As filed with the Securities and Exchange Commission on September 15, 1999
Registration No.:
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[_] Pre-Effective Amendment No. ___ [_] Post-Effective Amendment No. __
(Check appropriate box or boxes)
Exact Name of Registrant as Specified in Charter:
EXCELSIOR FUNDS, INC.
Area Code and Telephone Number:
(800) 446-1012
Address of Principal Executive Offices:
73 Tremont Street
Boston, MA 02108-3913
Name and Address of Agent for Service:
W. Bruce McConnel, III
Drinker Biddle & Reath LLP
One Logan Square
18/th/ and Cherry Streets
Philadelphia, Pennsylvania 19103-6996
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective under the Securities Act of 1933.
Calculation of Registration Fee under the Securities Act of 1933: No filing fee
is required under the Securities Act of 1933 because an indefinite number of
shares in the Registrant have previously been registered on Form N-1A
(Registration Nos. 2-92665; 811-4088) pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. The Registrant's Rule 24f-2 Notice
for the fiscal year ended March 31, 1999 was filed on June 14, 1999. Pursuant
to Rule 429 under the Securities Act of 1933, this Registration Statement
relates to the shares previously registered on the aforesaid Registration
Statement on Form N-1A.
It is proposed that this filing will become effective on October 15, 1999
pursuant to Rule 488 under the Securities Act of 1933.
EXCELSIOR FUNDS, INC.
FORM N-14
CROSS REFERENCE SHEET
Item No. Heading
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Part A
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1. Beginning of Registration Statement
and Outside Front Cover Page................ Cover Page
2. Beginning and Outside
Back Cover Page............................. Table of Contents
3. Fee Table, Synopsis Information
and Risk Factors............................ Comparative Fee Table; Summary; Principal
Risk Factors
4. Information About the Transaction........... Summary; Information Relating to the Proposed
Reorganization
5. Information About the Registrant............ Summary; Information Relating to the Proposed
Reorganization; Comparison of the Funds
6. Information About the Company
Being Acquired.............................. Summary; Information Relating to the Proposed
Reorganization; Comparison of the Funds
7. Voting Information.......................... Summary; Information Relating to Voting Matters
8. Interest of Certain Persons
and Experts................................. Information Relating to Voting Matters
9. Additional Information Required
for Reoffering by Persons Deemed
to be Underwriters.......................... Inapplicable
Part B
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10. Cover Page................................. Statement of Additional Information Cover Page
11. Table of Contents.......................... Table of Contents
12. Additional Information
About the Registrant....................... Statement of Additional Information of Excelsior
Funds, Inc. dated August 1, 1999*
13. Additional Information
About the Company Being
Acquired................................... Statement of Additional Information of Excelsior
Funds dated December 24, 1998*
14. Financial Statements....................... Financial Statements; Pro Forma Financial Statements
Part C
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Items 15-17. Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Registration Statement.
* Incorporated herein by reference thereto.
EXCELSIOR FUNDS
73 Tremont Street
Boston, MA 02108-3913
(800) 909-1989
October 15, 1999
Dear Shareholder:
On behalf of the Board of Trustees of Excelsior Funds, we are pleased to
invite you to a special meeting of shareholders of the Excelsior Funds
Institutional Money Fund to be held at 10:00 a.m. (Eastern time) on November 19,
1999 at the offices of United States Trust Company of New York at 114 West 47th
Street, New York, New York. At the meeting you will be asked to approve a
proposed Agreement and Plan of Reorganization dated as of _________, 1999 by and
between Excelsior Funds and Excelsior Funds, Inc. which contemplates the
reorganization of Excelsior Fund's Institutional Money Fund into Excelsior
Funds, Inc.'s Money Fund.
Excelsior Fund's Board of Trustees unanimously recommends that you vote to
approve the proposed reorganization.
In considering this matter you should note:
Similar investment objective and policies - The Institutional Money Fund's
-----------------------------------------
and Money Fund's investment objectives and policies are, in general,
substantially similar.
Same number of shares - The number of Money Fund shares you receive in the
---------------------
reorganization will be the same as the number of the Institutional Money Fund
shares that you hold immediately before the reorganization.
The formal Notice of Special Meeting, a Combined Proxy/Prospectus, a Money
Fund Prospectus and a proxy ballot are enclosed. A description of the proposed
reorganization and the reasons for the Excelsior Funds Trustees' unanimous
recommendation are discussed in detail in the enclosed material. You should
read the Combined Proxy/Prospectus and Money Fund Prospectus carefully. Your
vote is important regardless of the number of shares you own. We urge you to
complete the enclosed proxy card and return it in the enclosed envelope as soon
as possible.
Thank you for your support in this matter.
Sincerely,
Frederick S. Wonham
Chairman of the Board
EXCELSIOR FUNDS
73 Tremont Street
Boston, Massachusetts 02108-3913
(800) 909-1989
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF THE INSTITUTIONAL MONEY FUND
To Be Held on November 19, 1999
To the Shareholders of the Institutional Money Fund:
NOTICE IS HEREBY GIVEN THAT a Special Meeting of Shareholders (the
"Meeting") of the Institutional Money Fund, an investment portfolio offered by
Excelsior Funds, will be held at the offices of United States Trust Company of
New York at 114 West 47th Street, New York, New York on November 19, 1999 at
10:00 a.m. (Eastern time). During the Meeting, the shareholders will vote on
the following proposals:
ITEM 1. To approve or disapprove an Agreement and Plan of Reorganization
by and between Excelsior Funds ("Excelsior Trust") and Excelsior
Funds, Inc. ("Excelsior Company") and the transactions
contemplated thereby, including (a) the transfer of all of the
assets and liabilities of Excelsior Trust's Institutional Money
Fund (the "Institutional Fund") in exchange for Institutional
Shares of Excelsior Company's Money Fund; (b) the distribution of
such Institutional Shares to the shareholders of the
Institutional Fund in connection with its liquidation; and (c)
the deregistration under the Investment Company Act of 1940, as
amended and the termination under state law of Excelsior Trust.
ITEM 2. To transact such other business as may properly come before the
Meeting or any adjournment(s) thereof.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOR OF EACH PROPOSAL.
The proposed reorganization and related matters are described in the
attached Combined Proxy Statement/Prospectus. Appendix A to the Combined Proxy
Statement/Prospectus is a copy of the Agreement and Plan of Reorganization.
Shareholders of record as of the close of business on September 10, 1999
are entitled to notice of, and to vote at, the Meeting or any adjournment(s)
thereof.
SHAREHOLDERS ARE REQUESTED TO DATE, EXECUTE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE THE ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY THE
BOARD OF TRUSTEES OF EXCELSIOR TRUST. THIS IS IMPORTANT TO ENSURE A QUORUM AT
THE MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY
SUBMITTING TO EXCELSIOR TRUST A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY
EXECUTED PROXY OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
By the Order of the
Board of Trustees
W. Bruce McConnel, III
Secretary
October 15, 1999
COMBINED PROXY STATEMENT/PROSPECTUS
DATED OCTOBER 15, 1999
EXCELSIOR FUNDS
73 Tremont Street
Boston, Massachusetts 02108-3913
(800) 909-1989
EXCELSIOR FUNDS, INC.
73 Tremont Street
Boston, Massachusetts 02108-3913
(800) 446-1012
This Combined Proxy Statement/Prospectus is furnished in connection with
the solicitation of proxies by the Board of Trustees of Excelsior Funds
("Excelsior Trust") for use at a Special Meeting of Shareholders of Excelsior
Trust's Institutional Money Fund (the "Institutional Fund") to be held at 10:00
a.m. (Eastern time), on November 19, 1999 at the offices of United States Trust
Company of New York at 114 West 47th Street, New York, New York, or any
adjournment thereof (the "Meeting"). At the Meeting, shareholders of the
Institutional Fund will be asked to consider and approve a proposed Agreement
and Plan of Reorganization dated as of ______________, 1999 by and between
Excelsior Trust and Excelsior Funds, Inc. ("Excelsior Company") and the
transactions contemplated thereby (the "Agreement and Plan of Reorganization").
A copy of the Agreement and Plan of Reorganization is attached hereto as
Appendix A.
Excelsior Trust and Excelsior Company are both open-end management
investment companies registered under the Investment Company Act of 1940, as
amended (the "1940 Act").
Excelsior Trust presently offers one portfolio, the Institutional Fund,
which is a diversified money market mutual fund offered to institutional
investors. The Institutional Fund seeks to provide shareholders with liquidity
and as high a level of current income as is consistent with preservation of
capital. The Institutional Fund seeks to achieve its investment objective by
investing all of its investable assets in the Cash Reserves Portfolio (the
"Master Portfolio"). The Master Portfolio is a diversified open-end management
investment company with the same objectives as the Institutional Fund and is
advised by Citibank, N.A. The Institutional Fund offers one class of shares.
Excelsior Company currently offers eighteen investment portfolios, one of
which is the Money Fund. The Money Fund is also a diversified money market
mutual fund. The Money Fund's investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal.
United States Trust Company of New York and U.S. Trust Company (collectively,
"U.S. Trust" or the "Investment Adviser") serve as the Money Fund's investment
adviser. The Money Fund offers two classes of shares - Shares and Institutional
Shares. The Institutional Shares are comparable to the class of shares currently
offered by Excelsior Trust.
The Agreement and Plan of Reorganization, a copy of which is attached as
Appendix A, provides that the Institutional Fund will transfer all of its assets
and liabilities to the Money Fund. (Immediately before effecting the proposed
reorganization, the Institutional Fund will redeem all of its interests in the
Master Portfolio. The assets received by the Institutional Fund upon that
redemption will be the assets transferred to the Money Fund in the
reorganization). In exchange for the transfer of these assets and liabilities,
Excelsior Company will issue Institutional Shares of the Money Fund to the
Institutional Fund. The Institutional Fund will make liquidating distributions
of the Money Fund's Institutional Shares to the shareholders of the
Institutional Fund, so that a shareholder in the Institutional Fund will receive
the same number of shares of the Money Fund as the shareholder had in the
Institutional Fund immediately before the transaction. Following the
reorganization, shareholders of the Institutional Fund will be shareholders of
the Money Fund, and Excelsior Trust will be deregistered under the 1940 Act and
terminated under state law.
This Combined Proxy Statement/Prospectus sets forth the information that a
shareholder of the Institutional Fund should know before voting on the Agreement
and Plan of Reorganization. It should be retained for future reference. The
Prospectus relating to the Institutional Shares of the Money Fund accompanies
this Combined Prospectus/Proxy Statement. Additional information is set forth in
the Statement of Additional Information dated October 15, 1999 relating to this
Combined Proxy Statement/Prospectus, the Money Fund's Statement of Additional
Information dated August 1, 1999, and in the Prospectus and Statement of
Additional Information, each dated December 24, 1998, relating to the
Institutional Fund. Each of these documents is on file with the Securities and
Exchange Commission (the "SEC") and is available without charge upon oral or
written request by writing or calling either Excelsior Trust or Excelsior
Company at the addresses or telephone numbers indicated above. The information
contained in the Statement of Additional Information dated October 15, 1999, the
Money Fund's prospectus and Statement of Additional Information dated August 1,
1999, and the Institutional Fund's Prospectus and Statement of Additional
Information, each dated December 24, 1998, are incorporated herein by reference.
Excelsior Trust's and Excelsior Company's Semi-Annual Reports to Shareholders
and their Annual Reports to Shareholders may be obtained free of charge by
calling 800-909-1989 or 800-446-1012, respectively, or writing 73 Tremont
Street, Boston, Massachusetts 02108-3913.
This Combined Proxy Statement/Prospectus constitutes the Institutional
Fund's Proxy Statement for the Meeting, and Excelsior Company's Prospectus for
the Institutional Shares of the Money Fund that have been registered with the
SEC and are to be issued in connection with the reorganization.
This Combined Proxy Statement/Prospectus is expected to be sent to
shareholders of the Institutional Fund on or about October 15, 1999.
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH
MONEY MARKET FUNDS SEEK
TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO
LOSE MONEY BY INVESTING IN A FUND.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
SHARES OF THE MONEY FUND OR PASSED UPON THE ADEQUACY OF THIS COMBINED PROXY
STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
COMPARATIVE FEE TABLE.................................................... 1
Expense Ratios................................................... 2
SUMMARY.................................................................. 3
Proposed Reorganization.......................................... 3
Reasons For Reorganization....................................... 3
Federal Income Tax Consequences.................................. 4
Comparison of the Investment Objectives and Policies of the
Funds.......................................................... 4
Comparison of the Service Providers.............................. 5
Comparison of Shareholder Transactions and Services.............. 5
Voting Information............................................... 5
PRINCIPAL RISK FACTORS................................................... 6
INFORMATION RELATING TO THE PROPOSED REORGANIZATION...................... 7
Description of the Agreement and Plan of Reorganization.......... 7
Board Considerations............................................. 9
Capitalization................................................... 10
Federal Income Tax Consequences.................................. 10
COMPARISON OF THE FUNDS.................................................. 11
Investment Objectives and Policies............................... 11
Organization..................................................... 13
The Investment Advisers.......................................... 14
Other Service Providers.......................................... 14
The Co-Administrators............................................ 15
Administrative Servicing Fee..................................... 17
Purchase and Redemption Procedures; Exchange Procedures; Dividends,
Distributions and Pricing...................................... 17
Performance...................................................... 18
INFORMATION RELATING TO VOTING MATTERS................................... 18
General Information.............................................. 18
Shareholder and Board Approval................................... 18
Quorum........................................................... 19
Annual Meetings.................................................. 20
ADDITIONAL INFORMATION ABOUT THE FUNDS................................... 20
FINANCIAL INFORMATION.................................................... 21
OTHER BUSINESS........................................................... 21
LITIGATION............................................................... 21
SHAREHOLDER INQUIRIES.................................................... 21
APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION........................ A-1
APPENDIX B SHAREHOLDER TRANSACTIONS AND SERVICES........................ B-1
COMPARATIVE FEE TABLE
The following table compares: (1) the fees and expenses of the shares of
the Institutional Fund as of March 31, 1999; (2) the estimated fees and expenses
of the Institutional Shares of the Money Fund; and (3) the estimated fees and
expenses of the Institutional Shares of the Money Fund on a pro forma basis
after giving effect to the proposed reorganization. A hypothetical example of
the expenses that you would experience based on the fee shown in the table
follows the table. The purpose of this table and example is to assist
shareholders in understanding the various costs and expenses that investors in
the Funds will bear as shareholders. The Institutional Shares of the Money Fund
are new and the expenses and fees noted below are based on estimates for the
first twelve months of operation. Pro forma expense levels shown should not be
considered an actual representation of future expenses or performance. Such pro
forma expense levels project anticipated levels but may be greater or less than
those shown.
INSTITUTIONAL PRO FORMA COMBINED
FUND MONEY FUND MONEY FUND+
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ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted
from Fund assets)
Management Fees 0.15%/1,3/ 0.25% 0.25%
Other Expenses
Administrative Servicing Fee .40% 0.15% 0.15%
Other Operating Expenses .21% 0.22% 0.22%
Total Other Expenses 0.61% 0.37% 0.37%
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Total Operating Expenses 0.76%/2,3/ 0.62%/4/ 0.62%/4/
====================== ==================== =====================
+ The reorganization of the Institutional Fund into the Money Fund will
occur only if the shareholders of the Institutional Fund approve the
reorganization.
1 Reflects fees incurred by the Master Portfolio for advisory services
rendered by Citibank, N.A.
2 Includes the expenses of the Master Portfolio that are allocable to
the Institutional Fund.
3 The Institutional Fund's actual total annual fund operating expenses
for the period ended March 31, 1999 were less than the amount shown above as a
result of the Investment Adviser's voluntary fee waivers. With these fee
waivers, the Institutional Fund's actual total operating expenses were .25%. All
or part of these fee waivers may be discontinued at any time.
4 The Money Fund's annual operating expenses are based on actual fees
and estimated expenses for the current fiscal year. The Money Fund's actual
total annual fund operating expenses are expected to be less than the amount
shown above as a result of the Investment Adviser's voluntary fee waivers. The
Investment Adviser has voluntarily agreed to waive its investment advisory fee
or other fees in an amount equal to the administrative servicing fee paid by the
Money Fund. The Investment Adviser may discontinue all or part of these waivers
at any time. With these fee waivers, the Money Fund's actual total operating
expenses would have been 0.25%.
Example: The Example is intended to help you compare the cost of investing in
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the Funds with the cost of investing in other mutual funds. The Example assumes
you invest $10,000 in the Funds for the time periods indicated and then redeem
all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on those assumptions, your approximate cost
of investing $10,000 would be:
PRO FORMA
INSTITUTIONAL COMBINED
FUND MONEY FUND MONEY FUND+
-------------- ------------ ------------
One Year After Purchase $ 78 $ 63 $ 63
Three Years After Purchase $243 $199 $199
Five Years After Purchase $422 $346 $346
Ten Years After Purchase $942 $774 $774
Amounts shown in the example should not be considered a representation of
past or future investment return or expenses. Actual expenses and rate of
return may be greater or lower than those shown in the expense table and
example.
Expense Ratios. The following table sets forth the ratios of operating
expenses to average net assets of the shares of the Institutional Fund and
Institutional Shares of the pro forma combined Money Fund for the fiscal year
ended March 31, 1999 after fee waivers and before fee waivers.
PRO FORMA
INSTITUTIONAL COMBINED
FUND MONEY FUND MONEY FUND+
-------------- ------------ ------------
Ratio of Operating 0.25% N/A* 0.25%
Expenses to Average Net
Assets After Fee Waivers
Ratio of Operating 0.76% N/A* 0.62%++
Expenses to Average Net
Assets Before Fee Waivers
* Institutional Shares of the Money Fund were not outstanding as of March 31,
1999.
+ The reorganization of the Institutional Fund into the Money Fund will occur
only if the shareholders of the Institutional Fund approve the reorganization.
++ The Money Fund's annual operating expenses are based on actual fees and
estimated expenses for the current fiscal year. The Money Fund's actual total
annual fund operating expenses are expected to be less than the amount shown
above as a result of the Investment Adviser's voluntary fee waivers. The
Investment Adviser has voluntarily agreed to waive its investment advisory fee
or other fees in an amount equal to the administrative servicing fee paid by the
Money Fund. The Investment Adviser may discontinue all or part of these waivers
at any time. With these fee waivers, the Money Fund's actual total operating
expenses would have been 0.25%
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SUMMARY
The following is a summary of certain information relating to the proposed
reorganization. More complete information is contained elsewhere in this
Combined Proxy Statement/Prospectus, the Prospectuses and Statements of
Additional Information of the Institutional Fund and the Money Fund, and the
Agreement and Plan of Reorganization which are all incorporated herein by
reference.
Proposed Reorganization. Based upon their evaluation of the relevant
information presented to them, and in light of their fiduciary duties under
federal and state law, Excelsior Trust's and Excelsior Company's Boards,
including the Board members who are not "interested persons" within the meaning
of the 1940 Act, have determined that the proposed Agreement and Plan of
Reorganization is in the best interests of their Fund's respective shareholders
and that the interests of such shareholders will not be diluted as a result of
such reorganization. Excelsior Trust's Board Of Trustees Recommends That
Shareholders Vote "For" Approval Of The Agreement And Plan Of Reorganization.
Subject to shareholder approval, the Agreement and Plan of Reorganization
provides for (a) the acquisition by the Money Fund of all of the assets and the
assumption by the Money Fund of the liabilities of the Institutional Fund in
exchange for Institutional Shares of the Money Fund; (b) the distribution of
Institutional Shares of the Money Fund to Institutional Fund shareholders in
liquidation of the Institutional Fund; and (c) the deregistration under the 1940
Act and termination under state law of Excelsior Trust.
As a result of the proposed reorganization, each shareholder of the
Institutional Fund will become a shareholder of the Money Fund and will hold,
immediately after the time the reorganization becomes effective (the "Effective
Time of the Reorganization"), the same number of Institutional Shares of the
Money Fund as the shareholder held in the Institutional Fund immediately before
the Effective Time of the Reorganization. The reorganization is expected to
occur in __________, 1999 or such later date as may be determined pursuant to
the Agreement and Plan of Reorganization.
For further information, see "INFORMATION RELATING TO THE PROPOSED
REORGANIZATION--Description of the Agreement and Plan of Reorganization."
Reasons For Reorganization. In light of certain potential benefits and
other factors, the Board of Trustees of Excelsior Trust, including the non-
interested Trustees, has determined that it is in the best interests of
Excelsior Trust, and of the shareholders of the Institutional Fund, to
reorganize into the Money Fund of Excelsior Company.
The primary reason for the reorganization is to streamline and simplify
U.S. Trust's money market products. The Institutional Fund was originally
established as a product to be marketed to institutional investors. Prior to
the start-up of the Institutional Fund, concerns about the competitiveness and
the feasibility of managing an institutional money market fund with a low level
of assets (which is typically associated with the start-up of a fund) led to the
decision to invest the assets of the Institutional Fund in the Master Portfolio.
By doing so, the Institutional Fund was able to benefit from the economies of
scale already achieved by the Master Portfolio.
-3-
Although the Institutional Fund's assets have grown, the Institutional Fund, as
an institutional client investment product, has not developed as expected and is
not likely to develop further. In light of these developments, U.S. Trust
recommended to the Board of Trustees that the Institutional Fund be reorganized
into the Money Fund. In considering whether to approve the reorganization, the
Board of Trustees of Excelsior Trust considered the following possible benefits
to shareholders:
1) Asset Growth -- the combination of the Institutional Fund and
------------
Money Fund will increase the asset base of the Institutional Fund and eliminate
inefficiencies of maintaining a separate Fund.
2) Management Consistency -- unlike all the other mutual funds in
----------------------
the Excelsior Funds complex, the Institutional Fund is not managed by U.S. Trust
or an affiliate. The reorganization would allow shareholders to have their
money managed by U.S. Trust.
3) Fund Expenses -- the total operating expenses of the Money Fund
-------------
will be less than the total operating expenses of the Institutional Fund.
4) Broader Diversification -- The Institutional Fund is required to
-----------------------
invest at least 25% of its investable assets in bank obligations, whereas the
Money Fund has no such concentration policy. Therefore, the Money Fund's assets
are anticipated to be more broadly diversified than the Institutional Fund's
assets.
The proposal that the Institutional Fund be reorganized into the Money Fund
was submitted to the trustees of Excelsior Trust and the directors of Excelsior
Company at a meeting held on July 30, 1999. Information with respect to
expenses and other relevant matters were submitted to each director and trustee
in order to provide for careful consideration of the proposed reorganization.
After full consideration of the reasons for the proposed reorganization, and in
consideration that the reorganization will be tax-free and will not dilute the
interests of the shareholders of the Institutional Fund or Money Fund, the
respective Boards approved the reorganization of the Institutional Fund into the
Money Fund. The closing of all transactions contemplated by the Agreement and
Plan of Reorganization is tentatively scheduled to occur on or about __________,
1999. See "INFORMATION RELATING TO THE PROPOSED REORGANIZATION--Board
Considerations."
Federal Income Tax Consequences. Neither shareholders of the Institutional
Fund nor shareholders of the Money Fund will recognize any taxable income or
loss as a result of the reorganization. See "INFORMATION RELATING TO THE
PROPOSED REORGANIZATION--Federal Income Tax Consequences."
Comparison of the Investment Objectives and Policies of the Funds. The
investment objective and policies of the Institutional Fund are, generally,
substantially similar to those of the Money Fund. The investment objective of
the Institutional Fund is to provide shareholders with liquidity and as high a
level of current income as is consistent with the preservation of capital. The
Institutional Fund seeks to achieve its investment objective by investing all of
its investable assets in the Master Portfolio, a diversified open-end management
investment company with the
-4-
same investment objective as the Institutional Fund. The Master Portfolio
achieves its investment objective by investing in high quality U.S. dollar-
denominated money market obligations issued by U.S. and non-U.S. issuers. The
Money Fund's investment objective is to seek as high a level of current income
as is consistent with liquidity and stability of principal. The Money Fund
invests substantially all of its assets in high quality U.S. dollar-denominated
money market instruments issued by U.S. issuers, foreign branches of U.S. banks
and U.S. branches of foreign banks.
While both Funds are subject to the general restrictions and limitations of
Rule 2a-7 under the 1940 Act, there are certain differences between the
investment policies and restrictions of the Institutional Fund and the Money
Fund. For example, the Institutional Fund concentrates its investments in bank
obligations while the Money Fund does not. In addition, all securities of the
Institutional Fund are rated or subject to a guarantee rated in the highest
rating categories for short-term obligations by at least two nationally
recognized statistical rating organizations ("NRSRO"). In comparison the Money
Fund may invest in securities rated in the two highest short-term rating
categories of an NRSRO. For a more detailed description of the similarities and
differences between the investment objectives and policies of the Institutional
Fund and the Money Fund, see "COMPARISON OF THE FUNDS--Investment Objectives and
Policies" below and the Institutional Fund and Money Fund Prospectuses, which
are incorporated by reference herein.
Comparison of the Service Providers. The Institutional Fund invests all of
its assets in the Master Portfolio which is advised by Citibank, N.A. U.S.
Trust serves as investment adviser to the Money Fund. The Money Fund's
contractual advisory fee is higher than the contractual advisory fee of the
Institutional Fund. U.S. Trust, however, will waive its investment advisory fee
or other fees in an amount equal to the administrative servicing fee paid by the
Money Fund so that the Money Fund's actual annual fund total operating expenses
are expected to be .25%.
The Money Fund and Institutional Fund have different transfer agents,
custodians and other service providers. For more information about the
investment advisers and other service providers, see "Comparison of the Funds --
The Investment Advisers, Other Service Providers and The Co-Administrators" and
the Money Fund prospectus which accompanies this Combined Proxy/Prospectus.
Comparison of Shareholder Transactions and Services. The purchase,
redemption, dividend and other policies and procedures of the Institutional Fund
and Money Fund are similar. For more information see "APPENDIX B - Shareholder
Transactions and Services."
Voting Information. This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies by Excelsior Trust's
Board of Trustees in connection with a Special Meeting of Shareholders to be
held at the offices of United States Trust Company of New York at 114 West 47th
Street, New York, New York, on November 19, 1999 at 10:00 a.m. (Eastern time).
Only shareholders of record at the close of business on September 10, 1999 will
be entitled to notice of and to vote at the Meeting or any adjournment thereof.
Each share or fraction thereof is entitled to one vote or fraction thereof,
respectively. Shares represented by a properly executed proxy will be voted in
accordance with the instructions thereon, or if no specification is made, the
persons named as proxies will vote in favor of each proposal set forth in the
Notice of Meeting. Proxies may be revoked at any time before they are exercised
by submitting to Excelsior Trust a written notice of revocation or a
subsequently executed proxy or by attending the Meeting and voting in person.
For additional information, including a
-5-
description of the shareholder vote required for approval of the Agreement and
Plan of Reorganization and related transactions contemplated thereby, see
"INFORMATION RELATING TO VOTING MATTERS."
PRINCIPAL RISK FACTORS
The Institutional Fund's investment objectives, policies and restrictions
are, in general, similar to those of the Money Fund. Accordingly, an investment
in the Institutional Fund involves risks that are similar to those of the Money
Fund. Because both Funds are money market funds, the risks are those typically
associated with investing in a portfolio of high quality, short-term money
market instruments. For example, while money market funds attempt to maintain a
stable net asset value of $1.00, there is no assurance that they will be able to
do so. Additionally, while both Funds may invest in instruments backed by the
full faith and credit of the U.S. Government, neither shares of the
Institutional Fund nor the Money Fund are themselves issued or guaranteed by the
U.S. Government or any of its agencies.
The Institutional Fund and Money Fund are subject to interest rate risk,
which is the risk that the market value of money market obligations will change
in response to interest rate changes and other factors. During periods of rising
interest rates, a Fund's yield (and the market value of its securities) will
tend to be lower than prevailing market rates. During periods of falling
interest rates, the values of outstanding money market obligations generally
rise. Moreover, while securities with longer maturities tend to produce higher
yields, the prices of securities with longer maturities are also subject to
greater market fluctuations as a result of changes in interest rates. Both
Funds are also subject to the risk that the investment return generated by the
Fund may be less than the rate of inflation.
The Institutional Fund and the Money Fund are both subject to call risk,
credit risk, and event risk. Call risk is the possibility that during periods
of falling interest rates, certain debt obligations with high interest rates may
be prepaid (or "called") by the issuer prior to maturity. This may cause a
Fund's average weighted maturity to fluctuate, and may require a Fund to invest
the resulting proceeds at lower interest rates. Credit risk is the possibility
that an issuer will be unable to make timely payments of either principal or
interest. Event risk is the possibility that securities may suffer declines in
credit quality and market value due to issuer restructurings or other factors.
The Institutional Fund, unlike the Money Fund, concentrates its investments
in the banking industry and invests at least 25% of its assets and may invest up
to 100% of its assets in bank obligations. As a result, the Institutional Fund
is subject to banking industry risk. Banking industry risk is the risk that an
adverse development in the banking industry may affect the value of the Fund's
investments more than if the Fund's investments were not invested to such a
degree in the banking industry. Banks may be especially susceptible to certain
economic factors such as interest rate changes, adverse developments in the real
estate market, fiscal and monetary policy and general economic cycles.
An investment in the Institutional Fund and Money Fund is subject to
foreign risks because they each invest in obligations of foreign branches of
U.S. banks and U.S. branches of foreign banks. In addition, the Institutional
Fund may invest in obligations of foreign branches
-6-
of foreign banks and to a limited extent in non-U.S. government obligations.
Foreign risk includes the possibility that a foreign obligation could lose value
as a result of political, financial and economic events in foreign countries;
the possible imposition of non-U.S. withholding taxes on interest income payable
on such obligations; the possible seizure or nationalization of non-U.S.
deposits; and the possible establishment of exchange controls or other non-U.S.
governmental laws or restrictions applicable to the payment of the principal of
and interest on certificates of deposit or time deposits that might adversely
affect the payment on such obligations held by the Funds. In addition, there may
be less publicly-available information about a foreign branch or subsidiary of a
U.S. bank or a U.S. or foreign branch of a foreign bank than about a U.S. bank.
Also, such branches and subsidiaries may not be subject to the same or similar
regulatory requirements that apply to U.S. banks.
For more information, see "COMPARISON OF THE FUNDS--Investment Objectives
and Policies." A more detailed description of the risks associated with an
investment in the Money Fund is included in the Prospectus dated August 1, 1999
accompanying this Combined Proxy Statement/Prospectus, which is incorporated
herein by reference. A more detailed description of the risks associated with
an investment in the Institutional Fund is included in the Prospectus and
Statement of Additional Information dated December 24, 1998, which are also
incorporated herein by reference.
INFORMATION RELATING TO THE PROPOSED REORGANIZATION
The terms and conditions under which the reorganization may be consummated
are set forth in the Agreement and Plan of Reorganization. Significant
provisions of the Agreement and Plan of Reorganization are summarized below;
however, this summary is qualified in its entirety by reference to the Agreement
and Plan of Reorganization, a copy of which is attached as Appendix A to this
Combined Proxy Statement/Prospectus.
Description of the Agreement and Plan of Reorganization. The Agreement and
Plan of Reorganization provides that at the Effective Time of the
Reorganization, the assets and liabilities of the Institutional Fund will be
transferred to and assumed by the Money Fund (Immediately before effecting the
proposed reorganization, the Institutional Fund will redeem all of its interests
in the Master Portfolio. The assets received by the Institutional Fund upon
that redemption will be the assets transferred to the Money Fund in the
reorganization). In exchange for the transfer of the assets of, and the
assumption of the liabilities of the Institutional Fund, Excelsior Company will
issue at the Effective Time of the Reorganization full and fractional
Institutional Shares of the Money Fund equal in number to the number of full and
fractional shares of the Institutional Fund, as determined at 4:00 p.m., Eastern
time, on November 19, 1999 or such earlier or later date and time as may be
mutually agreed by the President or Vice President of each of Excelsior Trust
and Excelsior Company (the "Valuation Time"). The Agreement and Plan of
Reorganization provides that the Institutional Fund will declare a dividend or
dividends prior to the Effective Time of the Reorganization which, together with
all previous dividends, will have the effect of distributing to the shareholders
of the Institutional Fund all undistributed net investment income earned and net
capital gains realized up to and including the Effective Time of the
Reorganization.
-7-
Following the transfer of assets to, and the assumption of the liabilities
of the Institutional Fund by the Money Fund, Excelsior Trust will distribute the
Institutional Shares of the Money Fund received from Excelsior Company to the
holders of shares of the Institutional Fund in liquidation of the Institutional
Fund. Each holder of shares of the Institutional Fund at the Effective Time of
the Reorganization will receive an amount of Institutional Shares of equivalent
net asset value, plus the right to receive any dividends or distributions which
were declared before the Effective Time of the Reorganization but that remained
unpaid at that time with respect to the shares of the Institutional Fund.
Following the liquidation of the Institutional Fund, the outstanding shares of
the Institutional Fund will be cancelled on the books of Excelsior Trust and
become unissued shares.
Pursuant to the Agreement and Plan of Reorganization, if the per share net
asset value of shares of the Institutional Fund exceeds the per share net asset
value of Institutional Shares of the Money Fund at the Valuation Time by $0.0010
or more as computed by using the market values of a portfolio's assets,
Excelsior Trust's Board of Trustees will have the right to postpone the
Valuation Time and the Effective Time of the Reorganization until such time as
the per share difference is less than $0.0010.
Likewise, the Agreement and Plan of Reorganization provides that if the per
share net asset value of Institutional Shares of the Money Fund exceeds the per
share net asset value of shares of the Institutional Fund by $0.0010 or more on
the same date and time Excelsior Company's Board of Directors will have the
right to postpone the Valuation Time and the Effective Time of the
Reorganization until such time as the per share difference is less than $0.0010.
The reorganization with respect to the Institutional Fund is subject to a
number of conditions, including approval of the Agreement and Plan of
Reorganization and the transactions contemplated thereby by the shareholders of
the Institutional Fund; the receipt of certain legal opinions described in
Sections 10(d) and 11(c) of the Agreement and Plan of Reorganization (which
include an opinion of counsel to Excelsior Company that the shares of the Money
Fund issued to shareholders of the Institutional Fund in accordance with the
terms of the Agreement and Plan of Reorganization will be validly issued, fully
paid and non-assessable); the receipt of certain certificates from the parties
concerning the continuing accuracy of the representations and warranties in the
Agreement and Plan of Reorganization and other matters; and the parties'
performance in all material respects of their respective agreements and
undertakings in the Agreement and Plan of Reorganization. Assuming satisfaction
of the conditions in the Agreement and Plan of Reorganization, the Effective
Time of the Reorganization will be on ____________, 1999 or such other date as
is agreed to by the parties.
The Agreement and Plan of Reorganization provides that U.S. Trust or an
affiliate shall be responsible for the payment of the expenses incurred by
Excelsior Trust and Excelsior Company in connection with the Agreement and Plan
of Reorganization and the transactions contemplated thereby.
The Agreement and Plan of Reorganization and the reorganization described
therein may be abandoned at any time prior to the Effective Time of the
Reorganization by the mutual
-8-
consent of the parties to the Agreement and Plan of Reorganization. The
Agreement and Plan of Reorganization provides further that at any time prior to
or (to the fullest extent permitted by law) after approval of the Agreement and
Plan of Reorganization by the shareholders of the Institutional Fund (a) the
parties thereto may, by written agreement authorized by their respective Boards,
and with or without the approval of their respective shareholders, amend any of
the provisions of the Agreement and Plan of Reorganization and (b) any party may
waive any breach by the other party for the failure to satisfy any of the
conditions to its obligations (such waiver to be in writing and authorized by
the President or Vice President of the waiving party with or without the
approval of such party's shareholders).
Board Considerations. Based upon its evaluations of the information
presented to it at meetings held on May 21, 1999 and July 30, 1999, and in light
of its fiduciary duties under federal and state law, the Board of Trustees of
Excelsior Trust at a meeting held on July 30, 1999, has determined that the
proposed reorganization is in the best interests of the shareholders of the
Institutional Fund, and recommends the approval of the Agreement and Plan of
Reorganization by such shareholders at the Meeting. The following is a summary
of the information that was presented to, and considered by, the Board of
Trustees in making its determination.
At the meetings, representatives of U.S. Trust expressed concerns about the
asset growth of the Institutional Fund and stated that the Institutional Fund as
an investment product had not developed as expected and was not likely to
develop further. The Board was advised that U.S. Trust believed that the
proposed reorganization would benefit the Institutional Fund and its
shareholders. It was pointed out that the Money Fund had substantially greater
assets (approximately $974 million as of March 31, 1999 versus approximately
$389 million for the Institutional Fund as of March 31, 1999). The combination
of the Institutional Fund and Money Fund would increase the asset base of the
Institutional Fund and eliminate inefficiencies in maintaining a separate fund.
In addition, management consistency would be achieved because unlike all the
other funds in the Excelsior complex, the Institutional Fund is not managed by
U.S. Trust or an affiliate. Reorganization of the Institutional Fund would also
allow investors to have their money managed by U.S. Trust. It was further
pointed out that the total operating expenses of the Money Fund would be less
than the Institutional Fund and that the assets of the Money Fund were
anticipated to be more broadly diversified than the Institutional Fund's assets.
The Board of Trustees reviewed the terms of the proposed reorganization and
also considered the compatibility of the investment objectives, policies and
restrictions of the Funds. The Directors also considered the federal tax
consequences of the reorganization and the fact that the interests of
shareholders would not be diluted as a result of the reorganization. In
addition, the Board of Directors reviewed the expected costs of the
reorganization, and the fact that all expenses of the reorganization would be
borne by U.S. Trust. The Board also reviewed the relative performance and
expense ratios of the Money Fund.
Based upon their evaluation of the relevant information presented to them,
and in light of their fiduciary duties under federal and state law, Excelsior
Trust's Board of Trustees unanimously determined that (i) the proposed
reorganization was in the best interests of the Institutional Fund, (ii) that
the interests of existing shareholders of the Funds will not be diluted
-9-
as a result of the transaction, and recommended the approval of the Agreement
and Plan of Reorganization by shareholders of the Institutional Fund at the
Meeting.
Similarly, at a meeting held on July 30, 1999, the Board of Directors of
Excelsior Company considered the proposed reorganization. Based upon its
evaluation of the relevant information provided to it, and in light of its
fiduciary duties under federal and state law, the Board of Directors unanimously
determined that (i) the proposed reorganization is in the best interests of the
shareholders of Excelsior Company and (ii) the interests of Excelsior Company's
shareholders would not be diluted as a result of the reorganization.
Capitalization. Because the Institutional Fund will be combined with the
Money Fund in the reorganization, the total capitalization of the Money Fund
after the reorganization is expected to be greater than the current
capitalization of the Institutional Fund. The following table sets forth as of
July 31, 1999 (i) the capitalization of the Institutional Fund; (ii) the
capitalization of the Money Fund; and (iii) the pro forma capitalization of the
Money Fund as adjusted to give effect to the proposed reorganization of the
Institutional Fund. There is, of course, no assurance that the reorganization
will be consummated. Moreover, if consummated, the capitalization of each Fund
is likely to be different at the Effective Time of the Reorganization as a
result of daily share purchase and redemption activity in the Funds.
INSTITUTIONAL PRO FORMA COMBINED
FUND MONEY FUND MONEY FUND
-------------------------- ------------------------- --------------------------
Total Net Assets $322,777,498 $ 0 $ 322,777,498
(Institutional Shares) (Institutional Shares)
$1,002,732,717 $ 1,022,732,717
(Shares) (Shares)
Shares Outstanding 322,777,716 0 322,777,716
(Institutional Shares) (Institutional Shares)
1,002,961,337 1,002,961,337
(Shares) (Shares)
Net Asset Value Per Share $1.00 -- $1.00
(Institutional Shares) (Institutional Shares)
$1.00 $1.00
(Shares) (Shares)
Federal Income Tax Consequences. Neither shareholders of the Institutional
Fund nor shareholders of the Money Fund will recognize any taxable income or
loss as a result of the reorganization.
