designation would reduce or
obviate the need for a Borrower to make payments under Section 2.10 or 2.11.
(b) If any Lender shall have required compensation pursuant to
Section 2.10, the Borrowers shall have the right, with the consent of the
Administrative Agent (which shall not be unreasonably withheld), to substitute
such Lender with an Eligible Lender (a "Replacement Lender") satisfactory to the
------------------
Borrowers (which may be one or more of the Lenders if they, in their sole
discretion, elect to become such Replacement Lender) to assume the Commitment of
such Lender and to purchase the Notes held by such Lender, if any, for an amount
equal to the principal of, and accrued and unpaid interest on, such Notes,
together with any costs reasonably incurred by such Lender in connection with
its sale of such Notes and the assignment of such Commitment (without recourse
to or warranty by such Lender and subject to all amounts owing to such Lender
under this Agreement having been paid in full). Upon the exercise of such right
by the Borrower and the satisfaction of such conditions thereto, such Lender
shall convey its interest to the Replacement Lender in accordance with the
procedures set forth in Section 9.6(c).
2.13 Swing Line Commitment. Subject to the terms and conditions hereof,
---------------------
Chase (in such capacity, the "Swing Line Lender") agrees to make available to
-----------------
each Borrower a portion of the credit otherwise available under the Commitments
from time to time during the Commitment Period by making swing line loans
("Swing Line Loans") to such Borrower in an aggregate principal amount not to
- ------------------
exceed at any one time outstanding the Swing Line Commitment (notwithstanding
that the Swing Line Loans outstanding at any time, when aggregated with the
Swing Line Lender's other outstanding Revolving Credit Loans hereunder, may
exceed the Swing Line Lender's Commitment then in effect); provided, however,
-------- -------
that on the date of the making of any Swing Line Loan, the sum of the aggregate
principal amount of all outstanding Revolving Credit Loans and Swing Line Loans
shall not exceed the total Commitments (less the Commitment of any non-funding
Lender referred to in Section 2.9(b)). During the Commitment Period applicable
to each Borrower, such Borrower may use the Swing Line Commitment by borrowing,
repaying and reborrowing, all in accordance with the terms and conditions
hereof. Each Swing Line Loan shall bear interest at a rate per annum equal to
the Federal Funds Rate plus the Applicable Margin.
2.14 Procedure for Swing Line Borrowing. Whenever a Borrower desires that
----------------------------------
the Swing Line Lender make Swing Line Loans under Section 2.13, the Borrower
shall give the Swing Line Lender irrevocable telephonic notice confirmed
promptly in writing (which telephonic notice must be received by the Swing Line
Lender not later than 3:00 P.M., New York City time, on the proposed Borrowing
Date), specifying the amount of each requested Swing Line Loan. Each borrowing
under the Swing Line Commitment shall be in an amount equal to $100,000 or an
integral multiple of $100,000 in excess thereof. Not later than 5:00 P.M., New
York City time, on the Borrowing Date specified in a notice by a Borrower in
respect of Swing Line Loans, the Swing Line Lender shall make available to the
Administrative Agent for the account of such Borrower at the office of the
Administrative Agent specified in Section 9.2 an amount in immediately available
funds equal to the amount of the Swing Line Loan to be made by the Swing Line
Lender. The proceeds of such Swing Line Loan will then be made available to such
Borrower on such Borrowing Date by the Administrative Agent transferring by wire
to the custodian of and for the account of such Borrower the aggregate of the
amounts made
<PAGE>
available to the Administrative Agent by the Swing Line Lender in immediately
available funds.
2.15 Refunding of Swing Line Loans. (a) If the Swingline Loan has not been
-----------------------------
repaid, the Swing Line Lender, at any time in its sole and absolute discretion
may, and, if any Swingline Loan has not bee repaid, on the seventh day (or if
such day is not a Business Day, the next Business Day) after the Borrowing Date
with respect to any Swing Line Loans to a Borrower, shall, on behalf of such
Borrower (and each Borrower hereby irrevocably directs the Swing Line Lender to
so act on its behalf and with respect to each Borrower), upon notice given by
the Swing Line Lender no later than 10:00 A.M., New York City time, on the
relevant refunding date, request each Lender to make, and each Lender hereby
agrees to make, a Revolving Credit Loan to such Borrower, at the rate applicable
to the Swing Line Loans of such Borrower, in an amount equal to such Lender's
Commitment Percentage of the amount of such Swing Line Loans of such Borrower
(the "Refunded Swing Line Loans") outstanding on the date of such notice, to
-------------------------
repay the Swing Line Lender. Each Lender shall make the amount of such Revolving
Credit Loan available to the Administrative Agent at its office set forth in
Section 9.2 in immediately available funds, no later than 1:00 P.M., New York
City time, on the date of such notice. The proceeds of such Revolving Credit
Loans shall be distributed by the Administrative Agent to the Swing Line Lender
and immediately applied by the Swing Line Lender to repay the Refunded Swing
Line Loans. Effective on the day such Revolving Credit Loans are made, the
portion of the Swing Line Loans so paid shall no longer be outstanding as Swing
Line Loans.
(b) The making of any Swing Line Loan hereunder at the request of a
Borrower shall be subject to the satisfaction of the applicable conditions
precedent thereto set forth in Section 4 (unless otherwise waived in accordance
with Section 9.1).
(c) If prior to the making of a Revolving Credit Loan to a Borrower
pursuant to Section 2.15(a) one of the events described in paragraph (e) of
Section 7 shall have occurred with respect to such Borrower, each Lender
severally, unconditionally and irrevocably agrees that it shall purchase a
participating interest in the applicable Swing Line Loans ("Unrefunded Swing
----------------
Line Loans") in an amount equal to the amount of Revolving Credit Loans which
- ----------
would otherwise have been made by such Lender pursuant to Section 2.15(a). Each
Lender will immediately transfer to the Administrative Agent, in immediately
available funds, the amount of its participation (the "Swing Line Participation
------------------------
Amount"), and the proceeds of such participation shall be distributed by the
- ------
Administrative Agent to the Swing Line Lender in such amount as will reduce the
amount of the participating interest retained by the Swing Line Lender in its
Swing Line Loans to the amount of the Revolving Credit Loans which were to have
been made by it pursuant to Section 2.15(a).
(d) Whenever, at any time after the Swing Line Lender has received from
any Lender such Lender's Swing Line Participation Amount, the Swing Line Lender
receives any payment on account of the Swing Line Loans, the Swing Line Lender
will distribute to such Lender its Swing Line Participation Amount
(appropriately adjusted, in the case of interest payments, to reflect the period
of time during which such Lender's participating interest was outstanding and
funded and, in the case of principal and interest payments, to reflect such
Lender's pro rata portion of such payment if such payment is not sufficient to
--------
pay the principal of an interest on all Swing Line Loans then due); provided,
--------
however, that in the event that such
- -------
<PAGE>
payment received by the Swing Line Lender is required to be returned, such
Lender will return to the Swing Line Lender any portion thereof previously
distributed to it by the Swing Line Lender.
(e) Each Lender's obligation to make the Loans referred to in Section
2.15(a) and to purchase participating interests pursuant to Section 2.15(c)
shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, (i) any setoff, counterclaim,
recoupment, defense or other right which such Lender may have against the Swing
Line Lender or any other Person for any reason whatsoever; (ii) the occurrence
or continuance of a Default or an Event of Default or the failure to satisfy any
of the other conditions specified in Section 4; (iii) any adverse change in the
condition (financial or otherwise) of any Borrower; (iv) any breach of this
Agreement or any other Loan Document by any Borrower or any Lender; or (v) any
other circumstance, happening or event whatsoever, whether or not similar to any
of the foregoing.
2.16 Designation of Additional Borrowers; Amendments to Schedule I. (a)
-------------------------------------------------------------
Other series of each Fund and other investment companies registered under the
1940 Act, in either case (a) which have at least $2,000,000 in Total Assets and
(b) for which UST or a Subsidiary of UST acts as the investment manager, may,
with the prior written consent of the Administrative Agent and each Lender,
become parties to this Agreement in addition to those Borrowers listed on
Schedule I, and be deemed Borrowers for all purposes of this Agreement by
- ----------
executing an instrument substantially in the form of Exhibit 2.16(a) hereto
---------------
(with such changes therein as may be approved by the Administrative Agent and
the Lenders), which instrument shall (x) have attached to it a copy of this
Agreement (as the same may have been amended) with a revised Schedule I
----------
reflecting the participation of such additional series or investment company and
any prior revisions to Schedule I effected in accordance with the terms hereof
-----------
and (y) be accompanied by the documents and instruments required to be delivered
by the Borrowers pursuant to Section 4.1, including, without limitation, an
opinion of counsel for the Funds substantially in the form of Exhibit 4.1(h)
hereto.
(b) No series of any Fund or investment company shall be admitted as a
party to this Agreement as a Borrower unless at the time of such admission and
after giving effect thereto: (i) the representations and warranties set forth in
Section 3 shall be true and correct with respect to such Borrower; (ii) such
Borrower shall be in compliance in all material respects with all of the terms
and provisions set forth herein on its part to be observed or performed at the
time of the admission and after giving effect thereto; and (iii) no Default or
Event of Default with respect to such Borrower shall have occurred and be
continuing.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans, each Fund on behalf of itself and each Borrower
hereby represents and warrants to the Administrative Agent and each Lender that
(it being agreed that each Fund represents and warrants only to matters with
respect to itself and each Borrower that is a series of such Fund, and each
Borrower represents and warrants only to matters with respect to itself):
<PAGE>
3.1 Financial Condition. For each Borrower, the statement of assets and
-------------------
liabilities as of such Borrower's most recently ended fiscal year for which
annual reports have been prepared and the related statements of operations and
of changes in net assets for the fiscal year ended on such date, copies of which
financial statements, certified by the independent public accountants for each
Fund acting on behalf of each Borrower, have heretofore been delivered to each
Lender, fairly present, in all material respects, the financial position of such
Borrower as of such date and the results of its operations for such period, in
conformity with GAAP (as consistently applied).
3.2 No Change. For each Borrower, since the date of the statement of
---------
assets and liabilities for the most recently ended fiscal year for which annual
reports have been prepared for such Borrower, there has been no development or
event which has had or could reasonably be expected to have a Material Adverse
Effect with respect to such Borrower.
3.3 Existence; Compliance with Law. Each Fund (a) is duly organized,
------------------------------
validly existing and in good standing under the laws of the jurisdiction of its
organization, (b) has the power and authority and the legal right to own its
property and to conduct the business in which it is currently engaged, (c) is
duly qualified as a foreign corporation or business trust and is in good
standing under the laws of each jurisdiction where its ownership of property or
the conduct of its business requires such qualification and (d) is in compliance
with all Requirements of Law except to the extent that the failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect. The shares of each Fund have been validly authorized.
3.4 Power; Authorization; Enforceable Obligations. Each Fund acting on
---------------------------------------------
behalf of one or more Borrowers, has the power and authority and the legal
right, to execute, deliver and perform the Loan Documents to which it is a party
and to borrow hereunder and has taken all necessary action to authorize the
borrowings on the terms and conditions of this Agreement and any Notes and to
authorize the execution, delivery and performance of the Loan Documents to which
it is a party including, but not limited to, receiving the approval of the
majority of non-interested members of the board of trustees or board of
directors of such Fund as to entering into the transactions contemplated hereby.
No consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of the Loan Documents to which the Funds
and any Borrower is a party. This Agreement has been, and each other Loan
Document to which it is a party will be, duly executed and delivered by each
Fund on behalf of its Borrowers. This Agreement constitutes, and each other
Loan Document to which it is a party when executed and delivered will
constitute, a legal, valid and binding obligation of the Funds and each Borrower
enforceable against the Funds and each Borrower severally in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
3.5 No Legal Bar. The execution, delivery and performance of the Loan
------------
Documents to which each of the Funds and the Borrowers is a party, the
borrowings hereunder and the use of the proceeds thereof will not violate any
material Requirement of Law (including, without
<PAGE>
limitation, the 1940 Act) or Contractual Obligation of any Fund or any Borrower
and will not result in, or require, the creation or imposition of any Lien on
any of their respective properties or revenues pursuant to any such Requirement
of Law or Contractual Obligation.
3.6 No Material Litigation. No litigation, investigation or proceeding of
----------------------
or before any arbitrator or Governmental Authority is pending or, to the
knowledge of any Fund or any Borrower, threatened by or against any Fund or any
Borrower or against any of their respective properties or revenues (a) with
respect to any of the Loan Documents or any of the transactions contemplated
hereby or thereby, or (b) which could reasonably be expected to have a Material
Adverse Effect.
3.7 No Default. Neither any Fund nor any Borrower is in default under or
----------
with respect to any of its Contractual Obligations in any respect which could
reasonably be expected to have a Material Adverse Effect. No Default or Event
of Default has occurred and is continuing.
3.8 Ownership of Property; Liens. Each Fund and each Borrower has good
----------------------------
title to all its property, and none of such property is subject to any Lien
except as permitted by Section 6.3.
3.9 No Burdensome Restrictions. No Requirement of Law or Contractual
--------------------------
Obligation of any Fund or any Borrower could reasonably be expected to have a
Material Adverse Effect.
3.10 Taxes. (a) Each Fund and each Borrower has filed all tax returns
-----
which, to the knowledge of such Fund and such Borrower, are required to be filed
and has paid all taxes shown to be due and payable on said returns or on any
assessments made against it or any of its property and all other taxes, fees or
other charges imposed on it or any of its property by any Governmental Authority
(other than any the amount or validity of which are currently being contested in
good faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of such Fund or such
Borrower); no tax Lien has been filed, and, to the knowledge of each Fund and
each Borrower, no claim is being asserted, with respect to any such tax, fee or
other charge.
(b) Each Borrower is a "regulated investment company" as defined in the
Code.
3.11 Federal Regulations. No filing or other action is required under the
-------------------
provisions of Regulations T, U or X in connection with the execution and
delivery of the Agreement and the making of the Loans hereunder. If requested
by any Lender or the Administrative Agent from time to time, each Fund and each
Borrower will furnish to the Administrative Agent and each Lender a statement to
the foregoing effect in conformity with the requirements of FR Form U-1 and FR
Form G-3, as appropriate, referred to in said Regulation U.
3.12 ERISA. Neither any Fund, any Borrower nor any Commonly Controlled
-----
Entity has currently or has had at any time any liability or obligation under
ERISA or the Code with respect to any Plan.
3.13 Certain Regulations. Neither any Fund nor any Borrower is subject to
-------------------
regulation
<PAGE>
under any Federal or State statute or regulation (other than Regulation X of the
Board of Governors of the Federal Reserve System and the 1940 Act) which limits
its ability to incur Indebtedness.
3.14 Subsidiaries. Each Fund has no Subsidiaries, and no equity investment
------------
or interest in any other Person (other than portfolio securities which have been
acquired in the ordinary course of business).
3.15 Registration of the Funds. Each Borrower is a series or portfolio of a
-------------------------
Fund and all Funds are registered as open-end, management investment companies
under the 1940 Act.
3.16 Offering in Compliance with Securities Laws. Each Fund and each
-------------------------------------------
Borrower has issued all of its securities pursuant to an effective registration
statement on Form N-1A or otherwise in accordance with all Federal and State
securities laws applicable thereto.
3.17 Investment Policies. Each Borrower is in compliance in all material
-------------------
respects with all of its fundamental Investment Policies.
3.18 Permission to Borrow. Each Borrower is permitted to borrow hereunder
--------------------
pursuant to the limits and restrictions set forth in its statement of Additional
Information.
3.19 Accuracy of Information. All financial information, information
-----------------------
regarding each Borrower's investment policies and information contained in
exhibits attached hereto heretofore or contemporaneously furnished by or on
behalf of each Fund and each Borrower in writing to the Administrative Agent or
any Lender for purposes of or in connection with this Agreement or any
transaction contemplated hereby (in each case, as amended, superseded,
supplemented or otherwise modified) is, and all other such factual information
with respect to a Borrower or a Fund hereafter furnished in writing by or on
behalf of each Fund and each Borrower to the Administrative Agent or any Lender
(in each case, as amended, superseded, supplemented or otherwise modified) will
be, true and accurate in every material respect on the date as of which such
information is dated or certified, and to the extent such information was
furnished to the Administrative Agent or such Lender heretofore or
contemporaneously, as of the date of execution and delivery of this Agreement by
the Administrative Agent or such Lender, and such information is not, or shall
not be, as the case may be, incomplete by omitting to state any material fact
necessary to make such information not misleading.
3.20 Affiliated Persons. To the best knowledge of each Fund and each
------------------
Borrower, such Fund and such Borrower, together with their respective Affiliates
is not an "Affiliated Person" (as defined in the 1940 Act) of the Administrative
Agent or any Lender.
3.21 Year 2000. Each Fund has used commercially reasonable efforts to
---------
obtain assurances deemed reasonable by such Fund from its investment adviser,
administrator, transfer agent, distributor and custodian (together, the "Service
-------
Providers") that the services provided by such Fund will not be materially
- ---------
disrupted due to the inability of the Service Providers' computer systems to
process properly dates on and after January 1, 2000 and distinguish between the
year 2000 and the year 1900 ("Year 2000 Problem"). Each Fund has been advised
-----------------
by the Service
<PAGE>
Providers that they anticipate that the transition to the 21/st/ century will
not result in a Material Adverse Effect. The disclosures contained herein
regarding Year 2000 readiness are designated as Year 2000 readiness disclosures
related to the Year 2000 Information & Readiness Disclosure Act.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Closing. The effectiveness of this Agreement is subject
---------------------
to the satisfaction, prior to or on the Closing Date, of the following
conditions precedent, which conditions precedent apply to and shall be satisfied
by the Borrowers severally:
(a) Executed Agreement. The Administrative Agent shall have received
------------------
this Agreement, executed and delivered by a duly authorized officer of each
Fund on behalf of such Fund and each Borrower, with a counterpart for each
Lender.
(b) Notes. The Administrative Agent shall have received Notes for each
-----
Lender which has requested Notes pursuant to Section 2.5(e), executed and
delivered by a duly authorized officer of each Fund on behalf of each
Borrower.
(c) Related Agreements. The Administrative Agent shall have received
------------------
true and correct copies, certified as to authenticity by each Fund, of the
most recent Prospectus for each Borrower, the Shareholder Services Agreement
for each Borrower, the Custody Agreement for each Borrower, the Distribution
Agreement for each Borrower, the Investment Management Agreement of each
Fund with respect to each Borrower, the current registration statement for
each Borrower, the most recent annual and semi-annual financial reports for
each Borrower and such other documents or instruments as may be reasonably
requested by the Administrative Agent, including, without limitation, a copy
of any debt instrument, security agreement or other material contract to
which any Borrower may be a party.
(d) Proceedings of the Funds and the Borrowers. The Administrative
------------------------------------------
Agent shall have received, with a counterpart for each Lender, a copy of the
resolutions, in form and substance satisfactory to the Administrative Agent,
of the board of trustees or directors, as the case may be, of each Fund
authorizing (i) the execution, delivery and performance of this Agreement
and the other Loan Documents to which each Fund and each Borrower is a party
and (ii) the borrowings contemplated hereunder, certified by the Secretary
or an Assistant Secretary of such Person as of the Closing Date, which
certificate shall be in form and substance satisfactory to the
Administrative Agent and shall state that the resolutions thereby certified
have not been amended, modified, revoked or rescinded and are in full force
and effect.
(e) Incumbency Certificate. The Administrative Agent shall have
----------------------
received, with a counterpart for each Lender, a Certificate of each Fund,
dated the Closing Date, as to the incumbency and signature of the officers
of such Fund executing any Loan Document executed by the Secretary or any
Assistant Secretary of such Fund, satisfactory
<PAGE>
in form and substance to the Administrative Agent.
(f) Organizational Documents. The Administrative Agent shall have
------------------------
received, with a counterpart for each Lender, true and complete copies of
the charter or certificate, as the case may be, and by-laws of each Fund,
certified as of the Closing Date as complete and correct copies thereof by
the Secretary or an Assistant Secretary of each Fund.
(g) Regulations U; Forms U-1 and G-1. The Lenders shall be satisfied
--------------------------------
that the Loans and the use of proceeds thereof comply in all respects with
Regulation U. If required by Regulation , the Administrative Agent shall
have received a copy of either (i) FR Form U-1 or FR Form G3 (as
applicable), duly executed and delivered by each Fund on behalf of each
Borrower and completed for delivery to each Lender, in form acceptable to
the Administrative Agent, or (ii) a current list of "margin stock" (as
defined in Regulation U) from each Borrower, in form acceptable to the
Administrative Agent and in compliance with Section 221.3(c)(2) of
Regulation U.
(h) Legal Opinions. The Administrative Agent shall have received, with
--------------
a counterpart for each Lender, the executed legal opinion of counsel to the
Funds and each Borrower, substantially in the form of Exhibit 4.1(h)
--------------
hereto. Such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
(i) Financial Information. The Administrative Agent shall have
---------------------
received, with a copy for each Lender, the most recent publicly available
financial information (which includes a list of portfolio securities) for
each Fund and each Borrower.
(j) Termination of other Credit Facilities. All other credit
--------------------------------------
facilities to which any Borrower is a party including, but not limited to,
the $50,000,000 bilateral facility heretofore entered into between Chase
and the Borrowers, shall have been terminated.
(k) Representations and Warranties. Each of the representations and
------------------------------
warranties made by a Fund acting on behalf of a requesting Borrower and by
the requesting Borrower in or pursuant to the Loan Documents shall be true
and correct in all material respects on and as of such date as if made on
and as of such date.
4.2 Conditions to Each Loan. The agreement of each Lender to make any loan
-----------------------
requested by a particular Borrower to be made by it on any date (including,
without limitation, its initial Loan) is subject to the satisfaction of the
following conditions precedent:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties (other than Section 3.2) made by a Fund acting on behalf of a
requesting Borrower and by the requesting Borrower in or pursuant to the
Loan Documents shall be true and correct in all material respects on and as
of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred
----------
with
<PAGE>
respect to the requesting Borrower, or the Fund acting on behalf of a
requesting Borrower, and be continuing on such date or after giving effect
to the Loans requested to be made on such date.
(c) Maximum Borrowing Limitation. After giving effect to the proposed
----------------------------
Loans to be made, the Asset Coverage Ratio for all borrowings of such
Borrower shall not be less than 300% and the requesting Borrower shall not
have violated any Requirements of Law or exceeded the borrowing limits set
forth in its Prospectus.
