Exhibit 17(B)
LOGO EXCELSIOR
FUNDS INC.
Excelsior Equity Funds
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73 Tremont Street For initial purchase information, current
Boston, MA 02108-3913 prices, performance information and existing
account information, call (800) 446-1012.
(From overseas, call (617) 557-8280.)
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This Prospectus describes five separate portfolios offered to investors by Ex-
celsior Funds, Inc. ("Excelsior Fund"), an open-end, management investment
company. Each portfolio (individually, a "Fund" and collectively, the "Funds")
has its own investment objective and policies as follows:
BLENDED EQUITY FUND seeks long-term capital appreciation by investing in com-
panies believed by the Investment Adviser to represent good long-term values
not currently recognized in the market prices of their securities.
INCOME AND GROWTH FUND seeks moderate current income with capital apprecia-
tion as a secondary goal by investing in common stock, preferred stock and se-
curities convertible into common stock.
VALUE AND RESTRUCTURING FUND seeks long-term capital appreciation by invest-
ing in companies which the Investment Adviser believes will benefit from their
restructuring or redeployment of assets and operations in order to become more
competitive or profitable.
SMALL CAP FUND seeks long-term capital appreciation by investing primarily in
companies with capitalization of $1 billion or less.
LARGE CAP GROWTH FUND seeks superior, risk-adjusted total return by investing
in larger companies whose growth prospects, in the opinion of the Investment
Adviser, appear to exceed that of the overall market.
Each of the Funds is sponsored and distributed by Edgewood Services, Inc. and
advised by United States Trust Company of New York and U.S. Trust Company of
Connecticut (collectively, the "Investment Adviser" or "U.S. Trust").
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1998 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to Excelsior Fund at its address shown above or by calling
(800) 446-1012. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus. The Securities and Exchange Commission maintains a World Wide
Web site (http://www.sec.gov) that contains the Statement of Additional Infor-
mation and other information regarding Excelsior Fund.
SHARES IN THE FUNDS ("SHARES") ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, U.S. TRUST, ITS PARENT OR AFFILIATES AND THE SHARES ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED
BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August 1, 1998
PROSPECTUS SUMMARY
EXCELSIOR FUNDS, INC. is an investment company offering various investment
portfolios with differing objectives and policies. Founded in 1984, Excelsior
Fund currently offers 18 Funds with combined assets of approximately $4 bil-
lion. See "Description of Capital Stock."
INVESTMENT ADVISER: United States Trust Company of New York and U.S. Trust
Company of Connecticut (collectively, "U.S. Trust" or the "Investment Advis-
er") serve as the Funds' investment adviser. U.S. Trust offers a variety of
specialized financial and fiduciary services to high-net worth individuals,
institutions and corporations. Excelsior Fund offers investors access to U.S.
Trust's services. See "Management of the Funds--Investment Adviser."
INVESTMENT OBJECTIVES AND POLICIES: Generally, each Fund is a diversified
investment portfolio which invests in equity securities. The Income and Growth
Fund also may invest significantly in bonds. The Funds' investment objectives
and policies are summarized on the cover and explained in greater detail later
in this Prospectus. See "Investment Objectives and Policies," "Portfolio In-
struments and Other Investment Information" and "Investment Limitations."
HOW TO INVEST: The Funds' Shares are offered at their net asset value. Ex-
celsior Fund does not impose a sales load on purchases of Shares. See "How to
Purchase and Redeem Shares."
The minimum to start an account is $500 per Fund, with a minimum of $50 per
Fund for subsequent investments. The easiest way to invest is to complete the
account application which accompanies this Prospectus and to send it with a
check to the address noted on the application. Investors may also invest by
wire and through investment dealers or institutional investors with appropri-
ate sales agreements with Excelsior Fund. See "How to Purchase and Redeem
Shares."
HOW TO REDEEM: Redemptions may be requested directly from Excelsior Fund by
mail, wire or telephone. Investors investing through another institution
should request redemptions through their Shareholder Organization. See "How to
Purchase and Redeem Shares."
INVESTMENT RISKS AND CHARACTERISTICS: Generally, each Fund is subject to
market and industry risk. Market risk is the possibility that stock prices
will decline over short or even extended periods. The stock markets tend to be
cyclical, with periods of generally rising prices and periods of generally de-
clining prices. These cycles will affect the values of each Fund. Because the
Funds may invest in securities of foreign issuers, they are subject to the
risks of fluctuations of the value of foreign currency relative to the U.S.
dollar and other risks associated with such investments. Because the Income
and Growth Fund also invests in bonds and other fixed-income securities, it
will also be affected directly by fluctuations in interest rates and the
credit markets. Investments in non-investment grade obligations may subject
the Income and Growth Fund to increased risk of loss upon default. Such secu-
rities are generally unsecured, are often subordinated debt and are often is-
sued by entities with high levels of indebtedness and that are more sensitive
to adverse economic conditions. Although each Fund generally seeks to invest
for the long term, each Fund may engage in short-term trading of portfolio se-
curities. A high rate of portfolio turnover may involve correspondingly
greater transaction costs which must be borne directly by a Fund and ulti-
mately by its shareholders. Investment in the Funds should not be considered a
complete investment program. See "Investment Objectives and Policies."
2
EXPENSE SUMMARY
Blended Value and Large Cap
Equity Income and Restructuring Small Cap Growth
Fund Growth Fund Fund Fund Fund
------- ----------- ------------- --------- ---------
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales Load..... None None None None None
Sales Load on Reinvested
Dividends............... None None None None None
Deferred Sales Load...... None None None None None
Redemption Fees.......... None None None None None
Exchange Fees............ None None None None None
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
average net assets)
Advisory Fees (after fee
waivers)/1/............. .68% .67% .56% .53% .68%
12b-1 Fees............... None None None None None
Other Operating Expenses
Administrative Servicing
Fee/1/................. .04% .08% .04% .07% .02%
Other Expenses.......... .27% .27% .29% .34% .35%
----- ----- ---- ---- -----
Total Operating Expenses
(after fee waivers)/1/ . .99% 1.02% .89% .94% 1.05%
===== ===== ==== ==== =====
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1. The Investment Adviser and administrators may, from time to time, voluntar-
ily waive part of their respective fees, which waivers may be terminated at
any time. Until further notice, the Investment Adviser and/or administra-
tors intend to voluntarily waive fees in an amount equal to the Administra-
tive Servicing Fee; and to further waive fees and reimburse expenses to the
extent necessary for Shares of the Value and Restructuring, Small Cap and
Large Cap Growth Funds to maintain an annual expense ratio of not more than
.99%, .99% and 1.05%, respectively. Without such fee waivers, "Advisory
Fees" would be .75%, .75%, .60%, .60% and .75%, and "Total Operating Ex-
penses" would be 1.06%, 1.10%, .93%, 1.01% and 1.12% for the Blended Equi-
ty, Income and Growth, Value and Restructuring, Small Cap and Large Cap
Growth Funds, respectively.
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual returns and (2) redemption of your investment at the end of the
following periods:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Blended Equity Fund............................. $10 $32 $55 $121
Income and Growth Fund.......................... 10 32 56 125
Value and Restructuring Fund.................... 9 28 49 110
Small Cap Fund.................................. 10 30 52 115
Large Cap Growth Fund........................... 11 33 58 128
The foregoing expense summary and example are intended to assist investors
in understanding the costs and expenses that an investor in Shares of the
Funds will bear directly or indirectly. The expense summary sets forth advi-
sory and other expenses payable with respect to Shares of the Blended Equity,
Income and Growth, Value and Restructuring and Small Cap Funds for the fiscal
year ended March 31, 1998, and the estimated advisory and other expenses pay-
able with respect to Shares of the Large Cap Growth Fund for the current fis-
cal year. For more complete descriptions of the Funds' operating expenses, see
"Management of the Funds" and "Description of Capital Stock" in this Prospec-
tus and the financial statements and notes incorporated by reference in the
Statement of Additional Information.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
3
FINANCIAL HIGHLIGHTS
The following tables include selected data for a Share outstanding throughout
each period and other performance information derived from the financial
statements included in Excelsior Fund's Annual Report to Shareholders for
the year ended March 31, 1998 (the "Financial Statements"). The information
contained in the Financial Highlights for each period has been audited by Ernst
& Young LLP, Excelsior Fund's independent auditors. The following tables should
be read in conjunction with the Financial Statements and notes thereto. More
information about the performance of each Fund is also contained in the Annual
Report to Shareholders, which may be obtained from Excelsior Fund without
charge by calling the number on the front cover of this Prospectus.
BLENDED EQUITY FUND
(formerly, the Equity Fund)
Year Ended March 31,
------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Net Asset Value,
Beginning of Year...... $ 25.81 $ 24.43 $ 21.40 $ 19.17 $ 18.77 $ 16.28 $14.13 $13.87 $13.22 $11.32
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income.. 0.16 0.18 0.12 0.07 0.05 0.08 0.13 0.28 0.34 0.19
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 12.59 2.50 5.21 2.67 1.16 3.01 2.23 0.39 1.26 1.88
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Total From Investment
Operations............ 12.75 2.68 5.33 2.74 1.21 3.09 2.36 0.67 1.60 2.07
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income..... (0.16) (0.14) (0.11) (0.04) (0.08) (0.09) (0.21) (0.23) (0.34) (0.17)
Distributions From Net
Realized Gain on
Investments and
Options............... (2.28) (1.16) (2.19) (0.47) (0.39) (0.51) 0.00 (0.18) (0.61) 0.00
Distributions in Excess
of Net Realized Gain
on Investments and
Options............... 0.00 0.00 0.00 0.00 (0.34) 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Total Distributions.... (2.44) (1.30) (2.30) (0.51) (0.81) (0.60) (0.21) (0.41) (0.95) (0.17)
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Net Asset Value, End of
Year................... $ 36.12 $ 25.81 $ 24.43 $ 21.40 $ 19.17 $ 18.77 $16.28 $14.13 $13.87 $13.22
======= ======= ======= ======= ======= ======= ====== ====== ====== ======
Total Return ........... 50.82% 11.09% 26.45% 14.65% 6.54% 19.26% 16.87% 5.11% 11.98% 18.52%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $594.91 $306.99 $188.57 $137.42 $122.26 $106.14 $71.62 $29.87 $25.98 $17.61
Ratio of Net Operating
Expenses to Average
Net Assets............ 0.99% 1.01% 1.05% 1.05% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16%
Ratio of Gross
Operating Expenses to
Average Net Assets/1/
...................... 1.06% 1.06% 1.12% 1.08% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16%
Ratio of Net Investment
Income to Average
Net Assets............ 0.55% 0.71% 0.55% 0.36% 0.25% 0.51% 0.87% 2.21% 2.45% 1.62%
Portfolio Turnover
Rate.................. 28.0% 39.0% 27.0% 23.0% 17.0% 24.0% 20.0% 41.0% 53.0% 46.0%
Average Commission Rate
Paid/2/............... $0.0420 $0.0663 N/A N/A N/A N/A N/A N/A N/A N/A
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NOTES:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