-10-
COMPARISON OF THE FUNDS
Investment Objectives and Policies. The investment objective, policies and
restrictions of the Institutional Fund are, in many respects, similar to those
of the Money Fund. There are, however, certain differences. The following
discussion summarizes some of the similarities and differences in the investment
policies and risk factors of the Funds, and is qualified in its entirety, by the
discussion elsewhere herein, and in the Prospectuses and Statements of
Additional Information of the Institutional Fund and the Money Fund incorporated
herein by reference.
The investment objective of the Institutional Fund is to provide
shareholders with liquidity and as high a level of current income as is
consistent with the preservation of capital. The Institutional Fund seeks to
achieve its investment objective by investing all of its investable assets in
the Master Portfolio, a diversified open-end management investment company with
the same investment objective as the Institutional Fund. Since the investment
characteristics of the Institutional Fund are the same as those of the Master
Portfolio, the following is a comparison of the investment policies and
strategies employed by the Master Portfolio and the Money Fund. The investment
objective of the Money Fund is to provide shareholders with as high a level of
current income as is consistent with liquidity and stability of principal. The
investment objective of the Money Fund is fundamental, meaning that it may not
be changed without the affirmative vote of the holders of a majority of its
outstanding shares, as defined in the 1940 Act. The investment objective of the
Institutional Fund is not fundamental and may be changed by its Board of
Trustees without shareholder approval.
Both the Money Fund and the Master Portfolio seek to achieve their
investment objectives by investing in U.S. dollar-denominated money market
obligations. All investments in the Master Portfolio and the Money Fund mature
or are deemed to mature within 397 days or less from the date of acquisition.
The average remaining maturity of both Funds is 90 days or less. While both the
Master Portfolio and Money Fund are money market funds and therefore are subject
to the general restrictions and limitations of Rule 2a-7 under the 1940 Act,
there are certain differences with respect to each Funds' investment policies
and restrictions.
For example, all investments by the Master Portfolio are in securities
rated or subject to a guarantee rated in the highest rating category for short-
term obligations by at least two NRSROs assigning a rating to the security or
guarantee or the issuer of the security or guarantee or, if only one NRSRO
assigns a rating, that NRSRO, or, in the case of an investment which is not
rated, of comparable quality as determined by the investment adviser) and are
determined by the investment adviser to present minimal credit risks. In
comparison, investments by the Money Fund may be rated in the two highest short-
term rating categories.
Although both Funds invest in bank obligations, only the Master Portfolio
has a concentration policy pursuant to which it may invest at least 25% of its
investable assets, and may invest up to 100% of its assets, in such obligations.
This concentration policy is fundamental and may not be changed without the
approval of the investors of the Master Portfolio. The Money Fund has no similar
concentration policy and therefore will not invest as much of its assets in bank
obligations as the Master Portfolio. The Master Portfolio and the
-11-
Money Fund limit their investments in U.S. bank obligations to banks having
total assets in excess of $1 billion and $2 billion, respectively.
In addition, while the Master Portfolio may invest in foreign bank
obligations (i.e., obligations of foreign branches and subsidiaries of U.S.
banks, and U.S. and foreign branches of foreign banks), the Money Fund limits
its investment to obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks and may not invest in foreign branches of foreign
banks. The Money Fund, unlike the Institutional Fund, has a fundamental
investment limitation that it may not 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 the Money
Fund's total assets would be invested in obligations 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. Furthermore, the Money
Fund, unlike the Institutional Fund, has a fundamental policy that it may not
purchase foreign securities; except the Money Fund may purchase obligations
issued by domestic branches of foreign banks and foreign branches of U.S. banks
subject to the limitations in the preceding sentence. The Master Portfolio,
unlike the Money Fund, may also invest in non-U.S. government obligations of or
guaranteed by the governments of Western Europe, Australia, Japan and Canada.
The Master Portfolio, unlike the Money Fund, may invest in asset backed
securities such as Certificates for Automobile Receivables and Credit Card
Receivable Securities. The Money Fund, unlike the Master Portfolio, may enter
into a reverse repurchase agreement under which it agrees to sell portfolio
securities to financial institutions such as banks and broker-dealers and to
repurchase them at a mutually agreed date and price.
To increase return on their portfolio securities, both Funds may lend their
portfolio securities to broker/dealers pursuant to agreements requiring the
loans to be continuously secured by collateral equal at all times in value to at
least the market value of the securities loaned. The value of the securities
loaned by the Master Portfolio and Money Fund will not exceed 33 1/3% and 30%,
respectively, of the value of their total assets. The Money Fund and the Master
Portfolio may also borrow money for temporary or emergency purposes in an amount
up to 10% and 33 1/3%, respectively, of the value of their total assets.
The Money Fund, unlike the Institutional Fund, may invest in securities
issued by other investment companies which invest in high-quality short-term
securities and which determine their net asset value per share based on the
amortized cost or penny-rounding method. Further, only the Money Fund may
purchase eligible securities on a "when-issued" basis and purchase or sell such
securities on a "forward commitment" basis. Both Funds may invest up to 10% of
their respective net assets in securities that are illiquid.
-12-
Organization. Excelsior Trust is organized as a Delaware business trust,
and Excelsior Company is organized as a Maryland corporation. Both Excelsior
Trust and Excelsior Company are registered as open-end management investment
companies under the 1940 Act.
Excelsior Company was organized as a Maryland corporation on August 2,
1984. It is subject to the provisions of its Charter and By-Laws. Excelsior
Trust was organized as a Delaware business trust on October 25, 1993 and is
subject to the provisions of its Declaration of Trust and By-Laws. Excelsior
Company's Charter authorizes the Board of Directors to issue up to 35 billion
full and fractional shares of capital stock ($0.001 par value per share) and to
classify and reclassify any authorized and unissued shares into one or more
classes and series of shares. Currently, Excelsior Company has 18 investment
portfolios. Excelsior Trust's Charter authorizes an unlimited number of shares
of beneficial interest ($0.00001 par value) which may be issued in separate
series. Excelsior Trust's Declaration of Trust authorizes the Board of Trustees
to classify shares into one or more series.
Money Fund shareholders do not have cumulative voting rights with respect
to the election of Directors and Institutional Fund shareholders do not have
cumulative voting rights with respect to the election of Trustees. Additionally,
Money Fund and Institutional Fund shareholders will vote in the aggregate and
not by class or series, except as required by law or when the matter to be voted
upon affects only interestholders of a particular class.
Although the rights of shareholders of a Maryland corporation vary in
certain respects from the rights of shareholders of a Delaware business trust,
the attributes of a share of common stock in Excelsior Company are comparable to
those of a share of beneficial interest in Excelsior Trust. Shares of both
Excelsior Trust and Excelsior Company: (i) are entitled to one vote for each
full share held and a proportionate fractional vote for each fractional share
held; (ii) represent an equal proportionate interest in the particular Fund with
other shares of the same class; and (iii) are entitled to participate equally
with other shares of the same class in the dividends and distributions out of
the income earned on the assets belonging to such Fund as are declared at the
discretion of the Boards of Excelsior Trust and Excelsior Company.
It should be noted that under Maryland law, Money Fund shareholders have no
personal liability for Excelsior Company's acts or obligations. Under Delaware
law, shareholders of a Delaware business trust are entitled to the same
limitation on personal liability which is extended to shareholders of private
for profit corporations organized under the general corporation law of the State
of Delaware. The courts of other states may not apply Delaware law, however,
and shareholders may, under certain circumstances, be held personally liable for
the obligations of Excelsior Trust.
The foregoing is only a summary. Shareholders may obtain copies of the
Declaration of Trust and By-laws of Excelsior Trust and the Charter and By-laws
of Excelsior Company upon written request at the addresses shown on the cover
page of this Combined Prospectus/Proxy Statement. Additional information
concerning the attributes of the shares issued by Excelsior Company and
Excelsior Trust is included in their respective prospectuses, which are
incorporated herein by reference.
-13-
The Investment Advisers. Excelsior Trust seeks to achieve the investment
objective of the Institutional Fund by investing all of the investable assets of
the Institutional Fund in the Master Portfolio. Citibank, N.A. is the investment
adviser to the Master Portfolio. Therefore, Excelsior Trust relies primarily on
the investment advice which Citibank N.A. provides to the Master Portfolio.
United States Trust Company of New York and U.S. Trust Company (together,
"U.S. Trust") serve as joint investment advisers for the Money Fund.
Comparative data regarding the investment advisory fees and fee rates (as a
percentage of average daily net assets) paid to the investment advisers of the
Institutional Fund and Money Fund as of March 31, 1999 are as follows:
Contractual Annual
Advisory Fee as a Advisory Fees Paid as a
Percentage of Average Percentage of Average
Fund Daily Net Assets Daily Net Assets Advisory Fees Paid
---- ---------------- ---------------- ------------------
Institutional Fund 0.15% 0.10% $173,063
[0.5% Waived] [$85,270 Waived]
Money Fund 0.25% 0.20% $1,475,748
[0.5% Waived] [$358,360 Waived]
Other Service Providers. Institutional Fund and Money Fund have similar
service providers. Upon completion of the reorganization, the Money Fund will
continue to engage its existing service providers. In all cases, the types of
services provided to the Funds under these service arrangements are
substantially similar.
Institutional Fund Money Fund
Co-Administrators U.S. Trust Company of Connecticut U.S. Trust Company of Connecticut
- -----------------
Chase Global Financial Services Chase Global Financial Services
Company Company
Federated Administrative Services Federated Administrative Services
Signature Financial Group N/A
(Cayman) Ltd. (Master Portfolio
only)
Sub-Administrator Citibank N/A
- -----------------
Distributor Edgewood Financial Services Edgewood Financial Services
- -----------
-14-
Institutional Fund Money Fund
Transfer Agent Chase Global Financial Services U.S. Trust Company of New York
- --------------
State Street Canada, Inc. (Master N/A
Portfolio only)
Sub-Transfer Agent N/A Chase Global Financial Services
- ------------------ Company
Custodian U.S. Trust Company of New York The Chase Manhattan Bank
- ---------
State Street Bank and Trust Company
(Master Portfolio only) N/A
Independent Accountants PricewaterhouseCoopers LLP Ernst & Young LLP
- -----------------------
The Co-Administrators. Excelsior Trust has retained the services of U.S.
Trust Company of Connecticut, Chase Global Funds Services Company ("CGFSC") and
Federated Administrative Services ("FAS") (collectively, the "Excelsior Trust
Administrators") as co-administrators. The Master Portfolio has retained the
services of Signature Financial Group (Cayman) Ltd. ("SFG") as administrator.
Pursuant to an Administration Agreement and an Administrative Services
Agreement, respectively, Excelsior Trust Administrators and SFG provide
Excelsior Trust and the Master Portfolio, respectively, with general office
facilities, equipment and clerical personnel and supervise the overall
administration of Excelsior Trust and the Master Portfolio, respectively. As
compensation for providing these services and facilities to Excelsior Trust and
the Master Portfolio: Excelsior Trust Administrators are jointly entitled to an
annual fee from the Institutional Fund, computed daily and paid monthly, at the
maximum annual rate of 0.10% of the Institutional Fund's average daily net
assets; and SFG is entitled to fees from the Master Portfolio, accrued daily and
paid monthly, of 0.05% of the assets of the Master Portfolio on an annualized
basis for the Master Portfolio's then-current fiscal year.
Pursuant to a Sub-Administrative Services Agreement, Citibank N.A. performs
such sub-administrative duties for the Master Portfolio as are from time to time
agreed upon by Citibank N.A. and SFG. For its services as sub-administrator,
Citibank N.A. receives such compensation as from time to time is agreed upon by
SFG and Citibank N.A., but not more than 0.05% per annum of the average daily
net assets of the Master Portfolio. All such compensation is paid by SFG.
The Master Portfolio has an Administrative Services Plan which provides
that the Master Portfolio may obtain the services of an administrator, a
transfer agent, a custodian and a fund accountant, and may enter into agreements
providing for the payment of fees for such services. Under the Master
Portfolio's Administrative Services Plan, fees paid to the Master Portfolio's
-15-
administrator may not exceed 0.05% of the Master Portfolio's average daily net
assets on an annualized basis for the Master Portfolio's then-current fiscal
year.
Administrative services are provided to the Money Fund by CGFSC, FAS and
U.S. Trust Company of Connecticut (collectively, the "Excelsior Company
Administrators"). The Excelsior Company Administrators also provide
administrative services to the other investment portfolios of Excelsior Company
and to all of the investment portfolios of Excelsior Tax-Exempt Funds, Inc. and
Excelsior Institutional Trust which are also advised by U.S. Trust and its
affiliates and distributed by the Edgewood Financial Services. For services
provided to all of the investment portfolios of Excelsior Company, Excelsior
Tax-Exempt Funds, Inc. and Excelsior Institutional Trust (except for the
international portfolios of Excelsior Company and Excelsior Institutional
Trust), the Excelsior Company Administrators are entitled jointly to fees,
computed daily and paid monthly, based on the combined aggregate average daily
net assets of the three companies (excluding the international portfolios of
Excelsior Company and Excelsior Institutional Trust) as follows:
Combined Aggregate Average Daily Net Assets
of Excelsior Company, Excelsior Tax-Exempt Funds, Inc. and
Excelsior Institutional Trust (excluding
the international portfolios of Excelsior Company
and Excelsior Institutional Trust)
----------------------------------
Annual Fee
----------
First $200 million.................................. 0.200%
Next $200 million................................... 0.175%
Over $400 million................................... 0.150%
Administration fees payable to the Excelsior Company Administrators by each
portfolio of Excelsior Company, Excelsior Tax-Exempt Funds, Inc. and Excelsior
Institutional Trust are allocated in proportion to their relative average daily
net assets at the time of determination.
Comparative data regarding the administration fees and fee rates (as a
percentage of average daily net assets) paid to the co-administrators to the
Institutional Fund and Money Fund as of March 31, 1999 are as follows:
-16-
Administration Fees Paid
Administration as a Percentage of
Fund Fees Paid Average Daily Net Assets
---- -------------- ------------------------
Institutional Fund $ 55,938 0.03%
[$116,284 Waived] [0.07% Waived]
Money Fund $1,122,463 0.153%
[$11 Waived] [0.00% Waived]
Administrative Servicing Fee. The Institutional Fund and Money Fund may
enter into agreements with certain institutions which hold of record Shares of
the Funds for their customers (a "Shareholder Organization"). As a consideration
for these services, the Institutional Fund and the Money Fund will pay the
Shareholder Organization an administrative service fee up to an annual rate of
0.40% and 0.15% respectively, of the average daily net asset value of their
shares held by the Shareholder Organization's customers. Such services may
include assisting in processing purchase, exchange and redemption requests;
transmitting and receiving fund in connection with customer orders to purchase,
exchange or redeem shares; and providing periodic statements. Excelsior Trust
Administrators for the Institutional Fund and U.S. Trust and the Excelsior
Company Administrators for the Money Fund have voluntarily agreed to waive fees
payable by the particular Fund in an aggregate amount equal to administrative
service fees payable by the particular Fund.
The administrative service fees paid by the Institutional Fund and Money
Fund for the period ended March 31, 1999 are as follows:
Percentage of Average Fee Paid to
Fund Daily Net Assets Service Organizations
---- --------------------- ---------------------
Institutional 0.01% $ 11,282
Money* 0.05% $358,371
* No Institutional Shares of the Fund were outstanding as of March 31, 1999.
Rate and fees shown reflect administrative services fee on Shares.
Purchase and Redemption Procedures; Exchange Procedures; Dividends,
Distributions and Pricing. The procedures for purchasing, redeeming and
exchanging shares of the Institutional Fund and the Money Fund are generally
similar. For a detailed comparison of shareholder transactions and services, see
Appendix B.
-17-
Performance. The average annual total return for the periods ended March
31, 1999 for the Institutional Fund and Money Fund were as follows:
One Year Five Years Ten Years Since Inception
--------------- -------------- ---------------- ------------------
Institutional Money Fund 5.40% 5.52% N/A 5.37%
(inception 11/8/93)
Money Fund* 5.01% 5.06% 5.67% 5.86%
(inception 5/3/85)
* No Institutional Shares of the Money Fund were outstanding on March 31, 1999.
Performance of the Money Fund reflects the performance of Shares of the Money
Fund. The Fund's Institutional Shares and Shares would have substantially
similar annual returns because both share classes are invested in the same
portfolio of securities. Annual returns will differ only to the extent that
Institutional Shares and Shares do not have the same expenses. In reviewing
this performance information, however, you should be aware that Shares have a
0.40% (annualized) Administrative Servicing Fee, while Institutional Shares
have a 0.15% (annualized) Administrative Servicing Fee. If the expenses of
the Institutional Shares were reflected, performance would be higher.
INFORMATION RELATING TO VOTING MATTERS
General Information. This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies by the Board of
Trustees of Excelsior Trust for use at the Meeting. It is expected that the
solicitation of proxies will be primarily by mail. Excelsior Trust's officers
and service contractors may also solicit proxies by telephone, telegraph or
personal interview. Although not anticipated, Excelsior Trust may retain the
services of one or more outside organizations to aid in the solicitation of
proxies. Such organizations normally charge a fee plus out-of-pocket charges.
Only shareholders of record at the close of business on September 10,
1999 will be entitled to vote at the Meeting. On that date, there were
outstanding and entitled to be voted ___________ shares of the Institutional
Fund. Each share or fraction thereof is entitled to one vote or fraction
thereof.
If the accompanying proxy is executed and returned in time for the
Meeting, the shares covered thereby will be voted in accordance with the proxy
on all matters that may properly come before the Meeting. Any shareholder giving
a proxy may revoke it at any time before it is exercised by submitting to
Excelsior Trust a written notice of revocation or a subsequently executed proxy
or by attending the Meeting and electing to vote in person.
Shareholder and Board Approval. The Agreement and Plan of
Reorganization and the transactions contemplated therein are being submitted for
approval at the Meeting by the holders of a majority of the outstanding shares
of the Institutional Fund in accordance with the terms of the Agreement and Plan
of Reorganization and the Trust Instrument. The term "majority of the
outstanding shares" of Excelsior Trust means the lesser of (a) 67% or more of
the shares present in person or represented by proxy at the Meeting, provided
that shareholders of more than 50% of the outstanding shares of record are
present in person or represented by proxy or (b) more than 50% of the
outstanding shares of record.
-18-
The vote of the shareholders of Excelsior Company is not being solicited,
because their approval or consent is not required for the reorganization.
The approval of the Agreement and Plan of Reorganization by the Board of
Trustees of Excelsior Trust is discussed above under "INFORMATION RELATING TO
THE PROPOSED REORGANIZATION--Board Consideration."
On September 10, 1999, U.S. Trust and its affiliates held of record __% and
__% of the Institutional Fund and the Money Fund, respectively, as agent or
custodian for their customers. In addition, on that date, U.S. Trust and its
affiliates held investment and/or voting power with respect to __% of the
outstanding shares of the Institutional Fund on behalf of their customers.
At September 10,1999, the name, address and share ownership of each person
who owned beneficially or of record 5% or more of the outstanding shares of the
Institutional Fund and the Money Fund are listed in the following table. The
table also shows the percentage of each Fund that would be owned by these
persons upon the consummation of the reorganization based on their holdings at
that date.
PERCENTAGE PERCENTAGE OF OWNERSHIP
OF OWNERSHIP OF THE MONEY FUND AFTER
FUND NAME AND ADDRESS OF FUND REORGANIZATION
---- ---------------- ------- --------------
Institutional
Money
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company.
At the record date for the Meeting, the Directors and officers of Excelsior
Company, and the Trustees and officers of Excelsior Trust, as a group owned
beneficially less than 1% of the outstanding shares of the Institutional Fund
and the Money Fund.
Quorum. In the event that a quorum is not present at the Meeting, or in
the event that a quorum is present at the Meeting but sufficient votes to
approve the Agreement and Plan of Reorganization are not received, the persons
named as proxies, or their substitutes, may propose one or more adjournments of
the Meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of a majority of those shares represented at
the Meeting in person or by proxy. If a quorum is not present, the persons
named as proxies will vote the proxies FOR adjournment. If a quorum is present,
the persons named as proxies will vote those proxies which they are entitled to
vote FOR the Agreement and Plan of Reorganization in favor of such adjournments,
and will vote those proxies required to be voted AGAINST such proposal against
any adjournment. Under the Declaration of Trust of Excelsior Trust, a quorum is
constituted with respect to Excelsior Trust by the presence in person or by
proxy of the holders of more than one-third of the outstanding shares of
Excelsior Trust entitled
-19-
to vote at the meeting. For purposes of determining the presence of a quorum for
transacting business at the Meeting, abstentions will be treated as shares that
are present at the Meeting but which have not been voted. Abstentions will have
the effect of a "no" vote for purposes of obtaining the requisite approvals.
Broker "non-votes" (that is, proxies from brokers or nominees indicating that
such persons have not received instructions from the beneficial owners or other
persons entitled to vote shares on a particular matter with respect to which the
brokers or nominees do not have discretionary power) will be treated as shares
that are present at the Meeting and will be the equivalent of voting against
approval of the Agreement and Plan of Reorganization.
Annual Meetings. Neither Excelsior Trust nor Excelsior Company presently
intends to hold annual meetings of shareholders except as required by the 1940
Act or other applicable law. Under certain circumstances, Excelsior Trust will
call a special meeting of shareholders of the Institutional Fund upon the
written request of shareholders owning at least ten percent of the Outstanding
Shares of the Institutional Fund entitled to vote at such meeting, provided,
that (1) such request shall state the purposes of such meeting and the matters
proposed to be acted on, and (2) the shareholders requesting such meeting shall
have paid to Excelsior Trust the reasonably estimated cost of preparing and
mailing the notice thereof, which the Secretary shall determine and specify to
such shareholders. Similarly, Excelsior Company will call a special meeting of
shareholders of the Money Fund upon the written request of shareholder owning at
least twenty-five percent of the Money Fund entitled to vote at such meeting.
ADDITIONAL INFORMATION ABOUT THE FUNDS
Information about the Money Fund is included in the Prospectus dated August
1, 1999, which accompanies this Combined Proxy Statement/Prospectus and is
incorporated by reference herein. Additional information about the Money Fund
is included in the Statement of Additional Information dated August 1, 1999,
which has been filed with the SEC and is incorporated by reference herein.
Information about the Institutional Fund is included in the Prospectus and
Statement of Additional Information dated December 24, 1998, which have been
filed with the SEC and are incorporated by reference herein. Copies of the
Prospectuses and Statements of Additional Information for Excelsior Trust and
Excelsior Company may be obtained without charge by writing or calling the
respective addresses and telephone numbers set forth on the first page of this
Proxy/Prospectus. Excelsior Trust and Excelsior Company are subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, as applicable, and, in accordance with such requirements, files proxy
materials, reports and other information with the SEC. These materials can be
inspected and copied at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549. In addition, these materials
can be inspected and copied at the SEC's Regional Offices at 7 World Trade
Center, Suite 1300, New York, New York 10048, and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates.
-20-
FINANCIAL INFORMATION
The audited financial statements and financial highlights of the
Institutional Fund as of August 31, 1998, are included in the Statement of
Additional Information to this Proxy/Prospectus and are incorporated by
reference herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, to the extent indicated on their report. The unaudited
financial statements and financial highlights for shares of the Institutional
Fund for the semi-annual period ended February 28, 1999 are included in the
Statement of Additional Information related to this Combined Proxy/Prospectus
and are incorporated by reference herein.
The audited financial statements and financial highlights for shares of the
Money Fund for the year ended March 31, 1999 have been audited by Ernst & Young
LLP, independent auditors, to the extent indicated in their report thereon, are
included in the Statement of Additional Information to this Proxy/Prospectus and
are incorporated by reference herein.
OTHER BUSINESS
Excelsior Trust's Board of Trustees knows of no other business to be
brought before the Meeting with respect to the Institutional Fund. However, if
any other matters come before the Meeting, it is the intention of the Board that
proxies that do not contain specific restrictions to the contrary will be voted
on such matters in accordance with the judgment of the persons named in the
enclosed form of proxy.
LITIGATION
Neither Excelsior Trust nor Excelsior Company is involved in any litigation
that would have any material adverse financial effect upon either the
Institutional Fund or Money Fund.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to Excelsior Trust or Excelsior
Company in writing at the address(es), or by phone at the phone number(s), on
the cover page of this Combined Proxy Statement/Prospectus.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED
TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
-21-
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
A-1
AGREEMENT AND PLAN OF
REORGANIZATION
BY AND BETWEEN
EXCELSIOR FUNDS, INC.
AND
EXCELSIOR FUNDS
DATED AS OF _________, 1999
A-2
TABLE OF CONTENTS
_________________
Page
----
1. Transfer of Assets of the Institutional Money Fund................................................ 1
2. Liquidating Distributions of Excelsior Funds...................................................... 4
3. Termination of Excelsior Funds.................................................................... 5
4. Valuation Time.................................................................................... 6
5. Certain Representations, Warranties and Agreements of Excelsior Funds............................. 6
6. Certain Representations, Warranties and Agreements of Excelsior Funds, Inc........................ 11
7. Shareholder Action on Behalf of the Institutional Money Fund...................................... 14
8. N-14 Registration Statement....................................................................... 15
9. Effective Time of the Reorganization.............................................................. 15
10. Excelsior Funds, Inc. Conditions.................................................................. 16
11. Excelsior Funds Conditions........................................................................ 19
12. Tax Documents..................................................................................... 22
13. Further Assurances................................................................................ 22
14. Termination of Representations and Warranties..................................................... 23
15. Termination of Agreement.......................................................................... 23
16. Amendment and Waiver.............................................................................. 24
17. Governing Law..................................................................................... 24
18. Successors and Assigns............................................................................ 24
-i-
19. Beneficiaries..................................................................................... 24
20. Excelsior Funds, Inc. Liability................................................................... 25
21. Excelsior Funds Liability......................................................................... 25
22. Notices........................................................................................... 26
23. Expenses.......................................................................................... 27
24. Entire Agreement.................................................................................. 27
25. Counterparts...................................................................................... 27
-ii-
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") made as of the ___
day of _________, 1999 by and between Excelsior Funds, Inc., a corporation
organized under the laws of the State of Maryland on August 2, 1984, and
Excelsior Funds, a business trust organized under the laws of the State of
Delaware on October 25, 1993.
WHEREAS, each of Excelsior Funds, Inc. and Excelsior Funds is an open-end
management investment company registered with the Securities and Exchange
Commission (the "SEC") under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the parties desire that all of the assets and liabilities of the
Institutional Money Fund, an investment portfolio offered by Excelsior Funds, be
transferred to, and be acquired and assumed by, the Money Fund, an investment
portfolio offered by Excelsior Funds, Inc., as stated herein, in exchange for
Institutional Class Shares (Class A-Special Series 1 Common Stock) of the Money
Fund which shall thereafter be distributed by Excelsior Funds to the holders of
shares of the Institutional Money Fund in connection with the liquidation of the
Institutional Money Fund as described in this Agreement (the "Reorganization").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and subject to the terms and conditions thereof, the
parties hereto, intending to be legally bound, agree as follows:
1. Transfer of Assets of the Institutional Money Fund.
--------------------------------------------------
(a) At the Effective Time of the Reorganization (as defined below),
all property of every description, and all interests, rights, privileges and
powers of the Institutional Money Fund other than cash in an amount necessary to
pay any unpaid dividends and distributions as provided in Section 2 hereof (such
assets are herein referred to as the "Institutional Money Fund Assets") shall be
transferred and conveyed by the Institutional Money Fund to
Excelsior Funds, Inc., on behalf of the Money Fund, and shall be accepted by
Excelsior Funds, Inc., on behalf of the Money Fund, and Excelsior Funds, Inc. on
behalf of the Money Fund, shall assume all liabilities whether accrued,
absolute, contingent or otherwise, of the Institutional Money Fund (such
liabilities are herein referred to as the "Institutional Money Fund
Liabilities") as more particularly set forth in the following paragraph, such
that at and after the Effective Time of the Reorganization: (i) all assets of
the Institutional Money Fund shall become and be the assets of the Money Fund;
and (ii) all liabilities of the Institutional Money Fund shall attach to the
Money Fund as aforesaid and may thenceforth be enforced against the Money Fund
to the extent as if the same had been incurred by it. Without limiting the
generality of the foregoing, it is understood that the Institutional Money Fund
Assets shall include all property and assets of any nature whatsoever,
including, without limitation, all cash, cash equivalents, securities, claims
and receivables (including interest receivables) owned by the Institutional
Money Fund, and any deferred or prepaid expenses shown as an asset on the
Institutional Money Fund's books, at the Effective Time of the Reorganization,
and all good will, all other intangible property and all books and records
belonging to the Institutional Money Fund. It is further understood that
Institutional Money Fund Liabilities shall include all obligations of Excelsior
Funds to indemnify the trustees of Excelsior Funds acting in their capacity as
such with respect to any claims alleging any breach of fiduciary duty with
respect to the transactions contemplated by this Agreement or otherwise to the
fullest extent permitted by law and Excelsior Fund's Declaration of Trust as in
effect on the date hereof. It is further understood that recourse for the
Institutional Money Fund Liabilities assumed by the Money Fund shall, at and
after the Effective Time of the Reorganization, be limited to the assets of the
Money Fund.
-2-
(b) In exchange for the transfer of the Institutional Money Fund
Assets and the assumption of the Institutional Money Fund Liabilities, Excelsior
Funds, Inc. shall simultaneously issue at the Effective Time of the
Reorganization to the Institutional Money Fund a number of full and fractional
Institutional Class Shares of the Money Fund (to the third decimal place) all
determined and adjusted as provided in this Section 1. The number of
Institutional Class Shares of the Money Fund so issued will be equal in number
to the number of full and fractional shares representing interests in the
Institutional Money Fund outstanding immediately prior to the Effective Time of
the Reorganization, provided that at the Effective Time of the Reorganization
the price per share of the Institutional Money Fund and the price per
Institutional share of the Money Fund for purposes of sales and redemptions is
$1.00 based on the amortized cost valuations that have been adopted by Excelsior
Funds, Inc. and Excelsior Funds.
(c) The net asset value of the Institutional Class Shares of the
Money Fund and the net asset value of shares of the Institutional Money Fund
shall be determined as of the Valuation Time specified in Section 4. The net
asset value of the Institutional Class Shares of the Money Fund shall be
computed in the manner set forth in the Money Fund's then current prospectus
under the Securities Act of 1933, as amended (the "1933 Act"). The net asset
value of shares of the Institutional Money Fund shall be computed in the manner
set forth in the Institutional Money Fund's then current prospectus under the
1933 Act. In determining the value of the securities transferred by the
Institutional Money Fund to the Money Fund, each security shall be priced in
accordance with the policies and procedures of Excelsior Funds, as described in
its then current prospectus for the Institutional Money Fund. For such purposes,
price quotations and the security characteristics relating to establishing such
quotations shall be
-3-
determined by Excelsior Funds, provided that such determination shall be subject
to the approval of Excelsior Funds, Inc.
(d) In addition to the computations made pursuant to Sections 1(a),
1(b), 1(c) and 4, the net asset values of shares of the Institutional Money Fund
and the Institutional Shares of the Money Fund will be computed as of the
Valuation Time by marking to market the portfolio's assets. If the per share net
asset value of shares of the Institutional Money Fund exceeds the per share net
asset value of Institutional Shares of the Money Fund at the Valuation Time (as
set forth in Section 4) by $.0010 or more as computed by using the market values
of such portfolio's assets, Excelsior Fund's Board of Trustees will have the
right to postpone the Valuation Time and the Effective Time of the
Reorganization (as defined in Section 9) until such time as the per share
difference is less than $.0010. If the per share net asset value of
Institutional Shares of the Money Fund exceeds the per share net asset value of
shares of the Institutional Money Fund at the Valuation Time (as set forth in
Section 4) by $0.0010 or more as computed by using the market values of such
portfolio's assets, Excelsior Funds, Inc.'s Board of Directors will have the
right to postpone the Valuation Time and the Effective Time of the
Reorganization (as defined in Section 9) until such time as the per share
difference is less than $0.0010.
2. Liquidating Distributions of Excelsior Funds. At the Effective Time
of the Reorganization, the Institutional Money Fund shall distribute in complete
liquidation pro rata to the recordholders of shares of the Institutional Money
Fund at the Effective Time of the Reorganization the Institutional Class Shares
of the Money Fund received by the Institutional Money Fund pursuant to Section
1. In addition, each shareholder of record of the Institutional Money Fund shall
have the right to receive any unpaid dividends or other distributions, which
were
-4-
declared before the Effective Time of the Reorganization with respect to the
shares of the Institutional Money Fund that are held by the shareholder at the
Effective Time of the Reorganization. In accordance with instructions it
receives from Excelsior Funds, Excelsior Funds, Inc. shall record on its books
the ownership of the Institutional Class Shares of the Money Fund by the
recordholders of the shares of the Institutional Money Fund. All of the issued
and outstanding shares of the Institutional Money Fund shall be cancelled on the
books of Excelsior Funds at the Effective Time of the Reorganization and shall
thereafter represent only the right to receive Institutional Class Shares of the
Money Fund, and the Institutional Money Fund's transfer books shall be closed
permanently.
3. Termination of Excelsior Funds. At the Effective Time of the
------------------------------
Reorganization, Excelsior Funds shall be terminated pursuant to Article X,
Section 5 of its Declaration of Trust, such that (a) the affairs of Excelsior
Funds shall be immediately wound up, its contracts discharged and its business
liquidated; and (b) the Trustees of Excelsior Funds shall execute and lodge
among the records of Excelsior Funds an instrument in writing setting forth the
fact of such termination. Immediately after the Effective Time of the
Reorganization, Excelsior Funds shall file an application pursuant to Section
8(f) of the 1940 Act for an order declaring that it has ceased to be an
investment company. As a result of the termination of Excelsior Funds as
aforesaid, at and after the Effective Time of the Reorganization: (a) the
Institutional Money Fund Assets of the Institutional Money Fund shall become and
be the assets of the Money Fund to which they have been transferred; and (b) all
liabilities of the Institutional Money Fund shall become the liabilities of the
Money Fund and may thenceforth be enforced against the Money Fund to the extent
as if the same had been incurred by it. Without limiting the generality of the
foregoing, it is understood that the Institutional Money Fund Assets shall
include all good will
-5-
and all other intangible property and all books and records belonging to
Excelsior Funds on behalf of the Institutional Money Fund. It is further
understood that recourse for the liabilities of the Institutional Money Fund
shall, at and after the Effective Time of the Reorganization, be limited to the
Institutional Money Fund which has expressly assumed such liabilities under this
Agreement.
4. Valuation Time. Subject to Section 1(d) hereof, the Valuation Time
--------------
shall be 4:00 p.m., Eastern Time, on ________, 1999, or such earlier or later
date and time as may be mutually agreed by an officer of each of the parties and
set forth in writing signed by such officers.
5. Certain Representations, Warranties and Agreements of Excelsior Funds.
---------------------------------------------------------------------
Excelsior Funds, on behalf of itself and the Institutional Money Fund,
represents and warrants to, and agrees with, Excelsior Funds, Inc. as follows:
(a) It is a Delaware business trust duly created pursuant to its
Declaration of Trust for the purpose of acting as a management
investment company under the 1940 Act and is validly existing
under the laws of, and duly authorized to transact business in,
the State of Delaware. It is registered with the SEC as an open-
end, management investment company under the 1940 Act and its
registration with the SEC as an investment company is in full
force and effect.
(b) It has power to own all of its properties and assets and, subject
to the approval of shareholders referred to in Section 7, to
carry out and consummate the transactions contemplated herein,
and has all necessary federal, state and
-6-
local authorizations to carry on its business as now being
conducted and to consummate the transactions contemplated by this
Agreement.
(c) This Agreement has been duly authorized, executed and delivered
by Excelsior Funds, and represents Excelsior Fund's valid and
binding contract, enforceable in accordance with its terms,
subject as to enforcement to the effect of bankruptcy,
insolvency, reorganization, arrangement, moratorium, fraudulent
transfer or conveyance, and other similar laws of general
applicability relating to or affecting creditors' rights and to
general equity principles and provided that the provisions of
this Agreement intended to limit liability for particular matters
to an investment portfolio and its assets, including but not
limited to Sections 1(a), 20 and 21 of this Agreement, may not be
enforceable. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated by
this Agreement will not, violate Excelsior Fund's Declaration of
Trust or By-laws or any agreement or arrangement to which it is a
party or by which its properties or assets are bound.
(d) The Institutional Money Fund has elected to qualify and has
qualified as a regulated investment company under Part I of
Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), as of and since its first taxable year; has been a
regulated investment company under such Part of the Code at all
times since the end of its first taxable year when it so
qualified; and qualifies and shall continue to qualify as a
regulated investment
-7-
company for its taxable year ending on the date on which the
Effective Time of the Reorganization occurs.
(e) All federal, state, local and foreign income, profits, franchise,
sales, withholding, customs, transfer and other taxes, including
interest, additions to tax and penalties (collectively, "Taxes")
relating to the Institutional Money Fund Assets due or properly
shown to be due on any return filed by the Institutional Money
Fund with respect to taxable periods ending on or prior to, and
the portion of any interim period up to, the date hereof have
been fully and timely paid or provided for; and there are no
levies, liens, or other encumbrances relating to Taxes existing,
threatened or pending with respect to the Institutional Money
Fund Assets.
(f) The financial statements of the Institutional Money Fund for its
fiscal year ended August 31, 1999, examined by
PricewaterhouseCoopers LLP, copies of which have been previously
furnished to Excelsior Funds, Inc., present fairly the financial
position of the Institutional Money Fund as of the date indicated
and the results of its operations for the periods indicated, in
conformity with generally accepted accounting principles.
(g) Prior to the Valuation Time, the Institutional Money Fund shall
have declared a dividend or dividends, with a record date and ex-
dividend date prior to the Valuation Time, which, together with
all previous dividends, shall have the effect of distributing to
its shareholders all of its net investment company income, if
any, for the taxable periods or years ended on or before
[December 31, 1999] and for the period from said date to and
including the
-8-
Effective Time of the Reorganization (computed without regard to
any deduction for dividends paid), and all of its net capital
gain, if any, realized in taxable periods or years ended on or
before [December 31, 1999] and in the period from said date to
and including the Effective Time of the Reorganization.
(h) At both the Valuation Time and the Effective Time of the
Reorganization, there shall be no liabilities of the
Institutional Money Fund, whether accrued, absolute, contingent
or otherwise, not reflected in the aggregate net asset value per
share of Share of the Institutional Money Fund.
(i) There are no legal, administrative or other proceedings pending
or, to its knowledge, threatened against Excelsior Funds or the
Institutional Money Fund which could result in liability on the
part of Excelsior Funds or the Institutional Money Fund.
(j) Subject to the approvals of shareholders referred to in Section
7, at both the Valuation Time and the Effective Time of the
Reorganization, it shall have full right, power and authority to
sell, assign, transfer and deliver the Institutional Money Fund
Assets and, upon delivery and payment for the Institutional Money
Fund Assets as contemplated herein, the Money Fund shall acquire
good and marketable title thereto, free and clear of all liens
and encumbrances, and subject to no restrictions on the ownership
or transfer thereof (except as imposed by federal or state
securities laws).