(d) Regulation U; Forms U-1 and G-1. The Lenders shall be satisfied
-------------------------------
that the Loans and the use of proceeds thereof comply in all respects with
Regulation U. To the extent required by Regulation U, the Administrative
Agent shall have received a copy of either (i) FR Form U-1 or FR Form G3 (as
applicable), duly executed and delivered by each Fund on behalf of each
Borrower and completed for delivery to each Lender, in form acceptable to
the Administrative Agent, or (ii) a current list of "margin stock" (as
defined in Regulation U) from each Borrower, in form acceptable to the
Administrative Agent and in compliance with Section 221.3(c)(2) of
Regulation U.
(e) Additional Matters. All corporate and other proceedings, and all
------------------
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the other Loan Documents
shall be reasonably satisfactory in form and substance to the Administrative
Agent, and the Administrative Agent shall have received such other documents
and legal opinions in respect of any aspect or consequence of the
transactions contemplated hereby or thereby as it shall reasonably request.
Each borrowing by a Borrower hereunder shall constitute a representation and
warranty by such Borrower as of the date thereof that the conditions contained
in this Section have been satisfied with respect to such Borrower.
SECTION 5. AFFIRMATIVE COVENANTS
Each Fund for itself and each Borrower for itself severally and not jointly
or jointly and severally hereby agrees that, so long as (i) the Commitments
remain in effect with respect to it or (in the case of any Fund) any Borrower
that is a series of such Fund or (ii) any amount is owing by it or (in the case
of any Fund) any Borrower that is a series of such Fund to any Lender or the
Administrative Agent hereunder or under any other Loan Document, it and (in the
case of any Fund) any Borrower that is a part of such Fund shall (it being
agreed that each Fund covenants only to matters with respect it itself and each
Borrower that is a part of such Fund, and each Borrower covenants only to
matters with respect to itself):
5.1 Financial Statements. Furnish to the Administrative Agent (with copies
--------------------
for each Lender):
(a) as soon as available and in any event within 75 days after the end
of each
<PAGE>
fiscal year of such Borrower, a statement of assets and liabilities of such
Borrower as at the end of such fiscal year, a statement of operations for
such fiscal year, a statement of changes in net assets for such fiscal year
and the preceding fiscal year, a portfolio of investments as at the end of
such fiscal year and the per share and other data for such fiscal year
prepared in accordance with GAAP (as consistently applied) and all
regulatory requirements, and all presented in a manner acceptable to the
Securities and Exchange Commission or any successor or analogous
Governmental Authority and acceptable to Ernst & Young LLP or any other
independent certified public accountants of recognized standing;
(b) as soon as available and in any event within 60 days after the
close of the first six-month period of each fiscal year of such Borrower, a
statement of assets and liabilities as at the end of such six-month period,
a statement of operations for such six-month period, a statement of changes
in net assets for such six-month period and a portfolio of investments as at
the end of such six-month period, all prepared in accordance with regulatory
requirements and all certified (subject to normal year end adjustments) as
to fairness of presentation, GAAP (as consistently applied) and consistency
by a Responsible Officer; and
(c) as soon as available, but in any event not later than 10 days after
the end of each month of each fiscal year of each Borrower, the net asset
value sheet of such Borrower as at the end of such month, in the form and
detail similar to those customarily prepared by the Funds' management for
internal use and reasonably satisfactory to the Administrative Agent,
certified by a Responsible Officer as being fairly stated in all material
respects; provided, however, that if any Borrower has Loans outstanding,
-------- -------
such Borrower shall provide each Lender with (i) such net asset value sheet
described above in this Section and (ii) a certificate of a Responsible
Officer showing in reasonable detail the calculations supporting such
Borrower's compliance with Section 6.1, within two Business Days after the
end of each calendar week so long as any Loans to such Borrower remain
outstanding;
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
5.2 Certificates; Other Information. Furnish to the Administration Agent
--------------------------------
(with copies for each Lender):
(a) concurrently with the delivery of the financial statements referred
to in Section 5.1(a), a certificate of the independent certified public
accountants reporting on such financial statements stating that in making
the examination necessary therefor no knowledge was obtained of any Default
or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of the financial statements referred
to in
<PAGE>
Sections 5.1(a), (b) and (c) and the quarterly report in Section 5.2(d), a
certificate of a Responsible Officer stating that, to the best of such
Officer's knowledge, such Borrower during such period has observed or
performed all of its covenants and other agreements, and satisfied every
condition, contained in this Agreement and the other Loan Documents to be
observed, performed or satisfied by it, and that no Default or Event of
Default has occurred and is continuing except as specified in such
certificate;
(c) within five days after the same are sent, copies of all financial
statements and reports which each Borrower sends to its investors, and
within five Business Days after the same are filed, copies of all financial
statements and reports which each Borrower may make to, or file with, the
Securities and Exchange Commission or any successor or analogous
Governmental Authority;
(d) as soon as available, but in any event not later than ten days
after the end of each quarter, a certificate of a Responsible Officer (i)
stating that the list of each Borrower's portfolio securities attached to
such certificate is true and correct and (ii) showing in reasonable detail
the calculations supporting such Borrower's compliance with Section 6.1; and
(e) promptly, such additional financial and other information as any
Lender may from time to time reasonably request, including, but not limited
to, copies of all changes to the Prospectus and registration statement.
5.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
----------------------
before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, except where the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and reserves
in conformity with GAAP with respect thereto have been provided on the books of
such Borrower or such Fund, as the case may be.
5.4 Conduct of Business and Maintenance of Existence; Change of Custodian.
---------------------------------------------------------------------
Continue to engage in its investment business in accordance with its Investment
Policies, Prospectus and registration statement and preserve, renew and keep in
full force and effect its existence and take all reasonable action to maintain
all rights, privileges and franchises necessary or desirable in the normal
conduct of its business; comply with all Contractual Obligations and
Requirements of Law except to the extent that failure to comply therewith could
not, in the aggregate, be reasonably expected to have a Material Adverse Effect;
maintain at all times its status as an investment company or a series of an
investment company registered under the 1940 Act; maintain at all times a
custodian which is a bank or trust company organized under the laws of the
United States or a political subdivision thereof having assets of at least
$10,000,000,000 and a long-term debt or deposit rating of at least A from S&P or
A2 from Moody's.
5.5 Maintenance of Property; Insurance. Keep all property useful and
----------------------------------
necessary in its business, if any, in good working order and condition; maintain
with financially sound and reputable insurance companies insurance on all its
property in at least such amounts and against at least such risks as are usually
insured against in the same general area by entities engaged in the same or
similar business or as may otherwise be required by the Securities and Exchange
<PAGE>
Commission or any successor or analogous Governmental Authority (including,
without limitation, (a) fidelity bond coverage as shall be required by Rule 17g-
1 promulgated under the 1940 Act or any successor provision and (b) errors and
omissions insurance); and furnish to each Lender, upon written request, full
information as to the insurance carried.
5.6 Inspection of Property; Books and Records; Discussions. Keep proper
------------------------------------------------------
books of records and account in which full, true and correct in all material
respects entries in conformity with GAAP and all material Requirements of Law
shall be made of all dealings and transactions in relation to its business and
activities; and permit representatives of (i) the Administrative Agent, or its
representatives, upon its own discretion or at the reasonable request of any
Lender, and (ii) upon the occurrence and during the continuance of an Event of
Default, any Lender, or its representatives, to visit and inspect any of such
Borrower's properties and examine and make abstracts from any of its books and
records during normal business hours and to discuss the business, operations,
properties and financial and other condition of such Borrower with officers and
employees of such Borrower and with its independent certified public
accountants; provided that, unless a Default or an Event of Default shall have
--------
occurred and be continuing, the Administrative Agent shall provide the Borrowers
with five Business Days' prior notice of such visit and shall only conduct such
visit once a year.
5.7 Notices. Promptly give notice to the Administrative Agent and each
-------
Lender of:
(a) the occurrence of any Default or Event of Default with respect to
such Borrower;
(b) any (i) default or event of default under any Contractual
Obligation of such Borrower or such Fund or (ii) litigation, investigation
or proceeding which may exist at any time between any Fund and/or any
Borrower and any Governmental Authority, which in either case, if not cured
or if adversely determined, as the case may be, could reasonably be expected
to have a Material Adverse Effect;
(c) any litigation or proceeding affecting such Borrower in which the
amount reasonably determined to be at risk is $1,000,000 or more and not
covered by insurance or in which injunctive or similar relief is sought;
(d) change in such Borrower's Prospectus or registration statement
involving fundamental Investment Policies which could materially increase
the risks to the shareholders of the Borrower; and
(e) any development (other than widely reported general economic or
industry developments) or event which could reasonably be expected to have a
Material Adverse Effect on any such Borrower.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action such Fund or such Borrower proposes to take with respect
thereto.
<PAGE>
5.8 Purpose of Loans. Use the proceeds of the Loans for temporary or
----------------
emergency purposes. Without limiting the foregoing, no Borrower will, directly
or indirectly, use any part of such proceeds for any purpose which would violate
any provision of its registration statement or any applicable statute,
regulation.
SECTION 6. NEGATIVE COVENANTS
Each Fund for itself and each Borrower for itself hereby agrees that,
so long as (i) the Commitments remain in effect with respect to it or (in the
case of any Fund) any Borrower that is a part of such Fund or (ii) any amount is
owing by it or (in the case of any Fund) any Borrower that is a part of such
Fund to any Lender or the Administrative Agent hereunder or under any other Loan
Document, it and (in the case of any Fund) any Borrower that is a part of such
Fund shall not, without the prior written consent of the Required Lenders,
directly or indirectly:
6.1 Financial Condition Covenant. Permit the Asset Coverage Ratio of such
----------------------------
Borrower to be less than 300%, or allow borrowings and/or Indebtedness of such
Borrower to exceed the limits set forth in such Borrower's Prospectus or allow
borrowing and/or Indebtedness to exceed the requirements of the 1940 Act.
6.2 Limitation on Indebtedness. Create, incur, assume or suffer to exist
--------------------------
any Indebtedness of such Borrower, except Indebtedness of such Borrower incurred
(i) under this Agreement and the Notes, (ii) in the ordinary course of business
of such Borrower or (iii) in the form of reverse repurchase transactions, dollar
rolls or other transactions entered into primarily for investment purposes which
have the effect of borrowing and, in each case, which is not otherwise
prohibited by law is in the ordinary course of business, is not in contravention
of such Borrower's Prospectus and is reflected properly in the calculation of
the Asset Coverage Ratio.
6.3 Limitation on Liens. Create, incur, assume or suffer to exist any Lien
-------------------
upon any of the property, assets or revenues, whether now owned or hereafter
acquired of such Borrower, except for (i) Liens for taxes not yet due or which
are being contested in good faith by appropriate proceedings, provided that
--------
adequate reserves with respect thereto are maintained on the books of such
Borrower in conformity with GAAP, (ii) Liens arising in connection with claims
for advances made by or payments due to any custodian under the Custodian
Agreements set forth in Schedule IV hereto and (iii) any other Liens created,
-----------
incurred, assumed or suffered to exist in compliance with the registration
statement of such Borrower which are not otherwise prohibited by any Requirement
of Law, and for which the Administrative Agent has been given prior written
notice.
6.4 Limitation on Guarantee Obligations. Create, incur, assume or suffer
-----------------------------------
to exist any material Guarantee Obligation of such Borrower.
6.5 Limitation on Fundamental Changes. Enter into any merger,
---------------------------------
consolidation or amalgamation, or liquidate, wind up or dissolve such Borrower
or fund (or suffer any liquidation or dissolution), or convey, sell, lease,
assign, transfer or otherwise dispose of all of the property,
<PAGE>
business or assets of such Borrower in a single transaction or in related
transactions, or make any material change in its present method of conducting
business; except that, so long as no Default or Event of Default shall have
occurred and be continuing, a Borrower will be permitted to (i) enter into any
merger, consolidation or amalgamation with one or more Borrowers or, with the
consent of the Administrative Agent (which consent shall not be unreasonably
withheld), one or more Affiliates or such Borrower if, in each case, UST or one
of its affiliates is the investment manager to the entity surviving such merger,
consolidation or amalgamation and such entity assumes the obligations of such
Borrower under the Loan Documents and complies with the provisions hereof or
(ii) liquidate, wind up or convey, sell, lease, assign, transfer or otherwise
dispose of all of the property, business or assets of such Borrower if it repays
all Loans made to it prior to liquidation or (iii) sell, transfer or otherwise
dispose of all or substantially all of its assets to one or more Borrowers or,
with the consent of the Administrative Agent (which consent shall not be
unreasonably withheld), one or more Affiliate of such Borrower if UST or one of
its affiliates is the investment manager to the entity surviving such merger,
consolidation or amalgamation and such entity assumes the obligations of such
Borrower under the Loan Documents and complies with the provisions hereof. Any
Borrower undertaking any action described in clause (ii) above shall comply with
the termination provisions described in Section 2.4 hereof.
6.6 Limitation on Distributions. At any time, make any distribution to the
---------------------------
shareholders of such Borrower, whether now or hereafter existing, either
directly or indirectly, whether in cash or property or in obligations of the
borrower if such distribution results in a Default or an Event of Default ,
except to the extent that such distributions are required to enable such
Borrower to continue to qualify as a "regulated investment company" under
Sections 851-855 of the Code or otherwise to minimize or eliminate federal or
state income or excise taxes payable by such Borrower and except as otherwise
required by any other Requirement of Law. During the occurrence and continuation
of an Event of Default specified in paragraphs (a) or (e) of Section 7 or an
Event of Default arising in connection with a Borrower's having failed to comply
with Section 6.1, make any distribution to the shareholders of such Borrower,
whether now or hereafter existing, either directly or indirectly, whether in
cash or property or in obligations of the Borrower, except to the extent that
such distributions are required to enable such Borrower to continue to qualify
as a "regulated investment company" under Sections 851-855 of the Code or
otherwise to minimize or eliminate federal or state income or excise taxes
payable by such Borrower and except as otherwise required by any other
Requirement of Law.
6.7 Limitation on Investments, Loans and Advances. Make any advance, loan,
---------------------------------------------
extension of credit or capital contribution to, or purchase any stock, bonds,
notes, debentures or other securities of or any assets constituting a business
unit of or make any other investment in, any Person, except those not
inconsistent with such Borrower's Investment Policies.
6.8 Limitation on Transactions with Affiliates. Enter into any
------------------------------------------
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) not otherwise prohibited under this Agreement and not in
violation of the 1940 Act, (b) in the ordinary course of such Borrower's
business, and (c) upon fair and reasonable terms no less favorable to such
Borrower than it would obtain in a comparable arm's length transaction with a
Person which is not an Affiliate.
<PAGE>
6.9 Limitation on Negative Pledge Clauses. Enter into with any Person any
-------------------------------------
agreement, other than this Agreement or the other Loan Documents, which
prohibits or limits the ability of such Borrower to create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owed or hereafter acquired.
6.10 Limitation on Changes to Investment Policies. Except as may be
--------------------------------------------
required by law, make any amendment to the Prospectus or registration statement
of such Borrower relating to changes in the fundamental Investment Policies of
such Borrower which amendment requires approval of such Borrower's shareholders
without the consent of the Required Lenders, which consent shall not be
unreasonably withheld.
SECTION 7. EVENTS OF DEFAULT
Subject to the final paragraph of this Section 7, if any of the following
events shall occur and be continuing with respect to a Borrower or a Fund, on
behalf of such Borrower, as the case may be (each an "Event of Default"):
----------------
(a) A Borrower shall fail to pay any principal of any Loan when due in
accordance with the terms thereof or hereof, including without limitation
any failure to make a mandatory prepayment due pursuant to the provisions of
Section 2.6(b); or a Borrower shall fail to pay any interest on any Loan, or
any other amount payable hereunder, within three Business Days after any
such interest or other amount becomes due in accordance with the terms
thereof or hereof; or
(b) Any representation or warranty made or deemed made by a Borrower or
any Fund herein or in any other Loan Document or which is contained in any
certificate, document or financial or other statement furnished by it at any
time under or in connection with this Agreement or any such other Loan
Document shall prove to have been incorrect in any material respect on or as
of the date made or deemed made; or
(c) A Borrower or a Fund shall default in the observance or performance
of any other covenant or agreement contained in this Agreement or any other
Loan Document (other than as provided in paragraphs (a) and (b) of this
Section), and such default shall continue unremedied for a period of 30 days
or, solely in the case of such default arising under Sections 5.4 or 6.5
hereof, 15 Business Days; or
(d) A Borrower or a Fund shall (i) default in any payment of principal
of or interest on any Indebtedness (other than the Loans) or in the payment
of any Guarantee Obligation, beyond the grace period (not to exceed 30
days), if any, provided in the instrument or agreement under which such
Indebtedness or Guarantee Obligation was created, if the aggregate amount of
the Indebtedness and/or Guarantee Obligations in respect of which such
default or defaults shall have occurred is at least 5% of such Borrower's or
such Fund's net assets; or (ii) default in the observance or performance of
any other agreement or condition relating to any such Indebtedness or
Guarantee
<PAGE>
Obligation or contained in any instrument or agreement evidencing, securing
or relating thereto, or any other event shall occur or condition exist, the
effect of which default or other event or condition is to cause, or to
permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf
of such holder or holders or beneficiary or beneficiaries) to cause, with
the giving of notice if required, such Indebtedness to become due prior to
its stated maturity or such Guarantee Obligation to become payable; or
(e) (i) Any Fund shall commence any case, proceeding or other action
with respect to itself or any Borrower (A) under any then applicable law of
any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial
part of its assets, or a Borrower or a Fund shall make a general assignment
for the benefit of its creditors; or (ii) there shall be commenced against a
Borrower or a Fund any case, proceeding or other action of a nature referred
to in clause (i) above which (A) results in the entry of an order for relief
or any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) there shall be
commenced against a Borrower or a Fund any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in
the entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from the entry
thereof; or (iv) a Borrower or a Fund shall take any action in writing in
furtherance of, or indicating its consent to, approval of, or acquiescence
in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) a
Borrower or a Fund shall generally not, or shall be unable to, or shall
admit in writing its inability to, pay its debts as they become due; or
(f) Either a Borrower or any Commonly Controlled Entity of such
Borrower incurs any liability to any Plan which could reasonably be expected
to have a Material Adverse Effect; or
(g) One or more judgments or decrees shall be entered against a
Borrower or a Fund involving in the aggregate a liability (not fully covered
by insurance or otherwise paid or discharged) of 5% or more of such
Borrower's net assets, and all such judgments or decrees shall not have been
vacated, discharged, stayed or bonded pending appeal within 30 days from the
entry thereof; or
(h) Unless consented to by the Lenders, UST or a Person directly
controlling, controlled by, or under common control with UST shall no longer
act as investment manager for the Funds; or
(i) A Fund or a Borrower's registration under the 1940 Act shall lapse
or be suspended (or proceedings for such purpose shall have been
instituted); or
<PAGE>
(j) A Borrower shall fail to materially comply with its fundamental
Investment Policies;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (e) of this Section with respect to such
Borrower (or a Fund acting on behalf of one or more Borrowers), automatically
the Commitments available to such Borrower (or all of the Borrowers that are
portfolios of such Fund) shall immediately terminate and the Loans hereunder
made to any such Borrower (with accrued interest thereon) and all other amounts
owing under this Agreement by such Borrower shall immediately become due and
payable, and (B) if such event is any other Event of Default with respect to
such Borrower (or a Fund acting on behalf of one or more Borrowers), any or all
of the following actions may be taken: (i) with the consent of the Required
Lenders, the Administrative Agent may, or upon the request of the Required
Lenders, the Administrative Agent shall, by notice to such Borrower declare the
Commitments available to such Borrower (or all of the Borrowers issued under
such Fund if such Event of Default is a Fund Event of Default (as defined
below)) to be terminated forthwith, whereupon such Commitments shall immediately
terminate; and (ii) with the consent of the Required Lenders, the Administrative
Agent may, or upon the request of the Required Lenders, the Administrative Agent
shall, by notice to such Borrower, declare the Loans hereunder (with accrued
interest thereon) and all other amounts owing under this Agreement by such
Borrower (or all of the Borrowers issued under such Fund if such Event of
Default is a Fund Event of Default) to be due and payable forthwith, whereupon
the same shall immediately become due and payable. Except as expressly provided
above in this Section, presentment, demand, protest and all other notices of any
kind are hereby expressly waived.
Notwithstanding any other provision herein to the contrary, Defaults and
Events of Defaults shall have the following results:
(i) a Default or Event of Default with respect to one Borrower shall
not constitute a Default or Event of Default to any other
Borrower;
(ii) except as set forth in clause (iii) below, a Default or Event of
Default with respect to a Fund acting on behalf of one or more
Borrowers shall constitute a Default or Event of Default, as the
case may be, only to the Borrower implicated in, or affected by,
the act or omission causing such Default or Event of Default;
(iii) a Fund Default or a Fund Event of Default with respect to a Fund
acting on behalf of one or more Borrowers shall constitute a
Default or Event of Default, as the case may be, to all
Borrowers issued by such Fund; and
(iv) an Event of Default of the type described in paragraph (h) of
this Section 7 shall constitute an Event of Default to all
Borrowers.
"Fund Event of Default" shall mean an Event of Default with respect to a Fund as
---------------------
a whole and not with respect to any Borrower or a Fund acting on behalf of a
Borrower (A) of any of the
<PAGE>
types described in paragraphs (d), (e), (g), or (i) of this Section 7, or (B)
arising from such Fund's failure to comply with the covenants set forth in
Sections 5.3, 5.4, 5.5 or 6.5. "Fund Default" shall mean any of the events
------------
giving rise to Fund Events of Default, whether or not any requirement for the
giving of notice, the lapse of time, or both, or any other condition, has been
satisfied. Notwithstanding anything herein to the contrary, a Default or Event
of Default with respect to one Borrower shall not constitute a Default or Event
of Default with respect to any other Borrower.
SECTION 8. THE ADMINISTRATIVE AGENT
8.1 Appointment. Each Lender hereby irrevocably designates and appoints
-----------
the Administrative Agent as the agent of such Lender under this Agreement and
the other Loan Documents, and each such Lender irrevocably authorizes the
Administrative Agent, in such capacity, to take such action on its behalf under
the provisions of this Agreement and the other Loan Documents and to exercise
such powers and perform such duties as are expressly delegated to the
Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
8.2 Delegation of Duties. The Administrative Agent may execute any of its
--------------------
duties under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Administrative Agent shall not be
responsible for the negligence, willful misfeasance, bad faith or misconduct of
any agents or attorneys in-fact selected by it with reasonable care.