2. Only required for fiscal years beginning on or after September 1, 1995.
4
INCOME AND GROWTH FUND
Year Ended March 31,
---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
Net Asset Value,
Beginning of Year...... $ 15.25 $ 14.45 $ 11.82 $11.94 $11.45 $ 9.10 $ 8.36 $ 8.84 $ 9.09 $ 8.12
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
Income From Investment
Operations
Net Investment Income.. 0.36 0.33 0.39 0.38 0.31 0.27 0.30 0.29 0.40 0.28
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 4.53 1.45 2.61 0.26 0.46 2.43 0.72 (0.43) 0.19 1.15
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
Total From Investment
Operations............ 4.89 1.78 3.00 0.64 0.77 2.70 1.02 (0.14) 0.59 1.43
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
Less Distributions
Dividends From Net
Investment Income..... (0.34) (0.35) (0.31) (0.35) (0.27) (0.35) (0.28) (0.34) (0.39) (0.46)
Distributions From Net
Realized Gain on
Investments and
Options............... (1.85) (0.63) (0.06) (0.41) (0.01) 0.00 0.00 0.00 (0.45) 0.00
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
Total Distributions.... (2.19) (0.98) (0.37) (0.76) (0.28) (0.35) (0.28) (0.34) (0.84) (0.46)
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
Net Asset Value, End of
Year................... $ 17.95 $ 15.25 $ 14.45 $11.82 $11.94 $11.45 $ 9.10 $ 8.36 $ 8.84 $ 9.09
======= ======= ======= ====== ====== ====== ====== ======= ====== ======
Total Return............ 33.29% 12.61% 25.83% 5.74% 6.69% 30.45% 12.42% (1.30)% 6.14% 18.36%
Ratios/Supplemental Data
Net Assets, End of
Period
(in millions)......... $138.05 $132.77 $127.50 $99.93 $96.68 $51.30 $23.25 $ 19.59 $23.66 $14.62
Ratio of Net Operating
Expenses to Average
Net Assets............ 1.02% 1.03% 1.05% 1.06% 1.17% 1.15% 1.23% 1.28% 1.24% 1.22%
Ratio of Gross
Operating Expenses to
Average Net
Assets/1/............. 1.10% 1.11% 1.11% 1.09% 1.17% 1.15% 1.23% 1.28% 1.24% 1.22%
Ratio of Net Investment
Income to Average Net
Assets................ 2.04% 2.17% 2.95% 3.31% 2.77% 2.76% 3.52% 3.64% 4.47% 4.09%
Portfolio Turnover
Rate.................. 32.0% 25.0% 22.0% 36.0% 28.0% 28.0% 81.0% 148.0% 29.0% 24.0%
Average Commission Rate
Paid/2/............... $0.0539 $0.0777 N/A N/A N/A N/A N/A N/A N/A N/A
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NOTES:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
2. Only required for fiscal years beginning on or after September 1, 1995.
5
VALUE AND RESTRUCTURING FUND
(formerly, the Business and Industrial Restructuring Fund)
Year Ended March 31,
---------------------------------------- Period Ended
1998 1997 1996 1995 1994 March 31, 1993/1/
------- ------- ------ ------ ------ -----------------
Net Asset Value,
Beginning of Period.... $ 15.93 $ 14.03 $10.55 $ 9.64 $ 7.71 $ 7.00
------- ------- ------ ------ ------ -------
Income From Investment
Operations
Net Investment Income. 0.10 0.13 0.10 0.07 0.06 0.02
Net Gains or (Losses)
on Securities (both
realized and
unrealized).......... 8.12 2.36 3.71 1.02 1.96 0.69
------- ------- ------ ------ ------ -------
Total From Investment
Operations........... 8.22 2.49 3.81 1.09 2.02 0.71
------- ------- ------ ------ ------ -------
Less Distributions
Dividends From Net
Investment Income.... (0.09) (0.12) (0.09) (0.06) (0.07) 0.00
Distributions From Net
Realized Gain on
Investments and
Options.............. (0.27) (0.47) (0.24) (0.12) (0.02) 0.00
------- ------- ------ ------ ------ -------
Total Distributions... (0.36) (0.59) (0.33) (0.18) (0.09) 0.00
------- ------- ------ ------ ------ -------
Net Asset Value, End of
Period................. $ 23.79 $ 15.93 $14.03 $10.55 $ 9.64 $ 7.71
======= ======= ====== ====== ====== =======
Total Return............ 52.10% 18.09% 36.48% 11.49% 26.40% 10.14%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions). $388.45 $124.01 $74.05 $30.18 $14.44 $ 1.94
Ratio of Net Operating
Expenses to Average
Net Assets........... 0.89% 0.91% 0.91% 0.98% 0.99% 0.99%/2/
Ratio of Gross
Operating Expenses to
Average
Net Assets/3/........ 0.93% 0.95% 0.95% 1.08% 1.73% 5.85%/2/
Ratio of Net
Investment Income to
Average Net Assets... 0.54% 0.90% 0.88% 0.83% 0.77% 2.48%/2/
Portfolio Turnover
Rate................. 30.0% 62.0% 56.0% 82.0% 75.0% 9.0%/2/
Average Commission
Rate Paid/4/......... $0.0624 $0.0755 N/A N/A N/A N/A
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NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Annualized.
3. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
4. Only required for fiscal years beginning on or after September 1, 1995.
6
SMALL CAP FUND
(formerly, the Early Life Cycle Fund)
Year Ended March 31,
-------------------------------------------- Period Ended
1998 1997 1996 1995 1994 March 31, 1993/1/
------- -------- ------- ------- ------- -----------------
Net Asset Value,
Beginning of Period.... $ 8.83 $ 10.78 $ 9.77 $ 8.66 $ 7.40 $7.00
------- -------- ------- ------- ------- -----
Income From Investment
Operations
Net Investment Income
(Loss)............... (0.01) (0.03) (0.02) (0.02) (0.01) 0.00
Net Gains or (Losses)
on Securities (both
realized and
unrealized).......... 3.13 (1.43) 1.72 1.31 1.36 0.40
------- -------- ------- ------- ------- -----
Total From Investment
Operations........... 3.12 (1.46) 1.70 1.29 1.35 0.40
------- -------- ------- ------- ------- -----
Less Distributions
Dividends From Net
Investment Income.... 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and
Options.............. 0.00 (0.10) (0.69) (0.18) (0.09) 0.00
Distributions in
Excess of Net
Realized Gain on
Investments and
Options.............. 0.00 (0.39) 0.00 0.00 0.00 0.00
------- -------- ------- ------- ------- -----
Total Distributions... 0.00 (0.49) (0.69) (0.18) (0.09) 0.00
------- -------- ------- ------- ------- -----
Net Asset Value, End of
Period................. $ 11.95 $ 8.83 $ 10.78 $ 9.77 $ 8.66 $7.40
======= ======== ======= ======= ======= =====
Total Return............ 35.33% (14.33)% 18.29% 15.16% 18.27% 5.71%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions). $ 68.55 $ 53.26 $ 78.06 $ 47.78 $ 24.95 $5.51
Ratio of Net Operating
Expenses to Average
Net Assets........... 0.94% 0.94% 0.90% 0.96% 0.95% 0.99%/2/
Ratio of Gross
Operating Expenses to
Average Net
Assets/3/............ 1.01% 1.02% 0.98% 1.04% 1.15% 2.70%/2/
Ratio of Net
Investment
Income/(Loss) to
Average Net Assets... (0.14)% (0.26)% (0.17)% (0.23)% (0.25)% 0.12%/2/
Portfolio Turnover
Rate................. 73.0% 55.0% 38.0% 42.0% 20.0% 4.0%/2/
Average Commission
Rate Paid/4/......... $0.0490 $ 0.0433 N/A N/A N/A N/A
- --------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Annualized.
3. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
4. Only required for fiscal years beginning on or after September 1, 1995.
7
LARGE CAP GROWTH FUND
Period Ended
March 31, 1998/1/
-----------------
Net Asset Value, Beginning of Period......................... $ 7.00
-------
Income From Investment Operations
Net Investment Income...................................... 0.00/2/
Net Gains or (Losses) on Securities (both realized and
unrealized)............................................... 1.51
-------
Total From Investment Operations........................... 1.51
-------
Less Distributions
Dividends From Net Investment Income....................... 0.00
Distributions From Net Realized Gain on Investments and
Options................................................... 0.00
-------
Total Distributions........................................ 0.00
-------
Net Asset Value, End of Period............................... $ 8.51
=======
Total Return................................................. 21.57%/3/
Ratios/Supplemental Data
Net Assets, End of Period (in millions).................... $ 47.53
Ratio of Net Operating Expenses to Average Net Assets...... 1.05%/4/
Ratio of Gross Operating Expenses to Average
Net Assets/5/............................................. 1.20%4
Ratio of Net Investment Income/(Loss) to Average
Net Assets................................................ (0.16)%/4/
Portfolio Turnover Rate.................................... 12%/4/
Average Commission Rate Paid............................... $0.0384
- --------
NOTES:
1. Inception date of the Fund was October 1, 1997.
2. Amount represents less than $0.01 per share.
3. Not annualized.
4. Annualized.
5. Expense ratio before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
8
U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES
U.S. Trust offers a variety of specialized fiduciary and financial services
to high-net worth individuals, institutions and corporations. As one of the
largest institutions of its type, U.S. Trust prides itself in offering an at-
tentive and high level of service to each of its clients. The Excelsior Funds
offer individual investors access to U.S. Trust's services.
Philosophy. In managing investments for the Blended Equity, Income and
Growth, Value and Restructuring and Small Cap Funds, U.S. Trust follows a
long-term investment philosophy which generally does not change with the
short-term variability of financial markets or fundamental conditions. U.S.
Trust's approach begins with the conviction that all worthwhile investments
are grounded in value. The Investment Adviser believes that an investor can
identify fundamental values that eventually should be reflected in market
prices. U.S. Trust believes that over time, a disciplined search for fundamen-
tal value will achieve better results than attempting to take advantage of
short-term price movements.
Implementation of this long-term value philosophy consists of searching for,
identifying and obtaining the benefits of present or future investment values.
For example, such values may be found in a company's future earnings potential
or in its existing resources and assets. Accordingly, U.S. Trust in managing
investments for the Funds 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.
In managing investments for the Large Cap Growth Fund, U.S. Trust expects to
follow a long-term investment philosophy of buying and holding equity securi-
ties of companies which it believes to be of high quality and of high growth
potential. 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. U.S. Trust believes that earnings growth is the primary
determinant of stock prices and that efficient financial markets will reward
consistently above-average earnings growth with greater than average capital
appreciation over the long term.
Strategies. In order to translate its investment philosophy into more spe-
cific guidance for selection of investments, the Investment Adviser uses three
specific strategies. These strategies, while identified separately, may over-
lap so that more than one may be applied in an investment decision.
U.S. Trust's "problem/opportunity strategy" seeks to identify industries and
companies with the capabilities to provide solutions to or benefit from com-
plex problems such as the changing demographics and aging of the U.S. popula-
tion or the need to enhance industrial productivity. U.S. Trust's second
strategy is a "transaction value" comparison of a company's real underlying
asset value with the market price of its shares and with the sale prices for
similar assets changing ownership in public market transactions. Differences
between a company's real asset value and the price of its shares often are
corrected over time by restructuring of the assets or by market recognition of
their value. U.S. Trust's third strategy involves identifying "early life cy-
cle" companies whose products are in their earlier stages of development or
that seek to exploit new markets. Frequently such companies are smaller compa-
nies, but early life cycle companies may also include larger established com-
panies with new products or markets for existing products. The Investment Ad-
viser believes that over time the value of such companies should be recognized
in the market.
Themes. To complete U.S. Trust's investment philosophy in managing the Funds,
the three portfolio strategies discussed above are applied in concert with
other "longer-term investment themes" to identify investment opportunities.
The Investment Adviser believes these longer-term themes represent strong and
inexorable trends. The Investment Adviser also believes that understanding the
instigation, catalysts and effects of these longer-term trends should help to
identify companies that are beneficiaries of these trends.