(k) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by
Excelsior Funds of the trans-
-9-
actions contemplated by this Agreement, except such as may be
required under the 1933 Act, the Securities Exchange Act of 1934,
as amended ("1934 Act"), the 1940 Act, the rules and regulations
under those Acts, or state securities laws.
(l) The registration statement filed by Excelsior Funds, Inc. on Form
N-14 relating to the shares of the Money Fund that will be
registered with the SEC pursuant to this Agreement, which,
without limitation, shall include or incorporate by reference the
proxy statement of Excelsior Funds and the prospectuses of
Excelsior Funds and Excelsior Funds, Inc. with respect to the
transactions contemplated by this Agreement, and any supplement
or amendment thereto or to the documents contained or
incorporated therein by reference (the "N-14 Registration
Statement") on the effective date of the N-14 Registration
Statement, at the time of the shareholders' meeting referred to
in Section 7 and at the Effective Time of the Reorganization: (i)
shall comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act, the rules and
regulations thereunder, and state securities laws, and (ii) shall
not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
(m) All of the issued and outstanding shares of the Institutional
Money Fund have been duly and validly issued, are fully paid and
non-assessable, and were offered for sale and sold in conformity
with all applicable federal and state securities laws, and no
shareholder of the Institutional Money Fund has
-10-
any statutory or contractual preemptive right of subscription or
purchase in respect of such shares.
(n) It shall not sell or otherwise dispose of any shares of the Money
Fund to be received in the transactions contemplated herein,
except in distribution to its shareholders as contemplated
herein.
6. Certain Representations, Warranties and Agreements of Excelsior Funds,
----------------------------------------------------------------------
Inc. Excelsior Funds, Inc., on behalf of itself and the Money Fund, represents
- ----
and warrants to, and agrees with, Excelsior Funds as follows:
(a) It is a corporation duly organized under the laws of the State of
Maryland on August 2, 1984, and is validly existing and in good
standing under the laws of the State of Maryland. It is
registered with the SEC as an open-end, management investment
company under the 1940 Act and its registration with the SEC as
an investment company is in full force and effect.
(b) It has power to own all of its properties and assets and to carry
out and consummate the transactions contemplated herein, and has
all necessary federal, state and local authorizations to carry on
its business as now being conducted and to consummate the
transactions contemplated by this Agreement.
(c) This Agreement has been duly authorized, executed and delivered
by Excelsior Funds, Inc., and represents Excelsior Funds, Inc.'s
valid and binding contract, enforceable in accordance with its
terms, subject as to enforcement to the effect of bankruptcy,
insolvency, reorganization, arrangement, moratorium, fraudulent
transfer or conveyance and other similar laws of general
-11-
applicability relating to or affecting creditors' rights and to
general equity principles and provided that the provisions of
this Agreement intended to limit liability for particular matters
to an investment portfolio and its assets, including but not
limited to Sections 1(a), 20 and 21 of this Agreement, may not be
enforceable. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated by
this Agreement will not, violate Excelsior Funds, Inc.'s Articles
of Incorporation or By-laws or any agreement or arrangement to
which it is a party or by which it is bound.
(d) The Money Fund has elected to qualify and has qualified as a
regulated investment company under Part I of Subchapter M of the
Code, as of and since its first taxable year; has been a
regulated investment company under such Part of the Code at all
times since the end of its first taxable year when it so
qualified; and qualifies and shall continue to qualify as a
regulated investment company.
(e) The financial statements of each Money Fund for its fiscal year
ended March 31, 1999, examined by Ernst & Young LLP, copies of
which have been previously furnished to Excelsior Funds, present
fairly the financial position of the Money Fund as of the date
indicated and the results of its operations for the periods
indicated, in conformity with generally accepted accounting
principles.
(f) At both the Valuation Time and the Effective Time of the
Reorganization, there shall be no liabilities of the Money Fund,
whether accrued, absolute,
-12-
contingent or otherwise, not reflected in the net asset value per
share of its Institutional Class Shares of the Money Fund issued
pursuant to this Agreement.
(g) There are no legal, administrative or other proceedings pending
or, to its knowledge, threatened against Excelsior Funds, Inc. or
the Money Fund which could result in liability on the part of
Excelsior Funds, Inc. or the Money Fund.
(h) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by
Excelsior Funds, Inc. of the transactions contemplated by this
Agreement, except such as may be required under the 1933 Act, the
1934 Act, the 1940 Act, the rules and regulations under those
Acts, or state securities laws.
(i) The N-14 Registration Statement, on the effective date of the N-
14 Registration Statement, at the time of the shareholders'
meeting referred to in Section 7 and at the Effective Time of the
Reorganization: (i) shall comply in all material respects with
the provisions of the 1933 Act, the 1934 Act and the 1940 Act,
the rules and regulations thereunder, and state securities laws,
and (ii) shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading.
(j) The Institutional Class Shares of the Money Fund to be issued and
delivered to the Institutional Money Fund for the account of
recordholders of shares and of the Institutional Money Fund,
pursuant to the terms hereof, shall have
-13-
been duly authorized as of the Effective Time of the
Reorganization and, when so issued and delivered, shall be
registered under the 1933 Act, duly and validly issued, fully
paid and non-assessable, and no shareholder of Excelsior Funds,
Inc. shall have any statutory or contractual preemptive right of
subscription or purchase in respect thereto.
(k) For the period beginning at the Effective Time of the
Reorganization and ending 36 months thereafter, Excelsior Funds,
Inc. shall provide for a liability policy for the officers and
trustees of Excelsior Funds covering their actions as officers
and trustees of Excelsior Funds during the period they served as
such, either (i) by causing the directors and officers liability
policy carried by Excelsior Funds with Gulf Insurance Company on
the date hereof to be continued in full force and effect at the
current coverage and deductible amounts or (ii) by adding the
trustees and officers of Excelsior Funds as named insureds to the
directors and officers liability policy carried by Excelsior
Funds, Inc. for its own directors and officers, which policy
shall be on terms and conditions that, in the determination of
the Board of Directors of Excelsior Funds, Inc., are no less
favorable than those considered to be standard by a majority of
participants in the industry.
7. Shareholder Action on Behalf of the Institutional Money Fund. As soon
------------------------------------------------------------
as practicable after the effective date of the N-14 Registration Statement, but
in any event prior to the Effective Time of the Reorganization and as a
condition thereto, the Board of Trustees of Excelsior Funds shall call, and
Excelsior Funds shall hold, a meeting of the shareholders of the Institutional
Money Fund for the purpose of considering and voting upon:
-14-
(a) Approval of this Agreement and the transactions contemplated
hereby, including, without limitation:
(i) The transfer of the Institutional Money Fund Assets
belonging to the Institutional Money Fund to the Money Fund,
and the assumption by the Money Fund of the Institutional
Money Fund Liabilities, in exchange for Institutional Class
Shares of the Money Fund.
(ii) The liquidation of the Institutional Money Fund through the
distribution to its recordholders of the Institutional Class
Shares of the Money Fund as described in this Agreement.
(b) Such other matters as may be determined by the Boards of Trustees
or Directors (as applicable) of the parties.
8. N-14 Registration Statement. Excelsior Funds, Inc. shall file the
---------------------------
N-14 Registration Statement. Excelsior Funds, Inc. and Excelsior Funds have
cooperated and shall continue to cooperate with each other, and have furnished
and shall continue to furnish each other with the information relating to itself
that is required by the 1933 Act, the 1934 Act, the 1940 Act, the rules and
regulations under each of those Acts and state securities laws, to be included
in the N-14 Registration Statement.
9. Effective Time of the Reorganization. Delivery of the Institutional
------------------------------------
Money Fund Assets and the shares of the Money Fund to be issued pursuant to
Section 1 and the liquidation of the Institutional Money Fund pursuant to
Section 2 shall occur at the opening of business on the next business day
following the Valuation Time, or on such other date, and at such place and time
and date, agreed to by an officer of each of the parties. The date and time at
which such
-15-
actions are taken are referred to herein as the "Effective Time of the
Reorganization." To the extent any Institutional Money Fund Assets are, for any
reason, not transferred at the Effective Time of the Reorganization, Excelsior
Funds shall cause such Institutional Money Fund Assets to be transferred in
accordance with this Agreement at the earliest practicable date thereafter.
10. Excelsior Funds, Inc. Conditions. The obligations of Excelsior Funds,
--------------------------------
Inc. hereunder shall be subject to the following conditions precedent:
(a) This Agreement and the transactions contemplated by this
Agreement shall have been approved by the Board of Trustees of
Excelsior Funds (including the determinations required by Rule
17a-8(a) under the 1940 Act) and by the shareholders of the
Institutional Money Fund of Excelsior Funds, both in the manner
required by law.
(b) Excelsior Funds shall have duly executed and delivered to
Excelsior Funds, Inc. such bills of sale, assignments,
certificates and other instruments of transfer ("Transfer
Documents") as Excelsior Funds, Inc. may deem necessary or
desirable to transfer all of the Institutional Money Fund's
right, title and interest in and to the Institutional Money Fund
Assets. The Institutional Money Fund Assets shall be accompanied
by all necessary state stock transfer stamps or cash for the
appropriate purchase price therefor.
(c) All representations and warranties of Excelsior Funds made in
this Agreement shall be true and correct in all material respects
as if made at and as of the Valuation Time and the Effective Time
of the Reorganization. As of the Valuation Time and the Effective
Time of the Reorganization there shall
-16-
have been no material adverse change in the financial position of the
Institutional Money Fund since the date of the financial statements
referred to in Section 5(f) other than those changes incurred in the
ordinary course of business as an investment company since the date of the
financial statement referred to in Section 5(f), including changes due to
net redemptions. No action, suit or other proceeding shall be threatened or
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein. Excelsior Funds,
Inc. shall have received a certificate from the President or Vice President
of Excelsior Funds stating that each of the conditions set forth in Section
10(a) and in this Section 10(c) have been met.
(d) Excelsior Funds, Inc. shall have received an opinion of Drinker Biddle &
Reath LLP, addressed to Excelsior Funds, Inc. in a form reasonably
satisfactory to it and dated the Effective Time of the Reorganization,
substantially to the effect that: (i) Excelsior Funds is a Delaware
business trust duly organized and validly existing under the laws of the
State of Delaware; (ii) the shares of the Institutional Money Fund
outstanding at the Effective Time of the Reorganization are duly
authorized, validly issued, fully paid and non-assessable by the
Institutional Money Fund (except that shareholders of the Institutional
Money Fund may under certain circumstances be held personally liable for
its obligations), and to such counsel's knowledge, no shareholder of
Excelsior Funds has any option, warrant or statutory or con-
-17-
tractual preemptive right to subscription or purchase in respect thereof;
(iii) this Agreement and the Transfer Documents have been duly authorized,
executed and delivered by Excelsior Funds and represent legal, valid and
binding contracts, enforceable in accordance with their terms, subject to
the effect of bankruptcy, insolvency, reorganization, arrangement,
moratorium, fraudulent transfer or conveyance and similar laws relating to
or affecting creditors' rights generally and court decisions with respect
thereto and such counsel shall express no opinion with respect to the
application of equitable principles in any proceeding, whether at law or in
equity, or with respect to the provisions of this Agreement intended to
limit liability for particular matters to the Institutional Money Fund and
its assets, including but not limited to Sections 1(a), 20 and 21 of this
Agreement; or with respect to the provisions of Section 1(a) pertaining to
the indemnification of the Excelsior Funds trustees; (iv) the execution and
delivery of this Agreement did not, and the consummation of the
transactions contemplated by this Agreement will not, violate the
Declaration of Trust or By-laws of Excelsior Funds or any material
agreement to such counsel to which Excelsior Funds is a party or by which
Excelsior Funds is bound; and (v) to such counsel's knowledge, no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by Excelsior Funds of the transactions
contemplated by this Agreement, except such as have been obtained under the
1933 Act, the 1934 Act, the 1940 Act, the rules and regulations under those
Acts and such as may be required under state securities laws.
-18-
Such opinion may rely on the opinion of other counsel to the extent
set forth in such opinion, provided such other counsel is reasonably
acceptable to Excelsior Funds, Inc.
(e) The N-14 Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of Excelsior Funds, Inc.,
contemplated by the SEC and the parties shall have received all
permits and other authorizations necessary under state securities laws
to consummate the transactions contemplated by this Agreement.
(f) The President or Vice President of Excelsior Funds shall have
certified that Excelsior Funds has performed and complied in all
material respects with each of its agreements and covenants required
by this Agreement to be performed or complied with by it prior to or
at the Valuation Time and the Effective Time of the Reorganization.
11. Excelsior Funds Conditions. The obligations of Excelsior Funds hereunder
shall be subject to the following conditions precedent:
(a) This Agreement and the transactions contemplated by this Agreement
shall have been approved by the Board of Directors of Excelsior Funds,
Inc. (including the determinations required by Rule 17a-8(a) under the
1940 Act) and by the shareholders of the Institutional Money Fund of
Excelsior Funds, both in the manner required by law.
-19-
(b) All representations and warranties of Excelsior Funds, Inc. made in
this Agreement shall be true and correct in all material respects as
if made at and as of the Valuation Time and the Effective Time of the
Reorganization. As of the Valuation Time and the Effective Time of the
Reorganization there shall have been no material adverse change in the
financial position of the Money Fund since the date of the financial
statements referred to in Section 6(e) other than those changes
incurred in the ordinary course of business as an investment company
since the date of the financial statements referred to in Section 6(e)
including changes due to net redemptions. No action, suit or other
proceeding shall be threatened or pending before any court or
governmental agency in which it is sought to restrain or prohibit, or
obtain damages or other relief in connection with, this Agreement or
the transactions contemplated herein. Excelsior Funds shall have
received a certificate from the President or Vice President of
Excelsior Funds, Inc. stating that each of the conditions set forth in
Section 11(a) and this Section 11(b) have been met.
(c) Excelsior Funds shall have received an opinion of Drinker Biddle &
Reath LLP, addressed to Excelsior Funds in a form reasonably
satisfactory to it and dated the Effective Time of the Reorganization,
substantially to the effect that: (i) Excelsior Funds, Inc. is a
Maryland corporation duly incorporated and validly existing and in
good standing under the laws of the State of Maryland; (ii) the shares
of the Money Fund to be delivered to the Institutional Money Fund as
provided for by this Agreement are duly authorized
-20-
and upon delivery will be validly issued, fully paid and non-
assessable by the Money Fund and to such counsel's knowledge, no
shareholder of Excelsior Funds, Inc. has any option, warrant or
statutory or contractual preemptive right to subscription or purchase
in respect thereof; (iii) this Agreement has been duly authorized,
executed and delivered by Excelsior Funds, Inc. and represents its
legal, valid and binding contract, enforceable against it in
accordance with its terms, subject to the effect of bankruptcy,
insolvency, moratorium, fraudulent transfer or conveyance and similar
laws relating to or affecting creditors' rights generally and court
decisions with respect thereto and such counsel shall express no
opinion with respect to the application of equitable principles in any
proceeding, whether at law or in equity; or with respect to the
provisions of this Agreement intended to limit liability for
particular matters to the Money Fund and its assets, including but not
limited to Sections 1(a), 20 and 21 of this Agreement; or with respect
to the provisions of Section 1(a) pertaining to the indemnification of
the Excelsior Funds trustees; (iv) the execution and delivery of this
Agreement did not, and the consummation of the transactions
contemplated by this Agreement will not, violate the Charter or By-
laws of Excelsior Funds, Inc., or any material agreement to such
counsel to which Excelsior Funds, Inc. is a party or by which
Excelsior Funds, Inc. is bound; and (v) to such counsel's knowledge no
consent, approval, authorization or order of any court or governmental
authority is required for the consummation by Excelsior Funds, Inc. of
the transactions contemplated by this Agreement, except such as have
been ob-
-21-
tained under the 1933 Act, the 1934 Act, the 1940 Act, the rules and
regulations under those Acts and such as may be required under state
securities laws. Such opinion may rely on the opinion of other counsel
to the extent set forth in such opinion, provided such other counsel
is reasonably acceptable to Excelsior Funds.
(d) The N-14 Registration Statement shall have become effective under the
1933 Act and no stop order suspending such effectiveness shall have
been instituted, or to the knowledge of Excelsior Funds, Inc.,
contemplated by the SEC and the parties shall have received all
permits and other authorizations necessary under state securities laws
to consummate the transactions contemplated by this Agreement.
(e) The President or Vice President of Excelsior Funds, Inc. shall have
certified that Excelsior Funds, Inc. has performed and complied in all
material respects with each of its agreements and covenants required
by this Agreement to be performed or complied with by it prior to or
at the Valuation Time and the Effective Time of the Reorganization.
12. Tax Documents. Excelsior Funds shall deliver to Excelsior Funds,
-------------
Inc. at the Effective Time of the Reorganization confirmations or other adequate
evidence as to the adjusted tax basis of the Institutional Money Fund Assets
delivered to the Money Fund in accordance with the terms of this Agreement.
13. Further Assurances. Subject to the terms and conditions herein provided,
------------------
each of the parties hereto shall use its best efforts to take, or cause to be
taken, such action, to execute
-22-
and deliver, or cause to be executed and delivered, such additional documents
and instruments and to do, or cause to be done, all things necessary, proper or
advisable under the provisions of this Agreement and under applicable law to
consummate and make effective the transactions contemplated by this Agreement,
including without limitation, delivering and/or causing to be delivered to
Excelsior Funds, Inc., each account, book, record or other document of Excelsior
Funds required to be maintained by Section 31(a) of the 1940 Act and Rules 31a-1
to 31a-3 thereunder (regardless of whose possession they are in).
14. Termination of Representations and Warranties. The representations and
---------------------------------------------
warranties of the parties set forth in this Agreement shall terminate upon the
delivery of the Institutional Money Fund Assets to the Money Fund and the
issuance of the shares of the Money Fund at the Effective Time of the
Reorganization.
15. Termination of Agreement. This Agreement may be terminated by a party at
------------------------
any time at or prior to the Effective Time of the Reorganization by a vote of a
majority of its Board of Trustees or Directors, as applicable, as provided
below:
(a) By Excelsior Funds, Inc. if the conditions set forth in Section 10 are
not satisfied as specified in said Section;
(b) By Excelsior Funds if the conditions set forth in Section 11 are not
satisfied as specified in said Section; or
(c) By mutual consent of both parties.
This Agreement may be terminated at any time by the mutual consent of the
parties. If a party terminates this Agreement because one or more of its
conditions have not been fulfilled, or if this
-23-
Agreement is terminated by mutual consent, this Agreement will become null and
void insofar as it is so terminated without any liability of any party to the
other parties.
16. Amendment and Waiver. At any time prior to or (to the fullest extent
--------------------
permitted by law) after approval of this Agreement by the shareholders of
Excelsior Funds (a) the parties hereto may, by written agreement authorized by
their respective Boards of Trustees or Directors, as applicable, and with or
without the approval of their shareholders, amend any of the provisions of this
Agreement, and (b) any party may waive any breach by any other party or the
failure to satisfy any of the conditions to its obligations (such waiver to be
in writing and authorized by an officer of the waiving party with or without the
approval of such party's shareholders).
17. Governing Law. This Agreement and the transactions contemplated hereby
-------------
shall be governed, construed and enforced in accordance with the laws of the
State of Maryland, without giving effect to the conflicts of law principles
otherwise applicable therein, except that the provisions of Section 21 shall be
construed in accordance with Delaware law, without giving effect to the
conflicts of law principles otherwise applicable therein.
18. Successors and Assigns. This Agreement shall be binding upon the
----------------------
respective successors and permitted assigns of the parties hereto. This
Agreement and the rights, obligations and liabilities hereunder may not be
assigned by any party without the consent of all other parties.
19. Beneficiaries. Nothing contained in this Agreement shall be deemed to
-------------
create rights in persons not parties hereto, other than the successors and
permitted assigns of the parties.
-24-
20. Excelsior Funds, Inc. Liability. Each party specifically acknowledges
-------------------------------
and agrees that all obligations of Excelsior Funds, Inc. under this Agreement
are binding only with respect to the Money Fund; that any liability of Excelsior
Funds, Inc. under this Agreement with respect to the Money Fund, or in
connection with the transactions contemplated herein with respect to the Money
Fund, shall be discharged only out of the assets of that Money Fund; and that no
other portfolio of Excelsior Funds, Inc. shall be liable with respect to this
Agreement or in connection with the transactions contemplated herein.
21. Excelsior Funds Liability.
-------------------------
(a) The names "Excelsior Funds" and "Trustees of Excelsior Funds"
refer respectively to the trust created and the trustees, as
trustees but not individually or personally, acting from time to
time under a Declaration of Trust dated October 25, 1993, which is
hereby referred to and a copy of which is on file at the principal
office of Excelsior Funds. The obligations of Excelsior Funds
entered into in the name or on behalf thereof by any of the
trustees, representatives or agents are made not individually, but
in such capacities, and are not binding upon any of the trustees,
shareholders or representatives of Excelsior Funds personally, but
bind only the trust property, and all persons dealing with any
series of shares of Excelsior Funds must look solely to the trust
property belonging to such series for the enforcement of any
claims against Excelsior Funds.
(b) Each party specifically acknowledges and agrees that all
obligations of Excelsior Funds under this Agreement are binding
only with respect to the In-
-25-
stitutional Money Fund; and that any liability of Excelsior Funds
under this Agreement with respect to the Institutional Money Fund,
or in connection with the transactions contemplated herein with
respect to the Institutional Money Fund, shall be discharged only
out of the assets of the Institutional Money Fund and that no
other portfolio of Excelsior Funds shall be liable with respect to
this Agreement or in connection with the transactions contemplated
herein.
22. Notices. All notices required or permitted herein shall be in
-------
writing and shall be deemed to be properly given when delivered personally or by
telecopier to the party entitled to receive the notice or when sent by certified
or registered mail, postage prepaid, or delivered to an internationally
recognized overnight courier service, in each case properly addressed to the
party entitled to receive such notice at the address or telecopier number stated
below or to such other address or telecopier number as may hereafter be
furnished in writing by notice similarly given by one party to the other party
hereto:
If to Excelsior Funds, Inc.:
Excelsior Funds, Inc.
73 Tremont Street
Boston, MA 02138
With copies to:
Michael P. Malloy, Esq.
Drinker Biddle & Reath LLP
One Logan Square
18th & Cherry Streets
Philadelphia, PA 19103
Telecopier Number: (215) 988-2757
-26-
If to Excelsior Funds:
Excelsior Funds
73 Tremont Street
Boston, MA 02138
With copies to:
Michael P. Malloy, Esq.
Drinker Biddle & Reath LLP
One Logan Square
18/th/ & Cherry Streets
Philadelphia, PA 19103
Telecopier Number: (215) 988-2757
23. Expenses. With regard to the expenses incurred by Excelsior Funds,
--------
Inc. and Excelsior Funds in connection with this Agreement and the transactions
contemplated hereby, U.S. Trust Company or an affiliate shall be responsible for
the payment of all such expenses.
24. Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding of the parties hereto and supersedes any and all prior agreements,
arrangements and understandings relating to matters provided for herein.
25. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which, when executed and delivered shall be deemed to be
an original, but all of which together shall constitute one and the same
instrument.
-27-
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers designated below as of the date first
written above.
EXCELSIOR FUNDS, INC.
By: ___________________________
Frederick S. Wonham
President
EXCELSIOR FUNDS
By: ___________________________
Frederick S. Wonham
President
U.S. Trust Company, hereby joins in this
Agreement with respect to, and agrees to be
bound by, Section 23.
By: ___________________________
Name:
Title:
-28-
APPENDIX B
SHAREHOLDER TRANSACTIONS AND SERVICES
This Appendix compares the shareholder transactions and services of
the Institutional Fund and the Money Fund. The following is qualified in its
entirety by the more detailed information included in the prospectuses for the
Institutional Fund and Money Fund which are incorporated by reference in this
Combined Proxy/Prospectus. Unless otherwise indicated, terms used herein and
not otherwise defined have the same meanings as are given to them is such
prospectuses.
The Institutional Fund offers one class of shares. The Money Fund
offers two classes of shares, Shares and Institutional Shares. Institutional
Fund shares and Institutional Shares of the Money Fund may be purchased directly
only by Institutional Investors and may be sold to Customers of Shareholder
Organizations.
A. Sales Charges
-------------
Institutional Fund shares and Institutional Shares of the Money Fund are
offered at net asset value, without a front-end sales charge.
B. Purchase Policies
-----------------
The following chart compares the existing purchase policies of the
Institutional Fund and the Money Fund.
Institutional Fund - Shares Money Fund - Institutional Shares
--------------------------- ---------------------------------
Minimum Initial $1,000 (except with respect to certain No minimum.
Investment retirement plans available for
investment by Institutional Investors
and Customers of Shareholder
Organizations).
Minimum Subsequent No minimum. No minimum.
Investment
Purchase Methods Shares may be purchased by wire, Institutional Shares may be purchased
telephone or mail. Shares may be by wire, telephone or mail.
purchased through Shareholder
Organizations that have entered into an
agreement with Excelsior Trust.
(Customers may agree with a Shareholder
Organization to make a minimum purchase
with respect to their accounts and may
pay account fees to a Shareholder
Organization for automatic investment
and other cash management services.)
The Fund reserves the right to reject
any purchase order. Certificates for
Shares will not be issued.
B-1
C. Pricing of Shares
-----------------
The Institutional Fund and the Money Fund calculate net asset value
("NAV") at different times during each Fund's Business Day as follows:
Institutional Fund Money Fund
- ------------------ ----------
Time of Calculation: 3:00 p.m. (Eastern time) Time of calculation: 1:00 p.m. (Eastern time)
AND
Close of regular trading hours,
currently 4:00 p.m. (Eastern
time), on the New York Stock
Exchange ("NYSE")
Shares of the Institutional Fund are priced on any day that the NYSE and
U.S. Trust Company of Connecticut are open for trading and the Money Fund are
priced on those days that the NYSE and United States Trust Company and U.S.
Trust Company of New York are open for trading. Currently, the days on which the
Institutional and Money Funds are closed are: New Year's Day, Dr. Martin Luther
King, Jr., Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day, and Christmas Day. On
days when the NYSE closes early, the Institutional and Money Funds' NAV is
determined as of the close of the NYSE if such time is earlier than the time at
which the NAV is normally calculated.
Purchases of Institutional Fund shares will be made at the NAV calculated
on the same day provided the order is received by 3:00 p.m. (Eastern time).
Purchases of Institutional Shares of the Money Fund will be made at the NAV next
determined after the Fund receives a purchase order.
D. Share Exchanges
---------------
Shares of the Institutional Fund may be exchanged without payment of any
exchange fee for Institutional Shares of any investment portfolio of Excelsior
Institutional Trust. Excelsior Institutional Trust currently offers
Institutional Shares in seven investment portfolios - Equity Fund, Optimum
Growth Fund, Value Equity Fund, International Equity Fund, Balanced Fund, Income
Fund and the Total Return Bond Fund. Excelsior Institutional Trust currently
does not charge a fee for this service, although some Shareholder Organizations
may charge their customers fees. The exchange option may be changed, modified or
terminated at any time. In connection with telephone exchange requests,
Excelsior Trust may record telephone instructions, or request information as to
account registration.
Institutional Shares of the Money Fund may also be exchanged for
Institutional Shares of any portfolio of Excelsior Institutional Trust. The
exchange privilege may be modified or terminated at any time upon 60 days'
written notice to shareholders. Excelsior Company may limit exchanges to no more
than six per year for each shareholder and may reject any exchange request. In
connection with telephone exchange requests, Excelsior Company may record
telephone instructions and/or request personal information.
B-2
The following chart compares the existing exchange policies of the
Institutional Fund and the Money Fund.
Institutional Fund - Shares Money Fund - Institutional Shares
--------------------------- ---------------------------------
Mail Yes. Yes.
Telephone Yes. Yes.
E. Redemption Policies
The following chart compares the existing redemption policies of the
Institutional Fund and the Money Fund.
Institutional Fund - Shares Money Fund - Institutional Shares
--------------------------- ---------------------------------
Through a Shareholder Yes. Yes.
Organization
By mail Yes. Yes.
By telephone Yes. Yes.
By wire Yes. Yes.
Checkwriting Feature No. Yes (must redeem at least $500).
Additional Information Regarding Redemptions:
Institutional Fund - Shares Money Fund - Institutional Shares
--------------------------- ----------------------------------
Automatic Redemption Upon 60 days written notice if, due to Upon 60 days written notice if, due to
of Investor's Account investor redemptions, the balance in a investor redemptions, the balance in a
particular account remains below $500. particular account remains below $500.
Automatic Redemption does not apply Automatic Redemption does not apply with
with respect to investment in certain respect to investment in certain
retirement plans. retirement plans.
F. Dividends and Distributions
---------------------------
The Institutional Fund and the Money Fund declare a dividend of net income
each Business Day. Such dividends are distributed to shareholders monthly.
G. Investor Programs
-----------------
Institutional Fund shares and Institutional Shares of the Money Fund are
available for purchase in connection with IRAs, Profit Sharing and Money
Purchase Plans as well as Keogh Plans.
Customers of Shareholder Organizations may have programs such as Systematic
Withdrawal, Automatic Investment and certain Retirement Programs available
directly from their Shareholder Organizations.
B-3
EXCELSIOR FUNDS
73 Tremont Street
Boston, Massachusetts 02108-3913
(800) 909-1989
EXCELSIOR FUNDS, INC.
73 Tremont Street
Boston, Massachusetts 02108-3913
(800) 446-1012
STATEMENT OF ADDITIONAL INFORMATION
(Special Meeting of Shareholders of the Institutional Money Fund)
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Combined Proxy Statement/Prospectus dated October
15, 1999 ("Combined Proxy Statement/Prospectus") for the Special Meeting of
Shareholders of the Institutional Money Fund (the "Institutional Fund"), an
investment portfolio offered by Excelsior Funds ("Excelsior Trust") to be held
on November 19, 1999. Copies of the Combined Proxy Statement/Prospectus may be
obtained at no charge by calling (800) 909-1989.
Unless otherwise indicated, capitalized terms used herein and not otherwise
defined have the same meanings as are given to them in the Combined Proxy
Statement/Prospectus.
This Statement of Additional Information consists of: (1) this cover page;
(2) general information about the reorganization; (3) certain pro forma
financial statements; (4) the Statement of Additional Information dated December
24, 1998 with respect to Excelsior Fund's Institutional Money Fund; (5) the
Statement of Additional Information dated August 1, 1999 with respect to the
Excelsior Fund, Inc.'s Money Fund; (6) Excelsior Funds' Audited Financial
Statements for the fiscal year ended August 31, 1998; (7) Excelsior Funds'
Unaudited Financial Statements for the six months ended February 28, 1999; and
(8) Excelsior Funds, Inc.'s Audited Financial Statements for the fiscal year
ended March 31, 1999.
The date of this Statement of Additional Information is October 15, 1999.
TABLE OF CONTENTS
Page
----
General Information........................................................... 3
Pro Forma Financial Statements................................................ PF-1-
Statement of Additional Information dated December 24, 1998
with respect to Excelsior Fund's Institutional Money Fund................... SAI-I-1
Statement of Additional Information dated August 1, 1999
with respect to Excelsior Funds, Inc.'s Money Fund.......................... SAI-II-1
Excelsior Funds Audited Financial Statements for the Fiscal Year Ended
August 31, 1998............................................................. AFS-I-1
Excelsior Funds Unaudited Financial Statements for the Six Months Ended
February 28, 1999........................................................... UFS-I-1
Excelsior Funds, Inc. Audited Financial Statements for the Fiscal Year Ended
March 31, 1999.............................................................. AFS-II-1
GENERAL INFORMATION
The shareholders of the Excelsior Funds' Institutional Money Fund are being
asked to approve or disapprove an Agreement and Plan of Reorganization dated as
of ______________, 1999. The Agreement and Plan of Reorganization contemplates
the transfer of all of the assets and liabilities of the Institutional Money
Fund (the "Institutional Fund") to Excelsior Funds, Inc.'s Money Fund and a
liquidating distribution of Institutional Shares of the Money Fund to
shareholders of the Institutional Fund, such that each holder of shares in the
Institutional Fund at the Effective Time of the Reorganization will receive the
same number of full and fractional shares in the Money Fund.
The Special Meeting of Shareholders of the Institutional Fund to consider
the Agreement and Plan of Reorganization and the related transactions, will be
held at the offices of United States Trust Company of New York at 114 West 47th
Street, New York, New York at 10:00 a.m. (Eastern time) on November 19, 1999.
For further information about the transaction, see the Combined Proxy
Statement/Prospectus.
Excelsior Funds, Inc.
Combined Portfolio of Investments March 31, 1999 (Unaudited)
Shares Value
- ---------------------------------------------------------------------------------------------------------------------------------
Institutional Pro Forma Institutional Pro Forma
Money Money Combined Money Money Combined
Fund Fund Fund Rate Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS-48.19%
Federal Farm Credit Bank
10,000,000 10,000,000 04/06/99 4.76% 9,993,389 9,993,389
Federal Home Loan Bank
10,000,000 10,000,000 04/01/99 4.80 10,000,000 10,000,000
Student Loan Marketing
Association
50,000,000 50,000,000 01/12/00 5.07# 49,984,328 49,984,328
89,820,000 89,820,000 02/11/00 4.96# 89,873,393 89,873,393
50,000,000 50,000,000 03/23/00 4.88# 50,000,000 50,000,000
U.S. Treasury Bills
260,000,000 260,000,000 04/19/99 4.82 259,373,400 259,373,400
- ---------------------------------------- ------------------------------------------------
469,820,000 469,820,000 Total U.S. Government & 469,224,510 469,224,510
Agency Obligations
- ---------------------------------------- ------------------------------------------------
(Cost $469,224,510)
COMMERCIAL PAPER-24.22%
45,000,000 45,000,000 American Express Co., 4.92 45,000,000 45,000,000
04/06/99
45,000,000 45,000,000 Asset Securitization, 4.87 44,841,725 44,841,725
04/27/99
25,000,000 25,000,000 Campbell Soup Co., 4.95 24,982,921 24,982,921
04/05/99
11,000,000 11,000,000 Chevron Corp., 4.87 11,000,000 11,000,000
04/14/99
45,000,000 45,000,000 General Electric Capital 4.87 45,000,000 45,000,000
Corp.,
04/13/99
40,000,000 40,000,000 General Motors Acceptance 4.91 40,000,000 40,000,000
Corp.,
04/07/99
25,000,000 25,000,000 + Prudential Funding Corp., 4.99# 25,000,000 25,000,000
08/31/99
- ---------------------------------------- ------------------------------------------------
236,000,000 236,000,000 TOTAL COMMERCIAL PAPER 235,824,646 235,824,646
- ---------------------------------------- ------------------------------------------------
(Cost $235,824,646)
CERTIFICATES OF DEPOSIT-15.40%
25,000,000 25,000,000 Banque Nationale de Paris, 4.86# 25,000,000 25,000,000
07/14/99
45,000,000 45,000,000 Citibank Canada, 4.88 45,000,000 45,000,000
04/28/99
40,000,000 40,000,000 Royal Bank of Canada, 5.15 39,988,767 39,988,767
03/22/00
40,000,000 40,000,000 Toronto Dominion Bank, 5.14 39,986,186 39,986,186
02/22/00
- ---------------------------------------- ------------------------------------------------
150,000,000 150,000,000 TOTAL CERTIFICATES OF 149,974,953 149,974,953
DEPOSIT
- ---------------------------------------- ------------------------------------------------
(Cost $149,974,953)
CORPORATE BONDS-8.81%
Lehman Brothers Holdings, 7.13 15,112,961 15,112,961
Series E,
15,000,000 15,000,000 09/27/99 7.11 25,527,962 25,527,962
25,340,000 25,340,000 09/27/99
Merrill Lynch & Co., Inc., 5.30# 45,065,120 45,065,120
45,000,000 45,000,000 10/04/99
- ---------------------------------------- ------------------------------------------------
85,340,000 85,340,000 TOTAL CORPORATE BONDS 85,706,043 85,706,043
- ---------------------------------------- ------------------------------------------------
(Cost $85,706,043)
ASSET-BACKED SECURITY-3.08%
Ford Credit Auto Owner Trust,
1999-A, Class A2,
- ---------------------------------------- ------------------------------------------------
30,000,000 30,000,000 01/18/00 5.09 30,000,000 30,000,000
- ---------------------------------------- ------------------------------------------------
(Cost $30,000,000)
OTHER SHORT-TERM INVESTMENTS-0.25%
- ---------------------------------------- ------------------------------------------------
2,432,596 2,432,596 Dreyfus Government Cash 2,432,596 2,432,596
Management Fund ------------------------------------------------
- ----------------------------------------
(Cost $2,432,596)
973,162,748 973,162,748
TOTAL INVESTMENTS-99.95% ================== ==================
(Cost $973,162,748*)
________________
* Aggregate cost for Federal tax and book purposes.
# Variable or floating rate securities-rate disclosed is as of March 31, 1999.
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At March 31, 1999,
these securities amounted to $25,000,000 or 2.57% of net assets.
See Notes to Pro Forma Combined Financial Statements
Excelsior Funds, Inc.
Pro Forma Combined Statement of Assets and Liabilities
March 31, 1999 (Unaudited)
Institutional
Money Money Pro Forma
Fund Fund Adjustments Combined
-------------- -------------- ------------- --------------
ASSETS:
Investments, at cost-see
accompanying portfolios ............... $973,162,748 $ 389,459,007 $1,362,621,755
============ ============== ==============
Investments, at value ................... $973,162,748 $ -- 389,459,007 /(a)/ $1,362,621,755
Investments in Cash Reserves Portfolio $ 389,459,007 (389,459,007)/(a)/
Interest receivable...................... 3,192,908 -- 3,192,908
Receivable for investments sold.......... 1,040,942 -- 1,040,942
Prepaid expenses......................... 12,721 -- 12,721
Other Assets............................. -- 400 400
------------ -------------- --------------
Total Assets.......................... 977,409,319 389,459,407 1,366,868,726
LIABILITIES:
Payable for fund shares redeemed......... 4,872 -- 4,872
Dividends Payable........................ 3,333,443 542,196 3,875,639
Investment advisory fees payable ........ 131,166 -- 131,166
Administration fees payable ............. 125,793 2,257 128,050
Administrative service fees payable ..... 46,088 337,438 383,526
Directors' fees payable ................. 4,580 5,000 9,580
Accrued expenses and other payables...... 95,757 38,921 134,678
------------ -------------- --------------
Total Liabilities..................... 3,741,699 925,812 4,667,511
------------ -------------- --------------
NET ASSETS .................................. 973,667,620 388,533,595 1,362,201,215
============ ============== ==============
NET ASSETS consist of:
Undistributed net investment loss ....... $ (17) $ -- $ (17)
Accumulated net realized loss on
investments........................... (53,810) -- (53,810)
Par value ............................... 973,896 -- 973,896
Paid-in capital in excess of par value .. 972,747,551 388,533,595 1,361,281,146
------------ -------------- --------------
Total Net Assets............................. $973,667,620 $ 388,533,595 $1,362,201,215
============ ============== ==============
Shares of Common Stock Outstanding ..... 973,896,118 388,533,595 1,362,429,713
NET ASSET VALUE PER SHARE................ $ 1.00 $ 1.00 $ 1.00
============ ============== ==============
See Notes to Pro Forma Combined Financial Statements
Excelsior Funds, Inc.