8.3 Exculpatory Provisions. Neither the Administrative Agent nor any of
----------------------
its officers, directors, employees, agents, attorneys-in-fact or Affiliates
shall be (a) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any other Loan
Document (except for its or such Person's own gross negligence or willful
misconduct) or (b) responsible in any manner to any of the Lenders for any
recitals, statements, representations or warranties made by any Fund or any
Borrower or any officer thereof contained in this Agreement or any other Loan
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Administrative Agent under or in
connection with, this Agreement or any other Loan Document or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document or for any failure of any Borrower or any
Fund to perform its obligations hereunder or thereunder. The Administrative
Agent shall not be under any obligation to any Lender to ascertain or to inquire
as to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of any Fund or any Borrower.
<PAGE>
8.4 Reliance by Administrative Agent. The Administrative Agent shall be
--------------------------------
entitled to rely, and shall be fully protected in relying, upon any Note,
writing, resolution, notice, consent, certificate, affidavit, letter, telecopy,
telex or teletype message, statement, order or other document or conversation
reasonably believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Funds or the
Borrowers), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent may deem and treat the payee of
any Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Lenders as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and the other Loan Documents in
accordance with a request of the Required Lenders, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Lenders and all future holders of the Loans.
8.5 Notice of Default. The Administrative Agent shall not be deemed to
-----------------
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Lender or a
Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event
that the Administrative Agent receives such a notice, the Administrative Agent
shall give notice thereof to the Lenders. The Administrative Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders; provided that unless and until the
--------
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.
8.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender
------------------------------------------------------
expressly acknowledges that neither the Administrative Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates has made
any representations or warranties to it and that no act by the Administrative
Agent hereinafter taken, including any review of the affairs of the Funds or
Borrowers, shall be deemed to constitute any representation or warranty by the
Administrative Agent to any Lender. Each Lender represents to the
Administrative Agent that it has, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrowers and made its own decision to
make its Loans hereunder and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigation as
it deems necessary to inform itself as to the
<PAGE>
business, operations, property, financial and other condition and
creditworthiness of the Borrowers. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Funds or the Borrowers which
may come into the possession of the Administrative Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates.
8.7 Indemnification. The Lenders agree to indemnify the Administrative
---------------
Agent in its capacity as such (to the extent not reimbursed by the Borrowers and
without limiting the obligation of the Borrowers to do so), ratably according to
their respective Commitment Percentages in effect on the date on which
indemnification is sought (or, if indemnification is sought after the date upon
which the Commitments shall have terminated and the Loans shall have been paid
in full, ratably in accordance with their Commitment Percentages immediately
prior to such date), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Loans) be imposed on,
incurred by or asserted against the Administrative Agent in any way relating to
or arising out of the Commitments, this Agreement, any of the other Loan
Documents or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or thereby or any action taken or omitted
by the Administrative Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
- --------
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Administrative
Agent's gross negligence or willful misconduct. The agreements in this Section
shall survive the payment of the Loans and all other amounts payable hereunder.
8.8 Administrative Agent in Its Individual Capacity. The Administrative
-----------------------------------------------
Agent and its Affiliates may make loans to, accept deposits from and generally
engage in any kind of business with any Fund or any Borrower as though the
Administrative Agent were not the Administrative Agent hereunder and under the
other Loan Documents. With respect to the Loans made by it, the Administrative
Agent shall have the same rights and powers under this Agreement and the other
Loan Documents as any Lender and may exercise the same as though it were not the
Administrative Agent, and the terms "Lender" and "Lenders" shall include the
Administrative Agent in its individual capacity.
8.9 Successor Administrative Agent. The Administrative Agent may resign as
------------------------------
Administrative Agent upon 10 Business Days' notice to the Lenders and the
Borrowers; provided that no such resignation shall be effective until a
successor Administrative Agent has been appointed hereunder. If the
Administrative Agent shall resign as Administrative Agent under this Agreement
and the other Loan Documents, then the Required Lenders shall appoint from among
the Lenders a successor agent for the Lenders (or, if the Required Lenders do
not appoint such successor agent within 30 days of the date of the resigning
Administrative Agents resignation notice, the resigning Administrative Agent
shall appoint from among the Lenders a successor agent) whereupon such successor
agent shall succeed to the rights, powers and duties of the Administrative
Agent, and the term "Administrative Agent" shall mean such successor
<PAGE>
agent effective upon such appointment and approval, and the former
Administrative Agent's rights, powers and duties as Administrative Agent shall
be terminated, without any other or further act or deed on the part of such
former Administrative Agent or any of the parties to this Agreement or any
holders of the Loans. After any retiring Administrative Agent's resignation as
Administrative Agent, the provisions of this Section 8 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement and the other Loan Documents.
SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement nor any other Loan
----------------------
Document, nor any terms hereof or thereof, may be amended, supplemented or
modified except in accordance with the provisions of this Section. The Required
Lenders may, or, with the written consent of the Required Lenders, the
Administrative Agent may, from time to time, (a) enter into with any Fund on
behalf of a Borrower written amendments, supplements or modifications hereto and
to the other Loan Documents for the purpose of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner the rights of
the Lenders or of such Borrower hereunder or thereunder or (b) waive, on such
terms and conditions as the Required Lenders or the Administrative Agent, as the
case may be, may specify in such instrument, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment,
--------
supplement or modification shall (i) reduce the amount or extend the scheduled
date of maturity of any Loan or of any installment thereof, or reduce the stated
rate of any interest or fee payable hereunder or extend the scheduled date of
any payment thereof or increase the amount or extend the expiration date of any
Lender's Commitment, in each case without the consent of each Lender affected
thereby, or (ii) amend, modify or waive any provision of this subsection or
reduce the percentage specified in the definition of Required Lenders, or
consent to the assignment or transfer by any Borrower of any of its rights and
obligations under this Agreement and the other Loan Documents, in each case
without the written consent of all the Lenders, or (iii) amend or modify the
first two sentences of Section 2.9(a), in each case without the written consent
of all the Lenders, or (iv) amend or modify the requirement contained in the
first sentence of Section 2.16(a) that consent of all the Lenders is required
to approve the addition of Borrowers to this Agreement, in each case without the
written consent of all the Lenders, or (v) amend or modify Section 2.6(b)
without the written consent of all the lenders, or (vi) amend or modify Section
6.1 without the written consent of all the Lenders, or (vii) amend, modify or
waive any provision of Section 8 without the written consent of the then
Administrative Agent. Any such waiver and any such amendment, supplement or
modification shall be effective (i) only for such Borrower(s) on whose behalf
any Fund executed such document(s) and (ii) in the specific instance and for the
specific purpose for which given.
9.2 Notices. All notices, requests and demands to or upon the respective
-------
parties hereto to be effective shall be in writing (which writing may be in the
form of a facsimile transmission), and, unless otherwise expressly provided
herein, shall be deemed to have been duly given or made when delivered, or five
days after being deposited in the mail, postage prepaid, or, in the case of
facsimile notice, when received, addressed as follows in the case of any Fund,
any
<PAGE>
Borrower and the Administrative Agent, and as set forth in Schedule II in the
-----------
case of the other parties hereto, or to such other address as may be hereafter
notified by the respective parties hereto:
The Funds and
the Borrowers: United States Trust Company of Connecticut
225 High Ridge Road
East Tower
Stamford, Connecticut 06905
Attention: Brian F. Schmidt
Facsimile: (203) 973-0465
The Administrative
Agent:
The Chase Manhattan Bank
Loan and Agency Services Group
One Chase Manhattan Plaza
Eighth Floor
New York, New York 10081
Attention: Ms. Laura Rebecca
Facsimile: (212) 552-7490
and
The Chase Manhattan Bank
270 Park Avenue
Thirty-sixth Floor
New York, New York 10017
Attention: Ms. Roberta Whittington
Facsimile: (212) 270-0670
provided that any notice, request or demand to or upon the Administrative Agent
- --------
or the Lenders pursuant to Section 2.2, 2.4, 2.6, or 2.8 shall not be effective
until received.
9.3 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of any party hereto, any right, remedy, power
or privilege hereunder or under the other Loan Documents shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.
9.4 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans hereunder.
<PAGE>
9.5 Payment of Expenses and Taxes; Indemnification. (a) Each Borrower
----------------------------------------------
agrees severally (ratably, in accordance with its Allocation) (a) to reimburse
the Administrative Agent for its reasonable out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Administrative Agent; provided, however, that
the fees and disbursements of counsel to the Administrative Agent incurred for
the preparation of this Agreement and the other Loan Documents shall be limited
as previously agreed to by the Borrowers and the Administrative Agent, (b) to
reimburse each Lender and the Administrative Agent for all its costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement with respect to such Borrower, the other Loan
Documents and any such other documents, including, without limitation, the fees
and disbursements of counsel to each Lender and of counsel to the Administrative
Agent, (c) to indemnify and hold each Lender and the Administrative Agent
harmless, from, any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any delay in paying, stamp,
excise and other taxes, if any, which may be payable or reasonably determined to
be payable in connection with the execution and delivery of, or consummation or
administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the other Loan Documents and any such other documents with
respect to such Borrower, and (d) to indemnify and hold each Lender and the
Administrative Agent (and their respective affiliates, directors, officers,
agents and employees (collectively with the Administrative Agent and the
Lenders, the "Indemnified Parties")) harmless from and against any and all other
-------------------
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, out-of-pocket expenses or disbursements of any kind or nature whatsoever
arising from or in connection with the actual or proposed use of proceeds or the
execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents and any such other documents (all the
foregoing in this clause (d), collectively, the "indemnified liabilities"),
-----------------------
provided, that such Borrower shall have no obligation hereunder to the
- --------
Administrative Agent or any Lender with respect to indemnified liabilities
arising from (i) the gross negligence or willful misconduct of the
Administrative Agent or any such Lender, (ii) disputes arising between or among
the Lenders or (iii) the failure of the Administrative Agent (and its
Affiliates) or of any Lender to comply with any Requirement of Law. The
agreements in this Section shall survive repayment of the Loans and all other
amounts payable hereunder.
(b) Notwithstanding any other provision in this Agreement to the
contrary, to the extent any obligation to reimburse or indemnify any Indemnified
Party arises pursuant to Section 9.5(a) is not attributable to any particular
Borrower, then such reimbursement or indemnification shall be made by each
Borrower (ratably, in accordance with its Allocation). To the extent any such
obligation to reimburse or indemnify any Indemnified Party is attributable to
one or more Borrowers, then such reimbursement or indemnification shall be made
ratably by each such Borrower any by no other Borrower.
9.6 Successors and Assigns; Participations and Assignments. (a) This
------------------------------------------------------
Agreement shall be binding upon and inure to the benefit of the Funds, the
Borrowers, the Lenders, the
<PAGE>
Administrative Agent and their respective successors and assigns, except that
neither any Fund nor any Borrower may assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of each
Lender; provided that such consent of the Administrative Agent shall not be
--------
required if such assignment or transfer is made in furtherance of a merger,
consolidation or amalgamation which, by the express terms of Section 6.5, is
permitted to occur without the prior written consent of the Administrative
Agent.
(b) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable laws, at any time sell to one or more
Eligible Lenders ("Participants") participating interests in any Loan owing to
------------
such Lender, any Commitment of such Lender or any other interest of such Lender
hereunder and under the other Loan Documents. In the event of any such sale by
a Lender of a participating interest to a Participant, such Lender's obligations
under this Agreement to the other parties to this Agreement shall remain
unchanged, such Lender shall remain solely responsible for the performance
thereof, such Lender shall remain the holder of any such Loan for all purposes
under this Agreement and the other Loan Documents, and the Borrowers and the
Administrative Agent shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under this Agreement and
the other Loan Documents. Any agreement pursuant to which any Lender may grant
such a participating interest shall provide that such Lender shall retain the
sole right and responsibility to enforce the obligations of the Borrowers
hereunder including the right to approve any amendment, modification or waiver
of any provision of this Agreement; provided that such participation agreement
--------
may provide that (i) such Lender will not agree to any modification, amendment
or waiver of this Agreement described in clause (i) of the proviso in Section
9.1 without the consent of the Participant and (ii) the Participant may obtain
voting rights limited to changes in respect of the principal amount, interest
rates, fees and term of the Loans. Each Borrower agrees that if amounts
outstanding under this Agreement are due or unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall, to the maximum extent permitted by applicable laws, be
deemed to have the right of setoff in respect of its participating interest in
amounts owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement, provided that, in purchasing such participating interest, such
--------
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in Section 9.7(a) as fully as if it were a Lender
hereunder. Each Borrower also agrees that each Participant shall be entitled to
the benefits of Sections 2.10 and 2.11 with respect to its participation in the
Commitments and the Loans outstanding from time to time as if it was a Lender;
provided that, in the case of Section 2.11, such Participant shall have complied
- --------
with the requirements of said Section and provided, further, that no Participant
--------
shall be entitled to receive any greater amount pursuant to any such Section
than the transferor Lender would have been entitled to receive in respect of the
amount of the participation transferred by such transferor Lender to such
Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time and from time to
time assign to any Lender or any affiliate thereof that is an Eligible Lender
or, with the consent of the Funds (unless an Event of Default has occurred and
is continuing), to an additional Eligible Lender (an "Assignee") all or any part
--------
of its rights and obligations under this Agreement and the other Loan
<PAGE>
Documents pursuant to an Assignment and Acceptance, substantially in the form of
Exhibit 9.6(c), executed by such Assignee, such assigning Lender and the
- --------------
Administrative Agent and delivered to the Administrative Agent for its
acceptance and recording in the Register; provided, however, that assignments to
-------- -------
entities other than Lenders or Affiliates thereof must be in amounts of at least
$5,000,000. Upon such execution, delivery, acceptance and recording, from and
after the effective date determined pursuant to such Assignment and Acceptance,
(x) the Assignee thereunder shall be a party hereto and, to the extent provided
in such Assignment and Acceptance, have the rights and obligations of a Lender
hereunder with a Commitment as set forth therein, and (y) the assigning Lender
thereunder shall, to the extent provided in such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such assigning Lender
shall cease to be a party hereto).
(d) The Administrative Agent, on behalf of the Borrowers, shall
maintain at the address of the Administrative Agent referred to in Section 9.2 a
copy of each Assignment and Acceptance delivered to it and a register (the
"Register") for the recordation of the names and addresses of the Lenders and
--------
the Commitment of, and principal amount of the Loans owing to, each Lender from
time to time. The entries in the Register shall be conclusive, in the absence
of manifest error, and the Borrowers, the Administrative Agent and the Lenders
may (and, in the case of any Loan or other obligation hereunder not evidenced by
a Note, shall) treat each Person whose name is recorded in the Register as the
owner of a Loan or other obligation hereunder as the owner thereof for all
purposes of this Agreement and the other Loan Documents, notwithstanding any
notice to the contrary. Any assignment of any Loan or other obligation
hereunder not evidenced by a Note shall be effective only upon appropriate
entries with respect thereto being made in the Register. The Register shall be
available for inspection by the Borrowers or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee, the Administrative Agent (and (i) in the case
such Assignee is not then a Lender or an Affiliate of a Lender to the extent and
(ii) no Event of Default has occurred and is continuing, by the Funds) together
with payment by the assigning Lender or Assignee to the Administrative Agent of
a registration and processing fee of $3,000 (for which no Borrower shall have an
obligation to reimburse), the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information contained therein in the Register and
give notice of such acceptance and recordation to the Lenders, the Funds and the
Borrowers.
(f) Each Fund and each Borrower authorize each Lender to disclose to
any Participant or Assignee (each, a "Transferee") and any prospective
----------
Transferee any and all financial information in such Lender's possession
concerning any Fund or any Borrower and their Affiliates which has been
delivered to such Lender by or on behalf of the Funds or the Borrowers pursuant
to this Agreement or which has been delivered to such Lender by or on behalf of
the Funds or the Borrowers in connection with such Lender's credit evaluation of
the Borrowers and their Affiliates prior to becoming a party to this Agreement.
<PAGE>
(g) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this Section concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank
in accordance with applicable law.
9.7 Adjustments; Set-off. (a) If any Lender (a "Benefited Lender") shall
-------------------- ----------------
at any time receive any payment of all or part of its Loans, or interest
thereon, or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 7(e), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Lender, if any, in respect
of such other Lender's Loans, or interest thereon, such Benefited Lender shall
purchase for cash from the other Lenders a participating interest in such
portion of each such other Lender's Loan, or shall provide such other Lenders
with the benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such Benefited Lender to share the excess payment or benefits
of such collateral or proceeds ratably with each of the Lenders; provided,
--------
however, that if all or any portion of such excess payment or benefits is
- -------
thereafter recovered from such Benefited Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to any Borrower, any
such notice being expressly waived by each Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by a Borrower hereunder
(whether at the stated maturity, by acceleration or otherwise) to set-off and
appropriate and apply against such amount any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Lender or any branch or agency thereof to or for the credit or the
account of such Borrower. Each Lender agrees promptly to notify such Borrower
and the Administrative Agent after any such set-off and application made by such
Lender, provided that the failure to give such notice shall not affect the
--------
validity of such set-off and application.
9.8 Counterparts. This Agreement may be executed by one or more of the
------------
parties to this Agreement on any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Funds and the
Administrative Agent.
9.9 Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
<PAGE>
9.10 Integration. This Agreement and the other Loan Documents represent
-----------
the agreement of each Fund, each Borrower, the Administrative Agent and the
Lenders with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent or any
Lender relative to subject matter hereof not expressly set forth or referred to
herein or in the other Loan Documents.
9.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
-------------
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
9.12 Submission To Jurisdiction; Waivers. Each Fund and each Borrower
-----------------------------------
hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding may
be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to such Fund or
such Borrower at its address set forth in Section 9.2 or at such other
address of which the Administrative Agent shall have been notified pursuant
thereto;
(d) agrees that nothing herein shall affect the right to effect service
of process in any other manner permitted by law or shall limit the right to
sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section any special, exemplary, punitive or consequential damages.
9.13 Acknowledgments. Each Fund and each Borrower hereby acknowledges that:
---------------
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to such Fund or such Borrower arising out of or
in connection
<PAGE>
with this Agreement or any of the other Loan Documents, and the
relationship between Administrative Agent and Lenders, on one hand, and
each Fund and each Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Funds, the Borrowers and the Lenders.
9.14 WAIVERS OF JURY TRIAL. EACH FUND, EACH BORROWER, THE ADMINISTRATIVE
---------------------
AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY
IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
9.15 Non-Recourse. The Administrative Agent and the Lenders hereby agree
------------
for the benefit of UST and each and every shareholder, trustee, director and
officer of the Funds and the Borrowers and any successor, assignee, heir,
estate, executor, administrator or personal representative of any such
shareholder, trustee, director and officer (a "Non-Recourse Person") that: (a)
-------------------
no Non-Recourse person shall have any personal liability for any obligation of
any Fund or Borrower under this Agreement or any Loan Document or any other
instrument or document delivered pursuant hereto or thereto (except, in the case
of any shareholder, to the extent of its investment in the Borrower); (b) no
claim against any Non-Recourse Person may be made for any obligation of any Fund
or Borrower under this Agreement or any Loan Document or other instrument or
document delivered pursuant hereto or thereto, whether for payment of principal
of, or interest on, the Loans or for any fees, expense, or other amounts payable
by any Fund or Borrower hereunder or thereunder, or otherwise; and (c) the
obligations of each Borrower under this Agreement or any Loan Document or other
instrument or document delivered pursuant hereto or thereto are enforceable
solely against such Borrower and its properties and assets.
9.16 Waiver of Conflicts; Confidentiality. (a) Each Fund, on its own
------------------------------------
behalf or on behalf of the investment portfolios thereof which are Borrowers,
acknowledges that each of the Administrative Agent and each Lender and their
respective affiliates (collectively, the "Bank Parties") may be providing debt
------------
financing, equity capital or other services (including financial advisory
services) to other companies in respect of which such Funds and Borrowers may
have conflicting interests regarding the transactions described herein and
otherwise. Except as may otherwise be permitted herein, the Bank Parties will
not disclose Confidential Information obtained from such Funds and/or Borrowers
by virtue of the transactions contemplated by this Agreement or their other
relationships with such Funds and/or Borrowers in connection with the
performance by each of the Bank Parties of services for other companies, and
each of the Bank Parties will not disclose any such Confidential Information to
other companies. Such Funds and Borrowers also acknowledge that no Bank Party
has any obligation to use in connection with the transactions contemplated by
this Agreement, or to furnish to any Fund or Borrower, confidential information
obtained from other companies. The provisions of this Section 9.16(a) shall
survive the termination of this Agreement.
(b) For purposes of this Section, "Confidential Information" shall mean
------------------------
all
<PAGE>
information received from any of the Funds, the Borrowers or UST relating to any
of them or their business, other than any such information that is available to
the Administrative Agent or any Lender on a nonconfidential basis other than as
a result of a breach of this Agreement. Each of the Administrative Agent and
each Lender agrees to maintain the confidentiality of, and not to use the
Confidential Information, except that Confidential Information may be disclosed
(i) to its and its Affiliates' directors, officers and employees including
without limitation accountants, legal counsel and other advisors for purposes
relating to the transactions contemplated by this Agreement or for conducting
legitimate audits (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Confidential
Information and will have agreed to keep such Confidential Information
confidential), (ii) to the extent requested by any legal or regulatory authority
having or claiming jurisdiction over such Person, (iii) to the extent required
by applicable laws or regulations or by any subpoena or similar legal process,
(iv) to any other party to this Agreement for purposes relating to the
transactions contemplated hereby, (v) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or the enforcement of rights hereunder, (vi) subject to an agreement containing
provisions substantially the same as those of this subsection, to any Assignee
or Participant or any prospective Assignee or Participant which executes such
agreement, or (vii) with the written consent of the Borrowers. Any Person
required to maintain the confidentiality of Confidential Information as provided
in this Section shall be considered to have complied with its obligation to do
so if such Person has used its reasonable best efforts to maintain the
confidentiality of such Information. The provisions of this Section 9.16(b)
shall survive the termination of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first written above.