9
INVESTMENT OBJECTIVES AND POLICIES
The Investment Adviser will use its best efforts to achieve the investment
objective of each Fund, although their achievement cannot be assured. The in-
vestment objective of each of the Blended Equity, Income and Growth, Value and
Restructuring and Small Cap Funds is "fundamental," meaning that it may not be
changed without a vote of the holders of a majority of the particular Fund's
outstanding Shares (as defined under "Miscellaneous"). The investment objec-
tive of the Large Cap Growth Fund may be changed by Excelsior Fund's Board of
Directors without shareholder approval. Except as noted below in "Investment
Limitations," the investment policies of each Fund may be changed without a
vote of the holders of a majority of the outstanding Shares of such Fund.
Blended Equity Fund
The Blended Equity Fund's investment objective is to seek long-term capital
appreciation. The Blended Equity Fund invests in companies which the Invest-
ment Adviser believes have value currently not recognized in the market prices
of the companies' securities. The Investment Adviser uses the investment phi-
losophy, strategies and themes discussed above to identify such investment
values and to diversify the Fund's investments over a variety of industries
and types of companies. See "Investment Policies Common to the Blended Equity,
Value and Restructuring, Small Cap and Large Cap Growth Funds" for a discus-
sion of various investment policies applicable to the Blended Equity Fund.
Value and Restructuring Fund
The Value and Restructuring Fund seeks long-term capital appreciation by in-
vesting in companies which the Investment Adviser believes will benefit from
their restructuring or redeployment of assets and operations in order to be-
come more competitive or profitable. Such companies may include those involved
in prospective mergers, consolidations, liquidations, spin-offs, financial
restructurings and reorganizations. The business activities of such companies
are not limited in any way. Under normal conditions, at least 65% of the
Fund's total assets will be invested in companies of the type described in
this paragraph. The Investment Adviser's focus is to find companies whose re-
structuring activities offer significant value and investment potential. For
the past several years, leveraged buy-outs and mergers have been prominent
trends. Currently, a great deal of value is being created as companies
deleverage, recapitalize, and rationalize their operations in order to in-
crease profitability. There is risk in these types of investments. For exam-
ple, should a company be unsuccessful in reducing its debt, it may be forced
into default on its debt, increasing its debt or bankruptcy.
Small Cap Fund
The Small Cap Fund seeks long-term capital appreciation by investing primar-
ily in smaller companies which are in the earlier stages of their development,
yet which have demonstrated or are expected to achieve substantial long-term
earnings growth. In selecting companies for investment, the Investment Adviser
looks for innovative companies whose potential has not yet been fully recog-
nized by the securities markets. Under normal conditions, at least 65% of the
Fund's total assets will be invested in companies with capitalization of $1
billion or less. The risk and venture oriented nature of such companies natu-
rally entails greater risk for investors when contrasted with investing in
more established companies. The Fund may also invest in larger or more mature
companies engaged in new and higher growth potential operations. These compa-
nies may also be positioned for accelerating earnings because of rejuvenated
management, new products, new markets for existing products or structural
changes in the economy.
Large Cap Growth Fund
The Large Cap Growth Fund's investment objective is to seek superior, long-
term total return. The Fund attempts to achieve this objective through invest-
ments primarily in companies with capitalizations
10
in excess of $5 billion, whose growth prospects, in the opinion of U.S. Trust,
appear to exceed that of the overall market. Under normal conditions, at least
65% of the Fund's total assets will be invested in such companies.
Investment Policies Common to the Blended Equity, Value and Restructuring,
Small Cap and Large Cap Growth Funds
Under normal market and economic conditions, each of the Blended Equity,
Value and Restructuring, Small Cap and Large Cap Growth Funds will invest at
least 65% of its total assets in common stock, preferred stock and securities
convertible into common stock. Normally, up to 35% of each such Fund's total
assets may be invested in other securities and instruments including, e.g.,
other investment-grade debt securities, warrants, options, and futures instru-
ments as described in more detail below. During temporary defensive periods or
when the Investment Adviser believes that suitable stocks or convertible secu-
rities are unavailable, each Fund may hold cash or invest some or all of its
assets in U.S. Government securities, high-quality money market instruments
and repurchase agreements collateralized by the foregoing obligations.
In managing the Blended Equity, Value and Restructuring, Small Cap and Large
Cap Growth Funds, the Investment Adviser seeks to purchase securities having
value currently not recognized in the market price of a security, consistent
with the strategies discussed above.
Portfolio holdings will include common stocks of companies having capitaliza-
tions of varying amounts, and all Funds may invest in the securities of high
growth, small companies where the Investment Adviser expects earnings and the
price of the securities to grow at an above-average rate. As discussed above,
the Small Cap Fund emphasizes such companies. Certain securities owned by the
Funds may be traded only in the over-the-counter market or on a regional secu-
rities exchange, may be listed only in the quotation service commonly known as
the "pink sheets," and may not be traded every day or in the volume typical of
trading on a national securities exchange. 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 meet redemptions 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 Blended Equity, Value and Restructuring, Small Cap and Large Cap Growth
Funds may invest in the securities of foreign issuers directly or indirectly
through sponsored and unsponsored American Depository Receipts ("ADRs"). ADRs
represent receipts typically issued by a U.S. bank or trust company which evi-
dence ownership of underlying securities of foreign issuers. Investments in
unsponsored ADRs involve additional risk because financial information based
on generally accepted accounting principles ("GAAP") may not be available for
the foreign issuers of the underlying securities. ADRs may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. The Funds may also enter into foreign currency exchange
transactions for hedging purposes.
Income and Growth Fund
The Income and Growth Fund has two investment objectives. Its primary invest-
ment objective is to seek to provide moderate current income and then, as a
secondary objective, to achieve capital appreciation from its investments. In
attempting to achieve these two objectives, the Income and Growth Fund in-
vests, during normal market and economic conditions, a substantial portion of
its assets in common stock, preferred stock and securities convertible into
common stock. The Fund's investments in equity securities will be income-ori-
ented, and it is expected that a portion of its assets will be invested on a
regular basis in debt obligations.
The Fund may invest in the securities of foreign issuers directly or indi-
rectly through sponsored and unsponsored ADRs. For information on ADRs, see
"Investment Policies Common to the Blended Equity,
11
Value and Restructuring, Small Cap and Large Cap Growth Funds." The Fund may
also enter into foreign currency exchange transactions for hedging purposes.
In managing the equity portion of the Income and Growth Fund, the Investment
Adviser will generally select securities that are expected to pay dividends
and other distributions which will result in moderate current income when
added to the income from the Fund's non-equity investments. As a general mat-
ter, the Investment Adviser will use the three strategies described above in
"U.S. Trust's Investment Philosophy and Strategies"--problem/opportunity,
transaction value, and early life cycle. In applying these strategies, howev-
er, the Investment Adviser will place greater emphasis on the current and an-
ticipated income of particular securities and lesser emphasis on the potential
for capital appreciation. As a result, the Income and Growth Fund can be ex-
pected to have a relatively smaller proportion of its assets invested in com-
mon shares of early life cycle companies than the Blended Equity, Value and
Restructuring and Small Cap Funds. The Investment Adviser may also purchase
equity securities for the Income and Growth Fund from time to time without re-
gard to the strategies outlined above if it determines that the purchase is in
furtherance of the Fund's investment objectives.
Debt obligations may be acquired by the Income and Growth Fund to produce in-
come and (under certain conditions) capital appreciation, and may include both
convertible and non-convertible corporate and government bonds, debentures,
money market instruments, repurchase agreements collateralized by U.S. Govern-
ment obligations, and other types of instruments listed in the next paragraph.
Except as stated below, investments in debt obligations will be limited to
those that are considered to be investment grade-i.e., debt obligations clas-
sified within the four highest ratings of Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Services ("S&P") or, if unrated,
which are determined by the Investment Adviser to be of comparable quality.
However, the Investment Adviser may at any time acquire other, non-investment
grade obligations when it believes that their investment characteristics make
them desirable acquisitions for the Income and Growth Fund in light of its in-
vestment objectives and current portfolio mix, so long as, under normal market
and economic conditions, no more than 5% of the Fund's total assets are in-
vested in non-investment grade debt obligations. Notwithstanding the forego-
ing, the Fund may invest up to 35% of its total assets in non-investment grade
convertible debt obligations. Non-investment grade obligations (those that are
rated "Ba" or lower by Moody's and, at the same time, "BB" or lower by S&P or
unrated obligations), commonly referred to as "junk bonds," have speculative
characteristics. Risks associated with lower-rated debt securities are (a) the
relative youth and growth of the market for such securities, (b) the sensitiv-
ity of such securities to interest rate and economic changes, (c) the lower
degree of protection of principal and interest payments, (d) the relatively
low trading market liquidity for the securities, (e) the impact that legisla-
tion may have on the high yield bond market (and, in turn, on the Fund's net
asset value and investment practices), and (f) the creditworthiness of the is-
suers of such securities. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience financial
stress which would adversely effect their ability to service their principal
and interest payment obligations, to meet projected business goals and to ob-
tain additional financing. An economic downturn could also disrupt the market
for lower-rated bonds and adversely effect the value of outstanding bonds and
the ability of the issuers to repay principal and interest. If the issuer of a
debt obligation held by the 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 liquid-
ity of lower-rated securities held by the Fund, especially in a thinly traded
market.
Debt obligations rated "BB," "B" or "CCC" by S&P are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" represents the
lowest degree of speculation and "CCC" the highest degree of speculation.
While such debt will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major risk exposures to ad-
verse conditions. The rating "CC" is typically applied to a debt obligation
that is highly vulnerable to non-payment. The rating "C" is typi-
12
cally used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued. Debt obligations rated "D" are in de-
fault, and payments of interest and/or repayment of principal is in arrears.
The ratings from "AA" through "CCC" are sometimes modified by the addition of
a plus or minus sign to show relative standing within the major rating catego-
ries. Moody's has a similar classification scheme for non-investment grade
debt obligations. Debt obligations rated "Ba," "B," "Caa," "Ca" and "C" pro-
vide questionable protection of interest and principal. The rating "Ba" indi-
cates that a debt obligation has some speculative characteristics. The rating
"B" indicates a general lack of characteristics of desirable investment. Debt
obligations rated "Caa" are of poor quality, while debt obligations rated "Ca"
are considered highly speculative. "C" represents the lowest rated class of
debt obligations. Moody's applies numerical modifiers 1, 2 and 3 in each ge-
neric classification from "Aa" to "B" in its bond rating system. The modifier
"1" indicates that a security ranks in the higher end of its rating category;
the modifier "2" reflects a mid-range ranking; and the modifier "3" indicates
that the security ranks at the lower end of its generic rating category.
In addition, the Income and Growth Fund may invest up to 10% of its total as-
sets in other types of instruments, including warrants, options and other
rights to purchase securities; liquidating trust receipts; limited partnership
interests; certificates of beneficial ownership; creditor claims; and loan
participations. Such instruments may represent ownership or creditor interests
in a wide range of assets or businesses, and may be acquired by the Income and
Growth Fund for either income purposes (as would normally be the case with in-
struments such as liquidating trust receipts) or capital appreciation (as
would be the case with warrants and options). In certain instances, there may
be no established market for such instruments. The Income and Growth Fund
will, however, at no time invest more than 10% of the value of its net assets
in securities that are illiquid or for which market quotations are not readily
available. Further, certain of these instruments may have speculative charac-
teristics. For example, certain instruments may be issued by companies that
are insolvent or have otherwise defaulted on their debt obligations. Such com-
panies may be involved in bankruptcy reorganization proceedings. Warrants and
options acquired by the Income and Growth Fund are subject to the possible
loss of the entire premium paid by the Fund if the market price of the under-
lying security falls below the exercise price. The Investment Adviser will
purchase such obligations only when it determines that the potential return
justifies the attendant risks. The investment features of the foregoing in-
struments and investment risks involving their acquisition are described fur-
ther in the Statement of Additional Information. Additionally, some of the
instruments described above may not be "securities" or may not produce quali-
fying income for purposes of the provisions of the Internal Revenue Code of
1986, as amended, applicable to investment companies. See "Taxes--Federal" be-
low for a discussion of such provisions.