Projected Pro Forma Combined Statement of Operations
March 31, 1999 (Unaudited)
Institutional
Money Money Pro Forma
Fund Fund Adjustments Combined
------------ ------------ ------------ ------------
INVESTMENT INCOME:
Interest income................................... $ 39,090,321 $ 9,478,920 $ 48,569,241
Allocated Expenses................................ (173,062) 173,062 (b)
EXPENSES:
Investment advisory fees ......................... 1,834,108 430,556 (c) 2,264,664
Administration fees .............................. 1,122,474 172,222 91,278 (d) 1,385,974
Administrative service fees ...................... 358,371 688,890 (430,556)(e) 616,705
Shareholder servicing agent fees.................. 55,294 24,806 43,236 (f) 80,100
Custodian fees ................................... 235,942 - 279,178
Legal and audit fees.............................. 83,612 58,951 142,563
Shareholder reports............................... 14,706 23,784 38,490
Registration and filing fees...................... 19,654 36,156 55,810
Directors' fees and expenses ..................... 25,670 22,039 47,709
Miscellaneous expenses............................ 99,571 26,464 126,035
------------ ------------ ------------ ------------
Total Expenses.................................. 3,849,402 1,053,312 134,514 5,037,228
Fees waived by investment adviser and
administrators ................................ (358,371) (793,891) 38,548 (g) (1,113,714)
------------ ------------ ------------ ------------
Net Expenses................................... 3,491,031 259,421 173,062 3,923,514
------------ ------------ ------------ ------------
NET INVESTMENT INCOME ............................... 35,599,290 9,046,437 0 44,645,727
------------ ------------ ------------ ------------
REALIZED GAIN ON INVESTMENTS:
Net realized gain on security transactions........ 4,266 - 4,266
============ ============ ============ ============
Net increase in net assets resulting from
operations..................................... $ 35,603,556 $ 9,046,437 $ 44,649,993
============ ============ ============ ============
See Notes to Pro Forma Combined Financial Statements
Excelsior Funds, Inc.
Notes to Pro Forma Combined Financial Statements
March 31, 1999 (Unaudited)
Pro forma information is intended to provide shareholders of the Institutional
Money Fund with information about the impact of the proposed reorganization by
indicating how the reorganization might have affected the information had the
reorganization been consummated as of March 31,1999.
The pro forma combined statements of assets and liabilities and results of
operations as of March 31, 1999 have been prepared to reflect the reorganization
of the Institutional Money Fund into the Money Fund after giving effect to pro
forma adjustments described in the notes listed below.
(a) Investments at Value and Investments in the Cash Reserves Portfolio were
adjusted to reflect the transfer of interests of the Institutional Money
Fund from the Cash Reserves Portfolio into the Excelsior Money Fund.
(b) Allocated expenses were adjusted to reflect the application of the fee
structure in effect as of March 31, 1999 for the Excelsior Money Fund.
(c) Investment Advisory Fees were adjusted to reflect the application of the
fee structure in effect as of March 31, 1999 for the Excelsior Money
Fund.
(d) Administration fees were adjusted to reflect the application of the fee
structure in effect as of March 31, 1999 for the Excelsior Money Fund.
(e) Administrative Service Fees were adjusted to reflect the application of
the fee structure that will be in effect for the Excelsior Money Fund.
(f) Custodian Fees were adjusted to reflect the application of the fee
structure in effect as of March 31, 1999 for the Excelsior Money Fund.
STATEMENT OF ADDITIONAL INFORMATION
Excelsior Funds December 24, 1998
73 Tremont Street
Boston, Massachusetts 02108
(617) 557-8000
Excelsior Institutional Money Fund
Excelsior Institutional Money Fund (the "Fund") is a series of
Excelsior Funds (the "Trust"). This Statement of Additional Information
describes the Fund only and no other series of the Trust.
TABLE OF CONTENTS
THE TRUST.....................................................................3
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS...............................3
SECURITIES TRANSACTIONS......................................................10
YIELD INFORMATION............................................................11
DETERMINATION OF NET ASSET VALUE; VALUATION
OF SECURITIES; REDEMPTION IN KIND...................................11
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................13
MANAGEMENT OF THE TRUST AND THE PORTFOLIO....................................14
INDEPENDENT ACCOUNTANTS......................................................26
COUNSEL .....................................................................26
TAXATION ....................................................................26
DESCRIPTION OF THE TRUST; FUND SHARES........................................28
MISCELLANEOUS................................................................29
FINANCIAL STATEMENTS.........................................................29
This Statement of Additional Information sets forth information which
may be of interest to investors but which is not necessarily included in the
Fund's Prospectus as it may be amended from time to time (the "Prospectus").
This Statement of Additional Information should be read only in conjunction with
the Prospectus, a copy of which may be obtained by an investor without charge by
contacting the Trust at the address and telephone number shown above. Terms used
but not defined herein, which are defined in the Prospectus, are used herein as
defined in the Prospectus.
-1-
SHARES OF THE FUND ("SHARES") ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK AND THE SHARES ARE NOT FEDERALLY INSURED BY,
GUARANTEED BY, OR OBLIGATIONS OF OR OTHERWISE SUPPORTED BY, THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENTAL AGENCY. THE FUND SEEKS TO MAINTAIN ITS NET ASSET VALUE PER
SHARE AT $1.00 FOR PURPOSES OF PURCHASES AND REDEMPTIONS, ALTHOUGH THERE CAN BE
NO ASSURANCE THAT IT WILL BE ABLE TO DO SO ON A CONTINUING BASIS. INVESTMENT IN
THE FUND INVOLVES INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
This Statement of Additional Information is NOT a prospectus and is
authorized for distribution to prospective investors only if preceded or
accompanied by an effective prospectus.
-2-
THE TRUST
The Trust is an open-end diversified management investment company
which was organized as a business trust under the laws of the State of Delaware
on October 25, 1993. Shares of the Trust have been divided into separate series.
This Statement of Additional Information describes the Excelsior Institutional
Money Fund (the "Fund" or "Institutional Money Fund"). As of the date hereof,
there are no other active series of the Trust, although new series may be added
from time to time.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The investment objective of the Institutional Money Fund is to provide
shareholders with liquidity and as high a level of current income as is
consistent with the preservation of capital. The Fund seeks to achieve its
investment objective by investing all of its investable assets in the Cash
Reserves Portfolio (the "Portfolio"), a diversified open-end management
investment company with the same investment objective as the Fund. The Portfolio
seeks to achieve this investment objective by investing in U.S.
dollar-denominated money market obligations with maturities of 397 days or less
issued by U.S. and non-U.S. issuers.
Citibank, N.A. ("Citibank") is the investment adviser (the "Adviser")
of the Portfolio. The Adviser manages the investments of the Portfolio from day
to day in accordance with the Portfolio's investment objective and policies. The
selection and management of investments for the Portfolio and the way it is
managed depend on the conditions and trends in the economy and the financial
marketplaces.
The following discussion supplements the information contained in the
Prospectus concerning the investment objective, policies and restrictions of the
Fund. Since the investment characteristics of the Fund correspond directly to
those of the Portfolio, references below to the Portfolio's investment
objective, strategies and techniques also include the Fund.
The Trust may withdraw the Fund's investment from the Portfolio at any
time, if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Fund's assets
would be invested in accordance with the investment objective, policies and
restrictions described below and in the Prospectus with respect to the
Portfolio. The approval of the Fund's shareholders is not required to change the
Fund's investment objective or any of its investment policies.
Cash Reserves Portfolio
The approval of the investors in the Cash Reserves Portfolio is not
required to change the Portfolio's investment objective or any of the
Portfolio's investment policies discussed below, including those concerning
security transactions, other than the Portfolio's concentration policy with
respect to bank obligations described in paragraph (1) below, which is
fundamental and may not be changed without investor approval.
-3-
The Portfolio seeks to achieve its investment objective through
investments limited to the following types of U.S. dollar-denominated money
market instruments. All investments by the Portfolio mature or are deemed to
mature within 397 days from the date of acquisition, and the average maturity of
the investments held by the Portfolio (on a dollar-weighted basis) is 90 days or
less. All investments by the Portfolio are in "high quality" securities (i.e.,
rated or subject to a guarantee rated in the highest rating category for
short-term obligations by at least two nationally recognized statistical rating
organizations (each, an "NRSRO") assigning a rating to the security, guarantee
or the issuer of the security or guarantee, or, if only one NRSRO assigned a
rating, that NRSRO or, in the case of an investment which is not rated, of
comparable quality as determined by the Adviser) and are determined by the
Adviser to present minimal credit risks. Investments in high quality, short-term
instruments may, in many circumstances, result in a lower yield than would be
available from investments in instruments with a lower quality or a longer term.
Under the Investment Company Act of 1940, as amended (the "1940 Act"), the Fund
and the Portfolio are each classified as "diversified," although in the case of
the Fund, all of its investable assets are invested in the Portfolio. In
accordance with the portfolio diversification requirements of Rule 2a-7 under
the 1940 Act, the Portfolio must be diversified with respect to issuers of
securities it acquires, other than government securities and securities with
guarantees issued by a "non-controlled person" (as defined in Rule 2a-7), so
that, generally, immediately after acquiring a security, the Portfolio will not
have invested more than 5% of its total assets in securities issued by the
issuer of the security.
The Portfolio will limit its investments to the types of instruments
described below:
(1) Bank obligations. The Portfolio invests at least 25% of its investable
assets, and may invest up to 100% of its assets, in bank obligations. This
concentration policy is fundamental and may not be changed without the approval
of the investors in the Portfolio. Bank obligations include, but are not limited
to, negotiable certificates of deposit, bankers' acceptances and fixed time
deposits. Fixed time deposits are obligations which are payable at a stated
maturity date and bear a fixed rate of interest. Generally, fixed time deposits
may be withdrawn on demand by the Portfolio, but they may be subject to early
withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. Although fixed time deposits do not have a
market, there are no contractual restrictions on the Portfolio's right to
transfer a beneficial interest in the deposit to a third party.
The Portfolio limits its investments in U.S. bank obligations
(including their non-U.S. branches) to banks having total assets in excess of $1
billion and which are subject to regulation by an agency of the U.S. Government.
The Portfolio may also invest in certificates of deposit issued by banks having
total assets of less than $1 billion, the deposits in which are insured by the
Federal Deposit Insurance Corporation ("FDIC"), through either the Bank
Insurance Fund or the Savings Association Insurance Fund, provided that the
Portfolio at no time owns more than $100,000 principal amount of certificates of
deposit (or any higher principal amount which in the future may be fully insured
by FDIC insurance) of any one of those issuers.
U.S. banks organized under federal law are supervised and examined by
the Comptroller of the Currency and are required to be members of the Federal
Reserve System and to be insured by the FDIC. U.S. banks organized under state
law are supervised and examined by state banking authorities and are members of
the Federal Reserve System only if they elect to join. However, state banks
which are insured by the FDIC are subject to federal examination and to a
substantial body of federal law and regulation. As a result of federal and state
laws and regulations, U.S. branches of U.S. banks, among other things, are
generally required to maintain specified levels of reserves, and are subject to
other supervision and regulation designed to promote financial soundness.
-4-
The Portfolio limits its investments in non-U.S. bank obligations
(i.e., obligations of non-U.S. branches and subsidiaries of U.S. banks, and U.S.
and non-U.S. branches of non-U.S. banks) to U.S. dollar-denominated obligations
of banks which at the time of investment are branches or subsidiaries of U.S.
banks which meet the criteria in the preceding paragraphs or are branches of
non-U.S. banks which (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) in terms of assets are among the 75 largest
non-U.S. banks in the world; (iii) have branches or agencies in the United
States; and (iv) in the opinion of the Adviser, are of an investment quality
comparable with obligations of U.S. banks which may be purchased by the
Portfolio. These obligations may be general obligations of the parent bank, in
addition to the issuing branch or subsidiary, but the parent bank's obligations
may be limited by the terms of the specific obligation or by governmental
regulation. The Portfolio also limits its investments in non-U.S. bank
obligations to banks, branches and subsidiaries located in Western Europe
(United Kingdom, France, Germany, Belgium, the Netherlands, Italy, Switzerland),
Scandinavia (Denmark, Norway, Sweden), Australia, Japan, the Cayman Islands, the
Bahamas and Canada. The Portfolio does not purchase any bank obligation of the
Adviser or an affiliate of the Adviser.
Since the Portfolio may hold obligations of non-U.S. branches and
subsidiaries of U.S. banks, and U.S. and non-U.S. branches of non-U.S. banks, an
investment in the Fund involves certain additional risks. Such investment risks
include future political and economic developments, the possible imposition of
non-U.S. withholding taxes on interest income payable on such obligations held
by the Portfolio, the possible seizure or nationalization of non-U.S. deposits
and the possible establishment of exchange controls or other non-U.S.
governmental laws or restrictions applicable to the payment of the principal of
and interest on certificates of deposit or time deposits that might affect
adversely such payment on such obligations held by the Portfolio. In addition,
there may be less publicly-available information about a non-U.S. branch or
subsidiary of a U.S. bank or a U.S. or non-U.S. branch of a non-U.S. bank than
about a U.S. bank and such branches and subsidiaries may not be subject to the
same or similar regulatory requirements that apply to U.S. banks, such as
mandatory reserve requirements, loan limitations and accounting, auditing and
financial record-keeping standards and requirements.
The provisions of federal law governing the establishment and operation
of U.S. branches do not apply to non-U.S. branches of U.S. banks. However, the
Portfolio may purchase obligations only of those non-U.S. branches of U.S. banks
which were established with the approval of the Board of Governors of the
Federal Reserve System (the "Board of Governors").
As a result of such approval, these branches are subject to examination
by the Board of Governors and the Comptroller of the Currency. In addition, such
non-U.S. branches of U.S. banks are subject to the supervision of the U.S. bank,
and creditors of the non-U.S. branch are considered general creditors of the
U.S. bank subject to whatever defenses may be available under the governing
non-U.S. law and to the terms of the specific obligation. Nonetheless, the
Portfolio generally will be subject to whatever risk may exist that the non-U.S.
country may impose restrictions on payment of certificates of deposit or time
deposits.
-5-
U.S. branches of non-U.S. banks are subject to the laws of the state in
which the branch is located or to the laws of the United States. Such branches
are therefore subject to many of the regulations, including reserve
requirements, to which U.S. banks are subject. In addition, the Portfolio may
purchase obligations only of those U.S. branches of non-U.S. banks which are
located in states which impose the additional requirement that the branch pledge
to a designated bank within the state an amount of its assets equal to 5% of its
total liabilities.
Non-U.S. banks in whose obligations the Portfolio may invest may not be
subject to the laws and regulations referred to in the preceding two paragraphs.
(2) Obligations of, or guaranteed by, non-U.S. governments. The Portfolio limits
its investments in non-U.S. government obligations to obligations issued or
guaranteed by the governments of Western Europe (United Kingdom, France,
Germany, Belgium, the Netherlands, Italy, Switzerland), Scandinavia (Denmark,
Norway, Sweden), Australia, Japan and Canada. Generally, such obligations may be
subject to the additional risks described in paragraph (1) above in connection
with the purchase of non-U.S. bank obligations.
(3) Commercial Paper rated Prime-1 by Moody's Investors Service, Inc.
("Moody's") or A-1 by Standard & Poor's Ratings Services ("Standard & Poor's")
or, if not rated, determined to be of comparable quality by the Adviser (on
behalf of the Portfolio's Board of Trustees), such as unrated commercial paper
issued by corporations having an outstanding unsecured debt issue currently
rated Aaa by Moody's or AAA by Standard & Poor's. (For a description of these
ratings see the Appendix to the Prospectus.)
(4) Obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities. These include issues of the U.S. Treasury, such as bills,
certificates of indebtedness, notes and bonds, and issues of agencies and
instrumentalities established under the authority of an Act of Congress.
Obligations of certain agencies and instrumentalities, such as the Government
National Mortgage Association, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks of the
United States, are supported by the right of the issuer to borrow from the U. S.
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; and others are supported only by the credit of the
agency or instrumentality.
(5) Repurchase agreements providing for resale within 397 days or less, covering
obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities which may have maturities in excess of 397 days. A repurchase
agreement arises when a buyer purchases an obligation and simultaneously agrees
with the vendor to resell the obligation to the vendor at an agreed-upon price
and time, which is usually not more than seven days from the date of purchase.
The resale price of a repurchase agreement is greater than the purchase price,
reflecting an agreed-upon market rate which is effective for the period of time
the buyer's funds are invested in the obligation and which is not related to the
coupon rate on the purchased obligation. Obligations serving as collateral for
each repurchase agreement are delivered to the Portfolio's custodian either
physically or in book entry form and the collateral is marked to the market
daily to ensure that each repurchase agreement is fully collateralized at all
times. A buyer of a repurchase agreement runs a risk of loss if, at the time of
default by the issuer, the value of the collateral securing the agreement is
less than the price paid for the repurchase agreement. If the vendor of a
repurchase agreement becomes bankrupt, the Portfolio might be delayed, or may
incur costs or possible losses of principal and income, in selling the
collateral. The Portfolio may enter into repurchase agreements only with a
vendor which is a member bank of the Federal Reserve System or which is a
"primary dealer" (as designated by the Federal Reserve Bank of New York) in U.S.
Government obligations. The Portfolio will not enter into any repurchase
agreements with the Adviser or an affiliate of the Adviser.
-6-
(6) Asset-backed securities may include securities such as Certificates for
Automobile Receivables ("CARS") and Credit Card Receivable Securities ("CARDS"),
as well as other asset-backed securities that may be developed in the future.
CARS represent fractional interests in pools of car installment loans, and CARDS
represent fractional interests in pools of revolving credit card receivables.
The rate of return on asset-backed securities may be affected by early
prepayment of principal on the underlying loans or receivables. Prepayment rates
vary widely and may be affected by changes in market interest rates. It is not
possible to accurately predict the average life of a particular pool of loans or
receivables. Reinvestment of principal may occur at higher or lower rates than
the original yield. Therefore, the actual maturity and realized yield on
asset-backed securities will vary based upon the prepayment experience of the
underlying pool of loans or receivables. (See "Asset-Backed Securities" below.)
The Portfolio does not purchase securities which the Portfolio
believes, at the time of purchase, will be subject to exchange controls or
non-U.S. withholding taxes; however, there can be no assurance that such laws
may not become applicable to certain of the Portfolio's investments. In the
event exchange controls or non-U.S. withholding taxes are imposed with respect
to any of the Portfolio's investments, the effect may be to reduce the income
received by the Portfolio on such investments.
Asset-Backed Securities. As set forth above, the Portfolio may purchase
asset-backed securities that represent fractional interests in pools of retail
installment loans, both secured (such as CARS) and unsecured, or leases or
revolving credit receivables, both secured and unsecured (such as CARDS). These
assets are generally held by a trust and payments of principal and interest or
interest only are passed through monthly or quarterly to certificate holders and
may be guaranteed up to certain amounts by letters of credit issued by a
financial institution affiliated or unaffiliated with the trustee or originator
of the trust.
Underlying automobile sales contracts, leases or credit card
receivables are subject to prepayment, which may reduce the overall return to
certificate holders. Nevertheless, principal repayment rates tend not to vary
much with interest rates and the short-term nature of the underlying loans,
leases or receivables tends to dampen the impact of any change in the prepayment
level. Certificate holders may also experience delays in payment on the
certificates if the full amounts due on underlying loans, leases or receivables
are not realized by the Portfolio because of unanticipated legal or
administrative costs of enforcing the contracts or because of depreciation or
damage to the collateral (usually automobiles) securing certain contracts, or
other factors. If consistent with its investment objective and policies, the
Portfolio may invest in other asset-backed securities that may be developed in
the future.
-7-
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements and in order to generate income, the Portfolio may lend its
securities to broker-dealers and other institutional borrowers. Such loans will
usually be made only to member banks of the Federal Reserve System and to member
firms of the New York Stock Exchange (and subsidiaries thereof). Loans of
securities would be secured continuously by collateral in cash, cash equivalents
or U.S. Treasury obligations maintained on a current basis at an amount at least
equal to the market value of the securities loaned. The cash collateral would be
invested in high quality short-term instruments. Either party to a loan has the
right to terminate the loan at any time on customary industry settlement notice
(which will not usually exceed three business days). During the existence of a
loan, the Portfolio would continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities loaned and with respect to cash
collateral would also receive compensation based on investment of the cash
collateral (subject to a rebate payable to the borrower) or a fee from the
borrower in the event the collateral consists of securities. Where the borrower
provides the Portfolio with collateral consisting of U.S. Treasury obligations,
the borrower is also obligated to pay the Portfolio a fee for use of the
borrowed securities. The Portfolio would not, however, have the right to vote
any securities having voting rights during the existence of the loan, but would
call the loan in anticipation of an important vote to be taken among holders of
the securities or of the giving or withholding of its consent on a material
matter affecting the investment. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in the collateral should the
borrower fail financially. However, the loans would be made only to entities
deemed by the Adviser to be of good standing, and when, in the judgment of the
Adviser, the consideration which can be earned currently from loans of this type
justifies the attendant risk. In addition, the Portfolio could suffer loss if
the borrower terminates the loan and the Portfolio is forced to liquidate
investments in order to return the cash collateral to the buyer. If the Adviser
determines to make loans, it is intended that the value of the securities loaned
by the Portfolio would not exceed 33 1/3% of the value of its net assets.
Investment Restrictions
The Trust, on behalf of the Fund, and the Portfolio have each adopted
the following policies which may not be changed without approval by holders of a
"majority of the outstanding shares" of the Fund or the Portfolio, which as used
in this Statement of Additional Information means the vote of the lesser of (i)
67% or more of the outstanding "voting securities" of the Fund or the Portfolio,
respectively, present at a meeting, if the holders of more than 50% of the
outstanding "voting securities" of the Fund or the Portfolio, respectively, are
present or represented by proxy, or (ii) more than 50% of the outstanding
"voting securities" of the Fund or the Portfolio, respectively. The term "voting
securities" as used in this paragraph has the same meaning as in the 1940 Act.
The Trust, on behalf of the Fund, and the Portfolio may not:
(1) borrow money, except that as a temporary measure for extraordinary or
emergency purposes either the Trust or the Portfolio may borrow from
banks in an amount not to exceed one third of the value of the net
assets of the Fund or the Portfolio, respectively, including the amount
borrowed. Moreover, neither the Trust (on behalf of the Fund) nor the
Portfolio may purchase any securities at any time at which borrowings
exceed 5% of the total assets of the Fund or the Portfolio,
respectively (taken in each case at market value). It is intended that
the Portfolio would borrow money only from banks and only to
accommodate requests for the withdrawal of all or a portion of a
beneficial interest in the Portfolio while effecting an orderly
liquidation of securities);
-8-
(2) purchase any security or evidence of interest therein on margin, except
that either the Trust, on behalf of the Fund, or the Portfolio may
obtain such short-term credit as may be necessary for the clearance of
purchases and sales of securities;
(3) underwrite securities issued by other persons, except that all the
assets of the Fund may be invested in the Portfolio and except insofar
as either the Trust or the Portfolio may technically be deemed an
underwriter under the Securities Act of 1933 in selling a security;
(4) make loans to other persons except (a) through the lending of
securities held by either the Fund or the Portfolio, but not in excess
of 33 1/3% of the Fund's or the Portfolio's net assets, as the case may
be, (b) through the use of fixed time deposits or repurchase agreements
or the purchase of short-term obligations, or (c) by purchasing all or
a portion of an issue of debt securities of types commonly distributed
privately to financial institutions; for purposes of this paragraph 4
the purchase of short-term commercial paper or a portion of an issue of
debt securities which are part of an issue to the public shall not be
considered the making of a loan;
(5) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity
contracts in the ordinary course of business (the Fund and the
Portfolio reserve the freedom of action to hold and to sell real estate
acquired as a result of the ownership of securities by the Fund or the
Portfolio);
(6) concentrate its investments in any particular industry, but if it is
deemed appropriate for the achievement of its investment objective, up
to 25% of the assets of the Fund or the Portfolio, respectively (taken
at market value at the time of each investment) may be invested in any
one industry, except that the Portfolio will invest at least 25% of its
assets and may invest up to 100% of its assets in bank obligations;
provided that, if the Trust withdraws the investment of the Fund from
the Portfolio, the Trust will invest the assets of the Fund in bank
obligations to the same extent and with the same reservation as the
Portfolio; and provided further, that nothing in this investment
restriction is intended to affect the Fund's ability to invest 100% of
its assets in the Portfolio; or
(7) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder, except as appropriate to
evidence a debt incurred without violating Investment Restriction (1)
above.
Percentage and Rating Restrictions. If a percentage restriction or a
rating restriction on investment or utilization of assets set forth above or
referred to in the Prospectus is adhered to at the time an investment is made or
assets are so utilized, a later change in percentage resulting from changes in
the value of the securities held by the Fund or the Portfolio or a later change
in the rating of a security held by the Fund or the Portfolio will not be
considered a violation of policy.
-9-
SECURITIES TRANSACTIONS
The Portfolio's purchases and sales of portfolio securities usually are
principal transactions. Portfolio securities are normally purchased directly
from the issuer or from an underwriter or market maker for the securities. There
usually are no brokerage commissions paid for such purchases. The Portfolio does
not anticipate paying brokerage commissions. Any transaction for which the
Portfolio pays a brokerage commission will be effected at the best price and
execution available. Purchases from underwriters of portfolio securities include
a commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and
asked price.
Allocation of transactions, including their frequency, to various
dealers is determined by the Adviser in its best judgment and in a manner deemed
to be in the best interest of investors in the Portfolio, rather than by any
formula. The primary consideration is prompt execution of orders in an effective
manner at the most favorable price.
Investment decisions for the Portfolio are made independently from
those for any other account or investment company that is or may in the future
become managed by the Adviser or its affiliates. If, however, the Portfolio and
other investment companies or accounts managed by the Adviser are
contemporaneously engaged in the purchase or sale of the same security, the
transactions may be averaged as to price and allocated equitably to each
account. In some cases, this policy might adversely affect the price paid or
received by the Portfolio or the size of the position obtainable for the
Portfolio. In addition, when purchases or sales of the same security for the
Portfolio and for other investment companies managed by the Adviser occur
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large denomination purchases or sales.
No transactions are executed with the Adviser, or with any affiliate of
the Adviser, acting either as principal or as broker.
-10-
YIELD INFORMATION
Yield is computed in accordance with a standardized method which
involves determining the net change in the value of a hypothetical pre-existing
Fund account having a balance of one Share at the beginning of a seven calendar
day period for which yield is to be quoted, dividing the net change by the value
of the account at the beginning of the period to obtain the base period return,
and annualizing the results (i.e., multiplying the base period return by 365/7).
The net change in the value of the account reflects the value of additional
Shares purchased with dividends declared on the original Share and any such
additional Shares and fees that may be charged to shareholder accounts, in
proportion to the length of the base period and the Fund's average account size,
but does not include realized gains and losses or unrealized appreciation and
depreciation. Effective annualized yield is computed by adding 1 to the base
period return (calculated as described above), raising that sum to a power equal
to 365 divided by 7, and subtracting 1 from the result.
Yields will fluctuate and are not necessarily representative of future
results. The investor should remember that yield is a function of the type and
quality of the instruments held by the Portfolio, portfolio maturity and
operating expenses. An investor's principal in the Fund is not guaranteed. See
"Determination of Net Asset Value" for a discussion of the manner in which the
Fund's price per share is determined.
From time to time, the Trust in its advertising and sales literature
for the Fund may refer to the growth of assets managed or administered by the
Adviser over certain time periods. Comparative performance information may be
used from time to time in advertising or marketing the Fund's Shares, including
data from Lipper Analytical Services, Inc., IBC/Donoghue's Money Fund Report and
other publications.
The annualized current seven-day yield of the Institutional Money Fund
for the period ended August 31, 1998 was 5.47%. For the same period, the
annualized effective seven-day yield of the Fund, based upon dividends declared
daily and reinvested monthly, was 5.62%.
DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES; REDEMPTION IN KIND
The Prospectus discusses when the net asset value of the Fund is
determined for purposes of sales and redemptions. The net asset value of the
Fund's investment in the Portfolio is equal to the Fund's pro rata share of the
total assets of the Portfolio less the Fund's pro rata share of the Portfolio's
liabilities. The following is a description of the procedures used by the
Portfolio in valuing its assets.
The valuation of the Portfolio's securities is based on their amortized
cost, which does not take into account unrealized capital gains or losses.
Amortized cost valuation involves initially valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium, generally without regard to the impact of fluctuating interest rates on
the market value of the instrument. Although this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Portfolio would receive if
it sold the instrument.
-11-
The Portfolio's use of the amortized cost method of valuing its
securities is permitted by Rule 2a-7 under the 1940 Act ("Rule 2a-7"). The
Portfolio will also maintain a dollar-weighted average portfolio maturity of 90
days or less, purchase only instruments having or deemed to have remaining
maturities of 397 days or less (or instruments subject to a repurchase agreement
having a duration of 397 days or less), and invest only in securities determined
by the Adviser (under the supervision of the Board of Trustees) to be of high
quality and to present minimal credit risks. The Portfolio has informed the
Trust that the Portfolio has established procedures designed to ensure that
securities purchased by the Portfolio meet its high quality criteria.
Pursuant to Rule 2a-7, the Board of Trustees of the Portfolio also has
established procedures designed to allow the Fund (and other investors in the
Portfolio) to stabilize, to the extent reasonably possible, the Fund's price per
share at $1.00, as computed for the purpose of sales and redemptions. These
procedures include review of the Portfolio's holdings by its Board of Trustees,
at such intervals as the Board deems appropriate, to determine whether the value
of the Portfolio's assets calculated by using available market quotations or
market equivalents deviates from such valuation based on amortized cost.
Rule 2a-7 also provides that the extent of any deviation between the
value of the Portfolio's assets based on available market quotations or market
equivalents and such valuation based on amortized cost must be examined by the
Portfolio's Board of Trustees. In the event the Portfolio's Board of Trustees
determines that a deviation exists that may result in material dilution or other
unfair results to new or existing investors, pursuant to the rule, the
Portfolio's Board of Trustees must cause the Portfolio to take such corrective
action as the Board of Trustees regards as necessary and appropriate, including:
selling portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity; or valuing the Portfolio's
assets by using available market quotations.
The Trust, on behalf of the Fund, and the Portfolio reserve the right,
if conditions exist which make cash payments undesirable, to honor any request
for redemption or repurchase order by making payment in whole or in part in
readily marketable securities chosen by the Trust or the Portfolio, as the case
may be, and valued as they are for purposes of computing the Fund's or the
Portfolio's net asset value, as the case may be (a redemption in kind). If
payment is made in securities by the Portfolio or the Fund, an investor,
including the Fund, may incur transaction expenses in converting these
securities into cash. The Trust will redeem in kind Fund Shares only if it has
received a redemption in kind from the Portfolio and therefore shareholders of
the Fund that receive redemptions in kind will receive portfolio securities of
the Portfolio.
Each investor in the Portfolio, including the Fund, may add to or
reduce its investment in the Portfolio on each day that the New York Stock
Exchange (the "Exchange") is open for business. Normally, as of 3:00 P.M.
(Eastern time) on each such day, the value of each investor's interest in the
Portfolio will be determined by multiplying the net asset value of the Portfolio
by the percentage representing that investor's share of the aggregate beneficial
interests in the Portfolio effective for that day. Any additions or reductions
which are to be effected on that day will then be effected. The investor's
percentage of the aggregate beneficial interests in the Portfolio will then be
recomputed as the percentage equal to the fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of such time of
valuation on such day plus or minus, as the case may be, the amount of net
additions to or reductions in the investor's investment in the Portfolio
effected on such day, and (ii) the denominator of which is the aggregate net
asset value of the Portfolio as of such time of valuation on such day plus or
minus, as the case may be, the amount of the net additions to or reductions in
the aggregate investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of the time of valuation on the
following day the Exchange is open for trading.
-12-
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares are continuously offered for sale by Edgewood Services, Inc.
("Edgewood" or the "Distributor"), a wholly-owned subsidiary of Federated
Investors, Inc. As described in the Prospectus, Shares are offered to
institutional investors ("Institutional Investors"). Shares may be purchased
directly from the Distributor or through Shareholder Organizations. Different
types of Customer accounts at certain Shareholder Organizations may be used to
purchase Shares, including eligible agency and trust accounts. In addition, a
Shareholder Organization may automatically "sweep" the accounts of its Customers
not less frequently than weekly and invest amounts in excess of a minimum
balance agreed to by the Shareholder Organization and its Customers in shares
selected by its Customers. Investors purchasing Shares may include officers,
directors, or employees of the particular Shareholder Organization. Check
writing privileges are available to investors upon request to the Trust.
As stated in the Prospectus, no sales charge is imposed by the Trust on
the purchase of Shares or reinvestment of dividends or distributions.
Additionally, the Trust does not currently charge any fees for the exchange of
Shares pursuant to the exchange program described in the Prospectus.
Shareholders should be aware, however, that certain Shareholder
Organizations may charge a Customer's account fees for exchange orders and other
cash management services provided. Customers should contact their Shareholder
Organization directly for further information.
The Trust may suspend the right of redemption or postpone the date of
payment for Shares for more than 7 days during any period when (a) trading on
the Exchange is restricted by applicable rules and regulations of the Securities
and Exchange Commission (the "SEC"); (b) the Exchange is closed for other than
customary weekend and holiday closings; (c) the SEC has by order permitted such
suspension; or (d) an emergency exists as determined by the SEC.
In the event that Shares are redeemed in cash at their net asset value,
a shareholder may receive in payment for such Shares an amount that is more or
less than the shareholder's original investment due to changes in the market
prices of the portfolio securities of the Fund or the Portfolio.
-13-
Other Investor Programs
As described in the Prospectus, Shares of the Fund may be exchanged for
Institutional Shares of any investment portfolio of Excelsior Institutional
Trust. Shares of the Fund may be purchased in connection with Unit Investment
Trust Automatic Dividend Reinvestment Plans, the Automatic Investment Program,
and certain Retirement Programs. Customers of Shareholder Organizations may
obtain information on the availability of, and the procedures and fees relating
to, such programs directly from their Shareholder Organizations.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
The Trustees and officers of the Trust and the Portfolio and their
principal occupations during the past five years are set forth below. Unless
otherwise indicated below, the address of each Trustee and officer of the Trust
is 73 Tremont Street, Boston, Massachusetts 02108, and the address of each
Trustee and officer of the Portfolio is 21 Milk Street, 5th Floor, Boston,
Massachusetts 02109. The address of the Portfolio is Elizabethan Square, George
Town, Grand Cayman, Cayman Islands, British West Indies.
-14-
Trustees and Officers of the Trust
Trustees and Officers
The Trustees and officers of the Trust, their addresses, ages,
principal occupations during the past five years, and other affiliations are as
follows:
Position with the Principal Occupation During Past 5 Years and Other
Name and Address Trust Affiliations
---------------- ---------------- --------------------------------------------------
Frederick S. Wonham* Chairman of the Retired; Director of Excelsior Funds, Inc. and
238 June Road Board, President Excelsior Tax-Exempt Funds, Inc. (since 1995);
Stamford, CT 06903 and Treasurer Trustee of Excelsior Institutional Trust (since
Age: 67 1995); Vice Chairman of U.S. Trust Corporation and
United States Trust Company of New York (from
February 1990 until September 1995); and Chairman,
U.S. Trust Company of Connecticut (from March 1993
to May 1997).
Rodman L. Drake Trustee Director, Excelsior Funds, Inc. and Excelsior
Continuation Investments Tax-Exempt Funds, Inc. (since 1996); Trustee of
Group, Inc. Excelsior Institutional Trust (since 1994);
1251 Avenue of the Americas Director, Parsons Brinkerhoff Energy Services Inc.
9th Floor (since 1996); Director, Parsons Brinkerhoff, Inc.
New York, NY 10020 (engineering firm) (since 1995); President,
Age: 55 Continuation Investments Group, Inc. (since 1997);
President, Mandrake Group (investment and
consulting firm) (1994-1997); Director, Hyperion
Total Return Fund, Inc. and four other funds for
which Hyperion Capital Management, Inc. serves as
investment adviser (since 1991); Co-Chairman, KMR
Power Corporation (power plants) (from 1993 to
1996); Director, The Latin America Smaller
Companies Fund, Inc. (since 1993); Member of
Advisory Board, Argentina Private Equity Fund L.P.
(from 1992 to 1996) and Garantia L.P. (Brazil)
(from 1993 to 1996); and Director, Mueller
Industries, Inc. (from 1992 to 1994).
* This Trustee is considered to be an "interested person" of the Trust
as defined in the 1940 Act.
-15-
Position with the Principal Occupation During Past 5 Years and Other
Name and Address Trust Affiliations
---------------- ---------------- --------------------------------------------------
W. Wallace McDowell, Jr. Trustee Director of Excelsior Funds, Inc. and Excelsior
c/o Prospect Capital Corp. Tax-Exempt Funds, Inc. (since 1996); Trustee of
43 Arch Street Excelsior Institutional Trust (since 1994);
Greenwich, CT 06830 Private Investor (since 1994); Managing Director,
Age: 61 MorganLewis Githens & Ahn (from 1991 to 1994); and
Director, U.S. Homecare Corporation (since 1992),
Grossmans, Inc. (from 1993 to 1996), Children's
Discovery Centers (since 1984), ITI Technologies,
Inc. (since 1992) and Jack Morton Productions
(since 1987).
Jonathan Piel Trustee Director of Excelsior Funds, Inc. and Excelsior
558 E. 87th Street Tax-Exempt Funds, Inc. (since 1996); Trustee of
New York, NY 10128 Excelsior Institutional Trust (since 1994); Vice
Age: 59 President and Editor, Scientific American, Inc.
(from 1986 to 1994); Director, Group for The
South Fork, Bridgehampton, New York (since 1993);
and Member, Advisory Committee, Knight Journalism
Fellowships, Massachusetts Institute of
Technology (since 1984).
W. Bruce McConnel, III Secretary Partner of the law firm of Drinker Biddle & Reath LLP.
Philadelphia National Bank
Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 55
Michael P. Malloy Assistant Secretary Partner of the law firm of Drinker Biddle & Reath LLP.
Philadelphia National Bank
Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 39
Edward Wang Assistant Secretary Manager of Blue Sky Compliance, Chase Global Funds
Chase Global Funds Services Company (November 1996 to present); and
Services Company Officer and Manager of Financial Reporting,
73 Tremont Street Investors Bank & Trust Company
Boston, MA 02108-3913 (January 1991 to November 1996).
Age: 37
John M. Corcoran Assistant Treasurer Vice President, Director of Fund Administration,
Chase Global Funds Chase Global Funds Services Company (since April
Services Company 1998); Vice President, Senior Manager of Fund
73 Tremont Street Administration, Chase Global Funds Services
Boston, MA 02108-3913 (from July 1996 to April 1998); Second Vice
Age: 33 President, Manager of Fund Administration, Chase
Global Funds Services Company (from October 1993
to July 1996); and Audit Manager, Ernst & Young
LLP (from August 1987 to September 1993).
-16-
Each Trustee receives an annual fee of $4,000 plus a meeting fee of
$250 for each meeting attended and is reimbursed for expenses incurred in
attending meetings. Drinker Biddle & Reath LLP, of which Messrs. McConnel and
Malloy are partners, receives legal fees as counsel to the Trust. The employees
of Chase Global Funds Services Company do not receive any compensation from the
Trust for acting as officers of the Trust. No person who is currently an
officer, director or employee of the Adviser serves as an officer, Trustee or
employee of the Trust.
The compensation paid to the Trustees of the Trust for the fiscal year
ended August 31, 1998 is set forth in the chart below.