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By: /s/ Gail Weiss
----------------
Name: Gail Weiss
Title: Vice President
<PAGE>
1999 EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
AND EXCELSIOR INSTITUTIONAL TRUST
CREDIT AGREEMENT SIGNATURE PAGE
EXCELSIOR FUNDS, INC., on behalf of
Money Fund
Government Money Fund
Treasury Money Fund
Short-Term Government Securities Fund
Intermediate-Term Managed Income Fund
Managed Income Fund
Blended Equity Fund
Energy and Natural Resources Fund
Value and Restructuring Fund
Small Cap Fund
International Fund
Emerging Markets Fund
Pacific/Asia Fund
Pan European Fund
Latin America Fund
Large Cap Growth Fund
Real Estate Fund
By: /s/ Frederick S. Wonham
-----------------------
Name: Frederick S. Wonham
Title: President
<PAGE>
1999 EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
AND EXCELSIOR INSTITUTIONAL TRUST
CREDIT AGREEMENT SIGNATURE PAGE
EXCELSIOR TAX-EXEMPT FUNDS, INC., on behalf of
Tax-Exempt Money Fund
Short-Term Tax-Exempt Securities Fund
Intermediate-Term Tax-Exempt Fund
Long-Term Tax-Exempt Fund
New York Intermediate-Term Tax-Exempt Fund
California Tax-Exempt Income Fund
New York State Tax-Exempt Money Fund
By: /s/ Frederick S. Wonham
-----------------------
Name: Frederick S. Wonham
Title: President
EXCELSIOR INSTITUTIONAL TRUST, on behalf of
Equity Fund
Income Fund
Total Return Bond Fund
International Equity Fund
Optimum Growth Fund
Value Equity Fund
By: /s/ Frederick S. Wonham
-----------------------
Name: Frederick S. Wonham
Title: President
<PAGE>
1999 EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
AND EXCELSIOR INSTITUTIONAL TRUST
CREDIT AGREEMENT SIGNATURE PAGE
MELLON BANK, N.A.
By: /s/ John R. Cooper
-------------------
Name: John R. Cooper
Title: Vice President
<PAGE>
1999 EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
AND EXCELSIOR INSTITUTIONAL TRUST
CREDIT AGREEMENT SIGNATURE PAGE
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, New York Branch
By: /s/ Lillian T. Lum
------------------
Name: Lilliam T. Lum
Title: Director
By: /s/ Kenneth R. Crespo
---------------------
Name: Kenneth R. Crespo
Title: Vice President
<PAGE>
1999 EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
AND EXCELSIOR INSTITUTIONAL TRUST
CREDIT AGREEMENT SIGNATURE PAGE
THE BANK OF NOVA SCOTIA
By: /s/ James R. Trimble
--------------------
Name: James R. Trimble
Title: Managing Director
<PAGE>
1999 EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
AND EXCELSIOR INSTITUTIONAL TRUST
CREDIT AGREEMENT SIGNATURE PAGE
THE BANK OF NEW YORK
By: /s/ Robert F. Darmanin
----------------------
Name: Robert F. Darmanin
Title: Vice President
<PAGE>
1999 EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
AND EXCELSIOR INSTITUTIONAL TRUST
CREDIT AGREEMENT SIGNATURE PAGE
DEN DANSKE BANK
By: /s/ George Neoffercas
---------------------
Name: George Neoffercas
Title: Assistant Vice President
By: /s/ John A. O'Neill
-------------------
Name: John A. O'Neill
Title: Vice President
<PAGE>
SCHEDULE I
----------
BORROWERS & ALLOCATIONS
-----------------------
BORROWER PRO RATA ALLOCATION
- -------- -------------------
I. Excelsior Funds, Inc.
Money Fund 12.36%
Government Money Fund 10.09%
Treasury Money Fund 5.28%
Short-Term Government Securities Fund 0.76%
Intermediate-Term Managed Income Fund 1.77%
Managed Income Fund 2.65%
Blended Equity Fund 9.70%
Energy and Natural Resources 0.68%
Value and Restructuring Fund 8.73%
Small Cap Fund 0.60%
International Fund 2.84%
Emerging Markets Fund 0.10%
Pacific/Asia Fund 0.71%
Pan European Fund 1.59%
Latin America Fund 0.17%
Large Cap Growth Fund 3.50%
Real Estate Fund 0.44%
<PAGE>
II. Excelsior Tax-Exempt Funds, Inc.
Tax-Exempt Money Fund 16.23%
Short-Term Tax-Exempt Securities Fund 0.48%
Intermediate-Term Tax-Exempt Fund 3.81%
Long-Term Tax-Exempt Fund 2.05%
New York Intermediate-Term Tax-Exempt Fund 1.86%
California Tax-Exempt Income Fund 0.76%
New York Tax-Exempt Money Fund 3.53%
III. Excelsior Institutional Trust
Equity Fund 2.30%
Income Fund 0.93%
Total Return Bond Fund 3.18%
International Equity Fund 1.19%
Optimum Growth Fund 1.16%
Value Equity Fund 0.55%
<PAGE>
SCHEDULE II
-----------
COMMITMENTS, ADDRESSES, ETC.
----------------------------
Amount of
Name and Address of Lender Commitment
- -------------------------- ----------
THE CHASE MANHATTAN BANK $45,000,000
270 Park Avenue
New York, New York 10017
Attention: Christine Herrick
Telephone: (212) 270-9747
Fax: (212) 270-1789
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, New York Branch $45,000,000
1211 Avenue of the Americas
New York, NY 10036
Attention: Jay S. White
Telephone: (212) 852-6315
Fax: (212) 852-6156
THE BANK OF NOVA SCOTIA $45,000,000
One Liberty Plaza
New York, NY 10006
Attention: John Morale
Telephone: (212) 225-5062
Fax: (212) 225-5286
MELLON BANK, N.A. $45,000,000
One Mellon Bank Center, Room 4425
Pittsburgh, PA 15258
Attention: Marla De Yulis
Telephone: (412) 236-9141
Fax: (412) 234-9047
DEN DANSKE BANK $45,000,000
280 Park Avenue
New York, NY 10017
Attention: George Neofitidis
Telephone: (212) 984-8439
Fax: (212) 599-2493
<PAGE>
THE BANK OF NEW YORK $25,000,000
One Wall Street
New York, NY 10286
Attention: William Stanton
Telephone: (212) 635-6828
Fax: (212) 635-6348
<PAGE>
SCHEDULE III
------------
INVESTMENT MANAGEMENT AGREEMENTS
--------------------------------
<PAGE>
SCHEDULE IV
-----------
CUSTODIAN AGREEMENTS
--------------------
<PAGE>
SCHEDULE V
----------
DISTRIBUTION AGREEMENTS
-----------------------
<PAGE>
SCHEDULE VI
-----------
SHAREHOLDER SERVICES AGREEMENTS
-------------------------------
<PAGE>
EXHIBIT 2.5(e)
--------------
NON-NEGOTIABLE
FORM OF NOTE
$____________________________________ New York, New York
_______, ________,
FOR VALUE RECEIVED, the undersigned Fund, on behalf of the Series
designated below (the "Borrower"), hereby promises to pay to the order of
--------
__________________________, at the office of The Chase Manhattan Bank, as
administrative agent for the Lenders (the "Lenders") under the Credit Agreement,
-------
as hereinafter defined (in such capacity, the "Administrative Agent"), located
--------------------
at 270 Park Avenue, New York, New York 10017, in lawful money of the United
States of America and in immediately available funds, on the Maturity Date the
principal amount of (a) __________________ DOLLARS ($__________________), or, if
less (b) the aggregate unpaid principal amount of all Loans made by the Lenders
to the Borrower pursuant to subsection 2.1 of the Credit Agreement, as
hereinafter defined.
The Fund, on behalf of the Borrower, further agrees to pay interest in like
money at such office on the unpaid principal amount hereof from time to time
outstanding from the Closing Date at the applicable rates per annum set forth in
subsection 2.7 of the Credit Agreement referred to below until any such amount
shall become due and payable (whether at the stated maturity, by acceleration or
otherwise), and thereafter on such overdue amount at the rate per annum set
forth in subsection 2.7(c) of the Credit Agreement until paid in full (both
before and after judgment). Interest shall be payable in arrears on each
applicable Interest Payment Date, commencing on the first such date to occur
after the date hereof and terminating upon payment (including prepayment) in
full of the unpaid principal amount hereof; provided that interest accruing on
--------
any overdue amount shall be payable on demand.
Anything in this Note to the contrary notwithstanding, the Borrower shall
be liable hereunder only for Loans borrowed by it under the Credit Agreement and
shall not be liable for the borrowings of any other Borrower under the Credit
Agreement. The sole source of repayment of the principal of and interest on each
Loan hereunder and the other obligations with respect thereto made with respect
to the Borrower shall be the revenues and assets of such Borrower, and not the
revenue and assets of the Fund (as defined below) of which such Borrower is a
series.
As set forth in Sections 2.5(f) and 9.15 of the Credit Agreement, no Non-
Recourse person defined therein shall have any personal liability under or by
reason of this Note, the Credit Agreement or the Loan Documents, and all
obligations of the Borrower hereunder and thereunder are enforceable solely
against the Borrower and the Borrower's assets and properties.
The holder of this Note is authorized to endorse on the schedule annexed
hereto and made a part hereof the date and amount of each Loan made to the
Borrower pursuant to the Credit Agreement and the date and amount of each
payment or prepayment of principal thereof. Each
<PAGE>
such endorsement shall constitute prima facie evidence of the accuracy of the
----- -----
information endorsed. The failure to make any such endorsement shall not affect
the obligations of the Borrower in respect of such Loan.
This Note (a) is one of the Notes referred to in the Credit Agreement,
dated as of December 27, 1999 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement"), among the each of the open-end
----------------
registered investment companies a party thereto (each, a "Fund"), on behalf of
one or more series or portfolios of such Fund, the Lenders and the
Administrative Agent, (b) is subject to the provisions of the Credit Agreement
and (c) is subject to optional and mandatory prepayment in whole or in part as
provided in the Credit Agreement.
<PAGE>
Upon the occurrence of one or more Events of Default, all amounts then
remaining unpaid on this Note shall become, or may be declared to be,
immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement and
used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK.
[NAME OF FUND] on behalf
of [NAME OF BORROWER]
By:_________________
Name:
Title:
<PAGE>
Schedule A to Note
------------------
LOANS AND REPAYMENTS OF LOANS
================================================================================
AMOUNT OF UNPAID
PRINCIPAL PRINCIPAL
AMOUNT OF OF LOANS BALANCE OF NOTATION
DATE LOANS REPAID LOANS MADE BY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
EXHIBIT 2.16(a)
---------------
FORM FOR DESIGNATION OF NEW BORROWERS
_________ __, ____
The Chase Manhattan Bank, as Administrative Agent
[List Lenders]
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of December 27,
1999 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement") by and among each registered open-end management investment
----------------
company party thereto (each a "Fund") on behalf of the series or portfolios
----
thereof, which series and portfolios are listed on Schedule I (each such series
----------
or portfolio, a "Borrower" and, collectively, the "Borrowers"), (ii) the several
-------- ---------
banks and other financial institutions from time to time parties to this
Agreement (the "Lenders") and (iii) THE CHASE MANHATTAN BANK, as Administrative
-------
Agent. Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Credit Agreement.
[NAME OF FUND](the "Fund") on behalf of [NAME OF NEW BORROWER] (the
"Series") hereby requests pursuant to Section 2.16 of the Credit Agreement that
------
the Series be admitted as an additional Borrower under the Credit Agreement.
Furthermore, the Fund on behalf of the New Borrower requests that Schedule I to
----------
the Credit Agreement be replaced with the form of Schedule I attached hereto.
----------
The Fund, on behalf of the New Borrower, hereby represents and warrants to
the Administrative Agent and each Lender that as of the date hereof and after
giving effect to the admission of the New Borrower as an additional Borrower
under the Credit Agreement: (i) the representations and warranties set forth in
Section 3 of the Credit Agreement are true and correct with respect to the New
Borrower; (ii) the New Borrower is in compliance in all material respects with
all the terms and provisions set forth in the Credit Agreement on its part to be
observed or performed as of the date hereof and after giving effect to the
admission; (iii) no Default or Event of Default with respect to the New
Borrower, nor any event which with the giving of notice or the expiration of any
applicable grace period or both would constitute such a Default or Event of
Default with respect to the New Borrower has occurred and is continuing.
The New Borrower agrees to be bound by the terms and conditions of the
Credit Agreement in all respects as a Borrower thereunder and hereby assumes all
of the obligations of a Borrower thereunder.
The New Borrower hereby gives the Administrative Agent and each Lender
notice that a copy of the relevant Trust's Agreement and Declaration of Trust
(including any amendments
<PAGE>
thereto) is on file with the Secretary of State of the Commonwealth of
Massachusetts. The Administrative Agent and each Lender hereby acknowledge that
this designation of a New Borrower, the Credit Agreement and the Loan Documents,
and any other document related hereto or thereto, are each executed by the
trustees of the relevant Trust as trustees, and not individually, and that the
obligations of or arising out of this designation, the Credit Agreement and the
Loan Documents, and any other document related hereto or thereto, are not
binding upon any of the trustees or officers or shareholders individually, but
are binding only upon the assets and property of the relevant Borrower
(including the New Borrower).
Please indicate your assent to the admission of each Series as an
additional Borrower under the Credit Agreement and the replacement of Schedule I
----------
to the Credit Agreement by signing below where indicated.
[FUND on behalf of New
Borrower]
By:________________________________
Name:
Title:
AGREED AND ACCEPTED:
THE CHASE MANHATTAN BANK
as Administrative Agent and as a Lender
By:____________________________
Name:
Title:
[Signature block for each Lender follows]
<PAGE>
EXHIBIT 9.6 (c)
---------------
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of December 27,
1999 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), by and among each registered open-end management investment
----------------
company parties thereto (each a "Fund" and collectively the "Funds") on behalf
-----
of the series or portfolios of such Fund, which series and portfolios are listed
on Schedule I thereto (each such series or portfolio, a "Borrower" and,
---------- --------
collectively, the "Borrowers"), (ii) the several banks and other financial
---------
institutions from time to time parties to this Agreement (the "Lenders") and
-------
(iii) THE CHASE MANHATTAN BANK, a New York banking corporation, as
administrative agent for the Lenders hereunder (in such capacity, the
"Administrative Agent"). Unless otherwise defined herein, terms defined in the
- ---------------------
Credit Agreement and used herein shall have the meanings ascribed to them in the
Credit Agreement.
_________ (the "Assignee") and __________ (the "Assignor") agree as
follows:
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date (as defined below) the interest described in Schedule 1 hereto
(the "Assigned Interest") in and to the Assignor's rights and obligations under
the Credit Agreement.
2. The Assignor (a) makes no representation or warranty and assumes no
responsibility with respect to or in any connection with the Credit Agreement or
with respect to the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Credit Agreement, any other Loan Document or any
other instrument or document furnished pursuant thereto, other than that the
Assignor has not created any adverse claim upon the interest being assigned by
it hereunder and that such interest is free and clear of any such adverse claim;
(b) makes no representation or warranty and assumes no responsibility with
respect to the financial condition of any Borrower, or any other obligor or the
performance or observance by any Borrower, or any other obligor of any of their
respective obligations under the Credit Agreement or any other Loan Document or
any other instrument or document furnished pursuant hereto or thereto; and (c)
attaches any Notes held by it evidencing the Assigned Interest and (i) requests
that the Administrative Agent, upon request by the Assignee, exchange the
attached Notes for a new Note or Notes payable to the Assignee and (ii) if the
Assignor has retained any interest in the Aggregate Commitment, requests that
the Administrative Agent exchange the attached Notes for a new Note or Notes
payable to the Assignor, in each case in amounts which reflect the assignment
being made hereby (and after giving effect to any other assignments which have
become effective on the Effective Date).
3. The Assignee (a) represents and warrants that it is legally authorized
to enter into this Assignment and Acceptance; (b) confirms that it has received
a copy of the Credit Agreement, together with copies of such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Acceptance; (c) agrees that it will,
independently and without reliance upon the Assignor, the Administrative Agent
or any other
<PAGE>
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under the Credit Agreement, the other Loan Documents or any other
instrument or document furnished pursuant hereto or thereto; (d) appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers and discretion under the Credit Agreement, the other
Loan Documents or any other instrument or document furnished pursuant hereto or
thereto as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are incidental thereto; and (e) agrees that it will
perform in accordance with its terms all the obligations which by the terms of
the Credit Agreement are required to be performed by it as a Lender including,
if it is organized under the laws of a jurisdiction outside the United States,
its obligation pursuant to subsection 2.11(b) of the Credit Agreement.
4. The effective date of this Assignment and Acceptance shall be
________________ (the "Effective Date"). Following the execution of this
--------------
Assignment and Acceptance, it will be delivered to the Administrative Agent for
acceptance by it and recording by the Administrative Agent pursuant to the
Credit Agreement, effective as of the Effective Date (which shall not, unless
otherwise agreed to by the Administrative Agent, be earlier than five Business
Days after the date of such acceptance and recording by the Administrative
Agent).
5. Upon such acceptance and recording, from and after the Effective Date,
the Administrative Agent shall make all payments in respect of the Assigned
Interest (including payments of principal, interest, fees and other amounts) to
the Assignee whether such amounts have accrued prior to the Effective Date or
accrue subsequent to the Effective Date. The Assignor and the Assignee shall
make all appropriate adjustments in payments by the Administrative Agent for
periods prior to the Effective Date or with respect to the making of this
assignment directly between themselves.
6. From and after the Effective Date, (a) the Assignee shall be a party
to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and under the
other Loan Documents and shall be bound by the provisions thereof and (b) the
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.
7. This Assignment and Acceptance shall be governed by and construed in
accordance with the substantive laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the date first above written by their respective
duly authorized officers on Schedule 1 hereto.
<PAGE>
SCHEDULE 1 TO ASSIGNMENT AND ACCEPTANCE
RELATING TO THE CREDIT AGREEMENT
DATED AS OF DECEMBER 27, 1999
Name of Assignor:
Name of Assignee:
Effective Date of Assignment:
Principal Commitment Percentage
Amount Assigned Assigned/1/
$__________. ____________ %
[NAME OF ASSIGNEE] [NAME OF ASSIGNOR]
By:__________________ By:____________________
Name: Name:
Title: Title:
Accepted and Consented To:
THE CHASE MANHATTAN BANK,
as Administrative Agent
By:_________________
Name:
Title:
_________________________
Calculate the Commitment Percentage that is assigned to at least 15 decimal
places and show as a percentage of the aggregate commitments of all Lenders.
<PAGE>
EXHIBIT (h) (6)
WAIVER AND REIMBURSEMENT AGREEMENT
Agreement ("Agreement") dated as of the __ day of _________, ______ by
and among Excelsior Institutional Trust, a Delaware business trust and a
registered investment company under the Investment Company Act of 1940, as
amended ("Excelsior Trust"), and United States Trust Company of New York. a
state-chartered bank and trust company ("United States Trust"), and U.S. Trust
Company, a Connecticut State bank and trust company ("U.S. Trust" and together
with United States Trust, the "Advisers").
BACKGROUND
United States Trust and U.S. Trust serve as investment advisers to
each portfolio of Excelsior Trust pursuant to an Investment Advisory Agreement
among the Advisers and Excelsior Trust, dated as of ____________________.
The parties to this Agreement wish to provide for an undertaking by
the Advisers to limit investment advisory or other fees or reimburse expenses of
each of the portfolios of Excelsior Trust in order to improve the performance of
each such portfolio.
AGREEMENT
THEREFORE, in consideration of the foregoing, the parties intending to
be legally bound, hereby agree as follows:
The Advisers shall, from the date of this Agreement until March 31,
2001, waive all or a portion of their investment advisory fees and/or reimburse
expenses in amounts necessary so that after such waivers and/or reimbursements,
the maximum total operating expense ratios of the portfolios of Excelsior Trust
shall not exceed the amounts set forth on Exhibit A hereto.
Each of the Advisers acknowledges and agrees that it shall not be
entitled to collect on or make a claim for waived fees or reimbursed expenses at
any time in the future.
This Agreement shall be governed by and construed under the laws of
the State of New York, without regard to its conflict of law provisions. This
Agreement may be signed in counterparts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
EXCELSIOR INSTITUTIONAL UNITED STATES TRUST COMPANY
TRUST OF NEW YORK
By:_______________________________ By:_____________________________________
Name: Name:
Title: Title:
U.S. TRUST COMPANY
By:____________________________________
Name:
Title:
-2-
<PAGE>
Exhibit A
Excelsior Institutional Trust
-----------------------------
Name of Portfolio Total Annual Operating Expenses
- ----------------- -------------------------------
Equity Fund
Income Fund
Total Return Bond Fund
International Equity Fund
Optimum Growth Fund
Value Equity Fund
-3-
<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. 19 and Amendment No. 21 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
May 26, 2000
<PAGE>
EXHIBIT M
EXCELSIOR INSTITUTIONAL TRUST
AMENDED AND RESTATED DISTRIBUTION PLAN
--------------------------------------
November 19, 1999
This Distribution Plan (the "Plan") was adopted by the Board of Trustees of
Excelsior Institutional Trust (the "Trust") in conformance with Rule 12b-1 under
the Investment Company Act of 1940 (the "Act") on October 25, 1996. The Plan has
been amended and restated as of November 19, 1999.
Section 1. Payments. The Trust may compensate its Distributor (or any
---------- ---------
other person) for services relating to the offering and sale of the Shares Class
of each of the Trust's Funds (all such shares, hereinafter called "Shares" and
all such Funds hereinafter called "Funds"). Payments by the Trust under the
Plan will be calculated daily and paid monthly at a rate or rates set from time
to time by the Trust's Board of Trustees, provided that no rate set by the Board
for any Fund may exceed the annual rate of .25% of the average daily net asset
value of Shares of such Fund. For purposes of determining the compensation
payable under the Plan, the net asset value of the outstanding Shares of the
respective Fund shall be computed in the manner specified in the Trust's
prospectuses and statements of additional information for such Shares.
Section 2. Payments Under the Plan. Payments to the Distributor under
---------- ------------------------
Section 1 of the Plan will be to compensate the Distributor for its services
which are intended to result in the sale of the Shares. Such amounts may be
spent by the Distributor on any activities or expenses primarily intended to
result in the sale of the Shares, including, without limitation: (a) direct out-
of-pocket promotional expenses incurred by the Distributor in connection with
the advertising and marketing of Shares; and (b) payments to one or more
securities dealers, financial institutions or other industry professionals and
financial intermediaries, such as but not limited to investment advisers,
accountants and estate planning firms, including affiliates of the Distributor
(severally, a "Distribution Organization") for distribution assistance. As used
herein, "direct out-of-pocket promotional expenses" include without limitation
amounts spent by the Distributor in connection with advertising via radio,
television, newspapers, magazines and otherwise; preparing, printing and mailing
sales materials, brochures and prospectuses (except for prospectuses used for
regulatory purposes or for distribution to existing shareholders); and other
out-of-pocket expenses incurred in connection with the promotion of the Shares.