Risk Factors
Each Fund is subject to market risk and interest rate risk. Market risk is
the possibility that stock prices will decline over short or even extended pe-
riods. The stock markets tend to be cyclical, with periods of generally rising
prices and periods of generally declining prices. These cycles will affect the
values of each Fund. In addition, the prices of bonds and other debt instru-
ments generally fluctuate inversely with interest rate changes. Factors af-
fecting debt securities will affect all of the Funds' debt holdings.
Smaller capitalized companies may have limited product lines, markets, or fi-
nancial resources, or may be dependent upon a small management group, and
their securities may be subject to more abrupt or erratic market movements
than larger capitalized or more established companies, both because their se-
curities typically are traded in lower volume and because the issuers typi-
cally are subject to a greater degree to changes in their earnings and
prospects.
All Funds may invest in the securities of foreign issuers. Investments in
foreign securities involve certain risks not ordinarily associated with in-
vestments in domestic securities. Such risks include fluctuations in foreign
exchange rates, future political and economic developments, and the possible
imposition of exchange controls or other foreign governmental laws or restric-
tions. In addition, with respect
13
to certain countries there is the possibility of expropriation of assets, con-
fiscatory taxation, political or social instability or diplomatic developments
which could adversely affect investments in those countries. There may be less
publicly available information about a foreign company than about a U.S. com-
pany, and foreign companies may not be subject to accounting, auditing and fi-
nancial reporting standards and requirements comparable to or as uniform as
those of U.S.-based companies. Foreign securities markets, while growing in
volume, have, for the most part, substantially less volume than U.S. markets,
and securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable U.S.-based companies. Transaction costs
on foreign securities markets are generally higher than in the United States.
There is generally less government supervision and regulation of foreign ex-
changes, brokers and issuers than there is in the United States and a Fund
might have greater difficulty taking appropriate legal action in a foreign
court. Dividends and interest payable on a Fund's foreign portfolio securities
may be subject to foreign withholding taxes. To the extent such taxes are not
offset by credits or deductions allowed to investors under the Federal income
tax provisions, they may reduce the net return to the shareholders.
Because of the risks associated with common stock investments, the Funds are
intended to be long-term investment vehicles and are not designed to provide
investors with a means of speculating on short-term stock market movements.
The Funds should not be considered a complete investment program. In view of
the specialized nature of their investment activities, investment in the
Blended Equity, Value and Restructuring, Small Cap and Large Cap Growth Funds'
Shares may be suitable only for those investors who can invest without concern
for current income and are financially able to assume risk in search of long-
term capital gains.
Securities of companies discussed in this section may be more volatile than
the overall market.
Year 2000. Like other investment companies, financial and business organiza-
tions and individuals around the world, the Funds could be affected adversely
if the computer systems used by the Investment Adviser and Funds' other serv-
ice providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Investment Adviser and the Funds' other service providers
have informed Excelsior Fund that they are taking steps to address the Year
2000 Problem with respect to the computer systems that they use. At this time,
however, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on the Funds as a result of the Year 2000 Problem.
PORTFOLIO INSTRUMENTS AND OTHER
INVESTMENT INFORMATION
Money Market Instruments
All Funds may invest in "money market instruments," which include, among
other things, bank obligations, commercial paper and corporate bonds with re-
maining maturities of 13 months or less.
Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"),
or by a savings and loan association or savings bank which is insured by the
Savings Association Insurance Fund of the FDIC. Bank obligations also include
U.S. dollar-denominated obligations of foreign branches of U.S. banks and ob-
ligations of domestic branches of foreign banks. Investments in bank obliga-
tions of foreign branches of domestic financial institutions or of domestic
branches of foreign banks are limited so that no more than 5% of the value of
a Fund's total assets may be invested in any one branch, and no more than 20%
of a particular Fund's total assets at the time of purchase may be invested in
the aggregate in such obligations (see investment limitation No. 5 below under
"Invest-
14
ment Limitations"). Investments in time deposits are limited to no more than
5% of the value of a Fund's total assets at the time of purchase.
Investments by the Funds in commercial paper will consist of issues that are
rated "A-2" or better by S&P or "Prime-2" or better by Moody's. In addition,
each Fund may acquire unrated commercial paper that is determined by the In-
vestment Adviser at the time of purchase to be of comparable quality to rated
instruments that may be acquired by the particular Fund.
Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instru-
ment purchased by a Fund, the Fund may, from time to time as specified in the
instrument, demand payment of the principal of the instrument or may resell
the instrument to a third party. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if
the issuer defaulted on its payment obligation or during periods that the Fund
is not entitled to exercise its demand rights, and the Fund could, for this or
other reasons, suffer a loss with respect to such instrument.
Government Obligations
All Funds may invest in U.S. Government obligations, including U.S. Treasury
Bills and the obligations of Federal Home Loan Banks, Federal Farm Credit
Banks, Federal Land Banks, the Federal Housing Administration, the Farmers
Home Administration, the Export-Import Bank of the United States, the Small
Business Administration, the Government National Mortgage Association, the
Federal National Mortgage Association, the General Services Administration,
the Central Bank for Cooperatives, the Federal Home Loan Mortgage Corporation,
the Federal Intermediate Credit Banks and the Maritime Administration.
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 ("re-
purchase agreements"). Each Fund will enter into repurchase agreements only
with financial institutions that are deemed to be creditworthy by the Invest-
ment Adviser, pursuant to guidelines established by Excelsior Fund's Board of
Directors. No Fund will enter into repurchase agreements with the Investment
Adviser or any of its affiliates. Repurchase agreements with remaining maturi-
ties in excess of seven days will be considered illiquid securities and will
be subject to the limitations described below under "Illiquid Securities."
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund
at not less than the repurchase price. Default or bankruptcy of the seller
would, however, expose a Fund to possible delay in connection with the dispo-
sition 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.
Securities Lending
To increase return on its portfolio securities, each Fund may lend its port-
folio 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 instrumental-
ities, 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.
There may be risks of delay in receiving additional collateral or in recover-
ing 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 Investment Adviser to be of good standing and when,
in the Investment Adviser's judgment, the income to be earned from the loan
justifies the attendant risks.
15
Options
To further increase return on their portfolio securities in accordance with
their respective investment objectives and policies, the Funds may enter into
option transactions as described below.
The Income and Growth, Value and Restructuring, Small Cap and Large Cap
Growth Funds may purchase put and call options listed on a national securities
exchange and issued by the Options Clearing Corporation in an amount not ex-
ceeding 5% of a Fund's net assets, as described further in the Statement of
Additional Information. Such options may relate to particular securities or to
various stock or bond indices. Purchasing options is a specialized investment
technique which entails a substantial risk of a complete loss of the amounts
paid as premiums to the writer of the options.
In addition, 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 mar-
ket 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 ef-
fects a closing purchase transaction by purchasing an option of the same se-
ries. 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 Investment Adviser does not anticipate significant short-term
capital appreciation. Additional information on option practices, including
particular risks thereof, is provided in the Funds' Statement of Additional
Information.
Futures Contracts
The Blended Equity, Value and Restructuring, Small Cap and Large Cap Growth
Funds may also enter into interest rate futures contracts, other types of fi-
nancial futures contracts and related futures options, as well as any index or
foreign market futures which are available on recognized exchanges or in other
established financial markets.
The Blended Equity, Value and Restructuring, Small Cap and Large Cap Growth
Funds will not engage in futures transactions for speculation, but only as a
hedge against changes in market values of securities which a Fund holds or in-
tends to purchase. The Funds will engage in futures transactions only to the
extent permitted by the Commodity Futures Trading Commission ("CFTC") and the
Securities and Exchange Commission ("SEC"). When investing in futures con-
tracts, the Funds must satisfy certain asset segregation requirements to en-
sure 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 depos-
it. 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 ap-
plicable when a Fund "covers" an options or futures position generally by en-
tering into an offsetting position. Each Fund will limit its hedging transac-
tions 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, af-
ter 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 pur -
16
chase 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.
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
Investment Adviser to correctly anticipate movements in the direction of the
market. There may be an imperfect correlation, or no correlation at all, be-
tween movements in the price of the futures contracts (or options) and move-
ments 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 par-
ticular 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.
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 meth-
od. The Income and Growth Fund may also purchase securities of unit investment
trusts registered with the SEC as investment companies. In addition to the ad-
visory 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 ex-
penses 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 Investment Company Act of 1940, as amended (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 securi-
ties.
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 transac-
tions involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place in the future, beyond the normal set-
tlement 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. 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 condi-
tions, 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 commit-
ments" for speculative purposes, but only in furtherance of their investment
objectives.
Borrowing and Reverse Repurchase Agreements
Each Fund may borrow funds, in an amount up to 10% of the value of its total
assets, for temporary or emergency purposes, such as meeting larger than an-
ticipated redemption requests, and not for leverage. Each Fund may also agree
to sell portfolio securities to financial institutions such as banks and bro-
ker-dealers and to repurchase them at a mutually agreed date and price (a "re-
verse repurchase agreement"). The SEC views reverse repurchase agreements as a
form of borrowing. At the time a Fund enters into a reverse repurchase agree-
ment, it will place in a segregated custodial account liquid assets having a
value equal to the repurchase price, including accrued interest. Reverse re-
purchase agreements involve the risk that the market value of the securities
sold by a Fund may decline below the repurchase price of those securities.
17
Illiquid Securities
No Fund will knowingly invest more than 10% (15%, with respect to the Large
Cap Growth Fund) of the value of its net assets in securities that are illiq-
uid. A security will be considered illiquid if it may not be disposed of
within seven days at approximately the value at which the particular Fund has
valued the security. Each Fund may purchase securities which are not regis-
tered under the Securities Act of 1933, as amended (the "Act"), but which can
be sold to "qualified institutional buyers" in accordance with Rule 144A under
the Act. Any such security will not be considered illiquid so long as it is
determined by the Investment Adviser, acting under guidelines approved and
monitored by the Board, that an adequate trading market exists for that secu-
rity. This investment practice could have the effect of increasing the level
of illiquidity in a Fund during any period that qualified institutional buyers
are no longer interested in purchasing these restricted securities.
Portfolio Turnover
Each Fund may sell a portfolio investment immediately after its acquisition
if the Investment Adviser believes that such a disposition is consistent with
the investment objective of the particular Fund. Portfolio investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover may involve correspondingly
greater brokerage commission expenses and other transaction costs, which must
be borne directly by a Fund and ultimately by its shareholders. High portfolio
turnover may result in the realization of substantial net capital gains. To
the extent net short-term capital gains are realized, any distributions re-
sulting from such gains are considered ordinary income for Federal income tax
purposes. (See "Financial Highlights" and "Taxes--Federal.")
INVESTMENT LIMITATIONS
The investment limitations enumerated below are matters of fundamental policy
and may not be changed with respect to a Fund without the vote of the holders
of a majority of a Fund's outstanding Shares (as defined under "Miscellane-
ous").