PENSION OR
RETIREMENT
BENEFITS TOTAL COMPENSATION
AGGREGATE ACCRUED AS PART ESTIMATED ANNUAL FROM THE TRUST AND
COMPENSATION OF TRUST BENEFITS UPON FUND COMPLEX* PAID
FROM THE TRUST EXPENSES RETIREMENT TO TRUSTEES
-------------- -------------- --------------- ------------------
Frederick S. Wonham $5,000 None None (4)**$53,000
Rodman L. Drake $5,000 None None (4)**$43,000
W. Wallace McDowell $4,500 None None (4)**$39,000
Jonathan Piel $5,000 None None (4)**$43,000
* The "Fund Complex" consists of the Trust, Excelsior Funds, Inc., Excelsior
Tax-Exempt Funds, Inc. and Excelsior Institutional Trust. The Trust has no
pension plan.
** Number of investment companies in the Fund Complex for which Trustee serves
as director or trustee.
Trustees and Officers of the Portfolio
The Trustees and officers of the Cash Reserves Portfolio, their ages and
principal occupations during the past five years are set forth below.
-17-
Trustees of the Portfolio
ELLIOTT J. BERV - Chairman and Director, Catalyst, Inc. (Management
Consultants) (since June 1992); President, Chief Operating Officer and Director,
Deven International, Inc. (International Consultants) (June 1991 to June 1992);
President and Director, Elliott J. Berv & Associates (Management Consultants)
(since May 1984). His address is 15 Stornoway Drive, Cumberland Foreside, Maine
04110. His age is 55.
WALTER E. ROBB, III - President, Benchmark Consulting Group, Inc.
(since 1991); Principal, Robb Associates (Corporate Financial Advisors) (since
1978); President, Benchmark Advisors, Inc. (Corporate Financial Advisors) (since
1989); Trustee of certain registered investment companies in the MFS family of
funds. His address is 35 Farm Road, Sherborn, Massachusetts 01770. His age is
72.
RILEY C. GILLEY - Vice President and General Counsel, Corporate
Property Investors (November 1988 to December 1991); Partner, Breed, Abbott &
Morgan (Attorneys) (Retired, December 1987). His address is 4041 Gulf Shore
Boulevard North, Naples, Florida. His age is 72.
PHILIP W. COOLIDGE* - President of the Portfolio; Chief Executive
Officer and President, Signature Financial Group, Inc. and CFBDS, Inc. His age
is 47.
- --------------
* This Trustee is considered to be an "interested person" of the Portfolio as
defined in the 1940 Act.
Officers of the Portfolio
PHILIP W. COOLIDGE; 47 -- President of the Portfolio; Chief Executive
Officer and President, Signature Financial Group, Inc. and CFBDS, Inc.
CHRISTINE A. DRAPEAU; 28 -- Assistant Secretary and Assistant Treasurer
of the Portfolio; Assistant Vice President, Signature Financial Group, Inc.
(since January 1996); Paralegal and Compliance Officer, various financial
companies (July 1992 to January 1996); Graduate Student, Bentley College (prior
to December 1994).
TAMIE EBANKS-CUNNINGHAM; 26 -- Assistant Secretary of the Portfolio;
Office Manager, Signature Financial Group (Cayman) Ltd. (since April 1995);
Administrator, Cayman Islands Primary School (prior to April 1995).
JOHN R. ELDER; 50 -- Treasurer of the Portfolio; Vice President,
Signature Financial Group, Inc. (since April 1995); Treasurer, CFBDS, Inc.
(since April 1995); Treasurer, Phoenix Family of Mutual Funds (Phoenix Home Life
Mutual Insurance Company) (1983 to March 1995).
-18-
LINDA T. GIBSON; 33 -- Secretary of the Portfolio; Vice President,
Signature Financial Group, Inc. (since May 1992); Assistant Secretary, CFBDS,
Inc. (since October 1992).
JOAN R. GULINELLO; 43 -- Assistant Secretary and Assistant Treasurer of
the Portfolio; Vice President, Signature Financial Group, Inc. (since October
1993); Secretary, CFBDS, Inc. (since October 1995); Vice President and Assistant
General Counsel, Massachusetts Financial Services Company (prior to October
1993).
JAMES E. HOOLAHAN; 51 -- Vice President, Assistant Secretary and
Assistant Treasurer of the Portfolio; Senior Vice President, Signature Financial
Group, Inc.
SUSAN JAKUBOSKI; 34 -- Vice President, Assistant Treasurer and
Assistant Secretary of the Portfolio; Vice President, Signature Financial Group
(Cayman) Ltd. (since August 1994); Fund Compliance Administrator, Concord
Financial Group (November 1990 to August 1994). Her address is Suite 193, 12
Church Street, Hamilton HM 11, Bermuda.
MOLLY S. MUGLER; 47 -- Assistant Secretary and Assistant Treasurer of
the Portfolio; Vice President, Signature Financial Group, Inc.; Assistant
Secretary, CFBDS, Inc.
CLAIR TOMALIN; 30 -- Assistant Secretary of the Portfolio; Office
Manager, Signature Financial Group (Europe) Limited (since 1993).
SHARON M. WHITSON; 50 -- Assistant Secretary and Assistant Treasurer of
the Portfolio; Assistant Vice President, Signature Financial Group, Inc.
JULIE J. WYETZNER; 39 -- Vice President, Assistant Secretary and
Assistant Treasurer of the Portfolio; Vice President, Signature Financial Group,
Inc.
The Trustees and officers of the Portfolio also hold comparable
positions with certain other investment companies for which Signature Financial
Group (Cayman) Ltd. or an affiliate serves as the distributor or administrator.
Mr. Coolidge is also a Trustee of CitiFunds Trust III, CitiFunds Premium Trust
and CitiFunds Institutional Trust, open-end investment companies, of which
series of each are investors in the Portfolio, and each officer of the Portfolio
holds the same position with those investment companies.
The compensation paid to the Trustees of the Portfolio for the year
ended August 31, 1998 is set forth in the table below.
-19-
PENSION OR
RETIREMENT
AGGREGATE BENEFITS ACCRUED TOTAL COMPENSATION
COMPENSATION AS PART OF THE ESTIMATED ANNUAL FROM THE PORTFOLIO
FROM THE PORTFOLIO'S BENEFITS UPON AND FUND COMPLEX
PORTFOLIO EXPENSES RETIREMENT PAID TO TRUSTEES*
------------ ---------------- ---------------- -------------------
Elliott J. Berv $19,675 None None $59,000
Philip W. Coolidge None None None None
Mark T. Finn $15,553 None None $54,000
Walter E. Robb, III $19,375 None None $56,000
- ------------------
* Messrs. Coolidge, Berv, Finn and Robb are trustees of 49, 27, 26 and 30
funds, respectively, in the family of open-end registered investment
companies advised or managed by Citibank. Mr. Riley Gilley became a trustee
of Cash Reserves Portfolio as of September 1, 1998. Mr. Finn resigned as a
trustee of Cash Reserves Portfolio as of September 1, 1998.
* * * * *
The Trust's Trust Instrument provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust unless it is finally adjudicated that they engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
their offices, or unless it is finally adjudicated that they did not act in good
faith in the reasonable belief that their actions were in the best interests of
the Trust. In the case of settlement, such indemnification will not be provided
unless it has been determined by a court or other body approving the settlement
or other disposition, or by a reasonable determination, based upon a review of
readily available facts, by vote of a majority of disinterested Trustees, or in
a written opinion of independent counsel, that such officers or Trustees have
not engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties. The Declaration of Trust of the Portfolio provides
for similar indemnification of the Trustees and officers of the Portfolio.
As of November 5, 1998, the Trustees and officers of the Trust and the
Portfolio as a group owned beneficially less than 1% of the outstanding Shares
of the Fund and the Portfolio.
-20-
Investment Adviser
Citibank manages the assets of the Portfolio pursuant to an investment
advisory agreement (the "Advisory Agreement"). Subject to such policies as the
Portfolio's Board of Trustees may determine, the Adviser manages the securities
of the Portfolio and makes investment decisions for the Portfolio. The Adviser
furnishes at its own expense all services, facilities and personnel necessary in
connection with managing the Portfolio's investments and effecting securities
transactions for the Portfolio. The Advisory Agreement will continue in effect
as long as such continuance is specifically approved at least annually by the
Portfolio's Board of Trustees or by a vote of a majority of the outstanding
voting securities of the Portfolio, and, in either case, by a majority of the
Trustees of the Portfolio who are not parties to the Advisory Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on the Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to
others. The Advisory Agreement is terminable by the Portfolio without penalty on
not more than 60 days' nor less than 30 days' written notice when authorized
either by vote of a majority of the outstanding voting securities of the
Portfolio or by a vote of a majority of the Portfolio's Board of Trustees, or by
the Adviser on not more than 60 days' nor less than 30 days' written notice, and
will automatically terminate in the event of its assignment. The Advisory
Agreement provides that neither the Adviser nor its personnel shall be liable
for any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution of security transactions
for the Portfolio, except for willful misfeasance, bad faith, gross negligence
or reckless disregard of its or their obligations and duties under the Advisory
Agreement.
Cash Reserves Portfolio commenced investment operations on May 3, 1990.
The Institutional Money Fund commenced investment operations (and its
investments in the Portfolio) on November 8, 1993.
The Prospectus contains a description of the fees payable to the
Adviser under the Advisory Agreement. For the fiscal years ended August 31,
1998, 1997 and 1996, the fees paid to the Adviser under the Advisory Agreement
were $13,394,307, $9,148,204 and $6,140,512, respectively (of which $6,655,101,
$4,752,918 and $3,426,821 was voluntarily waived for the fiscal years ended
August 31, 1998, 1997 and 1996, respectively).
The Glass-Steagall Act prohibits certain financial institutions, such
as Citibank or U.S. Trust Company of Connecticut ("U.S. Trust CT"), from
engaging in the business of underwriting securities of open-end investment
companies, such as the Trust or the Portfolio. Citibank believes that the
investment advisory services and the sub-administrative activities performed by
it with respect to the Portfolio do not constitute underwriting activities and
are consistent with the requirements of the Glass-Steagall Act. Citibank also
believes that the combination of individually permissible activities by it is
consistent with the Glass-Steagall Act and other relevant federal or state legal
and regulatory precedent. U.S. Trust CT believes that (a) the services performed
by U.S. Trust CT with respect to the Trust do not constitute underwriting
activities and are consistent with the requirements of the Glass-Steagall Act,
and (b) the combination of individually permissible activities by U.S. Trust CT
is consistent with the Glass-Steagall Act and other relevant federal or state
legal and regulatory precedent. There is presently no controlling precedent
regarding the performance of the combination of investment advisory and
sub-administrative activities by banks. State laws on this issue may differ from
applicable federal laws and banks and financial institutions may be required to
register as dealers pursuant to state securities laws. Future changes in either
federal or state statutes or regulations relating to the permissible activities
of banks, as well as future judicial or administrative decisions and
interpretations of present and future federal or state statutes and regulations,
could prevent Citibank or U.S. Trust CT from continuing to perform such services
for the Trust or the Portfolio. If Citibank were to be prevented from acting as
the Adviser or sub-administrator for the Portfolio, or if U.S. Trust CT were to
be similarly prevented from providing administrative services to the Trust with
respect to the Fund, the Trust and the Portfolio would seek alternative means
for providing such services. The Trust does not expect that the Fund's
shareholders would suffer any adverse financial consequences as a result of any
such occurrence.
-21-
Administrators
The Portfolio has adopted an Administrative Services Plan (the
"Administrative Plan") which provides that the Portfolio may obtain the services
of an administrator, a transfer agent and a custodian, and may enter into
agreements providing for the payment of fees for such services. Under the
Administrative Plan, the administrative services fee payable to Signature
Financial Group (Cayman) Ltd. ("SFG") may not exceed 0.05% of the Portfolio's
average daily net assets on an annualized basis for its then-current fiscal
year. The Administrative Plan continues in effect if such continuance is
specifically approved at least annually by a vote of both a majority of the
Portfolio's Trustees and a majority of the Portfolio's Trustees who are not
"interested persons" of the Portfolio and who have no direct or indirect
financial interest in the operation of the Administrative Plan or in any
agreement related to such Plan ("Qualified Trustees"). The Administrative Plan
requires that the Portfolio provide to its Board of Trustees and the Board of
Trustees review, at least quarterly, a written report of the amounts expended
(and the purposes therefor) under the Administrative Plan. The Administrative
Plan may be terminated at any time by a vote of the Portfolio's Qualified
Trustees or by a vote of a majority of the outstanding voting securities of the
Portfolio. The Administrative Plan may not be amended to increase materially the
amount of permitted expenses thereunder without the approval of a majority of
the outstanding voting securities of the Portfolio and may not be materially
amended in any case without a vote of the majority of both the Trustees and the
Qualified Trustees.
U.S. Trust CT, Chase Global Funds Services Company ("CGFSC") and
Federated Administrative Services ("FAS") (collectively, the "Trust
Administrators") provide the Trust, and SFG (together with the Trust
Administrators, the "Administrators") provides the Portfolio, with general
office facilities, equipment and clerical personnel. The Administrators
supervise the overall administration of the Trust and the Portfolio. These
administrative services include, among other responsibilities, the negotiation
of contracts and fees with, and the monitoring of performance and billings of,
the independent contractors and agents of the Trust and the Portfolio; the
preparation and filing of certain documents required for compliance by the Trust
and the Portfolio with applicable laws and regulations; and arranging for the
maintenance of books and records of the Trust and the Portfolio. The Trust
Administrators also assist in developing and monitoring compliance procedures
for the Fund, including procedures to monitor compliance with the Fund's
investment objective, policies and restrictions. SFG provides persons
satisfactory to the Board of Trustees of the Portfolio to serve as Trustees and
officers of the Portfolio. Such Trustees and officers, as well as certain other
employees and Trustees of the Portfolio, may be directors, officers or employees
of SFG or its affiliates.
-22-
The Administration Agreement, with respect to the Trust, and the
Administrative Services Agreement, with respect to the Portfolio, provide that
the Administrators may render administrative services to others. Each Agreement
terminates automatically if it is assigned. The Administrative Services
Agreement may be terminated without penalty by vote of a majority of the
outstanding voting securities of the Portfolio or by either party on not more
than 60 days' nor less than 30 days' written notice. The Administration
Agreement may be terminated without penalty by any party on not less than 45
days' notice. The Agreements provide that neither the Administrators nor their
personnel shall be liable for any error of judgment or mistake of law or for any
act or omission in the administration or management of the Trust or the
Portfolio, except for willful misfeasance, bad faith or gross negligence in the
performance of their duties or by reason of reckless disregard of their
obligations and duties under said Agreements. The Trust's Administration
Agreement also provides that the Trust Administrators shall not be liable for
any indirect, incidental, special or consequential losses or indirect,
incidental, special or consequential damages, even if they had been advised of
the likelihood of such losses or damages.
The Prospectus contains a description of the fees payable to the
Administrators under their respective Agreements. For the fiscal year ended
August 31, 1998, CGFSC, FAS and U.S. Trust CT collectively received
administration fees of $52,769 with respect to the Fund. For the same period,
they collectively waived fees totaling $128,164 with respect to the Fund.
From April 1, 1997 to May 15, 1997, CGFSC, FAS and United States Trust
Company of New York ("U.S. Trust NY") served as the Trust's administrators
pursuant to an administration agreement substantially similar to the
Administration Agreement currently in effect for the Trust. On May 16, 1997,
U.S. Trust CT replaced U.S. Trust NY as one of the Trust's administrators. For
the period from April 1, 1997 to August 31, 1997, CGFSC, FAS, U.S. Trust CT and
U.S. Trust NY collectively received administration fees of $18,965 with respect
to the Fund. For the same period, they collectively waived fees totaling
$107,469 with respect to the Fund.
Prior to April 1, 1997, Signature Broker-Dealer Services, Inc. ("SBDS")
served as the Trust's administrator. For the period from September 1, 1996 to
March 31, 1997, the Fund accrued administration fees totaling $18,763. For the
fiscal years ended August 31, 1996 and 1995, the Fund accrued administration
fees totaling $44,937 and $47,453, respectively.
For the fiscal years ended August 31, 1998, 1997 and 1996, the
administration fees payable to SFG under the Portfolio's Administrative Services
Agreement were $4,464,769, $3,049,401 and $2,046,838, respectively. All such
administration fees payable by the Portfolio for the fiscal years ended August
31, 1998, 1997 and 1996 were voluntarily waived. SBDS and SFG are wholly-owned
subsidiaries of Signature Financial Group, Inc.
-23-
Sub-Administrator
Pursuant to a Sub-Administrative Services Agreement, Citibank performs
such sub-administrative duties for the Portfolio as are from time to time agreed
upon by Citibank and SFG.
Shareholder Organizations
As stated in the Prospectus, the Trust may enter into agreements with
certain Shareholder Organizations. Such agreements require the Shareholder
Organizations to provide shareholder administrative services to their Customers
who beneficially own Shares in consideration for the Fund's payment of not more
than the annual rate of 0.40% of the average daily net assets of the Fund's
Shares beneficially owned by Customers of the Shareholder Organization. Such
services may include: (a) acting as recordholder of Shares; (b) assisting in
processing purchase, exchange and redemption transactions; (c) providing
periodic statements showing a Customer's account balances and confirmations of
transactions by the Customer; (d) providing tax and dividend information to
shareholders as appropriate; (e) transmitting proxy statements, annual reports,
updated prospectuses and other communications from the Trust to Customers; and
(f) providing or arranging for the provision of other related services.
The Trust's agreements with Shareholder Organizations are governed by
an Administrative Services Plan (the "Plan") adopted by the Trust. Pursuant to
the Plan, the Trust's Board of Trustees will review, at least quarterly, a
written report of the amounts expended under the Trust's agreements with
Shareholder Organizations and the purposes for which the expenditures were made.
In addition, the arrangements with Shareholder Organizations will be approved
annually by a majority of the Trust's Trustees, including a majority of the
Trustees who are not "interested persons" of the Trust (as defined in the 1940
Act) and have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
Any material amendment to the Trust's arrangements with Shareholder
Organizations must be approved by a majority of the Trust's Board of Trustees
(including a majority of the Disinterested Trustees). So long as the Trust's
arrangements with Shareholder Organizations are in effect, the selection and
nomination of the members of the Trust's Board of Trustees who are not
"interested persons" of the Trust (as defined in the 1940 Act) will be committed
to the discretion of such Disinterested Trustees.
For the fiscal years ended August 31, 1998, 1997 and 1996, payments to
Shareholder Organizations under the Plan totaled $22,271, $233,914 and $421,706,
respectively.
Transfer Agents and Custodians
U.S. Trust NY serves as custodian of the Fund's assets. U.S. Trust NY
and U.S. Trust CT are subsidiaries of U.S. Trust Corporation, a registered bank
holding company. CGFSC serves as the Trust's transfer and dividend disbursing
agent. CGFSC is a wholly-owned subsidiary of The Chase Manhattan Bank.
-24-
Under such agreement and as the Fund's custodian, U.S. Trust NY has
agreed to (i) maintain a separate account or accounts for the Fund; (ii) make
receipts and disbursements of money on behalf of the Fund; (iii) collect and
receive income and other payments and distributions on account of the Fund's
portfolio securities; (iv) respond to correspondence from securities brokers and
others relating to its duties; (v) maintain certain financial accounts and
records; and (vi) make periodic reports to the Trust concerning the Fund's
operations. As the Fund's transfer agent and dividend disbursement agent, CGFSC
has agreed to (i) issue and redeem Shares of the Fund; (ii) address and mail all
communications by the Fund to its shareholders, including reports to
shareholders, dividend and distribution notices, and proxy materials for their
meetings of shareholders; (iii) respond to correspondence by shareholders and
others relating to its duties; (iv) maintain shareholder accounts; and (v) make
periodic reports to the Trust concerning the Fund's operations. For their
custody, transfer agency and dividend disbursement services, U.S. Trust NY and
CGFSC are entitled to receive from the Trust such compensation as may be agreed
upon from time to time by the Trust, U.S. Trust NY and CGFSC. In addition, U.S.
Trust NY and CGFSC are entitled to be reimbursed for their out-of-pocket
expenses for the cost of forms, postage, processing purchase and redemption
orders, handling of proxies, and other similar expenses in connection with the
above services.
U.S. Trust NY may, at its own expense, open and maintain custody
accounts with respect to the Fund with other banks or trust companies, provided
that U.S. Trust NY shall remain liable for the performance of all of its
custodial duties under the Custody Agreement, notwithstanding any delegation.
The Portfolio has entered into a Transfer Agency Agreement and a
Custodian Agreement with State Street Bank and Trust Company ("State Street"),
pursuant to which State Street acts as custodian and State Street Canada, Inc.
("State Street Canada") acts as transfer agent and provides fund accounting
services to the Portfolio. The transfer agent maintains an account for each
investor in the Portfolio and performs other transfer agency functions. State
Street's responsibilities include safeguarding and controlling the Portfolio's
cash and securities, handling the receipt and delivery of securities,
determining income and collecting interest on the Portfolio's investments, and
maintaining books of original entry for Portfolio accounting and other required
books and accounts. Securities held by the Portfolio may be deposited into the
Federal Reserve-Treasury Department Book Entry System or the Depositary Trust
Company and may be held by a sub-custodian bank if such arrangements are
reviewed and approved by the Trustees of the Portfolio. State Street does not
determine the investment policies of the Portfolio or decide which securities
the Portfolio will buy or sell. The Portfolio may, however, invest in securities
of State Street and may deal with State Street as principal in securities
transactions. For its services to the Portfolio, State Street receives such
compensation as may from time to time be agreed upon by State Street and the
Portfolio. The principal business address of State Street is 225 Franklin
Street, Boston, Massachusetts 02110.
-25-
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP and PricewaterhouseCoopers are the
independent accountants and chartered accountants for the Fund and the
Portfolio, respectively. They provide audit services and assistance and
consultation with respect to the preparation of filings with the SEC. The
principal business address of PricewaterhouseCoopers LLP is 160 Federal Street,
Boston, Massachusetts 02110. The principal business address of
PricewaterhouseCoopers is Suite 3000, Box 82, Royal Trust Towers, Toronto
Dominion Center, Toronto, Ontario, Canada M5K 1G8.
COUNSEL
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of the
Trust, and Mr. Malloy, Assistant Secretary of the Trust, are partners),
Philadelphia National Bank Building, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107, is counsel to the Trust and will pass upon the legality of
the Shares offered by the Prospectus.
TAXATION
Taxation of the Fund
Each series of the Trust is treated as a separate entity for federal
income tax purposes under the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund has elected to be treated and intends to qualify each year as
a "regulated investment company" under Subchapter M of the Code (a "RIC") by
meeting all applicable requirements of Subchapter M, including requirements as
to the nature of the Fund's gross income, the amount of the Fund's
distributions, and the composition of the Fund's portfolio assets. Because the
Fund intends to distribute all of its net investment income and net realized
capital gains to its shareholders in accordance with the timing requirements
imposed by the Code, it is not expected that the Fund will be required to pay
any federal income or excise taxes. If the Fund fails to qualify as a RIC in any
year, the Fund would incur a regular corporate federal income tax upon its
taxable income, and the Fund's distributions would generally be taxable as
ordinary dividend income to shareholders.
Investment income received by the Fund from non-U.S. investments may be
subject to foreign income taxes withheld at the source; the Fund does not expect
to be able to pass through to shareholders any foreign tax credits with respect
to those foreign taxes. The United States has entered into tax treaties with
many foreign countries that may entitle the Fund to a reduced rate of tax or an
exemption from tax on these investments. It is not possible to determine the
Fund's effective rate of foreign tax in advance since that rate depends upon the
proportion of the Portfolio's assets ultimately invested within various
countries.
Under interpretations of the Internal Revenue Service, (1) the
Portfolio will be treated for federal income tax purposes as a partnership and
(2) for purposes of determining whether the Fund satisfies the income and
diversification requirements to maintain its status as a RIC, the Fund, as an
investor in the Portfolio, will be deemed to own a proportionate share of the
Portfolio's assets and will be deemed to be entitled to the Portfolio's income
attributable to that share. The Portfolio has advised the Trust that it intends
to conduct its operations so as to enable its investors, including the Fund, to
satisfy those requirements.
-26-
Taxation of the Portfolio
The Trust anticipates that the Portfolio will be treated as a
partnership for federal income tax purposes. As such, the Portfolio is not
subject to federal income taxation. Instead, the Fund must take into account, in
computing its federal income tax liability, its share of the Portfolio's income,
gains, losses, deductions and other tax items. Withdrawal by the Fund from the
Portfolio generally will not result in the Fund recognizing any gain or loss for
federal income tax purposes except under very unusual circumstances.
Taxation of Distributions
Dividends from income and any distributions from net short-term capital
gains are taxable to shareholders as ordinary income for federal income tax
purposes. Distributions of net capital gains (the excess of net long-term
capital gain over net short-term capital loss), if any, are taxable to
shareholders as long-term capital gains without regard to the length of time the
shareholders have held their shares. The Fund's distributions are not expected
to qualify for the dividends-received deduction available to corporations.
Distributions are taxable as described above whether paid in cash or reinvested
in additional shares. Shareholders will be notified annually as to the federal
tax status of distributions.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of the excise tax, the Fund must, and intends to, distribute
during each calendar year substantially all of its ordinary income for that year
and substantially all of its capital gain in excess of its capital losses for
the twelve months ended October 31, plus any undistributed ordinary income and
capital gains from previous periods. For this and other purposes, a distribution
will be treated as paid on December 31 if it is declared in December with a
record date in such a month and paid by the Fund during January of the following
calendar year. Accordingly, those distributions will be taxable to shareholders
for the taxable year in which that December 31 falls.
Other Taxation
The Trust is organized as a Delaware business trust and, under current
law, neither the Trust nor the Fund are liable for any income or franchise tax
in the State of Delaware, provided that the Fund continues to qualify as a RIC
for federal income tax purposes. The investment by the Fund in the Portfolio
does not cause the Fund to be liable for any income or franchise tax in the
State of New York.
The Portfolio is organized as a New York trust. The Portfolio is not
subject to any income or franchise tax in the State of New York or the State of
Delaware.
Fund shareholders may be subject to state and local taxes on Fund
distributions to them by the Fund. Shareholders are advised to consult their own
tax advisers with respect to the particular tax consequences to them of an
investment in the Fund.
-27-
DESCRIPTION OF THE TRUST; FUND SHARES
The Trust is a Delaware business trust established under a Trust
Instrument dated October 25, 1993. Its authorized capital consists of an
unlimited number of shares of beneficial interest of $0.00001 par value, which
may be issued in separate series. Currently, the Trust has one active series,
although additional series may be established from time to time. Each share of
each series represents an equal proportionate interest in that series with each
other share in that series.
The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with such a share of the general
liabilities of the Trust. Expenses with respect to any two or more series are to
be allocated in proportion to the asset value of the respective series except
where allocations of direct expenses can otherwise be fairly made. The officers
of the Trust, subject to the general supervision of the Trustees, have the power
to determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the value of the underlying assets of such
shares available for distribution to shareholders.
The Trust's Trustees may amend the Trust Instrument without shareholder
approval, except shareholder approval is required for any amendment (a) which
affects the voting rights of shareholders under the Trust Instrument, (b) which
affects shareholders' rights to approve certain amendments to the Trust
Instrument, (c) required to be approved by shareholders by law or the
Registration Statement, or (d) submitted to shareholders for their approval by
the Trustees in their discretion. Pursuant to Delaware business trust law and
the Trust Instrument, the Trustees may, without shareholder approval, (x) cause
the Trust to merge or consolidate with one or more entities, if the surviving or
resulting entity is the Trust or another open-end management investment company
registered under the 1940 Act, or a series thereof, that will succeed to or
assume the Trust's registration under the 1940 Act, or (y) cause the Trust to
incorporate under the laws of the State of Delaware.
Shares of the Fund entitle their holder to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon only by shareholders of the series involved.
The Trust's Trust Instrument provides that obligations of the Trust are
not binding upon the Trustees individually but only upon the property of the
Trust, that the Trustees and officers will not be liable for errors of judgment
or mistakes of fact or law, and that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust unless it
is finally adjudicated that they engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in their offices,
or unless it is finally adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interests of the Trust. In
the case of settlement, such indemnification will not be provided unless it has
been determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination, based upon a review of readily
available facts, by vote of a majority of disinterested Trustees, or in a
written opinion of independent counsel, that such officers or Trustees have not
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
Under Delaware law, shareholders of a Delaware business trust are
entitled to the same limitation on personal liability which is extended to
shareholders of private for profit corporations organized under the general
corporation law of the State of Delaware; the courts of other states may not
apply Delaware law, however, and shareholders may, under certain circumstances,
be held personally liable for the obligations of the Trust. The Trust Instrument
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and provides for indemnification and reimbursement of expenses out
of Fund property for any shareholder held personally liable for the obligations
of the Fund solely by reason of his being or having been a shareholder.
-28-
MISCELLANEOUS
As of November 10, 1998, U.S. Trust NY and its affiliates held of
record a majority of the Trust's outstanding shares as agent or custodian
for their customers, but did not own such shares beneficially because they did
not have voting or investment discretion with respect to such shares.
As of November 10, 1998, the name, address and percentage ownership of
each person that beneficially owned 5% or more of the outstanding Shares of the
Fund were as follows: Evercore Partners Inc., 65 E. 55th Street, New York, NY
10022, 7.41%; Sunrider, 1625 Abalone Ave., Torrance, CA 90501, 6.19%; and Estate
of Juan Young, 1200 SW Main, Portland, OR 97205, 5.55%.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Trust's
Annual Report to Shareholders for the fiscal year ended August 31, 1998 (the
"1998 Annual Report") are incorporated into this Statement of Additional
Information by reference. No other parts of the 1998 Annual Report are
incorporated by reference herein. The financial statements included in the 1998
Annual Report have been audited by the Trust's independent accountants,
PricewaterhouseCoopers LLP, whose report thereon is also incorporated herein by
reference. Such financial statements have been incorporated herein in reliance
upon such report given upon their authority as experts in accounting and
auditing. Additional copies of the 1998 Annual Report may be obtained at no
charge by telephoning CGFSC at (800) 909-1989.
The audited financial statements and notes thereto relating to the
Portfolio and presented with the Trust's Annual Report to Shareholders for the
fiscal year ended August 31, 1998 are incorporated into this Statement of
Additional Information by reference. These financial statements have been
audited by the Portfolio's chartered accountants, PricewaterhouseCoopers, whose
report thereon is also incorporated herein by reference. Such financial
statements have been incorporated herein in reliance upon such report given upon
their authority as experts in accounting and auditing.
-29-
Distributor of the Fund
Edgewood Services, Inc.
5800 Corporate Drive
Pittsburgh, PA 15237
Investment Adviser of the Portfolio EXCELSIOR FUNDS
Citibank, N.A. Excelsior Institutional
153 East 53rd Street Money Fund
New York, NY 10043
Custodian of the Portfolio
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Transfer Agent and Fund
Accounting Agent of the Portfolio
State Street Canada, Inc.
40 King Street West
Suite 5700
Toronto, Ontario, Canada
Co-Administrator of the Fund
U.S Trust Company of Connecticut
114 West 47th Street
New York, NY 10036
Transfer Agent and Co-Administrator
of the Fund STATEMENT OF
ADDITIONAL INFORMATION
Chase Global Funds Services Company
73 Tremont Street DECEMBER 24, 1998
Boston, MA 02108
Co-Administrator of the Fund
Federated Administrative Services
Federated Investors Tower
Pittsburgh, PA 15222
Independent Accountants of the Fund
PricewaterhouseCoopers LLP
160 Federal Street
Boston, MA 02110
Independent Accountants of the Portfolio
PricewaterhouseCoopers
Suite 3000, Box 82
Royal Trust Towers
Toronto Dominion Center
Toronto, Ontario, Canada M5K 1G8
-30-
EXCELSIOR FUNDS, INC.
Money Fund
Government Money Fund
Treasury Money Fund
EXCELSIOR TAX-EXEMPT FUNDS, INC.
Tax-Exempt Money Fund
New York Tax-Exempt Money Fund
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1999
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the current prospectus for the Money, Government Money
and Treasury Money Funds of Excelsior Funds, Inc. and the Tax-Exempt Money and
New York Tax-Exempt Money Funds of Excelsior Tax-Exempt Funds, Inc.
(individually, a "Fund" and collectively, the "Funds") dated August 1, 1999 (the
"Prospectus"). A copy of the Prospectus may be obtained by writing Excelsior
Funds, Inc. or Excelsior Tax-Exempt Funds, Inc. c/o Chase Global Funds Services
Company, 73 Tremont Street, Boston, MA 02108-3913 or by calling (800) 446-1012.
Capitalized terms not otherwise defined have the same meaning as in the
Prospectus.
The audited financial statements and related report of Ernst & Young LLP,
independent auditors, contained in the annual report to the Funds' shareholders
for the fiscal year ended March 31, 1999 are incorporated herein by reference in
the section entitled "Financial Statements." No other parts of the annual report
are incorporated herein by reference. Copies of the annual report may be
obtained upon request and without charge by calling (800) 446-1012.
TABLE OF CONTENTS
Page
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CLASSIFICATION AND HISTORY................................................. 1
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS................................ 1
Additional Investment Policies.................................... 1
Additional Information on Portfolio Instruments................... 4
Special Considerations Relating To New York Municipal
Securities........................................................ 13
Investment Limitations............................................ 24
NET ASSET VALUE AND NET INCOME............................................. 28
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................. 29
Purchase Of Shares................................................ 31
Redemption Procedures............................................. 33
Other Redemption Information...................................... 35
INVESTOR PROGRAMS.......................................................... 36
Systematic Withdrawal Plan........................................ 36
Exchange Privilege................................................ 37
Retirement Plans.................................................. 37
Automatic Investment Program...................................... 38
Additional Information............................................ 38
DESCRIPTION OF CAPITAL STOCK............................................... 38
MANAGEMENT OF THE FUNDS.................................................... 40
Directors And Officers............................................ 40
Investment Advisory And Administration Agreements................. 45
Banking Laws...................................................... 47
Shareholder Organizations......................................... 48
Expenses.......................................................... 49
Custodian And Transfer Agent...................................... 49
PORTFOLIO TRANSACTIONS..................................................... 50
INDEPENDENT AUDITORS....................................................... 51
COUNSEL.................................................................... 52
ADDITIONAL INFORMATION CONCERNING TAXES.................................... 52
Generally......................................................... 52
Taxable Funds..................................................... 53
Tax-Exempt Funds.................................................. 53
YIELD INFORMATION.......................................................... 54
MISCELLANEOUS.............................................................. 56
FINANCIAL STATEMENTS....................................................... 57
APPENDIX A................................................................. A-1
CLASSIFICATION AND HISTORY
Excelsior Funds, Inc. ("Excelsior Fund") and Excelsior Tax-Exempt
Funds, Inc. ("Excelsior Tax-Exempt Fund" and collectively with Excelsior Fund,
the "Companies") are open-end, management investment companies. The Money,
Government Money and Treasury Money Funds are separate series of Excelsior Fund.
The Tax-Exempt Money and New York Tax-Exempt Money Funds are separate series of
Excelsior Tax-Exempt Fund. The Money, Government Money, Treasury Money and
Tax-Exempt Money Funds are classified as diversified under the Investment
Company Act of 1940, as amended (the "1940 Act"). The New York Tax-Exempt Money
Fund is classified as non-diversified under the 1940 Act. Excelsior Fund and
Excelsior Tax-Exempt Fund were organized as Maryland corporations on August 2,
1984 and August 8, 1984, respectively. Prior to December 28, 1995, Excelsior
Fund and Excelsior Tax-Exempt Fund were known as "UST Master Funds, Inc." and
"UST Master Tax-Exempt Funds, Inc.," respectively. This Statement of Additional
Information pertains to the Shares ("Retail Shares") of all the Funds and the
Institutional Shares of the Money and Government Money Funds (collectively with
the Retail Shares, the "Shares").
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The following information supplements the description of the
investment objectives, strategies and risks of the Funds as set forth in the
Prospectus. The investment objective of each of the Money, Government Money and
Treasury Money Funds (collectively, the "Taxable Funds") and the Tax-Exempt
Money Fund may not be changed without the vote of the holders of a majority of
its outstanding Shares (as defined below). The investment objective of the New
York Tax-Exempt Money Fund may be changed without shareholder approval. Except
as expressly noted below, each Fund's investment policies may be changed without
shareholder approval.
As discussed below under "Net Asset Value and Net Income," each Fund
uses the amortized cost method to value securities in its portfolio. As such,
each Fund is required to comply with Rule 2a-7 under the 1940 Act. Under Rule
2a-7, with respect to 100% of each of the Money, Government Money, Treasury
Money and Tax-Exempt Money Funds' total assets, and 75% of the New York
Tax-Exempt Money Fund's total assets, a Fund may not invest more than 5% of its
assets, measured at the time of purchase, in the securities of any one issuer
other than U.S. government securities, repurchase agreements collateralized by
such securities and securities subject to certain guarantees. The New York
Tax-Exempt Money Fund's compliance with the diversification provisions of Rule
2a-7 is deemed to be compliance with the diversification standards of the 1940
Act.
ADDITIONAL INVESTMENT POLICIES
The Funds may only invest in: (i) securities in the two highest
short-term rating categories of a nationally recognized statistical rating
organization ("NRSRO"), provided that if a security is rated by more than one
NRSRO, at least two NRSROs must rate the security in one of the two highest
short-term rating categories; (ii) unrated securities determined to be of
-1-
comparable quality at the time of purchase; (iii) certain money market fund
shares; and (iv) U.S. government securities (collectively, "Eligible
Securities"). The rating symbols of the NRSROs which the Funds may use are
described in the Appendix attached hereto.
TREASURY MONEY FUND
Under normal market conditions, the Treasury Money Fund will invest at
least 65% of its total assets in direct U.S. Treasury obligations, such as
Treasury bills and notes. The Fund may also from time to time invest in
obligations issued or guaranteed as to principal and interest by certain
agencies or instrumentalities of the U.S. government, such as the Farm Credit
System Financial Assistance Corporation, Federal Financing Bank, General
Services Administration, Federal Home Loan Banks, Farm Credit System and the
Tennessee Valley Authority. Income on direct investments in U.S. Treasury
securities and obligations of the aforementioned agencies and instrumentalities
is generally not subject to state and local income taxes by reason of federal
law. In addition, the Fund's dividends from income that is attributable to such
investments will also be exempt in most states from state and local income
taxes. Shareholders in a particular state should determine through consultation
with their own tax advisors whether and to what extent dividends payable by the
Treasury Money Fund from its investments will be considered by the state to have
retained exempt status, and whether the Fund's capital gain and other income, if
any, when distributed will be subject to the state's income tax.
TAX-EXEMPT MONEY AND NEW YORK TAX-EXEMPT MONEY FUNDS (THE "TAX-EXEMPT FUNDS")
The Tax-Exempt Money Fund will invest substantially all of its assets
in high-quality debt obligations determined by the Adviser to present minimal
credit risks. Such obligations will be issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia and
their respective authorities, agencies, instrumentalities and political
subdivisions, the interest on which is, in the opinion of bond counsel to the
issuer, exempt from federal income tax ("Municipal Securities"). As a matter of
fundamental policy, except during temporary defensive periods, the Fund will
maintain at least 80% of its assets in tax-exempt obligations. (This policy may
not be changed with respect to the Fund without the vote of the holders of a
majority of its outstanding Shares.) The Tax-Exempt Money Fund also may invest
in certain tax-exempt derivative instruments, such as floating rate trust
receipts.
Under normal market conditions, at least 80% of the New York
Tax-Exempt Money Fund's net assets will be invested in Municipal Securities
which are determined by the Adviser to present minimal credit risks. The Fund
may also invest in tax-exempt derivative securities such as tender option bonds,
participations, beneficial interests in trusts and partnership interests.