Payments made by a particular Fund must be for distribution services
rendered for or on behalf of such Fund. However, joint distribution financing
with respect to Shares of the Funds (which financing may also involve other
investment portfolios or companies that are affiliated persons of such a person,
or affiliated persons of the Distributor) shall be permitted in accordance with
applicable regulations of the Securities and Exchange Commission as in effect
from time to time.
<PAGE>
Section 3. Reports of Distributor. So long as the Plan is in effect, the
---------- ----------------------
Distributor shall provide to the Trust's Board of Trustees, and the Trustees
shall review, at least quarterly, a written report of the amounts expended
pursuant to the Plan and the purposes for which such expenditures were made.
Section 4. Approval of Plan. The Plan will become effective immediately,
---------- ----------------
as to any series of Shares, upon its approval by a majority of the Board of
Trustees, including a majority of the Trustees who are not "interested persons"
(as defined in the Act) of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or in any agreements entered
into in connection with the Plan, pursuant to a vote cast in person at a meeting
called for the purpose of voting on the approval of the Plan.
Section 5. Continuance of Plan. The Plan shall continue in effect for so
---------- -------------------
long as its continuance is specifically approved at least annually by the
Trust's Board of Trustees in the manner described in Section 4.
Section 6. Amendments. The Plan may be amended at any time by the Board
---------- ----------
of Trustees provided that (a) any amendment to increase materially the costs
which any series of Shares may bear for distribution pursuant to the Plan shall
be effective only upon approval by a vote of a majority of the outstanding
Shares of such series, and (b) any material amendments of the terms of the Plan
shall become effective only upon approval as provided in paragraph 4 hereof.
Section 7. Termination. The Plan is terminable, as to any series of
---------- -----------
Shares, without penalty at any time by (a) a vote of a majority of the Trustees
who are not "interested persons" (as defined in the Act) of the Trust and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreements entered into in connection with the Plan, or (b) a vote of a
majority of the outstanding Shares of such series.
Section 8. Selection/Nomination of Trustees. While this Plan is in
---------- --------------------------------
effect, the selection and nomination of those Trustees who are not "interested
persons" (as defined in the Act) of the Trust shall be committed to the
discretion of such non-interested Trustees.
Section 9. Miscellaneous. The captions in this Agreement are included
---------- -------------
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
-2-
<PAGE>
IN WITNESS WHEREOF, the Trust has executed the Plan as of November 19, 1999 on
behalf of each of the Funds.
EXCELSIOR INSTITUTIONAL TRUST
/s/ Michael P. Malloy
----------------------------------
Name: Michael P. Malloy
Title: Assistant Secretary
Date: 11/19/99
-3-
<PAGE>
DISTRIBUTION AGREEMENT
Gentlemen:
We wish to enter into this Distribution Agreement ("Agreement") with you
concerning the provision of distribution services in connection with the Shares
Class ("Shares") of each Fund offered by Excelsior Institutional Trust (the
"Trust"), of which we are the principal underwriter as defined in the Investment
Company Act of 1940 (the "Act") and the exclusive agent for the continuous
distribution of said Shares.
The terms and conditions of this Agreement are as follows:
Section 1. You agree to provide reasonable assistance in connection with
the distribution of Shares to your Clients as requested from time to time by us,
which assistance may include without limitation forwarding sales literature and
advertising provided by us for Clients, and such other similar services as we
may reasonably request to the extent you are permitted to do so under applicable
statutes, rules and regulations.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services and assistance to Clients.
Section 3. Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us or the Shares except those
contained in the Trust's applicable prospectus and statement of additional
information for the Shares, copies of which will be supplied by us to you, or in
such supplemental literature or advertising as may be authorized by us in
writing.
Section 4. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us or the
Trust in any matter or in any respect. By your written acceptance of this
Agreement, you agree to and do release, indemnify and hold us harmless and the
Trust harmless from and against any and all direct or indirect liabilities or
losses resulting from requests, directions, actions or inaction's of or by you
or your officers, employees or agents regarding your responsibilities hereunder
or the purchase, redemption, transfer of registration of Shares (or orders
relating to the same) by or on behalf of Clients. You and your employees will,
upon request, be available during normal business hours to consult with us or
our designees concerning the performance of your responsibilities under this
Agreement.
Section 5. In consideration of the services and facilities provided by
you hereunder, we will pay to you, and you will accept as full payment therefor,
a fee at the annual rate of .25% of the average daily net asset value of the
Shares beneficially owned by your Clients for whom you are the dealer of record
or holder of record (the "Clients' Shares"), which fee will be computed daily
and payable monthly. For purposes of determining the fees payable under this
Section 5, the average daily net asset value of the Clients' Shares will be
computed in the manner
<PAGE>
specified in the Trust's Registration Statement (as the same is in effect from
time to time) in connection with the computation of the net asset value of the
particular Shares involved for purposes of purchases and redemptions. The fee
rate stated above may be prospectively increased or decreased by us, in our sole
discretion, at any time upon notice to you. Further, we may, in our discretion
and without notice, suspend or withdraw the sale of Shares, including the sale
of Shares for the account of any Client or Clients.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by us pursuant to this Agreement will provide to us and the Trust,
and the Trust's Trustees will review, at least quarterly, a written report of
the amounts so expended and the purposes for which such expenditures were made.
In addition, you will furnish us or our designees with such information as we or
they may reasonably request (including, without limitation, periodic
certifications confirming the provision to Clients of the services described
herein), and will otherwise cooperate with us and our designees (including,
without limitation, any auditors designated by us), in connection with the
preparation of reports to the Trust's Board of Trustees concerning this
Agreement and the monies paid or payable by us pursuant hereto, as well as any
other reports or filings that may be required by law.
Section 7. We may enter into other similar Agreements with any other
person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent,
warrant and agree that this Agreement has been entered into pursuant to Rule
12b-1 under the Act, and is subject to the provisions of said Rule, as well as
any other applicable rules or regulations promulgated by the Securities and
Exchange Commission.
Section 9. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue until ________ __, 2000 and thereafter
will continue automatically for successive annual periods provided such
continuance is specifically approved at least annually by the Trust in the
manner described in Section 12. This Agreement is terminable with respect to any
series of Shares, without penalty, at any time by the Trust (which termination
may be by a vote of a majority of the Disinterested Trustees as defined in
Section 12 or by vote of the holders of a majority of the outstanding Shares of
such series) or by us or you upon notice to the other party hereto. This
Agreement will also terminate automatically in the event of its assignment (as
defined in the Act).
Section 10. All notices and other communications to either you or us will
be duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address stated herein, or to such
other address as either party shall so provide the other.
Section 11. This Agreement will be construed in accordance with the laws
of the State of Delaware.
Section 12. This Agreement has been approved by vote of a majority of (i)
the Trust's Board of Trustees and (ii) those Trustees of the Trust who are not
"interested persons" (as
-2-
<PAGE>
defined in the Act) of the Trust and have no direct or indirect financial
interest in the operation of the Distribution Plan adopted by the Trust
regarding the provision of distribution services in connection with the Shares
or in any agreement related thereto cast in person at a meeting called for the
purpose of voting on such approval ("Disinterested Trustees").
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us, at the following address: Edgewood Services, Inc., 5800 Corporate Drive,
Pittsburgh, Pennsylvania 15237-5829.
Very truly,
EDGEWOOD SERVICES, INC.
_________________________
Date: ________________ Name:
Title:
Accepted and Agreed to:
[Distribution Organization]
________________________
Date: ________________ Name:
Title:
Address of Distribution _______________________
Organization _______________________
_______________________
-3-
<PAGE>
Schedule I to the Distribution Agreement
Name of Series - Shares Class
- -----------------------------
Excelsior Optimum Growth Fund
Excelsior Value Equity Fund
Excelsior International Equity Fund
EDGEWOOD SERVICES, INC.
_________________________
Date: ________________ Name:
Title:
Accepted and Agreed to:
[Distribution Organization]
________________________
Date: ________________ Name:
Title:
Address of Distribution _______________________
Organization _______________________
_______________________
-4-
<PAGE>
EXHIBIT N
EXCELSIOR INSTITUTIONAL TRUST
(the "Trust")
AMENDED AND RESTATED PLAN PURSUANT TO RULE 18f-3 FOR OPERATION
OF
A MULTI-CLASS SYSTEM
--------------------
I. INTRODUCTION
----------------
On February 23, 1995, the Securities and Exchange Commission (the
"Commission") promulgated Rule 18f-3 under the Investment Company Act of 1940,
as amended (the "1940 Act"), which permits the creation and operation of a
multi-class distribution structure without the need to obtain an exemptive order
under Section 18 of the 1940 Act. Rule 18f-3, which became effective on April
3, 1995, requires an investment company to file with the Commission a written
plan specifying all of the differences among the classes, including the various
services offered to shareholders, the different distribution arrangements for
each class, the methods for allocating expenses relating to those differences
and any conversion features or exchange privileges. On May 7, 1996, the Board
of Trustees of the Trust initially authorized the Trust to operate a multi-class
distribution structure in compliance with Rule 18f-3. This Plan pursuant to
Rule 18f-3 for operation of a multi-class system is hereby amended and restated
as of November 19, 1999.
II. ATTRIBUTES OF CLASSES
--------------------------
A. Generally
---------
The Trust is authorized to offer two classes of shares -- Shares and
Institutional Shares -- in each of the Equity, Value Equity, Optimum Growth,
Income, Total Return Bond and International Equity Funds (each, a "Fund" and,
collectively, the "Funds").
In general, shares of each class shall be identical except for
different expense variables (which may result in different yields or total
returns for each class), certain related rights and certain shareholder
services. More particularly, the Shares and Institutional Shares of each Fund
shall represent interests in the same portfolio of investments of the particular
Fund, and shall be identical in all respects, except for: (a) the impact of (i)
expenses assessed to the Shares pursuant to the Distribution Plan adopted for
such class and (ii) other incremental expenses identified from time to time that
should be properly allocated to one class so long as any changes in expense
allocations are reviewed and approved by a vote of the Board of Trustees,
including a majority of the non-interested trustees; (b) the fact that (i) each
class shall vote separately on any matter submitted to shareholders that
pertains to the Distribution Plan adopted for such class and (ii) each class
shall vote separately on any matter submitted to shareholders that pertains to
the class expenses borne by such class; (c) the exchange privileges
<PAGE>
of each class of shares; (d) the designation of each class of shares of the
Funds; and (e) the different shareholder services relating to each class of
shares.
B. Expenses and Distribution Arrangements
--------------------------------------
Shares
------
Shares of each Fund shall be available for purchase by individual
investors.
Shares of each Fund initially shall not be subject to a sales
charge but shall be subject to a fee payable pursuant to the Distribution Plan
adopted for that class which shall not initially exceed .25% (on an annual
basis) of the average daily net asset value of the Fund's outstanding Shares.
Payments under the Distribution Plan will be used to compensate the Trust's
distributor for its services which are intended to result in the sale of Shares.
Shares of each Fund shall initially be subject to a fee payable
pursuant to the Administrative Services Plan adopted for such Shares which shall
not initially exceed .40% (on an annual basis) of the average daily net asset
value of the Fund's Shares held by customers of institutions that have entered
into agreements with the Trust pursuant to such Plan. Shareholder services
provided under the Administrative Services Plan may include: (i) assisting in
processing purchase, exchange and redemption requests; (ii) transmitting and
receiving funds in connection with customer orders to purchase, exchange or
redeem Shares; and (iii) providing periodic statements.
Institutional Shares
--------------------
Institutional Shares of each Fund shall be available for purchase
by institutional investors.
Institutional Shares of each Fund initially shall not be subject
to any sales charge or fee payable pursuant to a distribution plan.
Institutional Shares of each Fund shall initially be subject to a
fee payable pursuant to the Administrative Services Plan adopted for such Shares
which shall not initially exceed .40% (on an annual basis) of the average daily
net asset value of the Fund's Institutional Shares held by customers of
institutions that have entered into agreements with the Trust pursuant to such
Plan. Shareholder services provided under the Administrative Services Plan may
include: (i) assisting in processing purchase, exchange and redemption requests;
(ii) transmitting and receiving funds in connection with customer orders to
purchase, exchange or redeem Shares; and (iii) providing periodic statements.
-2-
<PAGE>
C. Exchange Privileges
-------------------
Shares
------
Holders of Shares generally shall be permitted to exchange those
Shares for: (i) Shares of another Fund offered by the Trust; and (ii) Shares of
any investment portfolio of Excelsior Funds, Inc. and Excelsior Tax-Exempt
Funds, Inc.
Institutional Shares
--------------------
Holders of Institutional Shares generally shall be permitted to
exchange those Shares for: (i) Institutional Shares of another Fund offered by
the Trust; and (ii) Institutional Shares of the Government Money and Money Funds
of Excelsior Funds, Inc.
D. Conversion Features
-------------------
The Trust shall not initially offer a conversion feature to holders of
Shares.
E. Shareholder Services
--------------------
1. Automatic Investment Program
----------------------------
The Trust shall initially offer an automatic investment program
whereby, in general, an individual investor may arrange to have Shares purchased
automatically by authorizing the Trust's transfer agent to withdraw funds from
the investor's bank account.
2. Systematic Withdrawal Plan
--------------------------
The Trust shall initially offer a systematic withdrawal plan
whereby, in general, an individual investor may arrange to have Shares redeemed
automatically.
F. Methodology for Allocating Expenses Between Classes
---------------------------------------------------
Class-specific expenses of a Fund shall be allocated to the specific
class of shares of that Fund. Non-class-specific expenses of the Funds shall be
allocated in accordance with paragraph (c) of Rule 18f-3.
-3-
<PAGE>
EXHIBIT (P)(1)
EXCELSIOR INSTITUTIONAL TRUST
(the "Trust")
CODE OF ETHICS
--------------
I. Legal Requirement.
-----------------
Rule 17j-1(b) under the Investment Company Act of 1940, as amended (the
"1940 Act"), makes it unlawful for any officer or trustee of the Trust in
connection with the purchase or sale by such person of a security "held or to be
acquired" by the Trust:
1. To employ any device, scheme or artifice to defraud the Trust;
2. To make to the Trust any untrue statement of a material fact or
omit to state to the Trust a material fact necessary in order to
make the statements made, in light of the circumstances under
which they are made, not misleading;
3. To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon the Trust; or
4. To engage in any manipulative practice with respect to the
Trust's investment portfolios.
II. Purpose of the Code of Ethics.
-----------------------------
The Trust expects that its officers and trustees will conduct their
personal investment activities in accordance with (1) the duty at all times to
place the interests of the Trust's shareholders first, (2) the requirement that
all personal securities transactions be conducted consistent with this Code of
Ethics and in such a manner as to avoid any actual or potential conflict of
interest or any abuse of an individual's position of trust and responsibility,
and (3) the fundamental standard that investment company personnel should not
take inappropriate advantage of their positions.
In view of the foregoing, the provisions of Section 17(j) of the 1940 Act,
the Securities and Exchange Commission's 1940 Act Release No. 23958 "Personal
Investment Activities of Investment Company Personnel" (August 24, 1999), the
"Report of the Advisory Group on Personal Investing" issued by the Investment
Company Institute on May 9, 1994 and the Securities and Exchange Commission's
September 1994 Report on "Personal Investment Activities of Investment Company
Personnel," the Trust has determined to adopt this Code of Ethics on behalf of
the Trust to specify a code of conduct for certain types of personal securities
transactions which might involve conflicts of interest or an appearance of
impropriety, and to establish reporting requirements and enforcement procedures.
<PAGE>
III. Definitions.
-----------
A. An "Access Person" means: (1) each trustee or officer of the Trust;
(2) each employee (if any) of the Trust (or of any company in a
control relationship to the Trust) who, in connection with his or her
regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of a security by the Trust
or whose functions relate to the making of any recommendations with
respect to such purchases or sales; and (3) any natural person in a
control relationship to the Trust who obtains information concerning
recommendations made to the Trust with regard to the purchase or sale
of a security.
For purposes of this Code of Ethics, an "Access Person" does not
include any person who is subject to the securities transaction pre-
clearance requirements and securities transaction reporting
requirements of the Code of Ethics adopted by the Trust's investment
adviser or principal underwriter in compliance with Rule 17j-1 of the
1940 Act and Rule 204-2(a)(12) of the Investment Advisers Act of 1940
or Section 15(f) of the Securities Exchange Act of 1934, as
applicable.
B. "Restricted Trustee" or "Restricted Officer" means each trustee or
officer of the Trust who is not also a trustee, director, officer,
partner, employee or controlling person of the Trust's investment
adviser, sub-adviser, administrator, custodian, transfer agent, or
distributor.
C. An Access Person's "immediate family" includes a spouse, minor
children and adults living in the same household as the Access Person.
D. A security is "held or to be acquired" if within the most recent 15
days it (1) is or has been held by the Trust, or (2) is being or has
been considered by the Trust or its investment adviser or sub-adviser
for purchase by the Trust. A purchase or sale includes the writing of
an option to purchase or sell and any security that is exchangeable
for or convertible into, any security that is held or to be acquired
by a fund.
E. An "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933, the issuer of which,
immediately before the registration, was not subject to the reporting
requirements of Sections 13 or 15(d) of the Securities Exchange Act of
1934.
F. "Investment Personnel" of the Trust means:
(i) Any employee of the Trust (or of any company in a control
relationship to the Trust) who, in connection with his or her regular
functions or duties, makes or participates in making recommendations
regarding the purchase or sale of securities by the Trust.
-2-
<PAGE>
(ii) Any natural person who controls the Trust and who obtains
information concerning recommendations made to the Trust regarding the
purchase or sale of securities by the Trust.
G. A "Limited Offering" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2)
or Section 4(6) or pursuant to Rule 504, Rule 505, or Rule 506 under
the Securities Act of 1933.
H. "Exempt Security" means:
1. Direct obligations of the Government of the United States;
banker's acceptances; bank certificates of deposit; commercial
paper; high quality short-term debt instruments, including
repurchase agreements; and shares of registered open-end
investment companies.
2. Securities purchased or sold in any account over which the Access
Person has no direct or indirect influence or control.
3. Securities purchased or sold in a transaction which is non-
volitional on the part of either the Access Person or the Trust.
4. Securities acquired as a part of an automatic dividend
reinvestment plan.
5. Securities acquired upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities,
--- ----
to the extent such rights were acquired from such issuer, and
sales of such rights so acquired.
6. Securities which the Trust's investment portfolios are not
permitted to purchase under the investment objectives and
policies set forth in the Trust's then current prospectus(es)
under the Securities Act of 1933 or the Trust's registration
statement on Form N-1A.
IV. Policies of the Trust Regarding Personal Securities Transactions.
----------------------------------------------------------------
A. General Policy.
--------------
No Access Person of the Trust shall engage in any act, practice or
course of business that would violate the provisions of Rule 17j-1(b)
set forth above, or in connection with any personal investment
activity, engage in conduct inconsistent with this Code of Ethics.
-3-
<PAGE>
B. Specific Policies.
-----------------
1. Restrictions on Personal Securities Transactions By Access Persons
------------------------------------------------------------------
Other Than Restricted Trustees and Restricted Officers.
------------------------------------------------------
a. No Access Person who is not a Restricted Trustee or Restricted
Officer may buy or sell securities other than Exempt Securities
for his or her personal portfolio or the portfolio of a member of
his or her immediate family without obtaining oral authorization
from the Compliance Officer of the Trust's administrator prior to
-----
effecting such security transaction.
A written authorization for such security transaction will be
provided by the administrator's Compliance Officer to the person
receiving the authorization (if granted).
Note: If an Access Person has questions as to whether
purchasing or selling a security for his or her personal
portfolio or the portfolio of a member of his or her
immediate family requires prior oral authorization, the
Access Person should consult the administrator's Compliance
Officer for clearance or denial of clearance to trade prior
-----
to effecting any securities transactions.
b. Pre-clearance approval under paragraph (a) will expire at the
close of business on the trading day after the date on which oral
authorization is received, and the Access Person is required to
renew clearance for the transaction if the trade is not completed
before the authority expires.
c. No clearance will be given to an Access Person other than a
Restricted Trustee or Restricted Officer to purchase or sell any
security (1) on a day when any portfolio of the Trust has a
pending "buy" or "sell" order in that same security until that
order is executed or withdrawn or (2) when the Compliance Officer
has been advised by the investment adviser or sub-adviser that
the same security is being considered for purchase or sale for
any portfolio of the Trust.
d. The pre-clearance requirement contained in paragraph IV.B.1.a,
above, shall apply to all purchases of a beneficial interest in
any security through an Initial Public Offering or a Limited
Offering by any Access Person who is also classified as
Investment Personnel. A record of any decision and the reason
supporting such decision to approve the acquisition by Investment
Personnel of Initial Public Offerings or Limited Offerings shall
be made.
-4-
<PAGE>
2. Restrictions on Personal Securities Transactions by Restricted
--------------------------------------------------------------
Trustees and Restricted Officers.
--------------------------------
The Trust recognizes that a Restricted Trustee and a Restricted
Officer do not have on-going, day-to-day involvement with the
operations of the Trust. In addition, it has been the practice of the
Trust to give information about securities purchased or sold by the
Trust or considered for purchase or sale by the Trust to Restricted
Trustees and Restricted Officers in materials circulated more than 15
days after such securities are purchased or sold by the Trust or are
considered for purchase or sale by the Trust. Accordingly, the Trust
believes that less stringent controls are appropriate for Restricted
Trustees and Restricted Officers, as follows:
a. The securities pre-clearance requirement contained in paragraph
IV.B.1.a. above shall only apply to a Restricted Trustee or
Restricted Officer if he or she knew or, in the ordinary course
of fulfilling his or her official duties as a trustee or officer,
should have known, that during the fifteen day period before the
transaction in a security (other than an Exempt Security) or at
the time of the transaction that the security purchased or sold
by him or her other than an Exempt Security was also purchased or
sold by the Trust or considered for the purchase or sale by the
Trust.
b. If the pre-clearance provisions of the preceding paragraph apply,
no clearance will be given to a Restricted Trustee or Restricted
Officer to purchase or sell any security (1) on a day when any
portfolio of the Trust has a pending "buy" or "sell" order in
that same security until that order is executed or withdrawn or
(2) when the Compliance Officer has been advised by the
investment adviser or sub-adviser that the same security is being
considered for purchase or sale for any portfolio of the Trust.