A Fund may not:
1. Make loans, except that (i) each Fund may purchase or hold debt securi-
ties in accordance with its investment objective and policies, and may enter
into repurchase agreements with respect to obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, (ii) each of the
Blended Equity, Income and Growth, Value and Restructuring and Small Cap
Funds may lend portfolio securities in an amount not exceeding 30% of its
total assets, (iii) the Large Cap Growth Fund may lend portfolio securities
in accordance with its investment objective and policies, and (iv) the Income
and Growth Fund may purchase or hold creditor claims, loan participations and
other instruments in accordance with its investment objectives and policies;
and
2. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that (a) with respect to the Blended Equity and In-
come and Growth Funds, there is no limitation with respect to securities is-
sued or guaranteed by the U.S. Government or domestic bank obligations, (b)
with respect to the Value and Restructuring and Small Cap Funds, there is no
limitation with respect to securities issued or guaranteed by the U.S. Gov-
ernment, (c) with respect to the Large Cap Growth Fund, there is no limita-
tion with respect to securities issued or guaranteed by the U.S. Government,
any state, territory or possession of the United States, the District of Co-
lumbia or any of their authorities, agencies, instrumentalities or political
subdivisions, and repurchase agreements secured by such securities, and (d)
neither all finance companies, as a group, nor all utility companies, as a
group, are considered a single industry for purposes of this policy.
18
Each of the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap Funds may not:
3. Purchase securities of any one issuer, other than U.S. Government obliga-
tions, if immediately after such purchase more than 5% of the value of its
total assets would be invested in the securities of such issuer, except that
up to 25% of the value of its total assets may be invested without regard to
this 5% limitation; and
4. Borrow money except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing. (This borrowing provision is included solely to fa-
cilitate the orderly sale of portfolio securities to accommodate abnormally
heavy redemption requests and is not for leverage purposes.) A Fund will not
purchase portfolio securities while borrowings in excess of 5% of its total
assets are outstanding. Optioned stock held in escrow is not deemed to be a
pledge.
Each of the Blended Equity and Income and Growth Funds may not:
5. Invest in obligations of foreign branches of financial institutions or in
domestic branches of foreign banks, if immediately after such purchase
(i) more than 5% of the value of its total assets would be invested in obli-
gations of any one foreign branch of the financial institution or domestic
branch of a foreign bank; or (ii) more than 20% of its total assets would be
invested in foreign branches of financial institutions or in domestic
branches of foreign banks; and
6. Knowingly invest more than 10% of the value of its total assets in illiq-
uid securities, including repurchase agreements with remaining maturities in
excess of seven days, restricted securities, and other securities for which
market quotations are not readily available.
The Large Cap Growth Fund may not:
7. Borrow money or mortgage, pledge or hypothecate its assets except to the
extent permitted under the 1940 Act. Optioned stock held in escrow is not
deemed to be a pledge; and
8. Purchase securities of any one issuer, other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or other
investment companies if, immediately after such purchase, more than 5% of the
value of its total assets would be invested in the securities of such issuer,
except that up to 25% of the value of its total assets may be invested with-
out regard to this 5% limitation.
* * *
In addition to the investment limitations described above, no Fund may invest
in the securities of any single issuer if, as a result, the Fund holds more
than 10% of the outstanding voting securities of such issuer.
The Value and Restructuring, Small Cap and Large Cap Growth Funds may not in-
vest in obligations of foreign branches of financial institutions or in domes-
tic branches of foreign banks if immediately after such purchase (i) more than
5% of the value of their respective total assets would be invested in obliga-
tions of any one foreign branch of the financial institution or domestic
branch of a foreign bank; or (ii) more than 20% of their respective total as-
sets would be invested in foreign branches of financial institutions or in do-
mestic branches of foreign banks. In addition, the Large Cap Growth Fund will
not purchase portfolio securities while borrowings in excess of 5% of its to-
tal assets are outstanding. These investment policies may be changed by Excel-
sior Fund's Board of Directors without shareholder approval.
19
The Blended Equity and Income and Growth Funds will not invest more than 25%
of the value of their respective total assets in domestic bank obligations.
With respect to all investment policies, if a percentage limitation is satis-
fied at the time of investment, a later increase or decrease in such percent-
age resulting from a change in value of a Fund's portfolio securities will not
constitute a violation of such limitation.
PRICING OF SHARES
The net asset value of each Fund is determined and the Shares of each Fund
are priced at the close of regular trading hours on the New York Stock Ex-
change (the "Exchange"), currently 4:00 p.m. (Eastern Time). Net asset value
and pricing for each Fund are determined on each day the Exchange and the In-
vestment Adviser are open for trading ("Business Day"). Currently, the holi-
days which the Funds observe are 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. A Fund's net asset
value per Share for purposes of pricing sales and redemptions is calculated by
dividing the value of all securities and other assets allocable to the Fund,
less the liabilities allocable to the Fund, by the number of its outstanding
Shares.
Assets in the Funds which are traded on a recognized domestic stock exchange
are valued at the last sale price on the securities exchange on which such se-
curities are primarily traded or at the last sale price on the national secu-
rities market. Securities traded only on over-the-counter markets are valued
on the basis of closing over-the-counter bid prices. Securities for which
there were no transactions are valued at the average of the most recent bid
and asked prices. An option or futures contract is valued at the last sales
price quoted on the principal exchange or board of trade on which such option
or contract is traded, or in the absence of a sale, the mean between the last
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 Excelsior Fund's Board of Directors.
Portfolio securities which are primarily traded on foreign securities ex-
changes are generally valued at the preceding closing values of such securi-
ties on their respective exchanges, except that when an event subsequent to
the time where value was so established is likely to have changed such value,
then the fair value of those securities will be determined by consideration of
other factors under the direction of the Board of Directors. 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. Invest-
ments in 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 guidelines adopted by the Board of Di-
rectors. For valuation purposes, quotations of foreign securities in foreign
currency are converted to U.S. dollars equivalent at the prevailing market
rate on the day of conversion. Some of the securities acquired by the Funds
may be traded on foreign exchanges or over-the-counter markets on days which
are not Business Days. In such cases, the net asset value of the Shares may be
significantly affected on days when investors can neither purchase nor redeem
a Fund's Shares. Excelsior Fund's administrators have undertaken to price the
securities in the Funds' portfolios, and may use one or more independent pric-
ing services in connection with this service.
20
HOW TO PURCHASE AND REDEEM SHARES
Distributor
Shares in each Fund are continuously offered for sale by Excelsior Fund's
sponsor and distributor, Edgewood Services, Inc. (the "Distributor"), a whol-
ly-owned subsidiary of Federated Investors, Inc. The Distributor is a
registered broker/dealer. Its principal business address is 5800 Corporate
Drive, Pittsburgh, PA 15237-5829.
At various times the Distributor may implement programs under which a deal-
er's sales force may be eligible to win nominal awards for certain sales ef-
forts or under which the Distributor will make payments to any dealer that
sponsors sales contests or recognition programs conforming to criteria estab-
lished by the Distributor, or that participates in sales programs sponsored by
the Distributor. The Distributor in its discretion may also from time to time,
pursuant to objective criteria established by the Distributor, pay fees to
qualifying dealers for certain services or activities which are primarily in-
tended to result in sales of Shares of the 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.
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 sup-
port. The support may include initiating customer accounts, participating in
sales, educational and training seminars, providing sales literature, and en-
gineering computer software programs that emphasize the attributes of the
Funds. Such payments will be predicated upon the amount of Shares the finan-
cial 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 in each Fund are sold at their net asset value per Share next computed
after a purchase order is received in good order by the sub-transfer agent or
another entity on behalf of Excelsior Fund. The Distributor has established
several procedures for purchasing Shares in order to accommodate different
types of investors.
Shares may be purchased directly by individuals ("Direct Investors") or by
institutions ("Institutional Investors" and, collectively with Direct Invest-
ors, "Investors"). Shares may also be purchased by customers ("Customers") of
the Investment Adviser, its affiliates and correspondent banks, and other in-
stitutions ("Shareholder Organizations") that have entered into agreements
with Excelsior Fund. 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 orders for its Customers and to transmit, on a timely basis, payment
for such orders to Chase Global Funds Services Company ("CGFSC"), the Funds'
sub-transfer agent, in accordance with the procedures agreed to by the Share-
holder 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 es-
tablish its Customers' accounts of record with CGFSC. In this event, even if
the Shareholder Organization continues to place its Customers' purchase and
redemption orders with the Funds, CGFSC will send confirmations of such trans-
actions and periodic account statements directly to the shareholders of rec-
ord. Shares in the Funds bear the expense of fees payable to Shareholder Orga-
nizations for such services. See "Management of the Funds--Shareholder
Organizations."
Customers wishing to purchase Shares through their Shareholder Organization
should contact such entity directly for appropriate instructions. (For a list
of Shareholder Organizations in your area, call
21
(800) 446-1012.) An Investor purchasing Shares through a registered investment
adviser or certified financial planner may incur transaction charges in connec-
tion with such purchases. Such Investors should contact their registered in-
vestment adviser or certified financial planner for further information on
transaction fees. Investors may also purchase Shares directly from the Distrib-
utor in accordance with procedures described below under "Purchase Procedures."
Purchase Procedures
General
Direct Investors may purchase Shares by completing the Application for pur-
chase of Shares accompanying this Prospectus and mailing it, together with a
check payable to Excelsior Funds, to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
Subsequent investments in an existing account in any Fund may be made at any
time by sending to the above address a check payable to Excelsior Funds along
with: (a) the detachable form that regularly accompanies the confirmation of a
prior transaction; (b) a subsequent order form which may be obtained from
CGFSC; or (c) a letter stating the amount of the investment, the name of the
Fund and the account number in which the investment is to be made. Institu-
tional Investors may purchase Shares by transmitting their purchase orders to
CGFSC by telephone at (800) 446-1012 or by terminal access. Institutional In-
vestors must pay for Shares with Federal funds or funds immediately available
to CGFSC.
Purchases by Wire
Investors may also purchase Shares by wiring Federal funds to CGFSC. Prior to
making an initial investment by wire, an Investor must telephone CGFSC at
(800) 446-1012 (from overseas, call (617) 557-8280) for instructions. Federal
funds and registration instructions should be wired through the Federal Reserve
System to:
The Chase Manhattan Bank
ABA #021000021
Excelsior Funds, Account No. 9102732915
For further credit to:
Excelsior Funds
Wire Control Number
Account Registration (including account number)
Investors making initial investments by wire must promptly complete the Appli-
cation accompanying this Prospectus and forward it to CGFSC. Redemptions by In-
vestors will not be processed until the completed Application for purchase of
Shares has been received by CGFSC and accepted by the Distributor. Investors
making subsequent investments by wire should follow the above instructions.
Other Purchase Information
Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500 per Fund. The minimum subse-
quent investment for both types of investors is $50 per Fund. Customers may
agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may
22
charge a Customer's account fees for automatic investment and other cash man-
agement services provided. Excelsior Fund reserves the right to reject any pur-
chase order, in whole or in part, or to waive any minimum investment require-
ments. Third party checks will not be accepted as payment for Fund Shares.
REDEMPTION PROCEDURES
Customers of Shareholder Organizations holding Shares of record may redeem all
or part of their investments in the Funds in accordance with procedures gov-
erning their accounts at the Shareholder Organizations. It is the responsibil-
ity of the Shareholder Organizations to transmit redemption orders to CGFSC and
credit such Customer accounts with the redemption proceeds on a timely basis.
Redemption orders for Institutional Investors must be transmitted to CGFSC by
telephone at (800) 446-1012 or by terminal access. No charge for wiring redemp-
tion payments to Shareholder Organizations or Institutional Investors is im-
posed by Excelsior Fund, although Shareholder Organizations may charge a Cus-
tomer's account for wiring redemption proceeds. Information relating to such
redemption services and charges, if any, is available from the Shareholder Or-
ganizations. An Investor redeeming Shares through a registered investment ad-
viser or certified financial planner may incur transaction charges in connec-
tion with such redemptions. Such Investors should contact their registered in-
vestment adviser or certified financial planner for further information on
transaction fees. Investors may redeem all or part of their Shares in accor-
dance 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).