Dividends paid by the Fund that are derived from interest on obligations that is
exempt from taxation under the Constitution or statutes of New York ("New York
Municipal Securities") are exempt from regular federal, New York State and New
York City personal income tax. New York Municipal Securities include municipal
securities issued by the State of New York and its political sub-divisions, as
well as certain other governmental issuers such as the Commonwealth of Puerto
Rico. Dividends derived from interest on Municipal Securities
-2-
other than New York Municipal Securities are exempt from federal income tax but
may be subject to New York State and New York City personal income tax (see
"Additional Information Concerning Taxes" below). The Fund expects that under
normal market conditions, at least 65% of its total assets will be invested in
New York Municipal Securities.
The New York Tax-Exempt Money Fund is concentrated in securities
issued by New York State or entities within New York State and therefore
investment in the Fund may be riskier than an investment in other types of money
market funds. The Fund's ability to achieve its investment objective is
dependent upon the ability of the issuers of New York Municipal Securities to
meet their continuing obligations for the payment of principal and interest. New
York State and New York City face long-term economic problems that could
seriously affect their ability and that of other issuers of New York Municipal
Securities to meet their financial obligations.
Certain substantial issuers of New York Municipal Securities
(including issuers whose obligations may be acquired by the Fund) have
experienced serious financial difficulties in recent years. These difficulties
have at times jeopardized the credit standing and impaired the borrowing
abilities of all New York issuers and have generally contributed to higher
interest costs for their borrowings and fewer markets for their outstanding debt
obligations. Although several different issues of Municipal Securities of New
York State and its agencies and instrumentalities and of New York City have been
downgraded by Standard & Poor's Ratings Services ("S&P") and Moody's Investors
Service, Inc. ("Moody's") in recent years, S&P and Moody's have recently placed
the debt obligations of New York State and New York City on CreditWatch with
positive implications and upgraded the debt obligations of New York City. Strong
demand for New York Municipal Securities has also at times had the effect of
permitting New York Municipal Securities to be issued with yields relatively
lower, and after issuance, to trade in the market at prices relatively higher,
than comparably rated municipal obligations issued by other jurisdictions. A
recurrence of the financial difficulties previously experienced by certain
issuers of New York Municipal Securities could result in defaults or declines in
the market values of those issuers' existing obligations and, possibly, in the
obligations of other issuers of New York Municipal Securities. Although as of
the date of this Statement of Additional Information, no issuers of New York
Municipal Securities are in default with respect to the payment of their
municipal obligations, the occurrence of any such default could affect adversely
the market values and marketability of all New York Municipal Securities and,
consequently, the net asset value of the New York Tax-Exempt Money Fund's
portfolio. Other considerations affecting the Fund's investments in New York
Municipal Securities are summarized below under "Special Considerations Relating
to New York Municipal Securities."
From time to time on a temporary defensive basis due to market
conditions, the Tax-Exempt Funds may hold uninvested cash reserves or invest in
taxable obligations in such proportions as, in the opinion of the Adviser,
prevailing market or economic conditions may warrant. Uninvested cash reserves
will not earn income. Taxable obligations in which the Tax-Exempt Funds may
invest include: (i) obligations of the U.S. Treasury; (ii) obligations of
agencies and instrumentalities of the U.S. government; (iii) money market
instruments such as certificates of deposit, commercial paper, and bankers'
acceptances; (iv) repurchase agreements
-3-
collateralized by U.S. government obligations or other money market instruments;
and (v) securities issued by other investment companies that invest in
high-quality, short-term securities.
The Tax-Exempt Funds may also invest from time to time in "private
activity bonds" (see "Municipal Securities" below), the interest on which is
treated as a specific tax preference item under the federal alternative minimum
tax. Investments in such securities, however, will not exceed under normal
market conditions 20% of a Fund's net assets when added together with any
taxable investments by the Fund.
Each Tax-Exempt Fund may invest more than 25% of its assets in
Municipal Securities the interest on which is paid solely from revenues on
similar projects if such investment is deemed necessary or appropriate by the
Adviser. To the extent that a Fund's assets are concentrated in Municipal
Securities payable from revenues on similar projects, the Fund will be subject
to the peculiar risks presented by such projects to a greater extent than it
would be if its assets were not so concentrated.
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
VARIABLE AND FLOATING RATE INSTRUMENTS
Commercial paper may include variable and floating rate instruments.
While there may be no active secondary market with respect to a particular
instrument 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. While the Funds in
general will invest only in securities that mature within 13 months of the date
of purchase, they may invest in variable and floating rate instruments which
have nominal maturities in excess of 13 months if such instruments have demand
features that comply with conditions established by the Securities and Exchange
Commission (the "SEC").
Some of the instruments purchased by the Government Money and Treasury
Money Funds may also be issued as variable and floating rate instruments.
However, since they are issued or guaranteed by the U.S. government or its
agencies or instrumentalities, they may have a more active secondary market.
The Adviser will consider the earning power, cash flows and other
liquidity ratios of the issuers of variable and floating rate instruments and
will continuously monitor their financial ability to meet payment on demand. In
determining dollar-weighted average portfolio maturity and whether a variable or
floating rate instrument has a remaining maturity of 13 months or less, the
maturity of each instrument will be computed in accordance with guidelines
established by the SEC.
-4-
REPURCHASE AGREEMENTS
The Money, Government Money, Tax-Exempt Money and New York Tax-Exempt
Money Funds may agree to purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually agreed upon date and price
("repurchase agreements"). The Funds will enter into repurchase agreements only
with financial institutions that are deemed to be creditworthy by the Adviser,
pursuant to guidelines established by the Companies' Boards of Directors. The
Funds will not enter into repurchase agreements with the Adviser or any of its
affiliates. Repurchase agreements with remaining maturities in excess of seven
days will be considered illiquid securities and will be subject to the
limitations described below under "Illiquid Securities." The repurchase price
under a repurchase agreement generally equals the price paid by a Fund plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the securities underlying the repurchase agreement).
Securities subject to repurchase agreements are held by the Funds'
custodian (or sub-custodian) or in the Federal Reserve/Treasury book-entry
system. The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the repurchase price. Default or bankruptcy of the seller would,
however, expose a Fund to possible delay in connection with the disposition of
the underlying securities or loss to the extent that proceeds from a sale of the
underlying securities were less than the repurchase price under the agreement.
Repurchase agreements are considered loans by a Fund under the 1940 Act. Income
on repurchase agreements will be taxable.
SECURITIES LENDING
To increase return on their portfolio securities, the Money and
Government Money Funds may lend their portfolio securities to broker/dealers
pursuant to agreements requiring the loans to be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. Collateral for such loans may include cash, securities of the
U.S. government, its agencies or instrumentalities, or an irrevocable letter of
credit issued by a bank which meets the investment standards of these Funds, or
any combination thereof. Such loans will not be made if, as a result, the
aggregate of all outstanding loans of a Fund exceeds 30% of the value of its
total assets. When a Fund lends its securities, it continues to receive interest
or dividends on the securities lent and may simultaneously earn interest on the
investment of the cash loan collateral, which will be invested in readily
marketable, high-quality, short-term obligations. Although voting rights, or
rights to consent, attendant to lent securities pass to the borrower, such loans
may be called at any time and will be called so that the securities may be voted
by a Fund if a material event affecting the investment is to occur.
There may be risks of delay in receiving additional collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be of good standing and when, in the
Adviser's judgment, the income to be earned from the loan justifies the
attendant risks.
-5-
WHEN-ISSUED AND FORWARD TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis
and may purchase or sell securities on a "forward commitment" basis. These
transactions involve a commitment by a Fund to purchase or sell particular
securities with payment and delivery taking place in the future, beyond the
normal settlement date, at a stated price and yield. Securities purchased on
a "forward commitment" or "when-issued" basis are recorded as an asset and
are subject to changes in value based upon changes in the general level of
interest rates. When a Fund agrees to purchase securities on a "when-issued"
or "forward commitment" basis, the custodian will set aside cash or liquid
portfolio securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to
satisfy a purchase commitment and, in such case, the Fund may be required
subsequently to place additional assets in the separate account in order to
ensure that the value of the account remains equal to the amount of the
Fund's commitment. It may be expected that a Fund's net assets will fluctuate
to a greater degree when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash. Because a Fund will set
aside cash or liquid assets to satisfy its purchase commitments in the manner
described, its liquidity and ability to manage its portfolio might be
affected in the event its forward commitments or commitments to purchase
"when-issued" securities ever exceed 25% of the value of its assets.
It is expected that "forward commitments" and "when-issued" purchases
will not exceed 25% of the value of a Fund's total assets absent unusual market
conditions, and that the length of such commitments will not exceed 45 days. The
Funds do not intend to engage in "when-issued" purchases and "forward
commitments" for speculative purposes, but only in furtherance of their
investment objectives.
A Fund will purchase securities on a "when-issued" or "forward
commitment" basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, a Fund may dispose
of or renegotiate a commitment after it is entered into, and may sell securities
it has committed to purchase before those securities are delivered to the Fund
on the settlement date. In these cases, the Fund may realize a taxable capital
gain or loss.
When a Fund engages in "when-issued" or "forward commitment"
transactions, it relies on the other party to consummate the trade. Failure of
such other party to do so may result in the Fund incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a "when-issued" purchase
or a "forward commitment" to purchase securities and any subsequent fluctuations
in their market value are taken into account when determining the market value
of a Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
-6-
STAND-BY COMMITMENTS
Each Tax-Exempt Fund may acquire "stand-by commitments" with respect
to Municipal Securities held by it. Under a "stand-by commitment," a dealer or
bank agrees to purchase at the Fund's option, specified Municipal Securities at
a specified price. The amount payable to a Fund upon its exercise of a "stand-by
commitment" is normally (i) the Fund's acquisition cost of the Municipal
Securities (excluding any accrued interest which the Fund paid on their
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Fund owned the securities, plus
(ii) all interest accrued on the securities since the last interest payment date
during that period. "Stand-by commitments" are exercisable by the Tax-Exempt
Funds at any time before the maturity of the underlying Municipal Securities,
and may be sold, transferred or assigned by a Fund only with the underlying
instruments.
The Tax-Exempt Funds expect that "stand-by commitments" will generally
be available without the payment of any direct or indirect consideration.
However, if necessary or advisable, a Fund may pay for a "stand-by commitment"
either separately in cash or by paying a higher price for securities which are
acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). When a Tax-Exempt Fund has paid
any consideration directly or indirectly for a "stand-by commitment," its cost
will be reflected as unrealized depreciation for the period during which the
commitment was held by the Fund.
The Tax-Exempt Funds intend to enter into "stand-by commitments" only
with banks and broker/dealers which, in the Adviser's opinion, present minimal
credit risks. In evaluating the creditworthiness of the issuer of a "stand-by
commitment," the Adviser will review periodically the issuer's assets,
liabilities, contingent claims and other relevant financial information. The
Tax-Exempt Funds will acquire "stand-by commitments" solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. "Stand-by commitments" acquired by a Tax-Exempt Fund would be
valued at zero in determining the Fund's net asset value.
MUNICIPAL SECURITIES
Municipal Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to public
institutions and facilities. Private activity bonds that are issued by or on
behalf of public authorities to finance various privately operated facilities
are included within the term "Municipal Securities" only if the interest paid
thereon is exempt from regular federal income tax and not treated as a specific
tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be
held by the Tax-Exempt Funds are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit, and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues
-7-
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise tax or other specific revenue source such
as user fees of the facility being financed.
Each Tax-Exempt Fund's portfolio may also include "moral obligation"
securities, which are usually issued by public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund -- the restoration of which is a
moral commitment, but not a legal obligation of the state or municipality which
created the issuer. There is no limitation on the amount of moral obligation
securities that may be held by a Tax-Exempt Fund.
The Tax-Exempt Funds may purchase custodial receipts evidencing the
right to receive either the principal amount or the periodic interest payments
or both with respect to specific underlying Municipal Securities. In general,
such "stripped" Municipal Securities are offered at a substantial discount in
relation to the principal and/or interest payments which the holders of the
receipt will receive. To the extent that such discount does not produce a yield
to maturity for the investor that exceeds the original tax-exempt yield on the
underlying Municipal Security, such yield will be exempt from federal income tax
for such investor to the same extent as interest on the underlying Municipal
Security. The Tax-Exempt Funds intend to purchase custodial receipts and
"stripped" Municipal Securities only when the yield thereon will be, as
described above, exempt from federal income tax to the same extent as interest
on the underlying Municipal Securities.
There are, of course, variations in the quality of Municipal
Securities, both within a particular classification and between classifications,
and the yields on Municipal Securities depend upon a variety of factors,
including general money market conditions, the financial condition of the
issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of NRSROs such as Moody's and S&P described in the Appendix
hereto represent their opinion as to the quality of Municipal Securities. It
should be emphasized that these ratings are general and are not absolute
standards of quality, and Municipal Securities with the same maturity, interest
rate, and rating may have different yields while Municipal Securities of the
same maturity and interest rate with different ratings may have the same yield.
Subsequent to its purchase by a Fund, an issue of Municipal Securities may cease
to be rated, or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation.
The payment of principal and interest on most securities purchased by
the Tax-Exempt Funds will depend upon the ability of the issuers to meet their
obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities, and each multi-state
agency of which a state is a member, is a separate "issuer" as that term is used
in this Statement of Additional Information. The non-governmental user of
facilities financed by private activity bonds is also considered to be an
"issuer." An issuer's obligations under its Municipal Securities are subject to
the provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the Federal Bankruptcy Code, and laws, if
any, which may be enacted by federal or state legislatures
-8-
extending the time for payment of principal or interest, or both, or imposing
other constraints upon enforcement of such obligations or upon the ability of
municipalities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest on and principal of its Municipal
Securities may be materially adversely affected by litigation or other
conditions.
Private activity bonds are issued to obtain funds to provide, among
other things, privately operated housing facilities, pollution control
facilities, convention or trade show facilities, mass transit, airport, port or
parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. Private activity
bonds held by the Fund are in most cases revenue securities and are not payable
from the unrestricted revenues of the issuer. The principal and interest on
these obligations may be payable from the general revenues of the users of such
facilities. Consequently, the credit quality of these obligations is usually
directly related to the credit standing of the corporate user of the facility
involved.
Among other instruments, the Tax-Exempt Funds may purchase short-term
general obligation notes, tax anticipation notes, bond anticipation notes,
revenue anticipation notes, tax-exempt commercial paper, construction loan notes
and other forms of short-term loans. Such instruments are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements or other revenues. In addition, the Funds may invest in
long-term tax-exempt instruments, such as municipal bonds and private activity
bonds, to the extent consistent with the applicable maturity restrictions.
The New York Tax-Exempt Money Fund may invest in tax-exempt derivative
securities such as tender option bonds, participations, beneficial interests in
trusts, partnership interests, floating rate trust receipts or other forms. A
typical tax-exempt derivative security involves the purchase of an interest in a
Municipal Security or a pool of Municipal Securities which interest includes a
tender option, demand or other feature. Together, these features entitle the
holder of the interest to tender (or put) the underlying Municipal Security to a
third party at periodic intervals and to receive the principal amount thereof.
In some cases, Municipal Securities are represented by custodial receipts
evidencing rights to receive specific future interest payments, principal
payments, or both, on the underlying municipal securities held by the custodian.
Under such arrangements, the holder of the custodial receipt has the option to
tender the underlying municipal security at its face value to the sponsor
(usually a bank or broker dealer or other financial institution), which is paid
periodic fees equal to the difference between the bond's fixed coupon rate and
the rate that would cause the bond, coupled with the tender option, to trade at
par on the date of a rate adjustment.
Before purchasing a tax-exempt derivative for the New York Tax-Exempt
Money Fund, the Adviser is required by the Fund's Amortized Cost Procedures to
conclude that the tax-exempt security and the supporting short-term obligation
involve minimal credit risks and are Eligible Securities under the Procedures.
In evaluating the creditworthiness of the entity
-9-
obligated to purchase the tax-exempt security, the Adviser will review
periodically the entity's relevant financial information.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax (and, with respect to New
York Municipal Securities, to the exemption of interest thereon from New York
State and New York City personal income taxes) are rendered by bond counsel to
the respective issuers at the time of issuance, and opinions relating to the
validity of and the tax-exempt status of payments received by the New York
Tax-Exempt Money Fund from tax-exempt derivatives are rendered by counsel to the
respective sponsors of such derivatives. The Funds and the Adviser will rely on
such opinions and will not review independently the underlying proceedings
relating to the issuance of Municipal Securities, the creation of any tax-exempt
derivative securities, or the bases for such opinions.
INSURED MUNICIPAL SECURITIES
The New York Tax-Exempt Money Fund may purchase Municipal Securities
which are insured as to timely payment of principal and interest at the time of
purchase. The insurance policies will usually be obtained by the issuer of the
bond at the time of its original issuance. Bonds of this type will be acquired
only if at the time of purchase they satisfy quality requirements generally
applicable to Municipal Securities. Although insurance coverage for the
Municipal Securities held by the Fund reduces credit risk by insuring that the
Fund will receive timely payment of principal and interest, it does not protect
against market fluctuations caused by changes in interest rates and other
factors. The Fund may invest more than 25% of its net assets in Municipal
Securities covered by insurance policies.
MONEY MARKET INSTRUMENTS
"Money market instruments" that may be purchased by the Money,
Government Money, Tax-Exempt Money and New York Tax-Exempt Money Funds in
accordance with their investment objectives and policies include, among other
things, bank obligations, commercial paper and corporate bonds with remaining
maturities of 13 months or less.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit, 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 acquired
by the Money Fund may also include U.S. dollar-denominated obligations of
foreign branches of U.S. banks and obligations of domestic branches of foreign
banks. Investments in bank obligations are limited to the obligations of
financial institutions having more than $2 billion in total assets at the time
of purchase. Investments in bank obligations 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 the Fund's total assets may be invested in
any one branch, and that no more than 20% of the Fund's total assets at the time
of purchase may be invested in the aggregate in such obligations. Investments in
non-negotiable time deposits are
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limited to no more than 5% of the value of a Fund's total assets at time of
purchase, and are further subject to the overall 10% limit on illiquid
securities described below under "Illiquid Securities."
Investments in obligations of foreign branches of U.S. banks and of
U.S. branches of foreign banks may subject the Money Fund to additional
investment risks, including future political and economic developments, the
possible imposition of withholding taxes on interest income, possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign branches of U.S. banks and U.S. branches of foreign banks may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting, and recordkeeping standards than those applicable to
domestic branches of U.S. banks. Investments in the obligations of U.S. branches
of foreign banks or foreign branches of U.S. banks will be made only when the
Adviser believes that the credit risk with respect to the instrument is minimal.
GOVERNMENT OBLIGATIONS
The Funds may purchase government obligations which include
obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities. Such investments may include obligations issued by the Farm
Credit System Financial Assistance Corporation, the Federal Financing Bank, the
General Services Administration, Federal Home Loan Banks and the Tennessee
Valley Authority. Obligations of certain agencies and instrumentalities of the
U.S. government are supported by the full faith and credit of the U.S. Treasury;
others are supported by the right of the issuer to borrow from the Treasury;
others are supported by the discretionary authority of the U.S. government to
purchase the agency's obligations; still others are supported only by the credit
of the instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government-sponsored instrumentalities if it
is not obligated to do so by law. Obligations of such instrumentalities will be
purchased only when the Adviser believes that the credit risk with respect to
the instrumentality is minimal.
Securities issued or guaranteed by the U.S. government have
historically involved little risk of loss of principal if held to maturity.
However, due to fluctuations in interest rates, the market value of such
securities may vary during the period a shareholder owns Shares of a Fund.
The Treasury Money Fund primarily will purchase direct obligations of
the U.S. Treasury and obligations of those agencies or instrumentalities of the
U.S. government interest income from which is generally not subject to state and
local income taxes.
INVESTMENT COMPANY SECURITIES
The Funds may invest in securities issued by other investment
companies which invest in high-quality, short-term securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method. The Tax-Exempt Funds normally will
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invest in securities of investment companies only if such companies invest
primarily in high-quality, short-term Municipal Securities. The Government Money
and Treasury Money Funds intend to limit their acquisition of shares of other
investment companies to those companies which are themselves permitted to invest
only in securities which may be acquired by the respective Funds. Securities of
other investment companies will be acquired by a Fund within the limits
prescribed by the 1940 Act. Except as otherwise permitted under the 1940 Act,
each Fund currently intends to limit its investments so that, as determined
immediately after a securities purchase is made: (a) not more than 5% of the
value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of investment companies as a group;
and (c) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Fund. In addition to the advisory fees and other
expenses a Fund bears directly in connection with its own operations, as a
shareholder of another investment company, a Fund would bear its pro rata
portion of the other investment company's advisory fees and other expenses. As
such, the Fund's shareholders would indirectly bear the expenses of the Fund and
the other investment company, some or all of which would be duplicative. Any
change by the Funds in the future with respect to their policies concerning
investments in securities issued by other investment companies will be made only
in accordance with the requirements of the 1940 Act.
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
anticipated redemption requests, and not for leverage. Each Fund may also agree
to sell portfolio securities to financial institutions such as banks and
broker-dealers and to repurchase them at a mutually agreed date and price (a
"reverse repurchase agreement"). The SEC views reverse repurchase agreements as
a form of borrowing. At the time a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets having
a value equal to the repurchase price, including accrued interest. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by a Fund may decline below the repurchase price of those securities.
ILLIQUID SECURITIES
Each Fund will not knowingly invest more than 10% of the value of its
net assets in securities that are illiquid. 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 registered 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 Adviser, acting under
guidelines approved and monitored by the Board, that an adequate trading market
exists for that security. 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.
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MISCELLANEOUS
The Money, Government Money, Treasury Money and TaxExempt Money Funds
may not invest in oil, gas, or mineral leases.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL SECURITIES
Some of the significant financial considerations relating to the New
York Tax Exempt Fund's investments in New York Municipal Securities are
summarized below. This summary information is not intended to be a complete
description and is principally derived from the Annual Information Statement of
the State of New York as supplemented and contained in official statements
relating to issues of New York Municipal Securities that were available prior to
the date of this Statement of Additional Information. The accuracy and
completeness of the information contained in those official statements have not
been independently verified.
STATE ECONOMY. New York is one of the most populous states in the
nation and has a relatively high level of personal wealth. The State's economy
is diverse with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy. Like the rest of the nation, New York has a declining proportion
of its workforce engaged in manufacturing, and an increasing proportion engaged
in service industries.
In the calendar years 1987 through 1997, the State's rate of economic
growth was somewhat slower than that of the nation. In particular, during the
1990-91 recession and post-recession period, the economy of the State, and that
of the rest of the Northeast, was more heavily damaged than that of the nation
as a whole and has been slower to recover.
State per capita personal income has historically been significantly
higher than the national average, although the ratio has varied substantially.
Because New York City (the "City") is a regional employment center for a
multi-state region, State personal income measured on a residence basis
understates the relative importance of the State to the national economy and the
size of the base to which State taxation applies.
There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
STATE BUDGET. The State Constitution requires the governor (the
"Governor") to submit to the State legislature (the "Legislature") a balanced
executive budget which contains a complete plan of expenditures for the ensuing
fiscal year and all moneys and revenues estimated to be available therefor,
accompanied by bills containing all proposed appropriations or reappropriations
and any new or modified revenue measures to be enacted in connection with the
executive budget. The entire plan constitutes the proposed State financial plan
for that fiscal year. The Governor is required to submit to the Legislature
quarterly budget updates which include a revised cash-basis state financial
plan, and an explanation of any changes from the previous state financial plan.
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State law requires the Governor to propose a balanced budget each
year. In recent years, the State has closed projected budget gaps of $5.0
billion (1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than
$1 billion (1998-99). The State's 1998-99 fiscal year began on April 1, 1998 and
ended on March 31, 1999. The Legislature adopted the debt service component of
the State budget for the 1998-99 fiscal year on March 30, 1998 and the remainder
of the budget on April 18, 1998. In the period prior to adoption of the budget
for the 1998-99 fiscal year, the Legislature also enacted appropriations to
permit the State to continue its operations and provide for other purposes.
The 1998-99 State Financial Plan projected a closing balance in the
General Fund of $1.42 billion comprised of a reserve of $761 million available
for future needs, a balance of $400 million in the Tax Stabilization Reserve
Fund ("TSRF"), a balance of $158 million in the Community Projects Fund ("CPF")
and a balance of $100 million in the Contingency Reserve Fund ("CRF"). The TSRF
can be used in the event of an unanticipated General Fund cash operating
deficit, as provided under the State Constitution and State Finance Law. The CPF
is used to finance various legislative and executive initiatives. The CRF
provides resource to help finance any extraordinary litigation costs during the
fiscal year.
The Governor presented his 1999-2000 Executive Budget to the
Legislature on January 27, 1999. The 1999-2000 Financial Plan projected General
Fund disbursements and transfers to other funds of $37.10 billion, an increase
of $482 million over projected spending for the current year. Grants to local
governments constituted approximately 67 percent of all General Fund spending,
and included payments to local governments, non-profit providers and
individuals. Disbursements in this category were projected to decrease $87
million (0.4 percent) to $24.81 billion in 1999-2000, in part due to a $175
million decline in proposed spending for legislative initiatives.
The State is projected to close the 1999-2000 fiscal year with a
General Fund balance of $2.36 billion. The balance is comprised of $1.79 billion
in tax reduction reserves, $473 million in the TSRF and $100 million in the CFR.
The entire $226 million balance in the Community Projects Fund is expected to be
used in 1999-2000, with $80 million spent to pay for existing projects and the
remaining balance of $146 million, against which there are currently no
appropriations as a result of the Governor's 1998 vetoes, used to fund other
expenditures in 1999-2000.
On February 12, 1999, the State issued a revised cash-basis Financial
Plan for the 1999-2000 fiscal year that reflected the Governor's amendments to
his 1999-2000 Executive Budget. The revised Financial Plan projects total
General Fund disbursements and transfers to other funds of $37.14 billion in
1999-2000, a net increase of $42 million over the amount estimated in the
Executive Budget. The revised estimate reflects $81 million in new funding for
school districts, $13 million for the Department of Law, $5 million of offset
the loss of budgeted federal funding in the Department of Corrections and $11
million in projected spending for other initiatives. These increases are
partially offset by $8 million in lower projected social service costs, $15
million from projected lower spending on fringe benefits for
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State employees and $45 million in one-time savings from permanently deferring
one month of Supplemental Security Income payments.
The State also revised its receipts forecast for 1999-2000 in
conjunction with the Governor's 30-day amendments. The revised forecast projects
total General Fund receipts and transfers from other funds of $38.81 billion in
1999-2000, a net increase of $146 million over the amount estimated in the
Executive Budget. Projected receipts in all categories have been raised, with
the largest increases in personal income taxes ($49 million), miscellaneous
receipts ($35 million) and business taxes ($31 million). The State proposes
reserving $100 million of these additional receipts to cover the potential costs
is 1999-2000 of possible new collective bargaining agreements with State
employee unions. Most of the remaining recipes would finance the $42 million in
net new spending described above, with a balance of $4 million earmarked for the
tax reduction reserve that was proposed in the Executive Budget.
The State currently projects spending to grow by $1.09 billion (2.9
percent) in 2000-01 and an additional $1.8 billion (4.7 percent) in 2001-02.
General Fund spending increases at a higher rate in 2001-02 than in 2000-01,
driven primarily by higher growth rates for Medicaid, welfare, Children and
Families Services, and Mental Retardation, as well as the loss of federal money
that offsets General Fund spending.
For New York State, the economic outlook is also expected to be
brighter than anticipated in the 1999-2000 Executive Budget forecast, primarily
due to the connection between the State economy and the stronger-than-expected
national economy. Stronger national industrial output and exports have improved
the outlook for New York's goods-producing sector. Also, New York employment
growth remained strong in the fourth quarter of 1998 and Wall Street related
activity remains stable. Growth of employment, wages and personal income is
expected to be modestly faster than in the Executive Budget forecast.
Over the long-term, uncertainties with regard to the economy present
the largest potential risk to future budget balance in New York State. For
example, a downturn in the financial markets or the wider economy is possible, a
risk that is heightened by the lengthy expansion currently underway. The
securities industry is more important to the New York economy than the national
economy, potentially amplifying the impact of an economic downturn. A large
change in stock market performance during the forecast horizon could result in
wage and unemployment levels that are significantly different from those
embodied in the forecast. Merging and downsizing by firms, as a consequence of
deregulation or continued foreign competition, may also have more significant
adverse effects on employment than expected. Finally, a "forecast error" of one
percentage point in the estimated growth of receipts could cumulatively raise or
lower results by over $1 billion by 2002.
Many complex political, social and economic forces influence the
State's economy and finances, which may in turn affect the State's Financial
Plan. These forces may affect the State unpredictably from fiscal year to fiscal
year and are influenced by governments, institutions, and organizations that are
not subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic
-15-
activity. Economic forecasts have frequently failed to predict accurately the
timing and magnitude of changes in the national and the State economies. The DOB
believes that its projections of receipts and disbursements relating to the
current State Financial Plan, and the assumptions on which they are based, are
reasonable. The projections assume no changes in federal tax law, which could
substantially alter the current receipts forecast. In addition, these
projections do not include funding for new collective bargaining agreements
after the current contracts expire. Actual results, however, could differ
materially and adversely from their projections, and those projections may be
changed materially and adversely from time to time.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by
which the State of New York may incur debt. Under the State Constitution, the
State may not, with limited exceptions for emergencies, undertake long-term
general obligation borrowing (I.E., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval
(i) in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (ii) in anticipation of the receipt of proceeds
from the sale of duly authorized but unissued general obligation bonds, by
issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of the
State of New York's authorities and public benefit corporations ("Authorities").
Payments of debt service on New York State general obligation and New York
State-guaranteed bonds and notes are legally enforceable obligations of the
State of New York.
The State employs additional long-term financing mechanisms,
lease-purchase and contractual-obligation financings, which involve obligations
of public authorities or municipalities that are State-supported but are not
general obligations of the State. Under these financing arrangements, certain
public authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.
The proposed 1998-99 through 2003-04 Capital Program and Financing
Plan was released with the Executive Budget on January 27, 1999. The recommended
five-year Capital Program and Financing Plan reflects debt reduction initiatives
that would reduce future State-supported debt issuances by significantly
increasing the share of the Plan financed with pay-as-you-go resources. Compared
to the last year of the July 1998 update to the Plan,
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outstanding State-supported debt would be reduced by $4.7 billion (from $41.9
billion to $37.2 billion).
As described therein, efforts to reduce debt, unanticipated delays in
the advancement of certain projects and revisions to estimated proceeds needs
modestly reduced projected borrowings in 1998-99. The State's 1998-99 borrowing
plan projected issuances of $331 million in general obligation bonds (including
$154 million for purposes of redeeming outstanding BANs) and $154 million in
general obligation commercial paper. The State issued $179 million in
Certificates of Participation to finance equipment purchases (including costs of
issuance, reserve funds, and other costs) during the 1998-99 fiscal year. Of
this amount, approximately $83 million was used to finance agency equipment
acquisitions, and $96 million to address Statewide technology issues related to
Year 2000 compliance. Approximately $228 million for information technology
related to welfare reform, originally anticipated to be issued during the
1998-99 fiscal year, and now expected to be delayed until 1999-2000.
On January 13, 1992, S&P reduced its ratings on the State's general
obligation bonds from A to A- and, in addition, reduced its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On August 28, 1997, S&P revised its ratings on the State's general
obligation bonds from A- to A and revised its ratings on the State's moral
obligation, lease purchase, guaranteed and contractual obligation debt. On March
5, 1999, S&P affirmed its A rating on the State's outstanding bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State.
On March 5, 1999, Moody's affirmed its A2 rating with a stable outlook to the
State's general obligations.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
LITIGATION. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) challenges to the
constitutionality of Public Health Law 2807-d, which imposes a gross receipts
tax from certain patient care services; (4) action seeking enforcement of
certain sales and excise taxes and tobacco products and motor fuel sold to
non-Indian consumers on Indian reservations; (5) a challenge to the Governor's
application of his constitutional line item veto authority; and (6) a challenge
to the enactment of the CLEAN WATER/CLEAN AIR BOND ACT OF 1996.
-17-
Several actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which changed actuarial funding
methods for determining state and local contributions to state employee
retirement systems have been decided against the State. As a result, the
Comptroller developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal 1996-97, $193 million in fiscal 1997-98, peaking at $241 million in
fiscal 1998-99. Beginning in fiscal 2001-02, State contributions required under
the Comptroller's plan are projected to be less than that required under the
prior funding method. As a result of the United States Supreme Court decision in
the case of STATE OF DELAWARE v. STATE OF NEW YORK, on January 21, 1994, the
State entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances, State
programs and miscellaneous cure rights, tort, real property and contract claims
in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the current fiscal year or
thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced financial plan. An adverse decision in any of these proceedings could
exceed the amount of the reserve established in the State's financial plan for
the payment of judgments and, therefore, could affect the ability of the State
to maintain a balanced financial plan.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
AUTHORITIES. The fiscal stability of New York State is related, in
part, to the fiscal stability of its Authorities, which generally have
responsibility for financing, constructing and operating revenue-producing
public benefit facilities. Authorities are not subject to the constitutional
restrictions on the incurrence of debt which apply to the State itself, and may
issue bonds and notes within the amounts of, and as otherwise restricted by,
their legislative authorization. The State's access to the public credit markets
could be impaired, and the market price of its outstanding debt may be
materially and adversely affected, if any of the Authorities were to default on
their respective obligations, particularly with respect to debt that is
State-supported or State-related.
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Authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, New
York State has provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the Authorities for operating and
other expenses and, in fulfillment of its commitments on moral obligation
indebtedness or otherwise, for debt service. This operating assistance is
expected to continue to be required in future years. In addition, certain
statutory arrangements provide for State local assistance payments otherwise
payable to localities to be made under certain circumstances to certain
Authorities. The State has no obligation to provide additional assistance to
localities whose local assistance payments have been paid to Authorities under
these arrangements. However, in the event that such local assistance payments
are so diverted, the affected localities could seek additional State funds.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since 1995. As a
result of the structural imbalances in JDA's capital structure, and defaults in
its loan portfolio and loan guarantee program incurred between 1991 and 1996,
JDA would have experienced a debt service cash flow shortfall had it not
completed its recent refinancing. JDA anticipates that it will transact
additional refinancings in 1999, 2000 and 2003 to complete its long-term plan of
finance and further alleviate cash flow imbalances which are likely to occur in
future years. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State may
also be impacted by the fiscal health of its localities, particularly the City,
which has required and continues to require significant financial assistance
from the State. The City depends on State aid both to enable the City to balance
its budget and to meet its cash requirements. There can be no assurance that
there will not be reductions in State aid to the City from amounts currently
projected or that State budgets will be adopted by the April 1 statutory
deadline or that any such reductions or delays will not have adverse effects on
the City's cash flow or expenditures. In addition, the Federal budget
negotiation process could result in a reduction in or a delay in the receipt of
Federal grants which could have additional adverse effects on the City's cash
flow or revenues.
In 1975, New York City suffered a fiscal crisis that impaired the
borrowing ability of both the City and New York State. In that year the City
lost access to the public credit markets. The City was not able to sell
short-term notes to the public again until 1979. In 1975, S&P suspended its A
rating of City bonds. This suspension remained in effect until March 1981, at
which time the City received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+
and on November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998,
S&P assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with
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positive implications. On March 9, 1999, S&P assigned its A- rating to Series
1999H of New York City general obligation bonds and affirmed the A- rating on
various previously issued New York City bonds.
Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in
May 1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's
upgraded approximately $28 billion of the City's general obligations from Baa1
to A3. On June 9, 1998, Moody's affirmed its A3 rating to the City's general
obligations and stated that its outlook was stable.
On March 8, 1999, Fitch IBCA upgraded New York City's $26 billion
outstanding general obligation bonds from A- to A.
New York City is heavily dependent on New York State and federal
assistance to cover insufficiencies in its revenues. There can be no assurance
that in the future federal and State assistance will enable the City to make up
its budget deficits. To help alleviate the City's financial difficulties, the
Legislature created the Municipal Assistance Corporation ("MAC") in 1975. Since
its creation, MAC has provided, among other things, financing assistance to the
City by refunding maturing City short-term debt and transferring to the City
funds received from sales of MAC bonds and notes. MAC is authorized to issue
bonds and notes payable from certain stock transfer tax revenues, from the
City's portion of the State sales tax derived in the City and, subject to
certain prior claims, from State per capita aid otherwise payable by the State
to the City. Failure by the State to continue the imposition of such taxes, the
reduction of the rate of such taxes to rates less than those in effect on July
2, 1975, failure by the State to pay such aid revenues and the reduction of such
aid revenues below a specified level are included among the events of default in
the resolutions authorizing MAC's long-term debt. The occurrence of an event of
default may result in the acceleration of the maturity of all or a portion of
MAC's debt. MAC bonds and notes constitute general obligations of MAC and do not
constitute an enforceable obligation or debt of either the State or the City.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
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On June 10, 1997, the City submitted to the Control Board the
Financial Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal
years, relating to the City, the Board of Education ("BOE") and City University
of New York ("CUNY") and reflected the City's expense and capital budgets for
the 1998 fiscal year, which were adopted on June 6, 1997. The 1998-2001
Financial Plan projected revenues and expenditures for the 1998 fiscal year
balanced in accordance with GAAP. The 1998-99 Financial Plan projected General
Fund receipts (including transfers from other funds) of $36.22 billion, an
increase of $1.02 billion over the estimated 1997-1998 level. Recurring growth
in the State General Fund tax base is projected to be approximately six percent
during 1998-99, after adjusting for tax law and administrative changes. This
growth rate is lower than the rates for 1996-97 or 1997-98, but roughly
equivalent to the rate for 1995-96.
The 1998-99 forecast for user taxes and fees also reflected the impact
of scheduled tax reductions that will lower receipts by $38 million, as well as
the impact of two Executive Budget proposals that were projected to lower
receipts by an additional $79 million. The first proposal would divert $30
million in motor vehicle registration fees from the General Fund to the
Dedicated Highway and Bridge Trust Fund; the second would reduce fees for motor
vehicle registrations, which would further lower receipts by $49 million. The
underlying growth of receipts in this category is projected at 4 percent, after
adjusting for these scheduled and recommended changes.
The Financial Plan is projected to show a GAAP-basis deficit of $1.3
billion for 1998-99 in the General Fund, primarily as a result of the use of the
1997-98 cash surplus. In 1998-99, the General Fund GAAP Financial Plan showed
total revenues of $34.68 billion, total expenditures of $35.94 billion, and net
other financing sources and uses of $42 million.
Although the City has consistently maintained balanced budgets and is
projected to achieve balanced operating results for the current fiscal year,
there can be no assurance that the gap-closing actions proposed in the 1998-2001
Financial Plan can be successfully implemented or that the City will maintain a
balanced budget in future years without additional State aid, revenue increases
or expenditure reductions. Additional tax increases and reductions in essential
City services could adversely affect the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were based
on various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of
-21-
Federal and State welfare reform and any future legislation affecting Medicare
or other entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon
the City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority, was created
as part of the City's effort to assist in keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur. Despite this additional financing mechanism, the
City currently projects that, if no further action is taken, it will reach its
debt limit in City fiscal year 1999-2000. Indebtedness subject to the
constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation which is currently on
appeal to the Court of Appeals were voided, projected contracts for the City
capital projects would exceed the City's debt limit. Future developments
concerning the City or entities issuing debt for the benefit of the City, and
public discussion of such developments, as well as prevailing market conditions
and securities credit ratings, may affect the ability or cost to sell securities
issued by the City or such entities and may also affect the market for their
outstanding securities.