V. Procedures.
----------
A. In order to provide the Trust with information to enable it to
determine with reasonable assurance whether the provisions of this
Code are being observed by its Access Persons:
1. Each Access Person of the Trust other than a trustee who is not
an "interested person" of the Trust (as defined in the 1940 Act)
will submit to the administrator an Initial Holdings Report in
the form attached hereto as Exhibit A that lists all securities
---
other than Exempt Securities beneficially owned/1/ by the Access
Person. This report must be submitted within ten
_______________________
/1./ You will be treated as the "beneficial owner" of a security under this
policy only if you have a direct or indirect pecuniary interest in the
security.
-5-
<PAGE>
days of becoming an Access Person (or for persons already
designated as Access Person within 10 days of the adoption of
this Code of Ethics), and must include the title of each
security, the number of shares held, and the principal amount of
the security. The Report must also include a list of any
securities accounts maintained with any broker, dealer or bank.
2. Each Access Person of the Trust other than a trustee who is not
an "interested person" of the Trust (as defined in the 1940 Act)
shall also submit to the administrator an Annual Holdings Report
attached hereto as Exhibit A no later than thirty days after the
end of the calendar year. The Annual Holdings Report must list
all securities other than Exempt Securities beneficially owned by
---
the Access Person, the title of each security, the number of
shares held, and the principal amount of the security, as well as
a list of any securities accounts maintained with any broker,
dealer or banks.
3. Each Access Person of the Trust other than a Restricted Trustee
or Restricted Officer shall direct his or her broker to supply to
the Compliance Officer of the Trust's administrator, on a timely
basis, duplicate copies of confirmations of all securities
transactions in which the person has, or by reason of such
transaction acquires any direct or indirect beneficial ownership
and copies of periodic statements for all securities accounts.
4. Each Access Person of the Trust, other than a trustee who is not
an "interested person" (as defined in the 1940 Act), shall submit
reports in the form attached hereto as Exhibit B to the Trust's
administrator, showing all transactions in securities other than
Exempt Securities in which the person has, or by reason of such
transaction acquires, any direct or indirect beneficial
ownership, as well as all accounts established with brokers,
dealers or banks during the quarter in which any securities were
held for the direct or indirect beneficial interest of the Access
Person./2/ Such reports shall be filed no later than 10 days
after the end of each calendar quarter. An Access Person of the
Trust need not make a quarterly
(..Continued)
(a) A direct pecuniary interest is the opportunity, directly or
indirectly, to profit, or to share the profit, from the transaction.
(b) An indirect pecuniary interest is any nondirect financial interest,
but is specifically defined in the rules to include securities held by
members of your immediate family sharing the same household;
securities held by a partnership of which you are a general partner;
securities held by a trust of which you are the settlor if you can
revoke the trust without the consent of another person, or a
beneficiary if you have or share investment control with the trustee;
and equity securities which may be acquired upon exercise of an option
or other right, or through conversion.
For interpretive guidance on this test, you should consult counsel.
/2./ See footnote 1 above.
-6-
<PAGE>
transaction report under this paragraph if all of the information
required by this paragraph 4 is contained in the brokerage
confirmations or account statements required to be submitted under
paragraph 3.
5. Each trustee who is not an "interested person" of the Trust need not
make an initial or annual holdings report but shall submit the same
quarterly report as required under paragraph 4 to the administrator,
but only for a transaction in a security other than an Exempt Security
where he or she knew at the time of the transaction or, in the
ordinary course of fulfilling his or her official duties as a trustee
or officer, should have known that during the 15-day period
immediately preceding or after the date of the transaction, such
security is or was purchased or sold, or considered for purchase or
sale, by the Trust.
6. The administrator of the Trust shall notify each Access Person of the
Trust who may be subject to the pre-clearance requirement or required
to make reports pursuant to this Code of Ethics that such person is
subject to the pre-clearance or reporting requirements and shall
deliver a copy of this Code of Ethics to each such person.
7. The administrator of the Trust shall review the initial holdings
reports, annual holdings reports, and quarterly transaction reports
received, and as appropriate compare the reports with the pre-
clearance authorization received, and report to the Trust's Board of
Trustees:
a. with respect to any transaction that appears to evidence a
possible violation of this Code of Ethics; and
b. apparent violations of the reporting requirement stated herein.
8. The Board shall consider reports made to it hereunder and shall
determine whether the policies established in Sections IV and V of
this Code of Ethics have been violated, and what sanctions, if any,
should be imposed on the violator, including but not limited to a
letter of censure, suspension or termination of the employment of the
violator, or the unwinding of the transaction and the disgorgement of
any profits to the Trust. The Board shall review the operation of this
Code of Ethics at least once a year.
9. The Trust's investment adviser, sub-advisers and principal underwriter
shall adopt, maintain and enforce separate codes of ethics with
respect to their personnel in compliance with Rule 17j-1 and Rule 204-
2(a)(12) of the Investment Advisers Act of 1940 or Section 15(f) of
the Securities Exchange Act of 1934, as applicable, and shall forward
to the Trust's administrator and the Trust's counsel copies of such
codes and all future amendments and modifications thereto. The Board
shall review and approve such codes at least once a year. Furthermore,
any material changes to an investment adviser's or principal
underwriter's code will be
-7-
<PAGE>
approved by the Board at the next scheduled quarterly board meeting
and in no case more than six months after such change.
10. At each quarterly Board of Trustees' meeting, the administrator,
investment adviser, sub-advisers and principal underwriter of the
Trust shall provide a written report to the Trust's Board of Trustees
stating:
a. any reported securities transaction that occurred during the
prior quarter that may have been inconsistent with the provisions
of the codes of ethics adopted by the Trust's investment adviser,
sub-advisers or principal underwriter; and
b. all disciplinary actions/3/ taken in response to such violations.
11. At least once a year, the Trust's investment adviser, sub-advisers and
principal underwriter shall provide to the Board a written report
which contains: (a) a summary of existing procedures concerning
personal investing by advisory persons and any changes in the
procedures during the past year; (b) an evaluation of current
compliance procedures and a report on any recommended changes in
existing restrictions or procedures based upon the Trust's experience
under this Code of Ethics, industry practices, or developments in
applicable laws and regulations; (c) a description of any issues
arising under the Code of Ethics or procedures since the last report,
including but not limited to, information about material violations of
the code or procedures and sanctions imposed in response to material
violations; and (d) a certification that the procedures which have
been adopted are those reasonably necessary to prevent Access Persons
from violating the respective Codes of Ethics.
12. This Code of Ethics, the codes of the investment adviser, sub-advisers
and principal underwriter, a copy of each report by an Access Person,
any written report hereunder by the Trust's administrator, investment
adviser, sub-advisers or principal underwriter, records of approvals
relating to Initial Public Offerings and Limited Offerings, lists of
all persons required to make reports and a list of all persons
responsible for reviewing such reports shall be preserved with the
Trust's records for the period required by Rule 17j-1.
VI. Certification.
-------------
Each Access Person will be required to certify annually that he or she has
read and understood this Code of Ethics, and will abide by it. Each Access
Person will further certify that
- ----------------
/3./ Disciplinary action includes but is not limited to any action that has a
material financial effect upon the employee, such as fining, suspending, or
demoting the employee, imposing a substantial fine or requiring the disgorgement
of profits.
-8-
<PAGE>
he or she has disclosed or reported all personal securities transactions
required to be disclosed or reported under the Code of Ethics. A form of such
certification is attached hereto as Exhibit B.
The Board of Trustees
of Excelsior Institutional Trust
-9-
<PAGE>
Exhibit A
EXCELSIOR INSTITUTIONAL TRUST
Holdings Report
For the Year/Period Ended______________________________
(month/day/year)
[_] Check Here if this is an Initial Holdings Report
To: Chase Global Funds Service Company, as Co-Administrator of the above listed
Trust
As of the calendar year/period referred to above, I have a direct or
indirect beneficial ownership interest in the securities listed below which are
required to be reported pursuant to the Code of Ethics of the Company:
Title of Number of Principal
Security Shares Amount
-------- --------- ------
The name of any broker, dealer or bank with whom I maintain an account
in which my securities are held for my direct or indirect benefit are as
follows:
This report (i) excludes transactions with respect to which I had no
direct or indirect influence or control, (ii) excludes other transactions not
required to be reported, and (iii) is not an admission that I have or had any
direct or indirect beneficial ownership in the securities listed above.
Signature: ___________________
Print Name: ___________________
A-1
<PAGE>
Exhibit B
EXCELSIOR INSTITUTIONAL TRUST
Securities Transaction Report
For the Calendar Quarter Ended__________________________
(month/day/year)
To: Chase Global Funds Service Company, as Co-Administrator of the above listed
Trust
During the quarter referred to above, the following transactions were
effect in securities of which I had, or by reason of such transaction acquired,
direct or indirect beneficial ownership, and which are required to be reported
pursuant to the Code of Ethics of the Company:
<TABLE>
<CAPTION>
Number of Interest Rate Nature of Broker/Dealer
Shares or and Maturity Dollar Transaction or Bank
Title of Date of Principal Date (if Amount of (Purchase, Through Whom
Security Transaction Amount applicable) Transaction Sale, Other) Price Effected
- -------- ----------- ------ ----------- ----------- ------------ ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
For each Access Person of the Company, other than a director who is
not an "interested person" (as defined in the 1940 Act), provide the following
information with respect to any account established by you during the quarter
referred to above in which securities were held during the quarter for your
direct or indirect benefit:
1. The name of the broker, dealer or bank with whom you established
the account.
2. The date the account was established.
This report (i) excludes transactions with respect to which I had no
direct or indirect influence or control, (ii) excludes other transactions not
required to be reported, and (iii) is not an admission that I have or had any
direct or indirect beneficial ownership in the securities listed above.
Signature: ___________________
Print Name: ___________________
B-1
<PAGE>
Exhibit C
EXCELSIOR INSTITUTIONAL TRUST
ANNUAL CERTIFICATE
Pursuant to the requirements of the Code of Ethics of Excelsior
Institutional Trust (the "Trust"), the undersigned hereby certifies as follows:
1. I have read the Trust's Code of Ethics.
2. I understand the Code of Ethics and acknowledge that I am subject
to it.
3. Since the date of the last Annual Certificate (if any) given
pursuant to the Code of Ethics, I have reported all personal
securities transactions required to be reported under the
requirements of the Code of Ethics.
Date: _____________________ ___________________________
Print Name
___________________________
Signature
-1-
<PAGE>
EXHIBIT (p)(2)
U.S. TRUST
INVESTMENT ADVISER
CODE OF ETHICS
Revised: August 18, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
I. INTRODUCTION................................................................... 1
II. RULE 17j-1 OF THE INVESTMENT COMPANY ACT & ACKNOWLEDGMENT...................... 1
III. PERSONS SUBJECT TO THIS CODE AND OTHER DEFINITIONS............................. 1
IV. RESTRICTIONS ON PERSONAL INVESTMENT ACTIVITIES................................. 3
(a) Prohibition against Acquiring Securities in an Initial Public Offering ("IPO")
Within 30 days of the Initial Offering......................................... 3
(b) Prior Approval of Private Placement Investments................................ 4
(c) Blackout Periods for Trading in the Same Security as a Client.................. 4
(d) Pre-Clearance of Personal Securities Transactions.............................. 5
(e) Delivery of Duplicate Trade Confirmations and Investment Account
Statements to Employer......................................................... 5
(f) Initial Disclosure of Personal Holdings & Quarterly Updates.................... 6
(g) Prohibition on Service as a Director........................................... 6
(h) Prohibition on Accepting or Giving Gifts....................................... 6
V. TRANSACTIONS AND HOLDINGS NOT SUBJECT TO THIS CODE............................. 6
VI. OVERSIGHT OF CODE OF ETHICS.................................................... 7
VII. CONFIDENTIALITY................................................................ 7
</TABLE>
-i-
<PAGE>
I. INTRODUCTION
------------
High ethical standards are essential not only to the success of U.S. Trust
Corporation and its affiliates ("U.S. Trust"), but to maintain the confidence of
investors. There is a long standing recognition of the conflicts of interest
that potentially arise in connection with the personal trading activities of
investment personnel. Because it provides investment advice to registered
investment company clients (each a "Mutual Fund Company"), U.S. Trust is
required under applicable federal law/1/ to adopt a code of ethics containing
provisions designed to detect and prevent improper activity by employees with
access to certain Mutual Fund Company investment-related information. The U.S.
Trust Code of Ethics (the "Code") applies to each "Covered Person" which is a
term defined in Section III. This includes employees who service personal and
institutional clients as well as those who service Mutual Fund Companies.
Because of the nature of our business, you may be exposed to material,
non-public information ("Inside Information"). Federal. securities law prohibits
your use of such information. U.S. Trust owes a fiduciary duty to its clients
that requires its employees to act solely for the benefit of its clients. Our
own long-term business interests are best served by adherence to the principle
that our clients' interests come first. All employees owe U.S. Trust a duty of
loyalty that bars them from engaging in any activity which may give rise to a
potential conflict of interest between U.S. Trust and its clients or the
appearance of such a conflict.
Our goal is to impose as few restrictions as possible consistent with protecting
U.S. Trust, its clients and you from the damage that could result from real or
apparent conflicts of interest or potential violations of law. While it is
impossible to define all situations that pose such a risk, this Code is designed
to address those circumstances in which such risk is likely to exist.
Adherence to this Code and its restrictions on personal investing is a basic
condition of your employment. If you have any doubt about how this Code applies
to any activity, you should consult your local Compliance Officer or a member of
the Corporate Compliance Division, which is responsible for administering this
Code.
II. RULE 17j-1 OF THE INVESTMENT COMPANY ACT & ACKNOWLEDGMENT
---------------------------------------------------------
This Code is adopted pursuant to SEC Rule 17j-1. A copy of the Rule is attached
as Exhibit A. All "Access Persons," which is a term defined in Section III, are
required to (a) be familiar with this Rule, (b) execute the attached
Acknowledgment Form and (c) return the signed form to the Corporate Compliance
Division at H-26.
III. PERSONS SUBJECT TO THIS CODE AND OTHER DEFINITIONS
--------------------------------------------------
(a) This Code applies to every "Covered Person." They are:
___________________
/1/ See SEC Rule 17j-1 promulgated under the Investment Company Act of 1940.
<PAGE>
(1) "Access Persons" - any U.S. Trust employee who, in
connection with his2 regular duties or function makes,
participates in, or obtains information regarding the
purchase or sale of a security by or for any U.S. Trust
client (including Mutual Fund Companies), or whose function
relates to the making of any recommendations with respect to
such purchases or sales (for example, portfolio managers,
analysts, traders and research personnel); and
(2) The following other individual entities:
(A) a member of an Access Person's immediate family (i.e.,
spouse and dependent children);
(B) a person who lives in an Access Person's household and
over whose purchases, sales, or other trading
activities an Access Person directly or indirectly
exercises influence;
(C) a relative whose financial affairs an Access Person
"controls," whether by contact (such as a Deed of
Trust) or by convention (such as a relative he
traditionally advises with regard to investment
choices, invests for or otherwise assists financially);
(D) an investment or trust account, other than one
maintained at U.S. Trust, over which an Access Person
has investment control or discretion;
(E) a trust or other arrangement that names an Access
Person as a beneficiary; and
(F) a non-public entity (partnership, corporation or
otherwise) of which an Access Person is a director,
officer, partner or employee, or in which he owns 10%
or more of the stock, a "controlling" interest as
generally defined by securities laws, or over which he
exercises effective control.
(b) "Investment Account" means any securities account:
(1) in which an Access Person holds a beneficial interest,
regardless of whether the account is managed by an
independent third party or self-directed; or
___________________
/2/ Terms in this Policy referring to gender apply to either gender and the
singular include the plural.
-2-
<PAGE>
(2) on which an Access Person, his spouse or dependent child is
named in the title of the account; or
(3) for which an Access Person acts as Guardian, Trustee,
Custodian, etc., other than those maintained at U.S. Trust;
or
(4) over which an Access Person exercises control, either
directly (e.g., by Power of Attorney) or indirectly (e.g.,
as an advisor).
A comprehensive list of all Access Persons will be compiled and maintained
by the Corporate Compliance Division with the assistance of those
supervising such employees.
(c) "Blackout Period" - see Section IV(c).
(d) "Code" - see Section I.
(e) "de minimus value" - see Section IV(h).
(f) "Front Running" - see Section IV(c).
(g) "Inside Information" - see Section I.
(h) "Investment Account Records" - see Section IV(e).
(i) "IPO" - see Section IV(a).
(j) "Mutual Fund Company" - see Section I.
(k) "Significant Block" - see Section IV(c).
(l) "U.S. Trust" - see Section I.
IV. RESTRICTIONS ON PERSONAL INVESTMENT ACTIVITIES
----------------------------------------------
Note: The following restrictions apply to all Covered Persons, not just Access
Persons.
(a) Prohibition against Acquiring Securities in an Initial Public
-------------------------------------------------------------
Offering ("IPO") Within 30 days of the Initial Offering. The
-------------------------------------------------------
opportunity to invest in an IPO can be highly sought after and these
opportunities are often available only to a limited number of
investors. Purchases of IPO's by Covered Persons pose various
potential conflicts of interest. First, an opportunity for Covered
Persons to participate in a "hot issue" or other attractive IPO is
not likely to be viewed as a random event. Second, it may create the
impression that future investment decisions for a client were not
pursued solely because they were in the best interests of such
client. Third, the realization of any short-term profits may create
at least the appearance that an investment opportunity that should
have been available to a client was diverted to a Covered Person's
personal benefit. U.S.
-3-
<PAGE>
Trust believes that prohibiting a Covered Person's purchase of a
security in an IPO until 30 days after the offering date will reduce
these potential conflicts.
(b) Prior Approval of Private Placement Investments. Companies may court
-----------------------------------------------
Covered Persons through private placements in order to encourage
Access Persons to have their clients invest in the company when it
later undertakes an IPO. If an Access Person invests his client's
assets in such a situation, a direct conflict of interest arises
because the client's investment may result in an increase in value
of the issuer's securities and thus increase the value of a Covered
Person's personal holdings.
U.S. Trust recognizes that most private placements will not raise
such conflicts and a complete ban on such investments would restrict
many legitimate investment opportunities. Therefore, an Access
Person must submit a written approval request for any Covered
Person's investment in private placement securities to, and obtain
prior approval from, his Direct Supervisor and the Head of the
Alternative Investment Suitability Committee. Furthermore, an Access
Person must disclose any Covered Person's holdings in private
placement securities to his Direct Supervisor and the Head of the
Alternative Investment Suitability Committee if that Access Person
plays a material role in U.S. Trust's subsequent investment decision
regarding the same issuer. Once this disclosure is made, an
independent review of U.S. Trust's investment decision must be made
by investment personnel with no personal interest in that particular
issuer. This process will accommodate personal investments for
Covered Persons and provide scrutiny where there is a potential
conflict of interest.
(c) Blackout Periods for Trading in the Same Security as a Client. All
-------------------------------------------------------------
Covered Persons are prohibited from trading in a security on a day
during which any Mutual Fund Company has a pending "buy" or "sell"
order in the same security until such company's order is executed or
withdrawn. In addition, all Covered Persons are prohibited from
buying or selling a security within seven (7) calendar days before
and after any Mutual Fund Company trades in that security. The
Blackout Period before a Mutual Fund Company trades is aimed at
preventing "Front Running." The Blackout Period after a Mutual Fund
Company trades is designed to allow sufficient time for the
dissipation of the market effect of the Mutual Fund Company's trade
before the Covered Person trades.
A "Blackout Period" is a period of time during which Covered Persons
may not trade in a given security. "Front Running" is trading in
advance of action on a client account trade order while knowing
about that order. This type of knowledge is considered Inside
Information. Using Inside Information to trade (other than for the
client account(s) subject to the trade order) violates securities
laws and the U.S. Trust Business Ethics Policy. Covered Persons are
prohibited from purchasing or selling securities about which an
Access Person has Inside Information.
-4-
<PAGE>
All Covered Persons are prohibited from trading a security within
three (3) business days before and after U.S. Trust purchases or
sells a "significant block" of that same security for any client
account. A "Significant Block" will be defined by evaluating the
individual issuer.
There may be some limited circumstances where exceptions to these
restrictions will be allowed. Exception requests must be discussed
with the Corporate Compliance Division and approval from the
appropriate officer obtained prior to executing any such
transaction.
(d) Pre-Clearance of Personal Securities Transactions. All Covered
-------------------------------------------------
Persons must pre-clear personal securities transactions through the
Corporate Compliance Division. To do so, they should contact the
Division a reasonable time before executing an intended securities
transaction. The proposed transaction will be promptly reviewed in
an attempt to determine if it would violate this Code.
The following transactions are exempt from this pre-clearance
requirement.
(1) Any equity securities transaction or related transactions
involving 500 shares or less in the aggregate if, at the
time of the transaction:
(A) the Access Person has no knowledge the security is
being considered for purchase or sale by, or is
actually being purchased or sold for, a Mutual Fund
Company in the mutual fund complex he services or by
U.S. Trust; and
(B) the issuer of the security being purchased or sold has
a market capitalization greater than $1 billion.
(2) Any fixed income securities transaction involving $100,000
principal amount or less if, at the time of the transaction,
the Access Person has no knowledge that the security is
being considered for purchase or sale by, or is actually
being purchased or sold for, a Mutual Fund Company in the
complex he services or by U.S. Trust.
(3) Transactions in securities not eligible for purchase or sale
by a Mutual Fund Company and the value of such securities is
not based upon, related to, or determined by, any security
eligible for purchase or sale by a Mutual Fund Company.
(e) Delivery of Duplicate Trade Confirmations and Investment Account
----------------------------------------------------------------
Statements to Employer. Every Access Person must disclose each
----------------------
existing Investment Account to the Corporate Compliance Division and
authorize that Division to direct his broker(s) to supply it with
duplicate copies of trade confirmations and monthly statements
reflecting transactions affecting such accounts ("Investment Account
Records"). Transactions reported on the
-5-
<PAGE>
Investment Account Records will be reviewed and compared against
Mutual Fund Company and U.S. Trust client transactions. The
Investment Account Records allow U.S. Trust to verify compliance
with this Code. Each Access Person must promptly notify the
Corporate Compliance Division when an Investment Account is opened,
closed or moved.
(f) Initial Disclosure of Personal Holdings & Quarterly Updates. Upon
-----------------------------------------------------------
commencement of employment, each Access Person is required to submit
to the Corporate Compliance Division a completed Disclosure of
Personal Holdings From (attached) listing all Investment Accounts
and securities otherwise held by persons having an interest in an
Investment Account. This Disclosure must be updated each calendar
quarter during his employment. The completed update must be
forwarded to the Corporate Compliance Division and will be used to
verify all Investment Account Records are being collected.