REDEMPTION BY MAIL
Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
A written redemption request to CGFSC must (i) state the number of Shares to
be redeemed, (ii) identify the shareholder account number and tax identifica-
tion number, and (iii) be signed by each registered owner exactly as the Shares
are registered. If the Shares to be redeemed were issued in certificate form,
the certificates must be endorsed for transfer (or accompanied by a duly exe-
cuted stock power) and must be submitted to CGFSC together with the redemption
request. A redemption request for an amount in excess of $50,000 per account,
or for any amount if the proceeds are to be sent elsewhere than the address of
record, must be accompanied by signature guarantees from any eligible guarantor
institution approved by CGFSC in accordance with its Standards, Procedures and
Guidelines for the Acceptance of Signature Guarantees ("Signature Guarantee
Guidelines"). Eligible guarantor institutions generally include banks,
broker/dealers, credit unions, national securities exchanges, registered secu-
rities associations, clearing agencies and savings associations. All eligible
guarantor institutions must participate in the Securities Transfer Agents Me-
dallion Program ("STAMP") in order to be approved by CGFSC pursuant to the Sig-
nature Guarantee Guidelines. Copies of the Signature Guarantee Guidelines and
information on STAMP can be obtained from CGFSC at (800) 446-1012 or at the ad-
dress given above. CGFSC may require additional supporting documents for re-
demptions made by corporations, executors, administrators, trustees and guardi-
ans. A redemption request will not be deemed to be properly received until
CGFSC receives all required documents in proper form. Payment for Shares re-
deemed will ordinarily be made by mail within five Business Days after receipt
by CGFSC of the redemption request in good order. Questions with respect to the
proper form for redemption requests should be directed to CGFSC at (800) 446-
1012 (from overseas, call (617) 557-8280).
23
Redemption by Wire or Telephone
Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do so, may redeem Shares by instructing CGFSC
by wire or telephone to wire the redemption proceeds directly to the Direct
Investor's account at any commercial bank in the United States. Direct Invest-
ors who are shareholders of record may also redeem Shares by instructing CGFSC
by telephone to mail a check for redemption proceeds of $500 or more to the
shareholder of record at his or her address of record. Institutional Investors
may also redeem Shares by instructing CGFSC by telephone at (800) 446-1012 or
by terminal access. Only redemptions of $500 or more will be wired to a Direct
Investor's account. The redemption proceeds for Direct Investors must be paid
to the same bank and account as designated on the Application or in written
instructions subsequently received by CGFSC.
In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, a Direct Investor must send a written request to Excelsior Fund, c/o
CGFSC, at the address listed above under "Redemption by Mail." Such requests
must be signed by the Direct Investor, with signatures guaranteed (see "Re-
demption by Mail" above, for details regarding signature guarantees). Further
documentation may be requested.
CGFSC and the Distributor reserve the right to refuse a wire or telephone re-
demption if it is believed advisable to do so. Procedures for redeeming Shares
by wire or telephone may be modified or terminated at any time by Excelsior
Fund, CGFSC or the Distributor. Excelsior Fund, CGFSC, and the Distributor
will not be liable for any loss, liability, cost or expense for acting upon
telephone instructions that are reasonably believed to be genuine. In attempt-
ing to confirm that telephone instructions are genuine, Excelsior Fund will
use such procedures as are considered reasonable, including recording those
instructions and requesting information as to account registration.
If any portion of the Shares to be redeemed represents an investment made by
personal check, Excelsior Fund and CGFSC reserve the right not to honor the
redemption until CGFSC is reasonably satisfied that the check has been col-
lected in accordance with the applicable banking regulations which may take up
to 15 days. A Direct Investor who anticipates the need for more immediate ac-
cess to his or her investment should purchase Shares by Federal funds or bank
wire or by certified or cashier's check. Banks normally impose a charge in
connection with the use of bank wires, as well as certified checks, cashier's
checks and Federal funds. If a Direct Investor's purchase check is not col-
lected, the purchase will be cancelled and CGFSC will charge a fee of $25.00
to the Direct Investor's account.
During periods of substantial economic or market change, telephone redemp-
tions 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 under "How to Purchase and Redeem Shares--
Redemption by Mail."
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 re-
mains below $500. If a Customer has agreed with a particular Shareholder Or-
ganization to maintain a minimum balance in his or her account at the institu-
tion 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 Organiza-
tion to redeem all or part of his or her Shares to the extent necessary to
maintain the required minimum balance.
General
Purchase and redemption orders for Shares which are received in good order
prior to the close of regular trading hours on the Exchange (currently 4:00
p.m., Eastern Time) on any Business Day are priced according to the net asset
value determined on that day. Purchase orders received in good order
24
after the close of regular trading hours on the Exchange are priced at the net
asset value per Share determined on the next Business Day.
INVESTOR PROGRAMS
Exchange Privilege
Investors and Customers of Shareholder Organizations may, after appropriate
prior authorization and without an exchange fee imposed by Excelsior Fund, ex-
change Shares in a Fund having a value of at least $500 for shares of any
other portfolio offered by Excelsior Fund or Excelsior Tax-Exempt Funds, Inc.
("Excelsior Tax-Exempt Fund") or for Trust Shares of Excelsior Institutional
Trust, provided that such other shares may legally be sold in the state of the
Investor's residence.
Excelsior Fund currently offers 13 additional portfolios as follows:
Money Fund, a money market fund seeking as high a level of current income as
is consistent with liquidity and stability of principal through investments
in high-quality money market investments maturing within 13 months;
Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities and repurchase agreements collateral-
ized by such obligations;
Treasury Money Fund, a money market fund seeking current income generally
exempt from state and local income taxes through investments in direct short-
term obligations issued by the U.S. Treasury and certain agencies or instru-
mentalities of the U.S. Government;
Short-Term Government Securities Fund, a fund seeking a high level of cur-
rent income by investing principally in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agree-
ments collateralized by such obligations, and having a dollar-weighted aver-
age portfolio maturity of 1 to 3 years;
Intermediate-Term Managed Income Fund, a fund seeking a high level of cur-
rent interest income by investing principally in investment grade or better
debt obligations and money market instruments, and having a dollar-weighted
average portfolio maturity of 3 to 10 years;
Managed Income Fund, a fund seeking higher current income primarily through
investments in investment grade debt obligations, U.S. Government obligations
and money market instruments;
Energy and Natural Resources Fund, a non-diversified fund seeking long-term
capital appreciation by investing in companies that are in the energy and
other natural resources groups of industries;
Real Estate Fund, a non-diversified fund seeking current income and long-
term capital appreciation by investing in real estate investment trusts and
other companies principally engaged in the real estate business;
International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;
Latin America Fund, a fund seeking long-term capital appreciation through
investments in companies and securities of governments based in all countries
in Central and South America;
Pacific/Asia Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Asia and on the
Asian side of the Pacific Ocean;
Pan European Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Europe; and
25
Emerging Markets Fund, a fund seeking long-term capital appreciation through
investments primarily in equity securities of emerging country issuers.
Excelsior Tax-Exempt Fund currently offers 7 portfolios as follows:
Tax-Exempt Money Fund, a diversified tax-exempt money market fund seeking a
moderate level of current interest income exempt from Federal income taxes
through investments primarily in high-quality municipal obligations maturing
within 13 months;
New York Tax-Exempt Money Fund, a non-diversified tax-exempt money market
fund seeking a moderate level of current interest income exempt from Federal
and, to the extent possible, New York State and New York City income taxes
through investments primarily in New York municipal obligations maturing
within 13 months;
Short-Term Tax-Exempt Securities Fund, a diversified fund seeking a high
level of current interest income exempt from Federal income taxes through in-
vestments in municipal obligations and having a dollar-weighted average port-
folio maturity of 1 to 3 years;
Intermediate-Term Tax-Exempt Fund, a diversified fund seeking a high level
of current income exempt from Federal income taxes through investments in mu-
nicipal obligations and having a dollar-weighted average portfolio maturity
of 3 to 10 years;
Long-Term Tax-Exempt Fund, a diversified fund seeking to maximize current
interest income exempt from Federal income taxes through investments in mu-
nicipal obligations and having a dollar-weighted average maturity of 10 to 30
years;
New York Intermediate-Term Tax-Exempt Fund, a non- diversified fund designed
to provide New York investors with a high level of current interest income
exempt from Federal and, to the extent possible, New York State and New York
City income taxes; this fund invests primarily in New York municipal obliga-
tions and has a dollar-weighted average portfolio maturity of 3 to 10 years;
and
California Tax-Exempt Income Fund, a non-diversified fund designed to pro-
vide California investors with as high a level of current interest income ex-
empt from Federal and, to the extent possible, California state personal in-
come taxes as is consistent with relative stability of principal; this fund
invests primarily in California municipal obligations and has a dollar-
weighted average portfolio maturity of 3 to 10 years.
Excelsior Institutional Trust currently offers Trust Shares in the following
investment portfolios:
Optimum Growth Fund, a fund seeking superior, risk-adjusted total return
through investments in a diversified portfolio of equity securities whose
growth prospects, in the opinion of its investment adviser, appear to exceed
that of the overall market; and
Value Equity Fund, a fund seeking long-term capital appreciation through in-
vestments in a diversified portfolio of equity securities whose market value,
in the opinion of its investment adviser, appears to be undervalued relative
to the marketplace.
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 of
Excelsior Fund, Excelsior Tax-Exempt Fund or Excelsior Institutional Trust. 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.
Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in a Fund. For further
information regarding exchange privileges, shareholders should call (800) 446-
1012 (from overseas, call (617) 557-8280). Investors exercising the ex-
26
change privilege with the other portfolios of Excelsior Fund, Excelsior Tax-
Exempt Fund or Excelsior Institutional Trust should request and review the
prospectuses of such funds. Such prospectuses may be obtained by calling the
numbers listed above. In order to prevent abuse of this privilege to the
disadvantage of other shareholders, Excelsior Fund, Excelsior Tax-Exempt Fund
and Excelsior Institutional Trust reserve the right to limit the number of ex-
change requests of Investors and Customers of Shareholder Organizations to no
more than six per year. Excelsior Fund may modify or terminate the exchange
program at any time upon 60 days' written notice to shareholders, and may re-
ject any exchange request.
For Federal income tax purposes, an exchange of Shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an Investor. Be-
fore making an exchange, an Investor should consult a tax or other financial
adviser to determine tax consequences.
Exchanges by Telephone. For shareholders who have previously selected the
telephone exchange option, an exchange order may be placed by calling (800)
446-1012 (from overseas, please call (617) 557-8280). By establishing the
telephone exchange option, a shareholder authorizes CGFSC and the Distributor
to act upon telephone instructions believed to be genuine. Excelsior Fund,
Excelsior Tax-Exempt Fund, Excelsior Institutional Trust, CGFSC and the
Distributor are not responsible for the authenticity of exchange requests
received by telephone that are reasonably believed to be genuine. In
attempting to confirm that telephone instructions are genuine, Excelsior Fund,
Excelsior Tax-Exempt Fund and Excelsior Institutional Trust will use such
procedures as are considered reasonable, including recording those
instructions and requesting information as to account registration.
Systematic Withdrawal Plan
An Investor who owns Shares of a Fund with a value of $10,000 or more may es-
tablish a Systematic Withdrawal Plan. The Investor may request a declining-
balance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an Investor must complete Section 9 of the New Ac-
count Application contained in this Prospectus and mail it to CGFSC at the ad-
dress given above. Further information on establishing a Systematic Withdrawal
Plan may be obtained by calling (800) 446-1012 (from overseas, call (617) 557-
8280.)