The City Comptroller and other agencies and public officials have
issued reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs
in the public credit markets, repaying all short-term obligations within their
fiscal year of issuance. Although the City's 1998 fiscal year financial plan
projected $2.4 billion of seasonal financing, the City expected to undertake
only approximately $1.4 billion of seasonal financing. The City issued $2.4
billion of short-term obligations in fiscal year 1997. The delay in the adoption
of the State's budget in certain past fiscal years has required the City to
issue short-term notes in amounts exceeding those expected early in such fiscal
years.
Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several State fiscal years. The potential impact on
the State of any future requests by localities for additional assistance is not
included in the State's projections of its receipts and disbursements for the
1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the re-establishment of the Financial Control Board for the City of
Yonkers (the "Yonkers
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Board") by New York State in 1984. The Yonkers Board is charged with oversight
of the fiscal affairs of Yonkers. Future actions taken by the State to assist
Yonkers could result in increased State expenditures for extraordinary local
assistance.
On June 30, 1998, the City of Yonkers satisfied the statutory
conditions for ending the supervision of its finances by a State-ordered control
board. Pursuant to State law, the control board's powers over City finances
lapsed six months after the satisfaction of these conditions, on December 31,
1998.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
The 1998-99 budget included $29.4 million in unrestricted aid targeted
to 57 municipalities across the State. Other assistance for municipalities with
special needs totals more than $25.6 million. Twelve upstate cities received
$24.2 million in one-time assistance from a cash flow acceleration of State aid.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. State law requires the Comptroller to
review and make recommendations concerning the budgets of those local government
units other than New York City that are authorized by State law to issue debt to
finance deficits during the period that such deficit financing is outstanding.
From time to time, federal expenditure reductions could reduce, or in
some cases eliminate, federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If the State, the City or any of the Authorities were to suffer
serious financial difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds issued by localities
within the State could be adversely affected. Localities also face anticipated
and potential problems resulting from certain pending litigation, judicial
decisions and long-range economic trends. Long-range potential problems of
declining urban population, increasing expenditures and other economic trends
could adversely affect localities and require increasing the State assistance in
the future.
YEAR 2000 COMPLIANCE. The State is currently addressing Year 2000
("Y2K") data processing compliance issues. Since its inception, the computer
industry has used a two-digit date convention to represent the year. In the year
2000, the date field will contain "00" and, as a result, many computer systems
and equipment may not be able to process dates properly or may fail since they
may not be able to distinguish between the years 1900 and 2000. The Year 2000
issue not only affects computer programs, but also the hardware, software and
networks they operate on. In addition, any system or equipment that is
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dependent on an embedded chip, such as telecommunication equipment and security
systems, may also be adversely affected.
The Office for Technology is monitoring compliance progress for the
State's mission-critical and high-priority systems and is reporting compliance
progress to the Governor's office on a quarterly basis. As of December 1998, the
State had completed 93 percent of overall compliance effort for its
mission-critical systems; 18 systems are now Year 2000 compliant and the
remaining systems are on schedule to be compliant by the first quarter of 1999.
As of December 1998, the State has completed 70 percent of overall compliance
effort on the high-priority systems; 168 systems are now Year 2000 compliant and
the remaining systems are on schedule to be compliant by the second quarter of
1999. Compliance testing is expected to be completed by the end of calendar
1999.
While New York State is taking what it believes to be appropriate
action to address Year 2000 compliance, there can be no guarantee that all of
the State's systems and equipment will be Year 2000 compliant and that there
will not be an adverse impact upon State operations or finances as a result.
Since Year 2000 compliance by outside parties is beyond the State's control to
remediate, the failure of outside parties to achieve Year 2000 compliance could
have an adverse impact on State operations or finances as well.
INVESTMENT LIMITATIONS
The investment limitations enumerated below are matters of fundamental
policy. Fundamental investment limitations may be changed with respect to a Fund
only by a vote of the holders of a majority of such Fund's outstanding shares.
As used herein, a "vote of the holders of a majority of the outstanding shares"
of a Company 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 such Company or such Fund, or (b) 67% or more of the shares of such
Company or such Fund present at a meeting if more than 50% of the outstanding
shares of such Company or such Fund are represented at the meeting in person or
by proxy. Investment limitations which are "operating policies" with respect to
the Funds may be changed by the Companies' Boards of Directors without
shareholder approval.
No Fund may:
1. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except insofar as the Taxable Funds might be deemed to
be underwriters upon disposition of certain portfolio securities acquired within
the limitation on purchases of restricted securities; and except to the extent
that purchase by the Tax-Exempt Money Fund of Municipal Securities or other
securities directly from the issuer thereof in accordance with the Fund's
investment objective, policies and limitations may be deemed to be underwriting;
and except to the extent that purchase by the New York Tax-Exempt Money Fund of
securities directly from the issuer thereof in accordance with the Fund's
investment objective, policies and limitations may be deemed to be underwriting;
2. Purchase or sell real estate, except that each Taxable Fund may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate; and except that the
Tax-Exempt Money Fund may invest in Municipal Securities secured by real estate
or interests therein; and except that the New York Tax-Exempt Money Fund may
invest in securities secured by real estate or interests therein;
3. Purchase or sell commodities or commodity contracts, or invest in
oil, gas, or other mineral exploration or development programs; and
4. Issue any senior securities, except insofar as any borrowing in
accordance with a Fund's investment limitations might be considered to be the
issuance of a senior security.
-24-
Each of the Money, Government Money, Treasury Money and Tax-Exempt
Money Funds may not:
5. Purchase securities of any one issuer if immediately after such
purchase more than 5% of the value of its total assets would be invested in the
securities of such issuer, provided that up to 25% of the value of each Fund's
total assets may be invested without regard to this 5% limitation;
notwithstanding the foregoing restriction, each Fund may invest without regard
to the 5% limitation in Government Securities (as defined in the 1940 Act) and
as otherwise permitted in accordance with Rule 2a-7 under the 1940 Act or any
successor rule;
6. 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
connection 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 facilitate
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;
7. Purchase securities on margin, make short sales of securities, or
maintain a short position; and
8. Invest in or sell puts, calls, straddles, spreads, or any
combination thereof.
Each of the Money, Government Money and Treasury Money Funds may not:
9. Make loans, except that (i) each Fund may purchase or hold debt
securities in accordance with its investment objective and policies, and the
Money Fund and the Government Money Fund may enter into repurchase agreements
with respect to obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, and (ii) the Money Fund and the Government Money
Fund may lend portfolio securities in an amount not exceeding 30% of their total
assets;
10. Invest in bank obligations having remaining maturities in excess
of one year, except that securities subject to repurchase agreements may bear
longer maturities;
11. Invest in companies for the purpose of exercising management or
control;
12. Invest more than 5% of a Fund's total assets in securities issued
by companies which, together with any predecessor, have been in continuous
operation for fewer than three years;
13. Purchase foreign securities; except the Money Fund may purchase
certificates of deposit, bankers' acceptances, or other similar obligations
issued by domestic branches of foreign banks and foreign branches of U.S. banks
in an amount not to exceed 20% of its total net assets;
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14. Acquire any other investment company or investment company
security, except in connection with a merger, consolidation, reorganization, or
acquisition of assets or where otherwise permitted by the 1940 Act;
15. 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 a Fund's total assets would be
invested in obligations 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;
16. Purchase any securities which would cause more than 25% of the
value of a Fund's 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) there is no limitation with respect to
securities issued or guaranteed by the U.S. government or domestic bank
obligations, and (b) neither all finance companies, as a group, nor all utility
companies, as a group, are considered a single industry for purposes of this
policy; and
17. Knowingly invest more than 10% of the value of a Fund's total
assets in illiquid 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 Tax-Exempt Money Fund may not:
18. Make loans, except that the Fund may purchase or hold debt
obligations in accordance with its investment objective, policies, and
limitations;
19. Invest in industrial revenue bonds where the payment of principal
and interest are the responsibility of a company (including its predecessors)
with less than three years of continuous operation;
20. Knowingly invest more than 10% of the value of its total assets in
securities which may be illiquid in light of legal or contractual restrictions
on resale or the absence of readily available market quotations;
21. 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 there is no limitation with respect to
domestic bank obligations or securities issued or guaranteed by the United
States; any state or territory; any possession of the U.S. government; the
District of Columbia; or any of their authorities, agencies, instrumentalities,
or political subdivisions; and
22. Purchase securities of other investment companies (except as part
of a merger, consolidation or reorganization or purchase of assets approved by
the Fund's
-26-
shareholders), provided that the Fund may purchase shares of any registered,
open-end investment company, if immediately after any such purchase, the Fund
does not (a) own more than 3% of the outstanding voting stock of any one
investment company, (b) invest more than 5% of the value of its total assets in
the securities of any one investment company, or (c) invest more than 10% of the
value of its total assets in the aggregate in securities of investment
companies.
The New York Tax-Exempt Money Fund may not:
23. Make loans, except that the Fund may purchase or hold debt
obligations in accordance with its investment objective, policies, and
limitations;
24. Invest less than 80% of its net assets in securities the interest
on which is exempt from federal income tax, except during defensive periods or
periods of unusual market conditions;
25. Borrow money or mortgage, pledge, or hypothecate its assets except
to the extent permitted under the 1940 Act; and
26. 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 there is no limitation with respect to
domestic bank obligations or securities issued or guaranteed by the U.S.
government, any state, territory or possession of the United States, the
District of Columbia or any of their authorities, agencies, instrumentalities or
political subdivisions, and repurchase agreements secured by such securities.
The Treasury Money Fund may not:
27. Purchase securities other than obligations issued or guaranteed by
the U.S. Treasury or an agency or instrumentality of the U.S. government and
securities issued by investment companies that invest in such obligations.
In addition, the New York Tax-Exempt Money Fund is subject to the
following non-fundamental limitations, which may be changed without shareholder
approval. The New York Tax-Exempt Money Fund may not:
28. Purchase securities on margin, make short sales of securities, or
maintain a short position, except that the Fund may obtain short-term credit as
may be necessary for the clearance of portfolio transactions;
29. Acquire any other investment company or investment company
security, except in connection with a merger, consolidation, reorganization, or
acquisition of assets or where otherwise permitted by the 1940 Act;
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30. Invest in companies for the purpose of exercising management or
control; and
31. Invest more than 10% of its net assets in illiquid securities.
* * *
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
of a Fund's portfolio securities will not constitute a violation of such
limitation.
In Investment Limitation No. 5 above: (a) a security is considered to
be issued by the governmental entity or entities whose assets and revenues back
the security, or, with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, such non-governmental user;
(b) in certain circumstances, the guarantor of a guaranteed security may also be
considered to be an issuer in connection with such guarantee; and (c) securities
issued or guaranteed as to principal or interest by the United States, or by a
person controlled or supervised by and acting as an instrumentality of the
government of the United States, or any certificate of deposit for any of the
foregoing, are deemed to be Government Securities.
For the purpose of Investment Limitation No. 2, the prohibition of
purchases of real estate includes acquisition of limited partnership interests
in partnerships formed with a view toward investing in real estate, but does not
prohibit purchases of shares in real estate investment trusts.
Notwithstanding Investment Limitations Nos. 17 and 20 above, the
Companies intend to limit the Funds' investments in illiquid securities to 10%
of each Fund's net (rather than total) assets.
Notwithstanding the proviso in Investment Limitation No. 21, to the
extent that the Tax-Exempt Money Fund has invested more than 20% of the value of
its assets in taxable securities on a temporary defensive basis, the industry
diversification limitation in Investment Limitation No. 21 shall apply to
taxable securities issued or guaranteed by any state, territory, or possession
of the U.S. government; the District of Columbia; or any of their authorities,
agencies, instrumentalities, or political subdivisions.
In order to obtain a rating from a rating organization, a Fund will
comply with special investment limitations.
NET ASSET VALUE AND NET INCOME
The Companies use the amortized cost method of valuation to value
Shares in the Funds. Pursuant to this method, a security is valued at its cost
initially, and thereafter a constant amortization to maturity of any discount or
premium is assumed, regardless of the impact of
-28-
fluctuating interest rates on the market value of the security. This method may
result in periods during which value, as determined by amortized cost, is higher
or lower than the price the Fund involved would receive if it sold the security.
The market value of portfolio securities held by the Funds can be expected to
vary inversely with changes in prevailing interest rates.
The Funds invest only in high-quality instruments and maintain a
dollar-weighted average portfolio maturity appropriate to their objective of
maintaining a constant net asset value per Share. The Funds will not purchase
any security deemed to have a remaining maturity of more than 13 months within
the meaning of the 1940 Act or maintain a dollar-weighted average portfolio
maturity which exceeds 90 days. The Companies' Boards of Directors have
established procedures that are intended to stabilize the net asset value per
Share of each Fund for purposes of sales and redemptions at $1.00. These
procedures include the determination, at such intervals as the Boards deem
appropriate, of the extent, if any, to which the net asset value per Share of a
Fund calculated by using available market quotations deviates from $1.00 per
Share. In the event such deviation exceeds one half of one percent, the Boards
of Directors will promptly consider what action, if any, should be initiated. If
the Boards of Directors believe that the extent of any deviation from a Fund's
$1.00 amortized cost price per Share may result in material dilution or other
unfair results to new or existing investors, they will take appropriate steps to
eliminate or reduce, to the extent reasonably practicable, any such dilution or
unfair results. These steps may include selling portfolio instruments prior to
maturity; shortening the average portfolio maturity; withholding or reducing
dividends; redeeming Shares in kind; reducing the number of the Fund's
outstanding Shares without monetary consideration; or utilizing a net asset
value per Share determined by using available market quotations.
Net income of each of the Funds for dividend purposes consists of (i)
interest accrued and discount earned on a Fund's assets, less (ii) amortization
of market premium on such assets, accrued expenses directly attributable to the
Fund, and the general expenses or the expenses common to more than one portfolio
of a Company (e.g., administrative, legal, accounting, and directors' fees)
prorated to each portfolio of the Company on the basis of their relative net
assets.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares are continuously offered for sale by Edgewood Services, Inc.
(the "Distributor"), a registered broker-dealer and the Companies' sponsor and
distributor. The Distributor is a wholly-owned subsidiary of Federated
Investors, Inc. and is located at 5800 Corporate Drive, Pittsburgh, PA
15237-5829. The Distributor has agreed to use appropriate efforts to solicit all
purchase orders.
At various times the Distributor may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts or under which the Distributor will make payments to any dealer that
sponsors sales contests or recognition programs conforming to criteria
established by the Distributor, or that participates in sales programs sponsored
by the Distributor. The Distributor in its discretion may also from time to
time, pursuant to objective criteria established by the Distributor, pay fees to
qualifying dealers
-29-
for certain services or activities which are primarily intended to result in
sales of Shares of the Funds. If any such program is made available to any
dealer, it will be made available to all dealers on the same terms and
conditions. Payments made under such programs will be made by the Distributor
out of its own assets and not out of the assets of the Funds.
In addition, the Distributor may offer to pay a fee from its own
assets to financial institutions for the continuing investment of customers'
assets in the Funds or for providing substantial marketing, sales and
operational support. The support may include initiating customer accounts,
participating in sales, educational and training seminars, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Funds. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution.
The net asset value of each of the Money, Government Money and
Treasury Money Funds is determined and the Shares of each such Fund are priced
for purchases and redemptions as of 1:00 p.m. (Eastern time) and the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern time). The net asset value of each of the TaxExempt Money and
New York Tax-Exempt Money Funds is determined and the Shares of each such Fund
are priced for purchases and redemptions as of 12:00 p.m. (Eastern time) and the
close of regular trading hours on the Exchange. Net asset value and pricing for
each Fund are determined on each day the Exchange and the Adviser are open for
trading (a "Business Day"). Currently, the holidays 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. Net asset value per Share for purposes of
pricing sales and redemptions is calculated by dividing the value of all
securities and other assets belonging to a Fund, less the liabilities charged to
the Fund, by the number of its outstanding Shares.
As described below, Shares may be sold to customers ("Customers") of
financial institutions ("Shareholder Organizations"). Shares are also offered
for sale directly to institutional investors or to members of the general
public. Different types of Customer accounts at the Shareholder Organizations
may be used to purchase Shares, including eligible agency and trust accounts. In
addition, Shareholder Organizations may automatically "sweep" a Customer's
account not less frequently than weekly and invest amounts in excess of a
minimum balance agreed to by the Shareholder Organization and its Customer in
Shares selected by the Customer. Investors purchasing Shares may include
officers, directors, or employees of the particular Shareholder Organization.
The Companies have authorized certain brokers to accept on their
behalf purchase, exchange and redemption requests. Such brokers are authorized
to designate other intermediaries to accept purchase, exchange and redemption
requests on behalf of the Companies. A Company will be deemed to have received a
purchase, exchange or redemption request when the request is received by an
authorized broker or designated intermediary in good order.
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PURCHASE OF SHARES
Shares of the Funds are offered for sale at their net asset value per
Share next computed after a purchase request is received in good order by the
Companies' sub-transfer agent or by an authorized broker or designated
intermediary. The Distributor has established several procedures for purchasing
Shares in order to accommodate different types of investors.
Institutional Shares may be purchased directly only by financial
institutions ("Institutional Investors"). Retail Shares may be purchased
directly by individuals ("Direct Investors") or by Institutional Investors
(collectively with Direct Investors, "Investors"). Retail Shares may also be
purchased by Customers of the Adviser, its affiliates and correspondent banks,
and other Shareholder Organizations that have entered into agreements with the
Companies.
A Shareholder Organization may elect to hold of record Shares for its
Customers and to record beneficial ownership of Shares on the account statements
provided by it to its Customers. If it does so, it is the Shareholder
Organization's responsibility to transmit to the Distributor all purchase
requests for its Customers and to transmit, on a timely basis, payment for such
requests to Chase Global Funds Services Company ("CGFSC"), the Funds'
sub-transfer agent, in accordance with the procedures agreed to by the
Shareholder Organization and the Distributor. Confirmations of all such Customer
purchases (and redemptions) will be sent by CGFSC to the particular Shareholder
Organization. As an alternative, a Shareholder Organization may elect to
establish its Customers' accounts of record with CGFSC. In this event, even if
the Shareholder Organization continues to place its Customers' purchase (and
redemption) requests with the Funds, CGFSC will send confirmations of such
transactions and periodic account statements directly to the shareholders of
record. Shares in the Funds bear the expense of fees payable to Shareholder
Organizations for such services. See "Shareholder Organizations."
Customers wishing to purchase Shares through their Shareholder
Organization should contact such entity directly for appropriate instructions.
(For a list of Shareholder Organizations in your area, call (800) 446-1012.) An
Investor purchasing Shares through a registered investment adviser or certified
financial planner may incur transaction charges in connection with such
purchases. Such Investors should contact their registered adviser or certified
financial planner for further information on transaction fees. Investors may
also purchase Shares directly from the Distributor in accordance with procedures
described in the Prospectus.
Investors may purchase Shares by completing the Application
accompanying the Prospectus and mailing it, together with a check payable to
Excelsior Funds, Inc. (or Excelsior Tax- Exempt Funds, Inc., with respect to the
Tax-Exempt Funds), to:
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Excelsior Funds, Inc. (or Excelsior Tax-Exempt Funds, Inc.)
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
Subsequent investments in an existing account in a Fund may be made at
any time by sending to the above address a check payable to Excelsior Funds,
Inc. (or Excelsior Tax-Exempt Funds, Inc.) along with: (a) the detachable form
that regularly accompanies the confirmation of a prior transaction; (b) a
subsequent order form which may be obtained from CGFSC; or (c) a letter stating
the amount of the investment, the name of the Fund and the account number in
which the investment is to be made. Institutional Investors may purchase Shares
by transmitting their purchase orders to CGFSC by telephone at (800) 446-1012 or
by terminal access. Institutional Investors must pay for Shares with federal
funds or funds immediately available to CGFSC.
Investors may also purchase Shares by wiring federal funds to CGFSC.
Prior to making an initial investment by wire, an Investor must telephone CGFSC
at (800) 446-1012 (from overseas, call (617) 557-8280) for instructions. Federal
funds and registration instructions should be wired through the Federal Reserve
System to:
The Chase Manhattan Bank
ABA #021000021
Excelsior Funds, Account No. 9102732915
For further credit to:
Excelsior Funds
Wire Control Number
Account Registration
(including account number)
Investors making initial investments by wire must promptly complete
the Application accompanying the Prospectus and forward it to CGFSC. Redemptions
by Investors will not be processed until the completed Application for purchase
of Shares has been received by CGFSC and accepted by the Distributor. Investors
making subsequent investments by wire should follow the above instructions.
Except as provided below, the minimum initial investment by an
Investor or initial aggregate investment by a Shareholder Organization investing
on behalf of its Customers in Retail Shares is $500 per Fund. The minimum
subsequent investment in Retail Shares for both types of investors is $50 per
Fund. There is no minimum initial or subsequent investment for an Institutional
Investor investing in Institutional Shares of a Fund. Customers may agree with a
particular Shareholder Organization to make a minimum purchase with respect to
their accounts. Depending upon the terms of the particular account, Shareholder
Organizations may charge a Customer's account fees for automatic investment and
other cash management services provided. The Companies reserve the right to
reject any purchase order, in whole or in part, or to waive any minimum
investment requirements. Third party checks will not be accepted as payment for
Fund Shares.
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REDEMPTION PROCEDURES
A request for the redemption of Shares will receive the net asset
value per share next computed after the request is received in good order by the
Companies' sub-transfer agent or an authorized broker or designated
intermediary.
Customers of Shareholder Organizations holding Shares of record may
redeem all or part of their investments in a Fund in accordance with procedures
governing their accounts at the Shareholder Organizations. It is the
responsibility of the Shareholder Organizations to transmit redemption requests
to CGFSC and credit such Customer accounts with the redemption proceeds on a
timely basis. Redemption requests for Institutional Investors must be
transmitted to CGFSC by telephone at (800) 446-1012 or by terminal access. No
charge for wiring redemption payments to Shareholder Organizations or
Institutional Investors is imposed by the Companies, although Shareholder
Organizations may charge a Customer's account for wiring redemption proceeds.
Information relating to such redemption services and charges, if any, is
available from the Shareholder Organizations. An Investor redeeming Shares
through a registered investment adviser or certified financial planner may incur
transaction charges in connection with such redemptions. Such Investors should
contact their registered investment adviser or certified financial planner for
further information on transaction fees. Investors may redeem all or part of
their Shares in accordance with any of the procedures described below (these
procedures also apply to Customers of Shareholder Organizations for whom
individual accounts have been established with CGFSC).
Shares may be redeemed by an Investor by submitting a written request
for redemption to:
Excelsior Funds, Inc. (or Excelsior Tax-Exempt Funds, Inc.)
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
A written redemption request to CGFSC must (i) state the number of
Shares to be redeemed, (ii) identify the shareholder account number and tax
identification number, and (iii) be signed by each registered owner exactly as
the Shares are registered. If the Shares to be redeemed were issued in
certificate form, the certificates must be endorsed for transfer (or accompanied
by a duly executed stock power) and must be submitted to CGFSC together with the
redemption request. A redemption request for an amount in excess of $50,000 per
account, or for any amount if the proceeds are to be sent elsewhere than the
address of record, must be accompanied by signature guarantees from any eligible
guarantor institution approved by CGFSC in accordance with its Standards,
Procedures and Guidelines for the Acceptance of Signature Guarantees ("Signature
Guarantee Guidelines"). Eligible guarantor institutions generally include banks,
broker/dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations. All
eligible guarantor institutions must participate in the Securities Transfer
Agents Medallion Program ("STAMP") in order to be approved by CGFSC pursuant to
the Signature Guarantee Guidelines. Copies of the
-33-
Signature Guarantee Guidelines and information on STAMP can be obtained from
CGFSC at (800) 446-1012 or at the address given above.
CGFSC may require additional supporting documents for redemptions. A
redemption request will not be deemed to be properly received until CGFSC
receives all required documents in good order. Payment for Retail Shares
redeemed will ordinarily be made by mail within five Business Days after receipt
by CGFSC of the redemption request in good order. Payment for Institutional
Shares redeemed will normally be sent the next Business Day after receipt by
CGFSC of the redemption request in good order. Questions with respect to the
proper form for redemption requests should be directed to CGFSC at (800)
446-1012 (from overseas, call (617) 557-8280).
Investors who have so indicated on the Application, or have
subsequently arranged in writing to do so, may redeem Shares by instructing
CGFSC by wire or telephone to wire the redemption proceeds directly to the
Investor's account at any commercial bank in the United States. Direct Investors
who are shareholders of record may also redeem Shares by instructing CGFSC by
telephone to mail a check for redemption proceeds of $500 or more to the
shareholder of record at his or her address of record. Institutional Investors
may also redeem Shares by instructing CGFSC by telephone at (800) 446-1012 or by
terminal access. Only redemptions of $500 or more will be wired to a Direct
Investor's account. The redemption proceeds for Direct Investors must be paid to
the same bank and account as designated on the Application or in written
instructions subsequently received by CGFSC.
In order to arrange for redemption by wire or telephone after an
account has been opened or to change the bank or account designated to receive
redemption proceeds, an Investor must send a written request to a Company c/o
CGFSC, at the address listed above. Such requests must be signed by the
Investor, with signatures guaranteed, as discussed above. Further documentation
may be requested.
CGFSC and the Distributor reserve the right to refuse a wire or
telephone redemption if it is believed advisable to do so. Procedures for
redeeming Shares by wire or telephone may be modified or terminated at any time
by the Companies, CGFSC or the Distributor. The Companies, CGFSC and the
Distributor will not be liable for any loss, liability, cost or expense for
acting upon telephone instructions that are reasonably believed to be genuine.
In attempting to confirm that telephone instructions are genuine, the Companies
will use such procedures as are considered reasonable, including recording those
instructions and requesting information as to account registration.
If any portion of the Shares to be redeemed represents an investment
made by personal check, the Companies and CGFSC reserve the right not to honor
the redemption until CGFSC is reasonably satisfied that the check has been
collected in accordance with the applicable banking regulations, which may take
up to 15 days. Investors who anticipate the need for more immediate access to
their investment should purchase Shares by federal funds or bank wire or by
certified or cashier's check. Banks normally impose a charge in connection with
the use of bank wires, as well as certified checks, cashier's checks and federal
funds. If a check is
-34-
not collected, the purchase will be cancelled and CGFSC will charge a fee of
$25.00 to the Investor's account.
During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. If an Investor is unable to contact
CGFSC by telephone, the Investor may also deliver the redemption request to
CGFSC in writing at the address noted above.
Except as described in "Investor Programs" below, Direct Investors in
the Funds may redeem Retail Shares, without charge, by check drawn on the Direct
Investor's particular Fund account. Checks may be made payable to the order of
any person or organization designated by the Direct Investor and must be for
amounts of $500 or more. Direct Investors will continue to earn dividends on the
Retail Shares to be redeemed until the check clears at The Chase Manhattan Bank.
Checks are supplied free of charge, and additional checks are sent to
Direct Investors upon request. Checks will be sent only to the registered owner
at the address of record. Direct Investors who want the option of redeeming
Retail Shares by check must indicate this in the Application for purchase of
Retail Shares and must submit a signature card with signatures guaranteed with
such Application. The signature card is included in the Application for the
purchase of Retail Shares contained in the Prospectus. In order to arrange for
redemption by check after an account has been opened, a written request must be
sent to the Companies, c/o CGFSC, at the address listed above and must be
accompanied by a signature card with signatures guaranteed.
Stop payment instructions with respect to checks may be given to the
Companies by calling (800) 446-1012 (from overseas, call (617) 557-8280). If
there are insufficient Shares in the Direct Investor's account with the Fund to
cover the amount of the redemption check, the check will be returned marked
"insufficient funds," and CGFSC will charge a fee of $25.00 to the account.
Checks may not be used to close an account.
OTHER REDEMPTION INFORMATION
Except as described in "Investor Programs" below, Investors may be
required to redeem Shares in a Fund after 60 days' written notice if due to
Investor redemptions the balance in the particular account with respect to the
Fund remains below $500. If a Customer has agreed with a particular Shareholder
Organization to maintain a minimum balance in his or her account at the
institution with respect to Shares of a Fund, and the balance in such account
falls below that minimum, the Customer may be obliged by the Shareholder
Organization to redeem all or part of his or her Shares to the extent necessary
to maintain the required minimum balance.
The Companies may suspend the right of redemption or postpone the date
of payment for Shares for more than 7 days during any period when (a) trading on
the Exchange is restricted by applicable rules and regulations of the SEC; (b)
the Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC.
-35-
In the event that Shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such Shares an amount that is
more or less than his original investment due to changes in the market prices of
that Fund's portfolio securities.
The Companies reserve the right to honor any request for redemption or
repurchase of a Fund's Shares by making payment in whole or in part in
securities chosen by the Companies and valued in the same way as they would be
valued for purposes of computing a Fund's net asset value (a "redemption in
kind"). If payment is made in securities, a shareholder may incur transaction
costs in converting these securities into cash. Each Company has filed a notice
of election with the SEC under Rule 18f-1 of the 1940 Act. Therefore, a Fund is
obligated to redeem its Shares solely in cash up to the lesser of $250,000 or 1%
of its net asset value during any 90-day period for any one shareholder of the
Fund.
Under certain circumstances, the Companies may, in their discretion,
accept securities as payment for Shares. Securities acquired in this manner will
be limited to securities issued in transactions involving a BONA FIDE
reorganization or statutory merger, or other transactions involving securities
that meet the investment objective and policies of any Fund acquiring such
securities.
INVESTOR PROGRAMS
SYSTEMATIC WITHDRAWAL PLAN
An Investor who owns Retail Shares with a value of $10,000 or more may
begin a Systematic Withdrawal Plan. The withdrawal can be on a monthly,
quarterly, semiannual or annual basis. There are four options for such
systematic withdrawals. The Investor may request:
(1) A fixed-dollar withdrawal;
(2) A fixed-share withdrawal;
(3) A fixed-percentage withdrawal (based on the current value of the
account); or
(4) A declining-balance withdrawal.
Prior to participating in a Systematic Withdrawal Plan, the Investor
must deposit any outstanding certificates for Retail Shares with CGFSC. Under
this Plan, dividends and distributions are automatically reinvested in
additional Retail Shares of a Fund. Amounts paid to investors under this Plan
should not be considered as income. Withdrawal payments represent proceeds from
the sale of Retail Shares, and there will be a reduction of the shareholder's
equity in the Fund involved if the amount of the withdrawal payments exceeds the
dividends and distributions paid on the Retail Shares and the appreciation of
the Investor's investment in the Fund. This in turn may result in a complete
depletion of the shareholder's investment. An
-36-
Investor may not participate in a program of systematic investing in a Fund
while at the same time participating in the Systematic Withdrawal Plan with
respect to an account in the same Fund. Customers of Shareholder Organizations
may obtain information on the availability of, and the procedures and fees
relating to, the Systematic Withdrawal Plan directly from their Shareholder
Organizations.
EXCHANGE PRIVILEGE
Investors and Customers of Shareholder Organizations may exchange
Retail Shares having a value of at least $500 for Shares of any other portfolio
of the Companies or for Shares of Excelsior Institutional Trust. Institutional
Shares may be exchanged for Institutional Shares of any portfolio of Excelsior
Institutional Trust. An exchange involves a redemption of all or a portion of
the shares in a Fund and the investment of the redemption proceeds in shares of
another portfolio. The redemption will be made at the per share net asset value
of the shares being redeemed next determined after the exchange request is
received in good order. The shares of the portfolio to be acquired will be
purchased at the per share net asset value of those shares next determined after
receipt of the exchange request in good order.
Shares may be exchanged by wire, telephone or mail and must be made to
accounts of identical registration. There is no exchange fee imposed by the
Companies or Excelsior Institutional Trust. In order to prevent abuse of this
privilege to the disadvantage of other shareholders, the Companies and Excelsior
Institutional Trust reserve the right to limit the number of exchange requests
of Investors to no more than six per year. The Companies and Excelsior
Institutional Trust may modify or terminate the exchange program at any time
upon 60 days' written notice to shareholders, and may reject any exchange
request. Customers of Shareholder Organizations may obtain information on the
availability of, and the procedures and fees relating to, such program directly
from their Shareholder Organizations.
For federal income tax purposes, exchanges are treated as sales on
which the shareholder will realize a gain or loss, depending upon whether the
value of the shares to be given up in exchange is more or less than the basis in
such shares at the time of the exchange. Generally, a shareholder may include
sales loads incurred upon the purchase of shares in his or her 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 Shares for shares of another portfolio of the Companies within 90
days of the purchase and is able to reduce the sales load otherwise applicable
to the new shares (by virtue of the Companies' exchange privilege), the amount
equal to such reduction may not be included in the tax basis of the
shareholder's exchanged shares but may be included (subject to the limitation)
in the tax basis of the new shares.
RETIREMENT PLANS
Shares are available for purchase by Investors in connection with the
following tax-deferred prototype retirement plans offered by United States Trust
Company of New York ("U.S. Trust New York"):
-37-
IRAs (including "rollovers" from existing retirement plans) for
individuals and their spouses;
Profit Sharing and Money-Purchase Plans for corporations and
self-employed individuals and their partners to benefit themselves and
their employees; and
Keogh Plans for self-employed individuals.
Investors investing in the Funds pursuant to Profit Sharing and
Money-Purchase Plans and Keogh Plans are not subject to the minimum investment
and forced redemption provisions described above. The minimum initial investment
for IRAs is $250 per Fund and the minimum subsequent investment is $50 per Fund.
Detailed information concerning eligibility, service fees and other matters
related to these plans can be obtained by calling (800) 446-1012 (from overseas,
call (617) 557-8280). Customers of Shareholder Organizations may purchase Shares
of the Funds pursuant to retirement plans if such plans are offered by their
Shareholder Organizations.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits Investors to purchase Retail
Shares (minimum of $50 per Fund per transaction) at regular intervals selected
by the Investor. The minimum initial investment for an Automatic Investment
Program account is $50 per Fund. Provided the Investor's financial institution
allows automatic withdrawals, Retail Shares are purchased by transferring funds
from an Investor's checking, bank money market or NOW account designated by the
Investor. At the Investor's option, the account designated will be debited in
the specified amount, and Retail Shares will be purchased, once a month, on
either the first or fifteenth day, or twice a month, on both days.
ADDITIONAL INFORMATION
Customers of Shareholder Organizations may obtain information on the
availability of, and the procedures and fees relating to, the above programs
directly from their Shareholder Organizations.
DESCRIPTION OF CAPITAL STOCK
Excelsior Fund's Charter authorizes its Board of Directors to issue up
to thirty-five billion full and fractional shares of common stock, $0.001 par
value per share; and Excelsior Tax-Exempt Fund's Charter authorizes its Board of
Directors to issue up to fourteen billion full and fractional shares of common
stock, $0.001 par value per share. Both Charters authorize the respective Boards
of Directors to classify or reclassify any unissued shares of the respective
Companies into one or more additional classes or series by setting or changing
in any one or more respects their respective preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
-38-
Each share in a Fund represents an equal proportionate interest in the
particular Fund with other shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such Fund as are declared in the discretion of the particular Company's Board of
Directors.
Shares have no preemptive rights and only such conversion or exchange
rights as the Boards of Directors may grant in their discretion. When issued for
payment as described in the Prospectus, Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of a Fund,
shareholders of that Fund are entitled to receive the assets available for
distribution belonging to that Fund and a proportionate distribution, based upon
the relative asset values of the portfolios of the Company involved, of any
general assets of that Company not belonging to any particular portfolio of that
Company which are available for distribution. In the event of a liquidation or
dissolution of either Company, shareholders of such Company will be entitled to
the same distribution process.
Shareholders of the Companies are entitled to one vote for each full
Share held, and fractional votes for fractional Shares held, and will vote in
the aggregate and not by class, except as otherwise required by the 1940 Act or
other applicable law or when the matter to be voted upon affects only the
interests of the shareholders of a particular class. Voting rights are not
cumulative and, accordingly, the holders of more than 50% of a Company's
aggregate outstanding Shares may elect all of that Company's directors,
regardless of the votes of other shareholders.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as each Company shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each portfolio affected by the matter. A portfolio is affected by a matter
unless it is clear that the interests of each portfolio in the matter are
substantially identical or that the matter does not affect any interest of the
portfolio. Under the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a portfolio only if approved by a majority of the outstanding
shares of such portfolio. However, the Rule also provides that the ratification
of the appointment of independent public accountants and the election of
directors may be effectively acted upon by shareholders of each Company voting
without regard to class.
The Companies' Charters authorize the Boards of Directors, without
shareholder approval (unless otherwise required by applicable law), to: (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding Shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding Shares to be
redeemed at their net asset value; or (c) combine the assets belonging to a Fund
with the assets belonging to another portfolio of the Company involved, if the
Board of Directors reasonably determines that such combination will not have a
material adverse effect on shareholders of any portfolio participating in such
combination, and,
-39-
in connection therewith, to cause all outstanding Shares of any portfolio to be
redeemed at their net asset value or converted into shares of another class of
the Company's capital stock at net asset value. The exercise of such authority
by the Boards of Directors will be subject to the provisions of the 1940 Act,
and the Boards of Directors will not take any action described in this paragraph
unless the proposed action has been disclosed in writing to the particular
Fund's shareholders at least 30 days prior thereto.
Notwithstanding any provision of Maryland law requiring a greater vote
of a Company's Common Stock (or of the shares of a Fund voting separately as a
class) in connection with any corporate action, unless otherwise provided by law
(for example, by Rule 18f-2, discussed above) or by the Company's Charter, each
Company may take or authorize such action upon the favorable vote of the holders
of more than 50% of its outstanding common stock voting without regard to class.
Certificates for Shares will not be issued unless expressly requested
in writing to CGFSC and will not be issued for fractional Shares.
MANAGEMENT OF THE FUNDS
DIRECTORS AND OFFICERS
The business and affairs of the Funds are managed under the direction
of the Companies' Boards of Directors. The directors and executive officers of
the Companies, their addresses, ages, principal occupations during the past five
years, and other affiliations are as follows:
Position with the Principal Occupation During Past
Name and Address Companies 5 Years and Other Affiliations
- ---------------- ----------------- ------------------------------
Frederick S. Wonham Chairman of the Board, Retired; Director of the Companies (since
238 June Road President and Treasurer 1995); Trustee of Excelsior Funds and
Stamford, CT 06903 Excelsior Institutional Trust (since
Age: 68 1995); Vice Chairman of U.S. Trust
Corporation and U.S. Trust New York (from
February 1990 until September 1995); and
Chairman, U.S. Trust Company (from March
1993 to May 1997).
Donald L. Campbell Director Retired; Director of the Companies (since
333 East 69th Street 1984); Director of UST Master Variable
Apt. 10-H Series, Inc. (from 1994 to June 1997);
New York, NY 10021 Trustee of Excelsior Institutional Trust
Age: 73 (since 1995); and Director, Royal Life
Insurance Co. of New York (since 1991).
- -------------------
(1) This director is considered to be an "interested person" of the Companies
as defined in the 1940 Act.
-40-
Rodman L. Drake Director Director of the Companies (since 1996);
Continuation Investments Group, Inc. Trustee of Excelsior Institutional Trust
1251 Avenue of the Americas and Excelsior Funds (since 1994);
9th Floor Director, Parsons Brinkerhoff, Inc.
New York, NY 10020 (engineering firm) (since 1995);
Age: 56 President, Continuation Investments Group,
Inc. (since 1997); President, Mandrake
Group (investment and consulting firm)
(1994-1997); Director, Hyperion Total
Return Fund, Inc. and four other funds for
which Hyperion Capital Management, Inc.
serves as investment adviser (since 1991);
Co-Chairman, KMR Power Corporation (power
plants) (from 1993 to 1996); Director, The
Latin America Smaller Companies Fund, Inc.