(g) Prohibition on Service as a Director. Each Access Person is
------------------------------------
prohibited from serving on the board of directors of any publicly
traded company absent prior approval from a member of the National
Operating Committee. Approval will be based upon a determination
that board service would be consistent with the U.S. Trust's
interests in servicing its clients. This restriction does not apply
to service on the board of any not-for-profit organization.
(h) Prohibition on Accepting or Giving Gifts. Each Covered Person is
----------------------------------------
prohibited from accepting or giving any gift or more than de minimus
value from or to any individual doing business with, or on behalf
of, any U.S. Trust client. For the purposes of this Code, "de
minimus value" means $250.00. Normal business courtesies such as
business meals and entertainment are excluded from the definition of
"gift."
V. TRANSACTIONS AND HOLDINGS NOT SUBJECT TO THIS CODE
--------------------------------------------------
The following transactions and holdings are not subject to this Code.
(a) Transactions in, and holdings of, securities issued by the United
States Government.
(b) Transactions in, and holdings of, shares of open-ended investment
companies (commonly known as mutual funds).
(c) Transactions involving, and holdings of, bank certificates of
deposit.
(d) Transactions and holdings in any account over which a Covered Person
has no direct or indirect influence or control (i.e., blind trust,
discretionary account or trust managed by a third party).
-6-
<PAGE>
(e) Transactions and holdings in Automatic Dividend Reinvestment Plans
(commonly referred to as "DRIPs").
VI. OVERSIGHT OF CODE OF ETHICS
---------------------------
Each Access Person must annually sign and deliver to the Corporate
Compliance Division a form (attached) acknowledging his familiarity with
this Code. In addition, any situation that may involve a conflict of
interest or other potential violation of this Code must be reported
promptly to the Corporate Compliance Division.
Investment Account Records will be reviewed on an ongoing basis by the
Corporate Compliance Division and compared to transactions entered into by
U.S. Trust for its customers. Any transactions believed to be a violation
of this Code will be reported promptly to U.S. Trust's Chief Investment
Officer.
The Chief Investment Officer shall consider reports made to him and, upon
determining a violation has occurred, may impose such sanctions or
remedial action as he deems appropriate or otherwise required by law.
These sanctions may include, among other things, disgorgement of profits,
suspension or termination of employment with U.S. Trust and civil or
criminal penalties.
VII. CONFIDENTIALITY
---------------
All information collected pursuant to this Code will be treated
confidentially to the extent required by law.
-7-
<PAGE>
U.S. TRUST INVESTMENT ADVISOR CODE OF ETHICS
ACKNOWLEDGMENT
I hereby acknowledge receipt of the U.S. Trust Investment Adviser Code of
Ethics and certify I have read and agree to abide by it.
I also confirm I have disclosed to the Corporate Compliance Division all
existing Investment Accounts (as defined in the Code) on the accompany form. I
authorize that Division to instruct all brokers maintaining an Investment
Account to supply duplicate copies of trade confirmations and monthly statements
for such accounts to the Corporate Compliance Division.
I certify I have never been found civilly liable for, nor criminally guilty
of, insider trading and that no legal proceedings alleging I violated insider
trading laws are now pending or, to the best of my knowledge, threatened by any
person or authority.
Date: __________________________ _____________________________
(Signature)
_____________________________
(Print Name)
-8-
<PAGE>
DISCLOSURE OF PERSONAL HOLDINGS
This form is to be completed by all Access Persons when hired and sent to the
Corporate Compliance Division.
CHECK ONE BOX
- -------------
[_] There are no Investment Accounts I must identify under the U.S. Trust
Investment Adviser Code of Ethics.
[_] The information listed below describes all Investment Accounts I must
disclose under the Code. There are no securities subject to the Code held
outside an Investment Account.
[_] The securities subject to the Code held OUTSIDE an Investment Account are
listed on Page 2. (Supply broker name, address, telephone number, account
number and title.)
Use this space to describe Investment Accounts (attach additional pages as
necessary). If you are reporting a new Investment Account for the first time,
also attach copies of all statements since it was opened.
Account Name: _________________________________________________
Account #: _________________________________________________
S.S. or Tax ID #: _________________________________________________
Firm Name: _________________________________________________
Address: _________________________________________________
_________________________________________________
Account Rep: _________________________________________________
Account Name: _________________________________________________
Account #: _________________________________________________
S.S. or Tax ID#: _________________________________________________
Firm Name: _________________________________________________
Address: _________________________________________________
_________________________________________________
Account Rep: _________________________________________________
(Use additional sheets as necessary)
------------------------------------
<PAGE>
LIST OF SECURITIES SUBJECT TO THE CODE HELD OUTSIDE AN INVESTMENT ACCOUNT
- --------------------------------------------------------------------------------
SECURITY DATE ACQUIRED PRICE # SHARES EXECUTING BROKER
- --------------------------------------------------------------------------------
SIGNATURE: _____________________________________________________________________
PRINTED NAME: ____________________________________________________
Dated: _______________________
-2-
<PAGE>
DISCLOSURE OF PERSONAL HOLDINGS & QUARTERLY UPDATE
--------------------------------------------------
This form is to be completed by all Access Persons quarterly and sent to the
Corporate Compliance Division.
CHECK ALL APPROPRIATE BOXES (provide details as necessary)
- ---------------------------
[_] There are no Investment Accounts I must identify under the U.S. Trust
Investment Adviser Code of Ethics.
[_] There has been no change in Investment Account information I must provide
under the Code since I last completed this disclosure.
[_] The Investment Accounts I have previously described in these disclosures
still exist and the additional Investment Accounts listed below have been
opened since I last completed this disclosure.
[_] The Investment Accounts listed below I previously described in my
disclosures and no longer exist.
[_] The Investment Accounts listed below have been established since I last
completed this disclosure.
[_] The previously undisclosed securities subject to the Code listed below are
held outside an Investment Account.
Use this space to describe Investment Accounts (attach additional pages as
necessary). If you are reporting a new Investment Account for the first time,
also attach copies of all statements since it was opened.
[_] New [_] Closed Investment Account
Account Name: ______________________________________________
Account #: ______________________________________________
S.S. or Tax ID#: ______________________________________________
Firm Name: ______________________________________________
Address: ______________________________________________
______________________________________________
Account Rep: ______________________________________________
<PAGE>
DISCLOSURE OF PERSONAL HOLDINGS & QUARTERLY UPDATE
--------------------------------------------------
(continued)
[_] New [_] Closed Investment Account
Account Name: ______________________________________________
Account #: ______________________________________________
S.S. or Tax ID#: ______________________________________________
Firm Name: ______________________________________________
Address: ______________________________________________
______________________________________________
Account Rep: ______________________________________________
[_] New [_] Closed Investment Account
Account Name: ______________________________________________
Account #: ______________________________________________
S.S. or Tax ID#: ______________________________________________
Firm Name: ______________________________________________
Address: ______________________________________________
______________________________________________
Account Rep: ______________________________________________
-2-
<PAGE>
LIST OF SECURITIES SUBJECT TO THE CODE HELD OUTSIDE AN INVESTMENT ACCOUNT
- --------------------------------------------------------------------------------
SECURITY DATE ACQUIRED PRICE # SHARES EXECUTING BROKER
- --------------------------------------------------------------------------------
SIGNATURE AND DATE: ____________________________________________________________
PRINTED NAME: __________________________________________
DATE: __________________________
-3-
<PAGE>
Exhibit A
---------
Text of Rule 17j-1 of The Investment Company Act
------------------------------------------------
Rule 17j-1: Certain unlawful acts, practices, or courses of business and
------------------------------------------------------------
requirements relating to codes of ethics with respect to registered investment
- ------------------------------------------------------------------------------
companies.
- ---------
(a) It shall be unlawful for any affiliated person of or principal
underwriter for a registered investment company, or any affiliated
person of an investment adviser of or principal underwriter for a
registered investment company in connection with the purchase or sale,
directly or indirectly, by such person of a security held or to be
acquired, as defined in this section, by such registered investment
company.
(1) To employ any device, scheme or artifice to defraud such
registered investment company;
(2) To make to such registered investment company any untrue
statement of a material fact or omit to state to such registered
investment company a material fact necessary in order to make the
statements made, in light of the circumstances under which they
are made, not misleading;
(3) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any such
registered investment company; or
(4) To engage in any manipulative practice with respect to such
registered investment company.
(b)
(1) Every registered investment company, and each investment adviser
of or principal underwriter for such investment company, shall
adopt a written code of ethics containing provisions reasonably
necessary to prevent its access persons from engaging in any act,
practice, or course of business prohibited by paragraph (a) of
this section and shall use reasonable diligence, and institute
procedures reasonably necessary, to prevent violations of such
code.
(2) The requirements of paragraph (b)(1) shall not apply to any
underwriter (i) which is not an affiliated person of the
registered investment company or its investment adviser, and (ii)
none of whose officers, directors or general partners serves as
an officer, director or general partner of such registered
investment company or investment adviser.
<PAGE>
(c)
(1) Every access person of a registered investment company or of an
investment adviser of or principal underwriter for such
investment company shall report to such investment company,
investment adviser or principal underwriter of which he or she is
an access person the information described in paragraph (c)(2)
with respect to transactions in any security in which such access
person has, or by reason of such transaction acquires, any direct
or indirect beneficial ownership in the security: Provided,
however, that any such report may contain a statement that the
report shall not be construed as an admission by the person
making such report that he or she has any direct or indirect
beneficial ownership in the security to which the report relates.
For purposes of this section, beneficial ownership shall be
interpreted in the same manner as it would be in determining
whether a person is subject to the provisions of section 16 of
the Securities Exchange Act of 1934 [15 U.S.C. 78p] and the rules
and regulations thereunder, except that the determination of
direct or indirect beneficial ownership shall apply to all
securities which the access person has or acquires.
(2) Every report required to be made pursuant to paragraph (c)(1)
shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report
relates was effected, and shall contain the following
information:
(i) The date of the transaction, the title and the number of
shares, and the principal amount of each security
involved;
(ii) The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(iii) The price at which the transaction was effect; and
(iv) The name of the broker, dealer or bank with or through
whom the transaction was effected.
(3) Notwithstanding the provision of paragraph (c)(1), no person
shall be required to make a report:
(i) With respect to transactions effected for any account over
which such person does not have any direct or indirect
influence or control;
(ii) If such person is not an "interested person" of a
registered investment company within the meaning of
section 2(a)(19) of the Act [15 U.S.C. 80a-2(a)(19)], and
would be required to make such
-2-
<PAGE>
a report solely by reason of being a director of such
investment company, except where such director knew or, in
the ordinary course of fulfilling his official duties as a
director of the registered investment company, should have
known that during the 15-day period immediately preceding
or after the date of the transaction in a security by the
director such security is or was purchased or sold by such
investment company or such purchase or sale by such
investment company is or was considered by the investment
company or its investment adviser;
(iii) Where the principal underwriter, as to which such person
is an access person, (A) is not an affiliated person of
the registered investment company or any investment
adviser of such investment company, and (B) has no
officers, directors, or general partners who serve as
officers, directors or general partners of such investment
company or any such investment adviser; or
(iv) Where a report made to an investment adviser would
duplicate information recorded pursuant to Rules 204-
2(a)(12) or 204-2(a)(13)[17 CFR 275.204-2(a)(12) and
275.204-2(a)(13)] under the Investment Advisers Act of
1940 [15 U.S.C. 80b-1, et. seq.].
(4) Each registered investment company, investment adviser and
principal underwriter to which reports are required to be made
pursuant to this section shall identify all access persons who
are under a duty to make such reports to it and shall inform such
persons of such duty.
(d) Each registered investment company, investment adviser and principal
underwriter which is required to adopt a code of ethics or to which
reports are required to be made by access persons shall, at its
principal place of business, maintain records in the manner and to the
extent set forth below, and make such records available to the
Commission or any representative thereof at any time and from time to
time for reasonable periodic, special or other examination.
(1) A copy of each such code of ethics which is, or at any time
within the past five years has been, in effect shall be preserved
in an easily accessible place;
(2) A record of any violation of such code of ethics, and of any
action taken as a result of such violation, shall be preserved in
an easily accessible place for a period of not less than five
years following the end of the fiscal year in which the violation
occurs;
(3) A copy of each report made by an access person pursuant to this
rule shall be preserved for a period of not less than five years
from the end of the
-3-
<PAGE>
fiscal year in which it is made, the first two years in an easily
accessible place; and
(4) A list of all persons who are, or within the past five years have
been, required to make reports pursuant to this section shall be
maintained in an easily accessible place.
(e) As used in this rule
(1) "Access Person" means:
(i) With respect to a registered investment company or an
investment adviser thereof, any director, officer, general
partner, or advisory person, as defined in this section,
of such investment company or investment adviser;
(ii) With respect to a principal underwriter, any director,
officer, or general partner of such principal underwriter
who in the ordinary course of his business makes,
participates in or obtains information regarding the
purchase or sale of securities for the registered
investment company for which the principal underwriter so
acts or whose functions or duties as part of the ordinary
course of his business relate to the making of any
recommendation to such investment company regarding the
purchase or sale of securities.
(iii) Notwithstanding the provisions of paragraph (e)(1)(i),
where the investment adviser is primarily engaged in a
business or businesses other than advising registered
investment companies or other advisory clients, the term
"access person" shall mean: any director, officer, general
partner, or advisory person of the investment adviser who,
with respect to any registered investment company, makes
any recommendation, participates in the determination of
which recommendation shall be made, or whose principal
function or duties relate to the determination of which
recommendation shall be made to any registered investment
company, or who, in connection with his duties, obtains
any information concerning securities recommendations
being made by such investment adviser to any registered
investment company.
(iv) An investment adviser is "primarily engaged in a business
or businesses other than advising registered investment
companies or other advisory clients" when, for each of its
most recent three fiscal years or for the period of time
since its organization, whichever is lesser, the
investment adviser derived, on an unconsolidated basis,
more than 50 percent of (A) its total sales and revenues,
and (B) its
-4-
<PAGE>
income (or loss) before income taxes and extraordinary
items from such other business or businesses.
(2) "Advisory person" of a registered investment company or an
investment adviser thereof means:
(i) Any employee of such company or investment adviser (or of
any company in a control relationship to such investment
company or investment adviser) who, in connection with his
regular functions or duties, makes, participates in or
obtains information regarding the purchase or sale of a
security by a registered investment company, or whose
functions relate to the making of any recommendations with
respect to such purchases or sales; and
(ii) Any natural person in a control relationship to such
company or investment adviser who obtains information
concerning recommendations made to such company with
regard to the purchase or sale of a security.
(3) "Control" shall have the same meaning as that set forth in
section 2(a)(9) of the Act [15 U.S.C. 80a-2(a)(9)].
(4) "Purchase or sale of a security" includes, inter alia, the
writing of an option to purchase or sell a security.
(5) "Security" shall have the meaning set forth in section 2(a)(36)
of the Act [15 U.S.C. 80a-2(a)(36)], except that it shall not
include securities issued by the Government of the United States,
bankers' acceptances, bank certificates of deposit, commercial
paper and shares of registered open-end investment companies.
(6) "Security held or to be acquired" by a registered investment
company means any security as defined in this rule which, within
the most recent 15 days, (i) is or has been held by such company,
or (ii) is being or has been considered by such company or its
investment adviser for purchase by such company.
-5-
<PAGE>
EXHIBIT (p)(3)
CODE OF ETHICS REGARDING PERSONAL SECURITIES TRADING
----------------------------------------------------
Pursuant to rule 17j-1 under the Investment Company Act of 1940, this Code of
Ethics has been adopted on behalf of the Adviser, the Underwriters, and each
investment company that is both advised and distributed by an Adviser and an
Underwriter.*
1. General Fiduciary Principles
----------------------------
a) Each Access Person:
i) must place the Funds' interests ahead of the Access Person's
personal interests;
ii) must avoid conflicts or apparent conflicts of interest with the
Funds; and
iii) must conduct his or her personal transactions in a manner which
neither interferes with Fund portfolio transactions nor
otherwise takes unfair or inappropriate advantage of the Access
Person's relationship to the Fund.
The failure to recommend or purchase a Covered Security for the
Fund may be considered a violation of this Code.
b) Every Access Person must adhere to these general fiduciary principles,
as well as comply with the specific provisions and Associated
Procedures of this Code. Technical compliance with the terms of this
-------------------------------------------
Code and the Associated Procedures may not be sufficient where the
------------------------------------------------------------------
transactions undertaken by an Access Person show a pattern of abuse of
----------------------------------------------------------------------
the Access Person's fiduciary duty.
----------------------------------
2. Definitions
-----------
a) The "1940 Act" means the Investment Company Act of 1940, as amended.
b) "Access Person" means any director, trustee, officer, managing general
partner, general partner, or Advisory Person of a Fund, of the
Underwriter, and of the Adviser and all family members permanently
residing in the same household. (If non-family members also reside in
the household, the Access Person must either declare that the Access
Person has no influence on the investment decisions of the other party
or the Access Person must report the party as an Access Person.)
c) "Adviser" means any registered investment adviser that is an affiliate
or subsidiary of Federated Investors, Inc.
- -------------------------
* As the context requires, references herein to the singular include the plural
and masculine pronouns include the feminine.
<PAGE>
d) "Advisory Person" means (i) any employee of the Underwriter, of the
Adviser or of any company in a control relationship to the Underwriter
(which would include any operating company that is an affiliate or a
subsidiary of Federated Investors, Inc.), who, in connection with the
employee's regular functions or duties, makes, participates in, or
obtains information regarding the purchases or sales of a Covered
Security by the Fund, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (ii) any
natural person in a control relationship to the Fund who obtains
information concerning recommendations made to the Fund with regard to
the purchase or sale of a Covered Security.
e) "Associated Procedures" means those policies, procedures and/or
statements that have been adopted by the Underwriter, the Adviser or
the Fund, and which are designed to supplement this Code and its
provisions.
f) "Beneficial ownership" will be attributed to an Access Person in all
instances where the Access Person (i) possesses the ability to
purchase or sell the Covered Securities (or the ability to direct the
disposition of the Covered Securities); (ii) possesses voting power
(including the power to vote or to direct the voting) over such
Covered Securities; or (iii) receives any benefits substantially
equivalent to those of ownership. Beneficial ownership shall be
interpreted in the same manner as it would be in determining whether a
person is subject to the provisions of Section 16a-l(a)(2) of the
Securities Exchange Act of 1934, and the rules and regulations
thereunder, except that the determination of direct or indirect
beneficial ownership shall apply to all Covered Securities which an
Access Person has or acquires.
g) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the 1940 Act.
h) Except as provided in this definition, "Covered Security" shall
include any Security, including without limitation: equity and debt
securities; derivative securities, including options on and warrants
to purchase equity or debt securities; shares of closed-end investment
companies; investments in unit investment trusts; and Related
Securities. "Related Securities" are instruments and securities that
are related to, but not the same as, a Covered Security. For example,
a Related Security may be convertible into a Covered Security, or give
its holder the right to purchase the Covered Security. For purposes of
reporting, "Covered Security" shall include futures, swaps and other
derivative contracts.
"Covered Security" shall not include: direct obligations of the
Government of the United States (regardless of their maturities);
bankers' acceptances; bank certificates of deposit; commercial paper;
high quality short-term debt instruments, including repurchase
agreements; and shares of registered open-end investment companies.
-2-
<PAGE>
i) "Disinterested director" means a director, trustee, or managing
general partner of the Fund who is not an "interested person" of the
Fund within the meaning of Section 2(a)(19) of the 1940 Act.
j) "Fund" means each investment company registered under the 1940 Act
(and any series or portfolios of such company) and any other account
advised by an Adviser.
k) "Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements
of sections 13 or 15(d) of the Securities Exchange Act of 1934.
l) "Investment Personnel" include: Access Persons with direct
responsibility and authority to make investment decisions affecting
the Fund (such as portfolio managers and chief investment officers);
Access Persons who provide information and advice to such portfolio
managers (such as securities analysts); and Access Persons who assist
in executing investment decisions for the Fund (such as traders).
m) "Private Placement" or "limited offering" means an offering that is
exempt from registration under Section 4(2) or Section 4(6) of the
Securities Act of 1933 or pursuant to rule 504, rule 505 or rule 506
under the Securities Act of 1933.
n) "Purchase or sale of a Covered Security" includes, inter alia the
----- ----
writing of an option, future or other derivative contract to purchase
or sell a Covered Security.
o) "Security" shall have the meaning set forth in Section 2(a)(36) of the
1940 Act.
p) "Underwriter" means Federated Securities Corp. and Edgewood Services,
Inc.
3. Exempt Transactions
-------------------
The prohibitions or requirements of Section 4 and Section 5 of this Code
shall not apply to:
a) Purchases or sale of the following Securities:
i) direct obligations of the Government of the United States
(regardless of their maturities). This exemption does not apply
to indirect obligations of the U.S. Government, including FNMAs,
GNMAs or FHLMCs;
ii) bankers' acceptances;
iii) bank certificates of deposit;
-3-
<PAGE>
iv) commercial paper;
v) high quality short-term debt instruments, including repurchase
agreements; and
vi) shares of registered open-end investment companies.
b) Purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control.
4. Prohibited Transactions and Activities
--------------------------------------
a) Every Access Person is prohibited from acquiring any Security
distributed in an initial public offering; however, subject to
provisions of this Code and its Associated Procedures, an Access
Person may acquire the security in the secondary market.
b) Every Access Person is prohibited from acquiring any Security in a
private placement or other limited offering, without the express prior
approval of the Compliance Department. In instances where an
Investment Personnel, after receiving prior approval, acquires a
Security in a private placement, the Investment Personnel has an
affirmative obligation to disclose this investment to the Chief
Investment Officer (or his designee) if the Investment Personnel
participates in any subsequent consideration of any potential
investment by the Fund in the issuer of that Security. Following a
purchase by an Investment Personnel in an approved personal
transaction, any purchase by the Fund of Securities issued by the same
company (other than secondary market purchases of publicly traded
Securities) will be subject to an independent review by the Compliance
Department.
c) Every Access Person is prohibited from executing a personal
transaction in any Covered Security on a day during which the Fund has
a pending "buy" or "sell" order for that Covered Security, until the
Fund's orders are either executed or withdrawn.