Shareholder Organizations may, at their discretion, establish similar system-
atic withdrawal plans with respect to the Shares held by their Customers. In-
formation about such plans and the applicable procedures may be obtained by
Customers directly from their Shareholder Organizations.
Retirement Plans
Shares are available for purchase by Investors in connection with the follow-
ing tax-deferred prototype retirement plans offered by United States Trust
Company of New York:
IRAs (including "rollovers" from existing retirement plans) for individuals
and their 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-Pur-
chase 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 mat-
ters 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.
27
Automatic Investment Program
The Automatic Investment Program permits Investors to purchase Shares (mini-
mum of $50 per Fund per transaction) at regular intervals selected by the In-
vestor. The minimum initial investment for an Automatic Investment Program ac-
count is $50 per Fund. Provided the Investor's financial institution allows
automatic withdrawals, Shares are purchased by transferring funds from an In-
vestor's checking, bank money market or NOW account designated by the Invest-
or. At the Investor's option, the account designated will be debited in the
specified amount, and Shares will be purchased, once a month, on either the
first or fifteenth day, or twice a month, on both days.
The Automatic Investment Program is one means by which an Investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time mar-
ket performance, a fixed dollar amount is invested in Shares at predetermined
intervals. This may help Investors to reduce their average cost per Share be-
cause the agreed upon fixed investment amount allows more Shares to be pur-
chased during periods of lower Share prices and fewer Shares during periods of
higher prices. In order to be effective, Dollar Cost Averaging should usually
be followed on a sustained, consistent basis. Investors should be aware, how-
ever, that Shares bought using Dollar Cost Averaging are purchased without re-
gard to their price on the day of investment or to market trends. In addition,
while Investors may find Dollar Cost Averaging to be beneficial, it will not
prevent a loss if an Investor ultimately redeems his Shares at a price which
is lower than their purchase price.
To establish an Automatic Investment account permitting Investors to use the
Dollar Cost Averaging investment method described above, an Investor must com-
plete Section 8 of the New Account Application contained in this Prospectus
and mail it to CGFSC. An Investor may cancel his participation in this Program
or change the amount of purchase at any time by mailing written notification
to CGFSC, P.O. Box 2798, Boston, MA 02208-2798 and notification will be effec-
tive three Business Days following receipt. Excelsior Fund may modify or ter-
minate this privilege at any time or charge a service fee, although no such
fee currently is contemplated. An Investor may also implement the Dollar Cost
Averaging method on his own initiative or through other entities.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net investment income of the Funds are declared and paid
at least annually. For dividend purposes, a Fund's investment income is re-
duced by accrued expenses directly attributable to that Fund and the general
expenses of Excelsior Fund prorated to that Fund on the basis of its relative
net assets. Net realized capital gains are distributed at least annually. Div-
idends and distributions will reduce the net asset value of each of the Funds
by the amount of the dividend or distribution. All dividends and distributions
paid on Shares held of record by the Investment Adviser and its affiliates or
correspondent banks will be paid in cash. Direct and Institutional Investors
and Customers of other Shareholder Organizations will receive dividends and
distributions in additional Shares of the Fund on which the dividend or dis-
tribution is paid (as determined on the payable date), unless they have re-
quested in writing (received by CGFSC at Excelsior Fund's address prior to the
payment date) to receive dividends and distributions in cash. Reinvested divi-
dends and distributions receive the same tax treatment as those paid in cash.
TAXES
Federal
Each of the Funds qualified for its last taxable year as a "regulated invest-
ment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Each Fund expects to so qualify in future years. Such qualification
generally relieves a Fund of liability for Federal income taxes to the extent
its earnings are distributed in accordance with the Code.
28
Qualification as a regulated investment company under the Code requires,
among other things, that a Fund distribute to its shareholders an amount equal
to at least 90% of its investment company taxable income for each taxable
year. In general, a Fund's investment company taxable income will be its in-
come (including dividends and interest), subject to certain adjustments and
excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year. Each Fund intends
to distribute substantially all of its investment company taxable income each
year. Such dividends will be taxable as ordinary income to Fund shareholders
who are not currently exempt from Federal income taxes, whether such income is
received in cash or reinvested in additional Shares. (Federal income taxes for
distributions to IRAs and qualified pension plans are deferred under the
Code.) The dividends received deduction for corporations will apply to such
ordinary income distributions to the extent of the total qualifying dividends
received by a Fund from domestic corporations for the taxable year.
Distributions by a Fund of the excess of its net long- term capital gain over
its net short-term capital loss are taxable to shareholders as long-term capi-
tal gain, regardless of how long the shareholders have held their Shares and
whether such gains are received in cash or reinvested in additional Shares.
Such distributions are not eligible for the dividends received deduction.
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.
An Investor considering buying Shares of a Fund on or just before the record
date of a dividend should be aware that the amount of the forthcoming dividend
payment, although in effect a return of capital, will be taxable to him.
A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Shares depending upon the tax basis of such Shares and
their price at the time of redemption, transfer or exchange. If a shareholder
holds Shares for six months or less and during that time receives a capital
gain dividend on those Shares, any loss recognized on the sale or exchange of
those Shares will be treated as a long-term capital loss to the extent of the
capital gain dividend. Generally, a shareholder may include sales charges in-
curred upon the purchase of Shares in his tax basis for such Shares for the
purpose of determining gain or loss on a redemption, transfer or exchange of
such Shares. However, if the shareholder effects an exchange of such Shares
for Shares of another Fund within 90 days of the purchase and is able to re-
duce the sales charges otherwise applicable to the new Shares (by virtue of
the exchange privilege), the amount equal to such reduction may not be in-
cluded in the tax basis of the shareholder's exchanged Shares for the purpose
of determining gain or loss, but may be included (subject to the same limita-
tion) in the tax basis of the new Shares.
Qualification as a regulated investment company under the Code also requires
that each Fund satisfy certain requirements with respect to the source of its
income for a taxable year. At least 90% of the gross income of each Fund must
be derived from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or for-
eign currencies, and other income (including, but not limited to, gains from
options, futures, or forward contracts) derived with respect to the Fund's
business of investing in such stock, securities or currencies. The Treasury
Department may by regulation exclude from qualifying income foreign currency
gains which are not directly related to a Fund's principal business of invest-
ing in stock or securities, or options and futures with respect to stock or
securities. Any income derived by a Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of in-
vesting in stock, securities or currencies only to the extent that such income
is attributable to items of income which would have been qualifying income if
realized by the Fund in the same
29
manner as by the partnership or trust. Some of the investments that the Income
and Growth Fund may make (such as liquidating trust receipts and creditor
claims) may not be securities or may not produce qualifying income. Therefore,
it may be necessary for the Investment Adviser to restrict the investments of
that Fund to ensure that non-qualifying income does not exceed 10% of that
Fund's total gross income for a taxable year.
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situa-
tions. Shareholders will be advised annually as to the Federal income tax con-
sequences of distributions made each year.
State and Local
Purchasers are advised to consult their tax advisers concerning the applica-
tion of state and local taxes, which may have different consequences from
those of the Federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of Ex-
celsior Fund's Board of Directors. The Statement of Additional Information
contains the names of and general background information concerning Excelsior
Fund's directors.
Investment Adviser
United States Trust Company of New York ("U.S. Trust New York") and U.S.
Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively with
U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as the
Investment Adviser to the Funds. U.S. Trust New York is a state-chartered bank
and trust company and a member bank of the Federal Reserve System. U.S. Trust
Connecticut is a Connecticut state bank and trust company. U.S. Trust New York
and U.S. Trust Connecticut are wholly-owned subsidiaries of U.S. Trust Corpo-
ration, a registered bank holding company.
The Investment Adviser provides 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 De-
cember 31, 1997, the Asset Management Groups of U.S. Trust New York and U.S.
Trust Connecticut had approximately $61.2 billion in aggregate assets under
management. U.S. Trust New York has its principal offices at 114 W. 47th
Street, New York, New York 10036. U.S. Trust Connecticut has its principal of-
fices at 225 High Ridge Road, East Building, Stamford, CT 06905.
The Investment Adviser manages each Fund, makes decisions with respect to and
places orders for all purchases and sales of its portfolio securities, and
maintains records relating to such purchases and sales.
The Blended Equity Fund's portfolio co-managers, Leigh H. Weiss and Bruce
Tavel, are the persons primarily responsible for the day-to-day management of
the Fund's investment portfolio. Mr. Weiss, a Managing Director and Senior
Portfolio Manager, has been with U.S. Trust since 1993 and has managed the
Fund since August 1997. Prior to joining U.S. Trust, Mr. Weiss was a portfolio
manager with Goldman, Sachs & Co. Mr. Tavel, a Senior Vice President and head
of U.S. Trust's Structured Investments Division, has been with U.S. Trust
since 1980 and has managed the Fund since August 1997.
The Income and Growth Fund's portfolio manager, Richard L. Bayles, is the
person primarily responsible for the day-to-day management of the investment
portfolio. Mr. Bayles, a Managing Director and Senior Portfolio Manager of the
Personal Investment Division of U.S. Trust, has been with U.S. Trust since
1990 and has managed the Fund since 1990.
30
The Value and Restructuring Fund's portfolio manager, David J. Williams, is
the person primarily responsible for the day-to-day management of the Fund's
investment portfolio. 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 and has managed the Fund since its inception.
The Small Cap Fund's portfolio co-managers are Timothy Pettee and Margaret
Doyle. Mr. Pettee, a Managing Director and Director of Equity Research with
U.S. Trust, has managed the Fund since August 1998. Prior to joining U.S.
Trust, Mr. Pettee was a Vice President and fund manager with Alliance Capital
Management in New York from 1993 to 1998. Ms. Doyle, a Vice President in U.S.
Trust's Equity Research Division, has managed the Fund since August 1998. From
1996 to 1998, Ms. Doyle was a Vice President and Investment Officer with J & W
Seligman & Co. in New York. Prior to 1996, Ms. Doyle was an Equity Research
Analyst with Solomon Brothers, Inc. in New York.
All investment decisions for the Large Cap Growth Fund are made by a commit-
tee of investment professionals and no persons are primarily responsible for
making recommendations to that committee. U.S. Trust New York provides its in-
vestment advisory services to the Large Cap Growth Fund primarily through its
Campbell Cowperthwait division.
For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreements, the Investment Adviser is entitled to be paid a fee, com-
puted daily and paid monthly, at the annual rates of: .75% of the average
daily net assets of the Blended Equity, Income and Growth and Large Cap Growth
Funds; and .60% of the average daily net assets of the Value and Restructuring
and Small Cap Funds.
Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the Blended Equity, Income and Growth, Value and Restructuring and Small Cap
Funds pursuant to advisory agreements substantially similar to the Investment
Advisory Agreements currently in effect for the Funds. For the fiscal year or
period ended March 31, 1998, U.S. Trust received an advisory fee at the effec-
tive annual rates of .68%, .67%, .56%, .53% and .60% of the average daily net
assets of the Blended Equity, Income and Growth, Value and Restructuring,
Small Cap and Large Cap Growth Funds, respectively. For the same period, U.S
Trust waived advisory fees at the effective annual rates of .07%, .08%, .04%,
.07% and .15% of the average daily net assets of the Blended Equity, Income
and Growth, Value and Restructuring, Small Cap and Large Cap Growth Funds, re-
spectively.
From time to time, the Investment Adviser may voluntarily waive all or a por-
tion of the advisory fees payable to it by a Fund, which waiver may be termi-
nated at any time. See "Management of the Funds--Shareholder Organizations"
for additional information on fee waivers.
In executing portfolio transactions for the Funds, the Investment Adviser may
use affiliated brokers in accordance with the requirements of the 1940 Act.
The Investment Adviser may also take into account the sale of Excelsior Fund's
shares in allocating brokerage transactions.
Administrators
CGFSC, Federated Administrative Services and U.S. Trust Connecticut serve as
the Funds' administrators (the "Administrators") and provide them with general
administrative and operational assistance. The Administrators also serve as
administrators of the other portfolios of Excelsior Fund and of all the port-
folios of Excelsior Tax-Exempt Fund and Excelsior Institutional Trust, which
are also advised by the Investment Adviser and its affiliates and distributed
by the Distributor. For the services provided to all portfolios of Excelsior
Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust (except the
31
international portfolios of Excelsior Fund and Excelsior Institutional Trust),
the Administrators are entitled jointly to annual fees, computed daily and
paid monthly, based on the combined aggregate average daily net assets of the
three companies (excluding the international portfolios of Excelsior Fund and
Excelsior Institutional Trust) as follows:
Combined Aggregate Average Daily Net
Assets
of Excelsior Fund, Excelsior Tax-
Exempt Fund and Excelsior
Institutional Trust (excluding the
international
portfolios of Excelsior Fund and Annual
Excelsior Institutional Trust) Fee
------------------------------------ ------
first $200 million.................... .200%
next $200 million..................... .175%
over $400 million..................... .150%
Administration fees payable to the Administrators by each portfolio of Excel-
sior Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust are al-
located 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. See "Management of the Funds--Share-
holder Organizations" for additional information on fee waivers.
Prior to May 16, 1997, CGFSC, Federated Administrative Services and U.S.
Trust New York served as Excelsior Fund's administrators pursuant to an admin-
istration agreement substantially similar to the administration agreement cur-
rently in effect for Excelsior Fund. For the fiscal year or period ended March
31, 1998, CGFSC, Federated Administrative Services and U.S. Trust received an
aggregate administration fee at the effective annual rates of .153%, .152%,
.151%, .153% and .153% of the average daily net assets of the Blended Equity,
Income and Growth, Value and Restructuring, Small Cap and Large Cap Growth
Funds, respectively, and waived administration fees at the effective annual
rates of .001% and .002% of the average daily net assets of the Income and
Growth and Value and Restructuring Funds, respectively.
Shareholder Organizations
As described above under "Purchase of Shares," Excelsior Fund has agreements
with certain Shareholder Organizations--firms that provide services, which may
include acting as record shareholder, to their Customers who beneficially own
Shares. As a consideration for these services, a Fund will pay the Shareholder
Organization an administrative service fee up to the annual rate of .40% of
the average daily net asset value of its Shares held by the Shareholder Orga-
nization's Customers. Such services, which are described more fully in the
Statement of Additional Information under "Management of the Funds--Share-
holder Organizations," may include assisting in processing purchase, exchange
and redemption requests; transmitting and receiving funds in connection with
Customer orders to purchase, exchange or redeem Shares; and providing periodic
statements. It is the responsibility of Shareholder Organizations to advise
Customers of any fees that they may charge in connection with a Customer's in-
vestment. Until further notice, the Investment 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.
Banking Laws
Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a regis-
tered, open-end investment company continuously engaged in the issuance of its
shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Shares of the Funds, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks gen-
erally from acting as investment adviser, transfer agent, or custodian to such
an investment company, or from purchasing shares of such company for and upon
the order of customers. The Investment Adviser, CGFSC and certain Shareholder
Organizations may be subject to
32
such banking laws and regulations. State securities laws may differ from the
interpretations of Federal law discussed in this paragraph and banks and fi-
nancial institutions may be required to register as dealers pursuant to state
law.
Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Investment Adviser and such
Shareholder Organizations might be required to alter materially or discontinue
the investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Funds' method of operations would
affect their net asset values per Share or result in financial loss to any
shareholder.
DESCRIPTION OF CAPITAL STOCK
Excelsior Fund was organized as a Maryland corporation on August 2, 1984.
Currently, Excelsior Fund has authorized capital of 35 billion shares of Com-
mon Stock, $.001 par value per share, classified into 43 series of shares rep-
resenting interests in 18 investment portfolios. This Prospectus describes the
Blended Equity, Income and Growth, Small Cap, Value and Restructuring and
Large Cap Growth Funds.
Each Share in a Fund represents an equal proportionate interest in the par-
ticular Fund with other shares of the same class, and is entitled to such div-
idends and distributions out of the income earned on the assets belonging to
such Fund as are declared in the discretion of Excelsior Fund's Board of Di-
rectors. Excelsior Fund's Charter authorizes the Board of Directors to clas-
sify or reclassify any class of shares into one or more additional classes or
series.
Excelsior Fund's shareholders are entitled to one vote for each full share
held and fractional votes for fractional shares held and will vote in the ag-
gregate and not by class, except as otherwise expressly required by law.
Certificates for Shares will not be issued unless expressly requested in
writing to CGFSC and will not be issued for fractional Shares.
As of July 8, 1998, U.S. Trust and its affiliates held of record substan-
tially all of Excelsior Fund's outstanding shares as agent or custodian for
their customers, but did not own such shares beneficially because they did not
have voting or investment discretion with respect to such shares.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase"), a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Funds' assets. Communi-
cations to the custodian should be directed to Chase, Mutual Funds Service Di-
vision, 3 Chase MetroTech Center, 8th Floor, Brooklyn, NY 11245.
U.S. Trust New York serves as the Funds' transfer and dividend disbursing
agent. U.S. Trust New York has also entered into a sub-transfer agency ar-
rangement with CGFSC, 73 Tremont Street, Boston, Massachusetts 02108-3913,
pursuant to which CGFSC provides certain transfer agent, dividend disbursement
and registrar services to the Funds.
EXPENSES
Except as otherwise noted, the Investment Adviser and the Administrators bear
all expenses in connection with the performance of their services. The Funds
bear the expenses incurred in their operations. Expenses of the Funds include
taxes; interest; fees (including fees paid to Excelsior Fund's Directors and
officers who are not affiliated with the Distributor or the Administrators);
SEC fees; state securities qualifi -
33
cations fees; costs of preparing and printing prospectuses for regulatory pur-
poses and for distribution to shareholders; advisory, administration and ad-
ministrative servicing fees; charges of the custodian, transfer agent, and
dividend disbursing agent; certain insurance premiums; outside auditing and
legal expenses; costs of shareholder reports and shareholder meetings; and any
extraordinary expenses. The Funds also pay for brokerage fees and commissions
in connection with the purchase of portfolio securities.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, the per-
formance of the Funds may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant indices or
to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of a Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds. The performance of the Blended Equity, Value and
Restructuring, Small Cap and Large Cap Growth Funds also may be compared to
the Standard & Poor's 500 Stock Index ("S&P 500"), an unmanaged index of com-
mon stocks of 500 companies, most of which are listed on the Exchange, the
Consumer Price Index, or the Dow Jones Industrial Average, a recognized unman-
aged index of common stocks of 30 industrial companies listed on the Exchange.
Performance data as reported in national financial publications, including
but not limited to Money Magazine, Forbes, Barron's, The Wall Street Journal
and The New York Times, or in publications of a local or regional nature, may
also be used in comparing the performance of the Funds.
From time to time, each Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure
reflects the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring
period. Average total return figures will be given for the most recent one-
year period, and may be given for other periods as well (such as from the com-
mencement of a Fund's operations, or on a year-by-year basis). Each Fund may
also use aggregate total return figures for various periods, representing the
cumulative change in the value of an investment in the Fund for the specific
period. Both methods of calculating total return assume that dividends and
capital gain distributions made by a Fund during the period are reinvested in
Fund Shares.
Performance will fluctuate and any quotation of performance should not be
considered as representative of a Fund's future performance. Shareholders
should remember that performance is generally a function of the kind and qual-
ity of the instruments held in a portfolio, operating expenses, and market
conditions. Any fees charged by Shareholder Organizations with respect to ac-
counts of Customers that have invested in Shares will not be included in cal-
culations of performance.
MISCELLANEOUS
Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds'
independent auditors.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of Excelsior Fund 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 Excelsior Fund or such Fund, or (b) 67% or more of
the shares of Excelsior Fund or such Fund present at a meeting if more than
50% of the outstanding shares of Excelsior Fund or such Fund are represented
at the meeting in person or by proxy.
Inquiries regarding any of the Funds may be directed to the Distributor at
the address listed under "Distributor."
34
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
Opening Your Account:
For Overnight Delivery: send to:
Complete the Application and mail to:
Excelsior Funds Excelsior Funds
c/o Chase Global Funds Services Company c/o Chase Global Funds Services
P.O. Box 2798 Company
Boston, MA 02208-2798 73 Tremont Street
Boston, MA 02108-3913
Please enclose with the Application your check made payable to the "Excel-
sior Funds" in the amount of your investment.
For direct wire purchases please refer to the section of the Prospectus en-
titled "How to Purchase and Redeem Shares--Purchase Procedures."
Minimum Investments:
Except as provided in the Prospectus, the minimum initial investment is $500
per Fund; subsequent investments must be in the minimum amount of $50 per
Fund. Investments may be made in excess of these minimums.
Redemptions:
Shares can be redeemed in any amount and at any time in accordance with pro-
cedures described in the Prospectus. In the case of shares recently purchased
by check, redemption proceeds will not be made available until the transfer
agent is reasonably assured that the check has been collected in accordance
with applicable banking regulations.
Certain legal documents will be required from corporations or other organi-
zations, executors and trustees, or if redemption is requested by anyone other
than the shareholder of record. Written redemption requests in excess of
$50,000 per account must be accompanied by signature guarantees.
Signatures: Please be sure to sign the Application.
If the shares are registered in the name of:
- an individual, the individual should sign.
- joint tenants, both tenants should sign.
- a custodian for a minor, the custodian should sign.
- a corporation or other organization, an authorized officer should
sign (please indicate corporate office or title).*
- a trustee or other fiduciary, the fiduciary or fiduciaries should
sign (please indicate capacity).*
* A corporate resolution or appropriate certificate may be required.
Questions:
If you have any questions regarding the Application or redemption require-
ments, please contact the sub- transfer agent at (800) 446-1012 between 9:00
a.m. and 5:00 p.m. (Eastern Time).
35
PROSPECTUS AUGUST 1, 1998
Blended Equity Fund
Income and Growth Fund
Value and Restructuring Fund
Small Cap Fund
Large Cap Growth Fund
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY.................................................... 2
EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 4
U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES..................... 9
INVESTMENT OBJECTIVES AND POLICIES.................................... 10
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION................ 14
INVESTMENT LIMITATIONS................................................ 18
PRICING OF SHARES..................................................... 20
HOW TO PURCHASE AND REDEEM SHARES..................................... 21
INVESTOR PROGRAMS..................................................... 25
DIVIDENDS AND DISTRIBUTIONS........................................... 28
TAXES................................................................. 28
MANAGEMENT OF THE FUNDS............................................... 30
DESCRIPTION OF CAPITAL STOCK.......................................... 33
CUSTODIAN AND TRANSFER AGENT.......................................... 33
EXPENSES.............................................................. 33
PERFORMANCE INFORMATION............................................... 34
MISCELLANEOUS......................................................... 34
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION.............................. 35
No person has been authorized to give any information or to make any represen-
tations not contained in this Prospectus, or in the Funds' Statement of Addi-
tional Information incorporated herein by reference, in connection with the of-
fering made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by Excelsior
Fund or its Distributor. This Prospectus does not constitute an offering by
Excelsior Fund or by its Distributor in any jurisdiction in which such offering
may not lawfully be made.
USTEQP898