All Investment Personnel are prohibited from purchasing or selling any
Covered Security within seven (7) calendar days after the Fund
-----
purchases or sells the same Covered Security. Members of an Investment
Personnel group, as defined by the Compliance Department, are
prohibited from purchasing or selling any Covered Security within
seven (7) days before any Fund advised by that group purchases or
-------
sells the Covered Security.
d) Every Access Person is prohibited from profiting in the purchase and
sale, or sale and purchase, of the same (or equivalent) Covered
Security within 60 calendar days. For purposes of this prohibition,
each personal transaction in the Covered
-4-
<PAGE>
Security will begin a new 60 calendar day period. As an illustration,
if an Access Person purchases 1000 shares of Omega Corporation on June
1st, 500 shares on July 1st, and 250 shares on August 1st, the profit
from the sale of the 1000 shares purchased on June 1st is prohibited
for any transaction prior to October 1st (i.e., 60 calendar days
following August 1st). In circumstances where a personal transaction
in a Covered Security within the proscribed period is involuntary (for
example, due to unforeseen corporate activity, such as a merger), the
Access Person must notify the Compliance Department.
In circumstances where an Access Person can document personal
exigencies, the Chief Compliance Officer may grant an exemption from
the prohibition of profiting in the purchase and sale, or sale and
purchase, of the same (or equivalent) Covered Security within 60
calendar days. Such an exemption is wholly within the discretion of
the Chief Compliance Officer, and any request for such an exemption
will be evaluated on the basis of the facts of the particular
situation.
e) All Investment Personnel are prohibited from serving on the boards of
directors of any issuer of a Covered Security, absent express prior
authorization from the Compliance Department. Authorization to serve
on the board of such a company may be granted in instances where
Compliance Department determines that such board service would be
consistent with the interests of the Investment Company and its
shareholders. If prior approval to serve as a director of a company is
granted, Investment Personnel have an affirmative duty to recuse
themselves from participating in any deliberations by the Fund
regarding possible investments in the securities issued by the company
on whose board the Investment Personnel sit. (This shall not limit or
restrict service on the Board of Federated Investors, Inc.)
f) Every Access Person is prohibited from purchasing or selling, directly
or indirectly, any Covered Security in which he or she has, or by
reason of such transaction acquires, a direct or indirect beneficial
ownership interest and which he or she knows, or should have known, at
the time of such purchase or sale:
i) is being considered for purchase or sale by the Fund; or
ii) is being purchased or sold by the Fund.
g) Every Access Person is prohibited, in connection with the purchase or
sale, directly or indirectly, by the Access Person of a Security Held
or to be Acquired by the Fund:
i) from employing any device, scheme or artifice to defraud the
Fund;
ii) from making any untrue statement of a material fact to the Fund
or omit to state a material fact necessary in order to make the
statements made to the
-5-
<PAGE>
Fund, in light of the circumstances under which they are made,
not misleading;
iii) from engaging in any act, practice or course of business that
operates or would operate as a fraud or deceit on the Fund; or
iv) from engaging in any manipulative practice with respect to the
Fund.
Examples of this would include causing the Fund to purchase a Covered
Security owned by the Access Person for the purpose of supporting or
driving up the price of the Covered Security, and causing the Fund to
refrain from selling a Covered Security in an attempt to protect the
value of the Access Person's investment, such as an outstanding
option. One test which will be applied in determining whether this
prohibition has been violated will be to review the Covered Securities
transactions of Access Persons for patterns. However, it is important
to note that a violation could result from a single transaction if the
circumstances warranted a finding that the provisions of Section 1 of
this Code have been violated.
h) Notwithstanding the other restrictions of this Code to which
Disinterested directors are subject, subparagraphs (a) through (d) of
this Section 4 shall not apply to Disinterested directors.
5. Pre-clearance Requirement and Exempted Transactions
---------------------------------------------------
a) Every Access Person is prohibited from executing a personal
transaction in any Covered Security (including transactions in pension
or profit-sharing plans in which the Access Person has a beneficial
interest), without express prior approval of the Compliance
Department, in accordance with the Associated Procedures governing
pre-clearance. A purchase or sale of Covered Securities not otherwise
approved pursuant to the Associated Procedures may, upon request made
prior to the personal transaction, nevertheless receive the approval
of the Compliance Department if such purchase or sale would be: only
remotely potentially harmful to the Fund; very unlikely to affect a
highly institutional market; or clearly not related economically to
the securities to be purchased, sold or held by the Fund.
Notwithstanding the receipt of express prior approval, any purchases
or sales by any Access Person undertaken in reliance on this provision
remain subject to the prohibitions enumerated in Section 4 of this
Code.
b) The pre-clearance requirement in Section 5(a) shall not apply to:
i) Purchases or sales which are non-volitional on the part of
either the Access Person or the Fund, subject to the provisions
of Section 4(g) of this Code.
ii) Purchases which are either made solely with the dividend
proceeds received in a dividend reinvestment plan; or part of an
automatic payroll
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<PAGE>
deduction plan, whereby an employee purchases securities issued
by an employer.
iii) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its Covered
--- ----
Securities, to the extent such rights were acquired from such
issuer, and any sales of such rights so acquired.
iv) Purchases and sales of a Security that represents an interest in
certain indices as determined by the Compliance Department.
v) Transactions in a Covered Security which involve the giving of
gifts or charitable donations.
vi) Purchases and sales of Covered Securities executed by a person
deemed to be an Access Person solely by reason of his position
------
as an Officer and/or Director or Trustee of the Fund. This
exemption does not apply to those persons who are Officers
and/or Directors of an Underwriter or Adviser.
c) Notwithstanding the other restrictions of this Code to which
Disinterested directors are subject, Section 5 shall not apply to
Disinterested directors.
6. Prohibition on the Receipt of Gifts
-----------------------------------
Every Access Person is prohibited from receiving any gift, favor,
preferential treatment, valuable consideration, or other thing of more than
a de minimis value in any year from any person or entity from, to or
----------
through whom the Fund purchases or sells Securities, or an issuer of
Securities. For purposes of this Code, "de minimis value" is equal to $100
----------
or less. This prohibition shall not apply to:
i) salaries, wages, fees or other compensation paid, or expenses
paid or reimbursed, in the usual scope of an Access Person's
employment responsibilities for the Access Person's employer;
ii) the acceptance of meals, refreshments or entertainment of
reasonable value in the course of a meeting or other occasion,
the purpose of which is to hold bona fide business discussions;
iii) the acceptance of advertising or promotional material of nominal
value, such as pens, pencils, note pads, key chains, calendars
and similar items;
iv) the acceptance of gifts, meals, refreshments, or entertainment
of reasonable value that are related to commonly recognized
events or occasions, such as a promotion, new job, Christmas, or
other recognized holiday; or
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<PAGE>
v) the acceptance of awards, from an employer to an employee, for
recognition of service and accomplishment.
7. Reporting
---------
Every Access Person is required to submit reports of transactions in
Covered Securities to the Compliance Department as indicated below. Any
such report may contain a statement that the report shall not be construed
as an admission by the person making such report that he or she has any
direct or indirect beneficial ownership in the Covered Security to which
the report relates.
Initial Reporting Requirements
-----------------------------
a) Within 10 calendar days of commencement of employment as an Access
Person, the Access Person will provide a list including:
i) the title, number of shares and principal amount of each Covered
Security in which the Access Person had any direct or indirect
beneficial ownership when the person became an Access Person;
ii) the name of any broker, dealer or bank maintaining an account in
which any Security was held for the direct or indirect benefit
of the Access Person as of the date of employment as an Access
Person; and
iii) the date the report is submitted to the Compliance Department.
b) Every Access Person is required to direct his broker to forward to the
Chief Compliance Officer (or his designee), on a timely basis,
duplicate copies of both confirmations of all personal transactions in
Covered Securities effected for any account in which such Access
Person has any direct or indirect beneficial ownership interest and
periodic statements relating to any such account.
Quarterly Reporting Requirements
--------------------------------
c) Every Access Person shall report the information described in Section
7(d) of this Code with respect to transactions in any Covered Security
(other than those personal transactions in Securities exempted under
Section 3 of this Code) in which such Access Person has, or by reason
of such transaction acquires, any direct or indirect beneficial
ownership.
d) Every report shall be made not later than 10 calendar days after the
end of the calendar quarter in which the transaction to which the
report relates was effected, shall be dated and signed by the Access
Person submitting the report, and shall contain the following
information:
i) the date of the transaction, the title and the number of shares,
the principal amount, the interest rate and maturity date, if
applicable of each Covered Security involved;
-8-
<PAGE>
ii) the nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
iii) the price at which the transaction was effected;
iv) the name of the broker, dealer or bank through whom the
transaction was effected; and
v) if there were no personal transactions in any Covered Security
during the period, either a statement to that effect or the word
"None" (or some similar designation).
e) Every Access Person shall report any new account established with a
broker, dealer or bank in which any Security was transacted or held
for the direct or indirect benefit of the Access Person during the
quarter. The report shall include the name of the entity with whom the
account was established and the date on which it was established.
Annual Reporting Requirements
-----------------------------
f) Every Access Person, on an annual basis or upon request of the Compliance
Department, will be required to furnish a list including the following
information (which information must be current as of a date no more than 30
days before the report is submitted) within 10 calendar days of the
request:
i) the title, number of shares and principal amount of each Covered
Security in which the Access Person had any direct or indirect
beneficial ownership;
ii) the name of any broker, dealer or bank maintaining an account in
which any Covered Security was held for the direct or indirect
benefit of the Access Person; and
iii) the date the report is submitted to the Compliance Department.
g) In addition, every Access Person is required, on an annual basis, to
certify that they have received, read, and understand the provisions of
this Code and its Associated Procedures, and that they recognize that they
are subject to its provisions. Such certification shall also include a
statement that the Access Person has complied with the requirements of this
Code and its Associated Procedures and that the Access Person has disclosed
or reported all personal transactions in Securities that are required to be
disclosed or reported pursuant to the requirements of this Code.
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<PAGE>
Exemption for Disinterested Directors
-------------------------------------
h) A Disinterested director is exempt from the "initial reporting
requirements" and "annual reporting requirements" contained in Section
7.
i) A Disinterested director shall be exempt from the `quarterly reporting
requirements" contained in Section 7, so long as at the time of the
personal transaction in the Covered Security, the Disinterested
director neither knew, nor, in the ordinary course of fulfilling his
official duties as a director of the Fund, should have known that
during the 15-day period immediately preceding or after the date of
the transaction in the Covered Security by the Disinterested director
the Covered Security was purchased or sold by the Fund, or considered
for purchase or sale.
8. Sanctions
---------
a) Upon discovering a violation of this Code or its Associated
Procedures, the Compliance Department may take such actions or impose
such sanctions, if any, as it deems appropriate, including, but not
limited to:
i) a letter of censure;
ii) suspension;
iii) a fine;
iv) the unwinding of trades;
v) the disgorging of profits; or
vi) the termination of the employment of the violator.
(In instances where the violation is committed by a member of the
Access Person's household, any sanction would be imposed on the Access
Person.)
b) The filing of any false, incomplete or untimely reports, as required
by Section 7 of this Code, may be considered a violation of this Code.
c) All material violations of this Code and any sanctions imposed with
respect thereto shall be reported to the Board of Directors of the
Fund at least annually.
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<PAGE>
PROCEDURES FOR PRIOR APPROVAL OF PERSONAL SECURITIES
----------------------------------------------------
TRANSACTIONS BY ACCESS PERSONS
------------------------------
Process
- -------
Preclearance Approval Using TradeComply
a) An Access Person (defined to include all members of the Access
Person's household) who wishes to effect a personal securities
transaction, whether a purchase, sale, or other disposition, must
preclear the Covered Security in TradeComply prior to engaging in the
transaction. [Because TradeComply does not include securities being
contemplated for purchase by the Federated Global Management portfolio
managers, Access Persons executing transactions in foreign securities
must complete additional preclearance steps. See "Preclearing Foreign
Securities."]
b) When trading options, the Access Person must preclear the underlying
security before entering into the option contract.
c) Based on established criteria, TradeComply determines whether the
contemplated transaction should be permitted. The primary criteria
applied is whether the Covered Security is on the Federated Equity
Watch List (which is updated weekly in TradeComply) or Open Order
lists, or whether the Covered Security was traded by any of the
Federated advised funds (fund trade information is updated nightly in
TradeComply).
d) Approval is either granted or denied immediately in TradeComply.
e) If approval is denied, the Access Person is given a specific reason
for the denial. The contemplated personal transaction in that Covered
Security is prohibited until prior approval is subsequently granted
upon request in TradeComply.
f) If approval is granted, the Access Person is free to effect the
personal transaction in that Covered Security during that trading day
only. In this regard, open orders for more than one trading day (good
till cancel) must be approved daily in TradeComply to comply with the
Code.
g) All trade requests and their dispositions are maintained in
TradeComply and reviewed by the Compliance Department in conjunction
with other information provided by Access Persons in accordance with
the Code.
h) The Compliance Department reviews all exceptions generated on
TradeComply due to a fund trade occurring after preclearance approval
has been granted. The Compliance Department determines the appropriate
action to be taken to resolve each exception.
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<PAGE>
Preclearing Foreign Securities
- ------------------------------
i) All access persons wishing to execute a personal trade in a foreign
security must first preclear the security in TradeComply. TradeComply
will approve or deny the preclearance request based on its knowledge
of any fund activity in the security as well as the access person's
trading restrictions as defined by their assigned compliance group. If
the preclearance request in TradeComply is denied (Red Light), then
the personal trade may not be executed. If, however, the preclearance
request in TradeComply is approved (Green Light or Yellow Light), then
the access person must obtain a second preclearance approval from the
Federated Global trading desk prior to executing the personal trade.
j) The Head Trader or Senior Vice President in the New York office will
be responsible for granting or denying approval to the second
preclearance request. If approval is granted, then the personal trade
may be executed by the access person. If, however, approval is denied
then the personal trade may not be executed (even though the first
approval was granted in TradeComply).
k) If approval is granted, the following "Personal Transaction
Notification" form must be completed so that the Head Trader can
maintain a record of all preclearance requests.
j) The Head Trader sends a copy of any completed forms, whether approval
was granted or denied, to the Compliance Department.
If extraordinary circumstances exist, an appeal may be directed to the
Chief Compliance Officer Brian Bouda at (412) 288-8634. Appeals are solely
within the discretion of the Chief Compliance Officer.
Transactions Covered and Exemptions
- -----------------------------------
These procedures apply to Access Persons' personal transactions in "Covered
Security" as defined in Section 2 of the Code. A Covered Security includes:
equity and debt securities; options and warrants to purchase equity or debt
securities; shares of closed-end investment companies; and investments in
unit investment trusts.
These procedures do not apply to contemplated transactions in the following
---
instruments:
a) direct obligations of the Government of the United States (regardless
of their maturities). This exemption does not apply to indirect
obligations of the U.S. Government, including FNMAs, GNMAs or FBLMCs;
b) bankers' acceptances;
c) bank certificates of deposit;
d) commercial paper;
-12-
<PAGE>
e) high quality short-term debt instruments, including repurchase
agreements; and
f) shares of registered open-end investment companies;
In addition, these procedures do not apply to the following transactions:
g) Purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control;
h) Purchases or sales which are non-volitional on the part of either the
Access Person or the Fund, subject to the provisions of the Code;
i) Purchases which are either: made solely with the dividend proceeds
received in a dividend reinvestment plan; or part of an automatic
payroll deduction plan, whereby an employee purchases securities
issued by an employer; and
j) Purchases effected upon the exercise of rights issued by an issuer pro
---
rata to all holders of a class of its Securities, to the extent such
----
rights were acquired from such issuer, and any sales of such rights so
acquired.
k) Purchases and sales of a Security that represents an interest in
certain indices as determined by the Compliance Department.
l) Transactions in a Covered Security which involve the giving of gifts
or charitable donations.
m) Purchases and sales of Covered Securities executed by a person deemed
to be an Access Person solely by reason of his position as an Officer
------
and/or Director or Trustee of the Fund. This exemption does not apply
to those persons who are Officers and/or Directors of an Underwriter
or Adviser.
Sanctions
- ---------
a) Failure to comply with the preclearance process may result in any of
the following sanctions being imposed as deemed appropriate by the
Compliance Department:
i) a letter of censure;
ii) suspension;
iii) a fine;
iv) the unwinding of trades;
v) the disgorging of profits; or
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<PAGE>
vi) the termination of the employment of the violator.
b) (In instances where the violation is committed by a member of the
Access Person's household, any sanction would be imposed on the Access
Person.)
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<PAGE>
PERSONAL TRANSACTION NOTIFICATION
I, _________________________ intend to buy/sell shares of _________________ for
my personal account or an account for which I have discretion. I am aware of no
conflict this transaction may pose with any mutual fund managed by Federated
Investors or Federated Global Research.
Signed by: _______________________
Date: ____________________________
Acknowledged by: _________________
(Head Trader or Sr. VP)
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<PAGE>
Date
Broker-Dealer Name Address
RE: Your Name
Brokerage Account Number: 1234-5678
Dear Sir/Madam:
As a(n) [employee] [relative residing in the household of an employee] of
Federated Investors, I am subject to certain requirements applicable to my
personal securities transactions, in accordance with the Codes of Ethics
adopted by the various investment companies, investment advisers and
broker/dealers affiliated with Federated Investors. These requirements also
assist Federated Investors in carrying out its responsibilities under the
Insider Trading and Security Fraud Enforcement Act of 1988. Among these
requirements is my obligation to provide to Federated Investors duplicate
brokerage confirmations and account statements.
Therefore, I hereby request that you provide duplicate confirmations and
account statements with respect to securities in which I have any
beneficial ownership or interest, including securities held in street name
or in house, family, joint or partnership accounts. These duplicate account
memoranda should occur with respect to all transactions including, but not
limited to, those involving options, warrants, shares of closed end
investment companies and futures contracts. Please forward this information
to:
Brian P. Bouda
Chief Compliance Officer
Federated Investors, Inc.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Any questions concerning these matters can be directed to Lisa Ling at
(412) 288-6399. Your serious attention to this matter is greatly
appreciated.
Sincerely,
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<PAGE>
PROCEDURES FOR THE REPORTING AND REVIEW OF PERSONAL
TRANSACTION ACTIVITY
Initial Reporting Process
- -------------------------
1. A member of the Compliance Department meets with each new Access Person and
reviews the Code of Ethics, the Insider Trading Policy and the procedures
for preclearing personal securities transactions through TradeComply.
2. The Access Person is required to complete the "Certification and
Acknowledgment Form" to acknowledge his/her understanding of the Code of
Ethics and return it to the designated Compliance Assistant within 10
calendar days.
3. In addition, the Access Person is required to complete the "Personal
Security Portfolio Form" which includes the following information:
a) the title, number of shares and principal amount of each Covered
Security in which the Access Person had any direct or indirect
beneficial ownership when the person became an Access Person;
b) the name and address of any broker, dealer or bank with whom the
Access Person maintained an account in which any Covered Security was
held for the direct or indirect benefit of the Access Person as of the
date of employment as an Access Person; and
c) the date the report is submitted to the Compliance Department.
4. A separate form must be completed for the Access Person and all household
members as defined in Section 2(c) of the Code. The signed form(s) must be
returned to the Compliance Department within 10 calendar days.
5. A member of the Compliance Department inputs current portfolio holdings
information into TradeComply as "initial" holdings.
6. The Compliance Department notifies each broker, dealer or bank that
duplicate confirmations and statements for the Access Person and household
members, if applicable, must be sent to Brian P. Bouda, Chief Compliance
Officer, effective immediately.
Quarterly Reporting Process
- ---------------------------
1. On the first business day after each calendar quarter end, the Compliance
Assistant sends an e-mail to each Access Person giving step-by-step
instructions on how to complete the quarterly reporting requirements using
TradeComply.
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<PAGE>
2. Within 10 calendar days of the quarter end, the Access Person is required
to:
a) review for accuracy all Covered Security transactions recorded during
the previous calendar quarter in all personal and household member
accounts;
b) review all open account information, including names of brokers, banks
and dealers, addresses and account numbers;
c) notify the Compliance Department of any new accounts established with
brokers, banks or dealers during the quarter and the date the account
was established;
d) resolve any discrepancies with the Compliance Department;
e) record an electronic signature on TradeComply.
3. Covered Security transactions executed by any Access Person during the
calendar quarter are reviewed by Lisa Ling, Compliance Officer,
periodically throughout the quarter using the Compliance Monitor function
in TradeComply.
4. The Compliance Department issues memos to each Access Person if any
transactions he or she has executed during the quarter have been deemed to
be either exceptions to or violations of the Code's requirements.
5. Based on the activity and the responses to the memos, the Compliance
Department may impose any of the sanctions identified in Section 8.
Annual Reporting Process
- ------------------------
1. At least annually, the Compliance Department requires that each Access
Person read the Code and certify and acknowledge his/her understanding of
the Code and its requirements.
2. This re-certification is required to be completed within 10 calendar days
of the request. The Compliance Department monitors compliance with this
requirement through the electronic signatures on TradeComply.
3. At the same time, the Compliance Department provides each Access Person
with a cur-rent list of securities held in the Access Person's account(s)
on TradeComply.
4. Within 10 calendar days of the request, the Access Person is required to:
a) review for accuracy all securities held in all personal and household
member accounts, including the title, number of shares and principal
amount of each Covered Security in which the Access Person had any
direct or indirect beneficial ownership;
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<PAGE>
b) review all open account information, including names of brokers, banks
and dealers, addresses and account numbers;
c) notify the Compliance Department of any new accounts established with
brokers, banks or dealers;
d) resolve any discrepancies with the Compliance Department;
e) record an electronic signature on TradeComply.
Reporting to the Board of Directors
- -----------------------------------
1. Each quarter, the Compliance Department reports any violations of the Code
to the Board of Directors. Violations of the Code include:
a) failure to preclear a transaction;
b) failure to complete the initial, quarterly or annual reporting
requirements timely, regardless of whether the Access Person executed
any transactions;
c) recognition of a profit on the sale of a security held less than 60
days;
d) failure to comply with the receipt of gifts requirements; and
e) any trends or patterns of personal securities trading which are deemed
by the Compliance Department to be violations of the Code.
2. The Compliance Department provides the Board with the name of the Access
Person; the type of violation; the details of the transaction(s); and the
types of sanctions imposed, if any.
Recordkeeping Requirements
- --------------------------
The Compliance Department maintains the following books and records in
TradeComply for a period no less than 6 calendar years:
a) a copy of the Code of Ethics;
b) a record of any violation of the Code of Ethics and any action taken
as a result of the violation;
c) a copy of each report made by an Access Person, including initial,
quarterly and annual reporting;
d) a record of all Access Persons (current and for the past five years);
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<PAGE>
e) a record of persons responsible for reviewing reports; and
f) a copy of any supporting documentation used in making decisions
regarding action taken by the Compliance Department with respect to
personal securities trading.
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