(1993-1998); Member of Advisory Board,
Argentina Private Equity Fund L.P. (from
1992 to 1996) and Garantia L.P. (Brazil)
(from 1993 to 1996); and Director, Mueller
Industries, Inc. (from 1992 to 1994).
Joseph H. Dugan Director Retired; Director of the Companies (since
913 Franklin Lake Road 1984); Director of UST Master Variable
Franklin Lakes, NJ 07417 Series, Inc. (from 1994 to June 1997); and
Age: 74 Trustee of Excelsior Institutional Trust
(since 1995).
Wolfe J. Frankl Director Retired; Director of the Companies (since
2320 Cumberland Road 1986); Director of UST Master Variable
Charlottesville, VA 22901-7726 Series, Inc. (from 1994 to June 1997);
Age: 78 Trustee of Excelsior Institutional Trust
(since 1995); Director, Deutsche Bank
Financial, Inc. (since 1989); Director,
The Harbus Corporation (since 1951); and
Trustee, HSBC Funds Trust and HSBC Mutual
Funds Trust (since 1988).
Jonathan Piel Director Director of the Companies (since 1996);
558 E. 87th Street Trustee of Excelsior Institutional Trust
New York, NY 10128 and Excelsior Funds (since 1994); Vice
Age: 60 President and Editor, Scientific American,
Inc. (from 1986 to 1994); Director, Group
for The South Fork, Bridgehampton, New
York (since 1993); and Member, Advisory
Committee, Knight Journalism Fellowships,
Massachusetts Institute of Technology
(since 1984).
Robert A. Robinson Director Director of the Companies (since 1987);
Church Pension Group Director of UST Master Variable Series,
445 Fifth Avenue Inc. (from 1994 to June 1997); Trustee of
New York, NY 10017 Excelsior Institutional Trust (since
Age: 73 1995); President Emeritus, The Church
Pension Fund and its affiliated companies
(since 1966); Trustee, H.B. and F.H.
Bugher Foundation and Director of its
wholly owned subsidiaries -- Rosiclear
Lead and Flourspar Mining Co. and The
Pigmy Corporation (since 1984); Director,
Morehouse Publishing Co. (1974-1998);
Trustee, HSBC Funds Trust and HSBC Mutual
Funds Trust (since 1982); and Director,
Infinity Funds, Inc. (since 1995).
-41-
Alfred C. Tannachion (1) Director Retired; Director of the Companies (since
6549 Pine Meadows Drive 1985); Chairman of the Board of Excelsior
Spring Hill, FL 34606 Fund and Excelsior Tax-Exempt Fund (1991-
Age: 73 1997) and Excelsior Institutional Trust
(1996-1997); President and Treasurer of
Excelsior Fund and Excelsior Tax-Exempt
Fund (1994-1997) and Excelsior
Institutional Trust (1996-1997); Chairman
of the Board, President and Treasurer of
UST Master Variable Series, Inc. (1994-
1997); and Trustee of Excelsior
Institutional Trust (since 1995).
W. Bruce McConnel, III Secretary Partner of the law firm of Drinker Biddle
One Logan Square & Reath LLP.
18th and Cherry Streets
Philadelphia, PA 19103-6996
Age: 56
Michael P. Malloy Assistant Secretary Partner of the law firm of Drinker Biddle
One Logan Square & Reath LLP.
18th and Cherry Streets
Philadelphia, PA 19103-6996
Age: 40
Eddie Wang Assistant Secretary Manager of Blue Sky Compliance, Chase
Chase Global Funds Services Company Global Funds Services Company (November
73 Tremont Street 1996 to present); and Officer and Manager
Boston, MA 02108-3913 of Financial Reporting, Investors Bank &
Age: 38 Trust Company (January 1991 to November
1996).
Patricia M. Leyne Assistant Treasurer Assistant Vice President, Senior Manager
Chase Global Funds Services Company of Fund Administration, Chase Global Funds
73 Tremont Street Services Company (since July 1998);
Boston, MA 02108-3913 Assistant Treasurer, Manager of Fund
Age: 32 Administration, Chase Global Funds
Services Company (from November 1996 to
July 1998); Supervisor, Chase Global
Funds Services Company (from September
1995 to November 1996); Fund
Administrator, Chase Global Funds Services
Company (from February 1993 to September
1995).
- -------------------
(1) This director is considered to be an "interested person" of the Companies
as defined in the 1940 Act.
-42-
Each director receives an annual fee of $9,000 with respect to each
Company plus a per - Company meeting fee of $1,500 for each meeting attended and
is reimbursed for expenses incurred in attending meetings. The Chairman of the
Board is entitled to receive an additional $5,000 per annum with respect to each
Company for services in such capacity. Drinker Biddle & Reath LLP, of which
Messrs. McConnel and Malloy are partners, receives legal fees as counsel to the
Companies. The employees of CGFSC do not receive any compensation from the
Companies for acting as officers of the Companies. No person who is currently an
officer, director or employee of the Adviser serves as an officer, director or
employee of the Companies. As of July 13, 1999, the directors and officers of
each Company as a group owned beneficially less than 1% of the outstanding
shares of each fund of each Company, and less than 1% of the outstanding shares
of all funds of each Company in the aggregate.
-43-
The following chart provides certain information about the fees
received by the Companies' directors in the most recently completed fiscal year.
Pension or
Retirement
Aggregate Benefits Total Compensation
Compensation Accrued as from the Companies
Name of from Part of and Fund Complex*
Person/Position the Companies Fund Expenses Paid to Directors
- --------------- ------------- ------------- -----------------
Donald L. Campbell $28,500 None $33,250(3)**
Director
Rodman L. Drake $31,500 None $41,250(4)**
Director
Joseph H. Dugan $31,500 None $36,500(3)**
Director
Wolfe J. Frankl $36,500 None $36,500(3)**
Director
W. Wallace McDowell, Jr.*** $21,000 None $28,000(4)**
Director
Jonathan Piel $31,500 None $41,500(4)**
Director
Robert A. Robinson $31,500 None $36,500(3)**
Director
Alfred C. Tannachion $31,500 None $36,500(3)**
Director
Frederick S. Wonham $41,500 None $51,500(4)**
Chairman of the Board,
President and Treasurer
- -------------------
* The "Fund Complex" consists of the Excelsior Fund, Excelsior Tax-Exempt
Fund, Excelsior Funds and Excelsior Institutional Trust.
** Number of investment companies in the Fund Complex for which director
served as director or trustee.
*** Mr. McDowell resigned from Excelsior Fund, Excelsior Tax-Exempt Fund,
Excelsior Funds and Excelsior Institutional Trust on May 21, 1999.
-44-
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS
U. S. Trust New York and U.S. Trust Company (collectively with U.S.
Trust New York, "U.S. Trust" or the "Adviser") serve as investment advisers to
the Funds. In the Investment Advisory Agreements, the Adviser has agreed to
provide the services described in the Prospectus. The Adviser has also agreed to
pay all expenses incurred by it in connection with its activities under the
respective agreements other than the cost of securities, including brokerage
commissions, if any, purchased for the Funds.
Prior to May 16, 1997, U.S. Trust New York served as investment
adviser to the Money, Government Money, Treasury Money and Tax-Exempt Money
Funds pursuant to advisory agreements substantially similar to the Investment
Advisory Agreements currently in effect for the Funds.
For the services provided and expenses assumed pursuant to its
Investment Advisory Agreements, the Adviser is entitled to be paid a fee
computed daily and paid monthly, at the annual rate of 0.25% of the average
daily net assets of each of the Money, Government Money and Tax-Exempt Money
Funds; 0.30% of the Treasury Money Fund's average daily net assets; and 0.50% of
the New York Tax-Exempt Money Fund's average daily net assets.
From time to time, the Adviser may voluntarily waive all or a portion
of the advisory fees payable to it by a Fund, which waiver may be terminated at
any time.
For the fiscal year or period ended March 31, 1999, Excelsior Fund
paid U.S. Trust advisory fees of $1,475,748, $1,381,779 and $1,403,045 with
respect to the Money, Government Money and Treasury Money Funds, respectively.
For the same period, Excelsior Tax-Exempt Fund paid U.S. Trust advisory fees of
$2,696,982 and $277,593 with respect to the Tax-Exempt Money and New York
Tax-Exempt Money Funds, respectively. For the fiscal year or period ended March
31, 1999, U.S. Trust waived advisory fees totaling $358,360, $184,188, $151,843,
$827,107 and $532,521 with respect to the Money, Government Money, Treasury
Money, Tax-Exempt Money and New York Tax-Exempt Money Funds, respectively.
For the fiscal year ended March 31, 1998, Excelsior Fund paid U.S.
Trust advisory fees of $1,036,066, $1,216,265 and $1,108,480 with respect to the
Money, Government Money and Treasury Money Funds, respectively. For the same
period, Excelsior Tax-Exempt Fund paid U.S. Trust advisory fees of $2,325,765
with respect to the Tax-Exempt Money Fund. For the fiscal year ended March 31,
1998, U.S. Trust waived advisory fees totaling $231,368, $168,737, $82,614 and
$627,413 with respect to the Money, Government Money, Treasury Money and
Tax-Exempt Money Funds, respectively.
For the fiscal year ended March 31, 1997, Excelsior Fund paid U.S.
Trust New York advisory fees of $810,101, $1,136,936 and $828,277 with respect
to the Money, Government Money and Treasury Money Funds, respectively. For the
same period, Excelsior Tax-Exempt Fund paid U.S. Trust advisory fees of New York
$1,891,333 with respect to the Tax-Exempt Money Fund. For the fiscal year ended
March 31, 1997, U.S. Trust New York waived advisory fees totaling $215,132,
$183,979, $79,008 and $502,764 with respect to the Money, Government Money,
Treasury Money and Tax-Exempt Money Funds, respectively.
-45-
The Investment Advisory Agreements provide that the Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by the Funds in connection with the performance of such agreements, except that
U.S. Trust New York and U.S. Trust Company shall be jointly, but not severally,
liable for a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for advisory services or a loss resulting from willful
misfeasance, bad faith or gross negligence in the performance of their duties or
from reckless disregard by them of their duties and obligations thereunder. In
addition, the Adviser has undertaken in the Investment Advisory Agreements to
maintain its policy and practice of conducting its Asset Management Group
independently of its Banking Group.
CGFSC, Federated Administrative Services, an affiliate of the
Distributor, and U.S. Trust Company (collectively, the "Administrators") serve
as the Companies' administrators and provide the Funds with general
administrative and operational assistance. Under the Administration Agreements,
the Administrators have agreed to maintain office facilities for the Funds,
furnish the Funds with statistical and research data, clerical, accounting and
bookkeeping services, and certain other services required by the Funds, and to
compute the net asset value, net income, "exempt-interest dividends," and
realized capital gains or losses, if any, of the respective Funds. The
Administrators prepare semiannual reports to the SEC, prepare federal and state
tax returns, prepare filings with state securities commissions, arrange for and
bear the cost of processing Share purchase and redemption orders, maintain the
Funds' financial accounts and records, and generally assist in the Funds'
operations.
Prior to May 16, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York served as the Money, Government Money, Treasury Money and
Tax-Exempt Money Funds' administrators pursuant to administration agreements
substantially similar to the Administration Agreements currently in effect for
the Funds.
The Administrators also provide administrative services to the other
investment portfolios of the Companies and to all of the investment portfolios
of Excelsior Institutional Trust which are also advised by U.S. Trust and its
affiliates and distributed by the Distributor. For services provided to all of
the investment portfolios of the Companies and Excelsior Institutional Trust
(except for the international portfolios of Excelsior Fund and Excelsior
Institutional Trust), the Administrators are entitled jointly to fees, computed
daily and paid monthly, based on the combined aggregate average daily net assets
of the three companies (excluding the international portfolios of 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 Excelsior Institutional Trust)
Annual Fee
----------
First $200 million.................................................... 0.200%
Next $200 million..................................................... 0.175%
Over $400 million..................................................... 0.150%
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Administration fees payable to the Administrators by each portfolio of
the Companies and Excelsior Institutional Trust are allocated in proportion to
their relative average daily net assets at the time of determination. From time
to time, the Administrators may voluntarily waive all or a portion of the
administration fee payable to them by a Fund, which waivers may be terminated at
any time.
For the fiscal year or period ended March 31, 1999, Excelsior Fund
paid the Administrators $1,122,463, $958,200 and $792,993 in the aggregate with
respect to the Money, Government Money and Treasury Money Funds, respectively.
For the same period, Excelsior Tax-Exempt Fund paid the Administrators
$2,156,742 and $248,317 in the aggregate with respect to the Tax-Exempt Money
and New York Tax-Exempt Money Funds, respectively. For the fiscal year or period
ended March 31, 1999, the Administrators waived fees totaling $11 and $172 with
respect to the Money and Government Money Funds, respectively.
For the fiscal year ended March 31, 1998, Excelsior Fund paid CGFSC,
Federated Administrative Services and U.S. Trust $775,667, $847,526 and $607,458
in the aggregate with respect to the Money, Government Money and Treasury Money
Funds, respectively. For the same period, Excelsior Tax-Exempt Fund paid CGFSC,
Federated Administrative Services and U.S. Trust $1,807,345 in the aggregate
with respect to the Tax-Exempt Money Fund. For the fiscal year ended March 31,
1998, CGFSC, Federated Administrative Services and U.S. Trust waived fees
totaling $3 and $96 with respect to the Money and Government Money Funds,
respectively.
For the fiscal year ended March 31, 1997, Excelsior Fund paid CGFSC,
Federated Administrative Services and U.S. Trust New York $630,623, $811,988 and
$464,931 in the aggregate with respect to the Money, Government Money and
Treasury Money Funds, respectively. For the same period, Excelsior Tax-Exempt
Fund paid CGFSC, Federated Administrative Services and U.S. Trust New York
$1,472,582 in the aggregate with respect to the Tax-Exempt Money Fund. For the
fiscal year ended March 31, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York waived fees totaling $8 and $256 with respect to the Money
and Government Money Funds, respectively.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Shares of the Funds, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks
generally from acting as investment adviser, transfer agent, or custodian to
such an investment company, or from purchasing shares of such company for and
upon the order of customers. The Adviser, CGFSC and certain Shareholder
Organizations may be subject to such banking laws and regulations. State
securities laws may differ from the interpretations of federal law
-47-
discussed in this paragraph and banks and financial institutions may be required
to register as dealers pursuant to state law.
Should legislative, judicial, or administrative action prohibit or
restrict the activities of the Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Adviser and such Shareholder
Organizations might be required to alter materially or discontinue the
investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Funds' method of operations would
affect their net asset values per Share or result in financial loss to any
shareholder.
SHAREHOLDER ORGANIZATIONS
The Companies have entered into agreements with certain Shareholder
Organizations. Such agreements require the Shareholder Organizations to
provide shareholder administrative services to their Customers who
beneficially own Retail Shares or Institutional Shares in consideration for a
Fund's payment of not more than the annual rate of 0.40% or 0.15%,
respectively of the average daily net assets of the Fund's Retail Shares or
Institutional Shares beneficially owned by Customers of the Shareholder
Organization. Such services may include: (a) acting as recordholder of Retail
Shares or Institutional Shares; (b) assisting in processing purchase,
exchange and redemption transactions; (c) transmitting and receiving funds in
connection with Customer orders to purchase, exchange or redeem Retail Shares
or Institutional Shares; (d) providing periodic statements showing a
Customer's account balances and confirmations of transactions by the
Customer; (e) providing tax and dividend information to shareholders as
appropriate; (f) transmitting proxy statements, annual reports, updated
prospectuses and other communications from the Companies to Customers; and
(g) providing or arranging for the provision of other related services. It is
the responsibility of Shareholder Organizations to advise Customers of any
fees that they may charge in connection with a Customer's investment. Until
further notice, the Adviser and Administrators have voluntarily agreed to
waive fees payable by a Fund in an aggregate amount equal to administrative
service fees payable by that Fund.
The Companies' agreements with Shareholder Organizations are governed
by Administrative Services Plans (the "Plans") adopted by the Companies.
Pursuant to the Plans, each Company's Board of Directors will review, at least
quarterly, a written report of the amounts expended under the Company's
agreements with Shareholder Organizations and the purposes for which the
expenditures were made. In addition, the arrangements with Shareholder
Organizations will be approved annually by a majority of each Company's
directors, including a majority of the directors who are not "interested
persons" of the Company as defined in the 1940 Act and have no direct or
indirect financial interest in such arrangements (the "Disinterested
Directors").
Any material amendment to a Company's arrangements with Shareholder
Organizations must be approved by a majority of the Company's Board of Directors
(including a majority of the Disinterested Directors). So long as the Companies'
arrangements with Shareholder Organizations are in effect, the selection and
nomination of the members of the Companies' Boards of Directors who are not
"interested persons" (as defined in the 1940 Act) of the Companies will be
committed to the discretion of such Disinterested Directors.
For the fiscal years ended March 31, 1999, 1998 and 1997, payments to
Shareholder Organizations for Retail Shares totaled $358,371, $231,371 and
$215,140;
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$184,360, $168,833 and $184,235; $151,843, $82,614 and $79,008; and $827,107,
$627,413 and $502,764 with respect to the Money, Government Money, Treasury
Money and Tax-Exempt Money Funds, respectively. Of these respective amounts,
$358,333, $231,347 and $215,090; $183,330, $168,139 and $182,579; $151,843,
$82,614 and $79,008; and $827,104, $627,412 and $502,764 were paid to affiliates
of U.S. Trust with respect to the Money, Government Money, Treasury Money and
Tax-Exempt Money Funds, respectively. For the fiscal period ended March 31,
1999, payments to Shareholder Organizations totaled $7,879 with respect to the
New York Tax-Exempt Money Fund. Of this amount, $7,879 was paid to affiliates
of U.S. Trust with respect to the New York Tax-Exempt Money Fund. As of the date
of this SAI, there were no Institutional Shares issued.
EXPENSES
Except as otherwise noted, the 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 the Companies' directors and officers who
are not affiliated with the Distributor or the Administrators); SEC fees; state
securities qualifications fees; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to shareholders; advisory,
administration and administrative servicing fees; charges of the custodian,
transfer agent, and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; cost of independent pricing services; 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.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase"), a wholly-owned subsidiary of the
Chase Manhattan Corporation, serves as custodian of the Funds' assets. Under the
Custodian Agreements, Chase has agreed to: (i) maintain a separate account or
accounts in the name of the Funds; (ii) make receipts and disbursements of money
on behalf of the Funds; (iii) collect and receive all income and other payments
and distributions on account of the Funds' portfolio securities; (iv) respond to
correspondence from securities brokers and others relating to its duties; (v)
maintain certain financial accounts and records; and (vi) make periodic reports
to each Company's Board of Directors concerning the Funds' operations. Chase
may, at its own expense, open and maintain custody accounts with respect to the
Funds with other banks or trust companies, provided that Chase shall remain
liable for the performance of all its custodial duties under the Custodian
Agreements, notwithstanding any delegation. Communications to the custodian
should be directed to Chase, Mutual Funds Service Division, 3 Chase MetroTech
Center, 8th Floor, Brooklyn, NY 11245.
U.S. Trust New York serves as the Funds' transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust New York has agreed to: (i) issue
and redeem Shares; (ii) address and mail all communications by the Funds to
their shareholders, including reports to shareholders, dividend and distribution
notices, and proxy materials for its meetings of shareholders; (iii) respond to
correspondence by shareholders and others relating to its duties; (iv) maintain
shareholder accounts; and (v) make periodic reports to each Company's Board of
Directors concerning the Funds' operations. For its transfer agency, dividend
disbursing, and
-49-
subaccounting services, U.S. Trust New York is entitled to receive $15.00 per
annum per account and subaccount. In addition, U.S. Trust New York is entitled
to be reimbursed for its out-of-pocket expenses for the cost of forms, postage,
processing purchase and redemption orders, handling of proxies, and other
similar expenses in connection with the above services. U.S. Trust New York is
located at 114 W. 47th Street, New York, New York 10036.
U.S. Trust New York may, at its own expense, delegate its transfer
agency obligations to another transfer agent registered or qualified under
applicable law, provided that U.S. Trust New York shall remain liable for the
performance of all of its transfer agency duties under the Transfer Agency
Agreements, notwithstanding any delegation. Pursuant to this provision in the
agreement, U.S. Trust New York has entered into a sub-transfer agency
arrangement with CGFSC, an affiliate of Chase, with respect to accounts of
shareholders who are not Customers of U.S. Trust New York. CGFSC is located at
73 Tremont Street, Boston, Massachusetts 02108-3913. For the services provided
by CGFSC, U.S. Trust New York has agreed to pay CGFSC $15.00 per annum per
account or subaccount plus out-of-pocket expenses. CGFSC receives no fee
directly from the Companies for any of its sub-transfer agency services. U.S.
Trust New York may, from time to time, enter into sub-transfer agency
arrangements with third party providers of transfer agency services.
PORTFOLIO TRANSACTIONS
Subject to the general control of the Companies' Boards of Directors,
the Adviser is responsible for, makes decisions with respect to, and places
orders for all purchases and sales of all portfolio securities of each of the
Funds.
The Funds do not intend to seek profits from short-term trading. Their
annual portfolio turnover will be relatively high, but brokerage commissions are
not normally paid on money market instruments, and portfolio turnover is not
expected to have a material effect on the net income of the Funds.
Securities purchased and sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down. With
respect to over-the-counter transactions, the Funds, where possible, will deal
directly with the dealers who make a market in the securities involved, except
in those circumstances where better prices and execution are available
elsewhere.
The Investment Advisory Agreements between the Companies and the
Adviser provide that, in executing portfolio transactions and selecting brokers
or dealers, the Adviser will seek to obtain the best net price and the most
favorable execution. The Adviser shall consider factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or dealer and
whether such broker or dealer is selling shares of the Companies, and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis.
-50-
In addition, the Investment Advisory Agreements authorize the Adviser,
to the extent permitted by law and subject to the review of the Companies'
Boards of Directors from time to time with respect to the extent and
continuation of the policy, to cause the Funds to pay a broker which furnishes
brokerage and research services a higher commission than that which might be
charged by another broker for effecting the same transaction, provided that the
Adviser determines in good faith that such commission is reasonable in relation
to the value of the brokerage and research services provided by such broker,
viewed in terms of either that particular transaction or the overall
responsibilities of the Adviser to the accounts as to which it exercises
investment discretion. Such brokerage and research services might consist of
reports and statistics on specific companies or industries, general summaries of
groups of stocks and their comparative earnings, or broad overviews of the stock
market and the economy.
Supplementary research information so received is in addition to and
not in lieu of services required to be performed by the Adviser and does not
reduce the investment advisory fees payable by the Funds. Such information may
be useful to the Adviser in serving the Funds and other clients and, conversely,
supplemental information obtained by the placement of business of other clients
may be useful to the Adviser in carrying out its obligations to the Funds.
Portfolio securities will not be purchased from or sold to the
Adviser, the Distributor, or any of their affiliated persons (as such term is
defined in the 1940 Act) acting as principal, except to the extent permitted by
the SEC.
Investment decisions for the Funds are made independently from those
for other investment companies, common trust funds and other types of funds
managed by the Adviser. Such other investment companies and funds may also
invest in the same securities as the Funds. When a purchase or sale of the same
security is made at substantially the same time on behalf of the Funds and
another investment company or common trust fund, the transaction will be
averaged as to price, and available investments allocated as to amount, in a
manner which the Adviser believes to be equitable to the Funds and such other
investment company or common trust fund. In some instances, this investment
procedure may adversely affect the price paid or received by the Funds or the
size of the position obtained by the Funds. To the extent permitted by law, the
Adviser may aggregate the securities to be sold or purchased for the Funds with
those to be sold or purchased for other investment companies or common trust
funds in order to obtain best execution.
The Companies are required to identify any securities of their regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their
parents held by the Funds as of the close of the most recent fiscal year. As of
March 31, 1999, the Excelsior Money Fund held one corporate bond issued by
Merrill Lynch & Co. with a principal amount of $45,000,000.
INDEPENDENT AUDITORS
Ernst & Young LLP, independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of the Companies. The Funds' Financial Highlights
included in the Prospectus and the financial statements for the period ended
March 31, 1999 incorporated by reference in this Statement of Additional
Information have been audited by Ernst & Young LLP for the periods included in
their reports thereon which appear therein.
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COUNSEL
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of the
Companies, and Mr. Malloy, Assistant Secretary of the Companies, are partners),
One Logan Square, 18th and Cherry Streets, Philadelphia, Pennsylvania 19103, is
counsel to the Companies, and will pass upon the legality of the Shares offered
by the Prospectus.
ADDITIONAL INFORMATION CONCERNING TAXES
GENERALLY
The following supplements the tax information contained in the
Prospectus.
For federal income tax purposes, each Fund is treated as a separate
corporate entity , and has qualified and intends to continue to qualify as a
regulated investment company. Such qualification generally relieves a Fund of
liability for federal income taxes to the extent its earnings are distributed in
accordance with applicable requirements. If, for any reason, a Fund does not
qualify for a taxable year for the special federal tax treatment afforded
regulated investment companies, such Fund would be subject to federal tax on all
of its taxable income at regular corporate rates, without any deduction for
distributions to shareholders. In such event, dividend distributions (whether or
not derived from interest on Municipal Securities) would be taxable as ordinary
income to shareholders to the extent of the Fund's current and accumulated
earnings and profits and would be eligible for the dividends received deduction
in the case of corporate shareholders.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). The Funds intend to make sufficient
distributions or deemed distributions of their ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
A Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of taxable dividends or gross proceeds realized upon sale paid
to shareholders who have failed to provide a correct tax identification number
in the manner required, who are subject to withholding by the Internal Revenue
Service for failure properly to include on their return payments of taxable
interest or dividends, or who have failed to certify to the Fund when required
to do so either that they are not subject to backup withholding or that they are
"exempt recipients."
The foregoing discussion is based on federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action. Shareholders are advised to consult their tax advisers concerning their
specific situations and the application of state, local and/or foreign taxes.
-52-
TAXABLE FUNDS
The Taxable Funds' distributions will generally be taxable to
shareholders. The Taxable Funds expect that all, or substantially all, of their
distributions will consist of ordinary income. You will be subject to income tax
on these distributions regardless whether they are paid in cash or reinvested in
additional shares. The one major exception to these tax principles is that
distributions on shares held in an IRA (or other tax-qualified plan) will not be
currently taxable. You will be notified annually of the tax status of
distributions to you.
TAX-EXEMPT FUNDS
The distributions by the Tax-Exempt Funds will generally constitute
tax-exempt income for shareholders for federal income tax purposes. It is
possible, depending upon the Tax-Exempt Funds' investments, that a portion of
the Funds' distributions could be taxable to shareholders as ordinary income or
capital gains, but the Tax-Exempt Funds do not expect that this will be the
case.
Interest on indebtedness incurred by a shareholder to purchase or
carry shares of the Tax-Exempt Funds generally will not be deductible for
federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid
by the Tax-Exempt Funds may constitute an item of tax preference for purposes of
determining federal alternative minimum tax liability. Exempt-interest dividends
will also be considered along with other adjusted gross income in determining
whether any Social Security or railroad retirement payments received by you are
subject to federal income taxes.
Each Tax-Exempt Fund is not intended to constitute a balanced
investment program and is not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Tax-Exempt Funds would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and individual retirement accounts
because such plans and accounts are generally tax-exempt and, therefore, not
only would not gain any additional benefit from the Tax-Exempt Funds' dividends
being tax-exempt, but such dividends would be ultimately taxable to the
beneficiaries when distributed to them. In addition, the Tax-Exempt Funds may
not be appropriate investments for entities which are "substantial users" of
facilities financed by private activity bonds or "related persons" thereof.
"Substantial user" is defined under the Treasury Regulations to include a
non-exempt person who regularly uses a part of such facilities in his trade or
business and whose gross revenues derived with respect to the facilities
financed by the issuance of bonds are more than 5% of the total revenues derived
by all users of such facilities, who occupies more than 5% of the usable area of
such facilities or for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include certain
related natural persons, affiliated corporations, a partnership and its partners
and an S Corporation and its shareholders.
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In order for the Tax-Exempt Funds to pay exempt-interest dividends
for any taxable year, at least 50% of the aggregate value of a Fund's portfolio
must consist of exempt-interest obligations at the close of each quarter of its
taxable year. Within 60 days after the close of the taxable year, the Tax-Exempt
Funds will notify their shareholders of the portion of the dividends paid by
such Fund which constitutes an exempt-interest dividend with respect to such
taxable year. However, the aggregate amount of dividends so designated by the
Tax-Exempt Funds cannot exceed the excess of the amount of interest exempt from
tax under Section 103 of the Code received by the Tax-Exempt Funds during the
taxable year over any amounts disallowed as deductions under Sections 265 and
171(a)(2) of the Code. The percentage of total dividends paid by the Tax-Exempt
Funds with respect to any taxable year which qualifies as exempt-interest
dividends will be the same for all shareholders receiving dividends from the
Tax-Exempt Funds for such year.
The Tax-Exempt Funds intend to distribute to their shareholders any
investment company taxable income earned by such Fund for each taxable year. In
general, the Tax-Exempt Funds' investment company taxable income will be its
taxable income (including taxable interest and short-term capital gains) 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. Such distributions will be taxable to the shareholders as ordinary income
(whether paid in cash or additional shares).
* * *
The foregoing discussion is based on federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action. You should consult your tax advisor for further information regarding
federal, state, local and/or foreign tax consequences relevant to your specific
situation. Shareholders may also be subject to state and local taxes on
distributions and redemptions. State income taxes may not apply, however, to the
portions of each Funds' distributions, if any, that are attributable to intent
on federal securities or interest on securities of the particular state or
localities within the state. For example, distributions from the New York
Tax-Exempt Money Fund will generally be exempt from federal, New York State and
New York City taxes.
YIELD INFORMATION
Each Fund may advertise its seven-day yield which refers to the income
generated over a particular seven-day period identified in the advertisement by
an investment in the Fund. This income is annualized, i.e., the income during a
particular week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The Funds may also advertise their
"effective yields" which are calculated similarly but, when annualized, income
is assumed to be reinvested, thereby making the effective yields slightly higher
because of the compounding effect of the assumed reinvestment.
Yields will fluctuate and any quotation of yield should not be
considered as representative of a Fund's future performance. Since yields
fluctuate, yield data cannot
-54-
necessarily be used to compare an investment in the Funds with bank deposits,
savings accounts and similar investment alternatives which often provide an
agreed or guaranteed fixed yield for a stated period of time. Shareholders
should remember that yield is generally a function of the kind and quality of
the instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any fees charged by Shareholder Organizations with respect to
accounts of Customers that have invested in Shares will not be included in
calculations of yield.
The standardized annualized seven-day yields for the Shares of the
Funds are computed separately by determining the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account in the Fund
involved, having a balance of one Share at the beginning of the period, dividing
the net change in account value by the value of the account at the beginning of
the period to obtain the base period return, and multiplying the base period
return by (365/7). The net change in the value of an account in each of the
Funds includes the value of additional Shares purchased with dividends from the
original Share and dividends declared on both the original Share and any such
additional Shares, net of all fees that are charged to all Shareholder accounts
and to the particular series of Shares in proportion to the length of the base
period, other than nonrecurring account or any sales charges. For any account
fees that vary with the size of the account, the amount of fees charged is
computed with respect to the Fund's mean (or median) account size. The capital
changes to be excluded from the calculation of the net change in account value
are realized gains and losses from the sale of securities and unrealized
appreciation and depreciation. In addition, each Fund may use effective compound
yield quotations for its Shares computed by adding 1 to the unannualized base
period return (calculated as described above), raising the sums to a power equal
to 365 divided by 7, and subtracting 1 from the results.
From time to time, in advertisements, sales literature or in reports
to shareholders, the yields of each Money Market Fund's Shares may be quoted and
compared to those of other mutual funds with similar investment objectives and
to stock or other relevant indices. For example, the yield of such a Fund's
Shares may be compared to the Donoghue's Money Fund average, which is an average
compiled by Donoghue's MONEY FUND REPORT of Holliston, MA 01746, a widely
recognized independent publication that monitors the performance of money market
funds, or to the data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service that monitors the performance of mutual funds.
The yields of the Taxable Funds may also be compared to the average yields
reported by the Bank Rate Monitor for money market deposit accounts offered by
the 50 leading banks and thrift institutions in the top five standard
metropolitan statistical areas. Advertisements, sales literature or reports to
shareholders may from time to time also include a discussion and analysis of
each Fund's performance, including without limitation, those factors, strategies
and techniques that, together with market conditions and events, materially
affected each Fund's performance.
Yield 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 Funds' yields.
The current yields for the Funds' Shares may be obtained by calling
(800) 446-1012. For the seven-day period ended March 31, 1999, the annualized
yields for Retail Shares of the Money Fund, Government Money Fund, Treasury
Money Fund, Tax- Exempt Money Fund and New York Tax-Exempt Money Fund were
4.47%, 4.53%, 4.31%, 2.47% and 2.36%,
-55-
respectively, and the effective yields for Retail Shares of such respective
Funds were 4.57%, 4.63%, 4.40%, 2.50% and 2.39%.
The "tax-equivalent" yield of the Tax-Exempt Money Fund is computed
by: (a) dividing the portion of the yield (calculated as above) that is exempt
from federal income tax by one minus a stated federal income tax rate and (b)
adding that figure to that portion, if any of the yield that is not exempt from
federal income tax. Tax-equivalent yields assume the payment of federal income
taxes at a rate of 31%.
The "tax-equivalent" yield of the New York Tax-Exempt Money Fund is
computed by: (a) dividing the portion of the yield (calculated as above) that is
exempt from both federal and New York State income taxes by one minus a stated
combined federal and New York State income tax rate; (b) dividing the portion of
the yield (calculated as above) that is exempt from federal income tax only by
one minus a stated federal income tax rate; and (c) adding the figures resulting
from (a) and (b) above to that portion, if any, of the yield that is not exempt
from federal income tax. Tax-equivalent yields assume a federal income tax rate
of 31%, a New York State and New York City marginal income tax rate of 10.21%
and an overall tax rate taking into account the federal tax deduction for state
and local taxes paid of 38.04%.
Based on the foregoing calculation, the annualized tax-equivalent
yield of the Retail Shares of the Tax-Exempt Money Fund and the New York
Tax-Exempt Money Fund for the seven-day period ended March 31, 1999 were 3.58%
and 3.86%.
MISCELLANEOUS
As used herein, "assets belonging to a Fund" means the consideration
received upon the issuance of Shares in the Fund, together with all income,
earnings, profits, and proceeds derived from the investment thereof, including
any proceeds from the sale of such investments, any funds or payments derived
from any reinvestment of such proceeds, and a portion of any general assets of
the Company involved not belonging to a particular portfolio of that Company. In
determining the net asset value of a Fund's Shares, assets belonging to the Fund
are charged with the direct liabilities in respect of that Fund and with a share
of the general liabilities of the Company involved which are normally allocated
in proportion to the relative asset values of the Company's portfolios at the
time of allocation. Subject to the provisions of the Companies' Charters,
determinations by the Boards of Directors as to the direct and allocable
liabilities, and the allocable portion of any general assets with respect to a
particular Fund, are conclusive.
As of July 13, 1999, U.S. Trust and its affiliates held of record
substantially all of the Companies' 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 Retail Shares.
As of July 13, 1999, the name, address and percentage ownership of
each person, in addition to U.S. Trust and its affiliates, that owned
beneficially or of record 5% or more of the outstanding Shares of a Fund were as
follows: Excelsior Funds, Inc.: GOVERNMENT MONEY FUND: Illinios Power & Fuel,
c/o United States Trust Company of New York, 114 West 47th Street, New York, New
York 10036, 7.75%; and the Healy LTD Partnership, c/o United
-56-
States Trust Company of New York, 114 West 47th Street, New York, New York
10036, 6.29%; Excelsior Tax-Exempt Funds, Inc.: NEW YORK TAX-EXEMPT MONEY FUND:
Christopher H. Browne, c/o United States Trust Company of New York, 114 West
47th Street, New York, New York 10036, 7.31%.
As of July 13, 1999, the name, address and percentage ownership of
each person, in addition to U.S. Trust and its affiliates, that owned
beneficially or of record 5% or more of the outstanding Institutional Shares of
the Money Fund were as follows: Money Fund: Barnett Executive Benefit Plan, c/o
United States Trust Company of New York, 114 West 47th Street, New York, New
York 10036, 35.58%; and M. Kemmerer, c/o United States Trust Company of New
York, 114 West 47th Street, New York, New York 10036, 6.05%. As of the date of
this SAI, there were no Instiutional Shares issued.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Companies'
Annual Reports to Shareholders for the fiscal year ended March 31, 1999 (the
"1999 Annual Reports") for the Funds are incorporated in this Statement of
Additional Information by reference. No other parts of the 1999 Annual Reports
are incorporated by reference herein. The financial statements included in the
1999 Annual Reports for the Funds have been audited by the Companies'
independent auditors, Ernst & Young LLP, whose reports thereon also appear in
the 1999 Annual Reports and are incorporated herein by reference. Such financial
statements have been incorporated herein in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
Additional copies of the 1999 Annual Reports may be obtained at no charge by
telephoning CGFSC at the telephone number appearing on the front page of this
Statement of Additional Information.
-57-
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating will also be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
A-1
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
A-2
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest capacity for timely payment of financial commitments and
may have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates
that default is a real possibility and that the capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
Thomson Financial BankWatch short-term ratings assess the likelihood
of an untimely payment of principal and interest of debt instruments with
original maturities of one year or less. The following summarizes the ratings
used by Thomson Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson Financial BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment
A-3
of principal and interest is strong, the relative degree of safety is not as
high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson Financial BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson Financial BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
A-4
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due,
even if the applicable grace period has not expired, unless S & P believes that
such payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower
A-5
than the best bonds because margins of protection may not be as large as in
"Aaa" securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risk
appear somewhat larger than the "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from "Aa" through "Caa." The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
A-6
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and indicate
very strong capacity for timely payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic change over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
A-7
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC", "CC" and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. The ratings of obligations
in this category are based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have the
highest potential for recovery , around 90% - 100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50% - 90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for redemption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "CCC" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson Financial BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
A-8
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC" - These designations are assigned by
Thomson Financial BankWatch to non-investment grade long-term debt. Such issues
are regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity factors and market
access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess a
very strong capacity to pay debt service are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
A-9
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with margins
of protection that are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-10
Excelsior Institutional Money Fund
- --------------------------------------------------------------------------------
Statement Of Assets And Liabilities August 31, 1998
Assets:
Investments in Cash Reserves Portfolio (the "Portfolio"), at value (Note 1) .... $ 174,145,038
Deferred organization expenses (Note 1) ........................................ 8,021
-------------
Total assets .................................................................. 174,153,059
-------------
Liabilities:
Dividends payable .............................................................. 492,177
Payable for fund shares redeemed ............................................... 1,500,000
Shareholder servicing fees payable (Note 2) .................................... 311,954
Administration service fees payable (Note 2) ................................... 2,335
Transfer agent fees payable (Note 2) ........................................... 2,128
Other accrued expenses ......................................................... 25,309
-------------
Total liabilities............................................................. 2,333,903
-------------
Net Assets for 171,819,156 shares of beneficial interest outstanding ........... $ 171,819,156
=============
Represented by:
Paid-in capital ................................................................ $ 171,819,156
=============
Net Asset Value, Offering Price and Redemption Price Per Share ................. $ 1.00
=============
Excelsior Institutional Money Fund
- --------------------------------------------------------------------------------
Statement Of Operations
For the year ended August 31, 1998
Investment Income from Portfolio (Note 1):
Interest income (includes $17,160 of net realized gains) ....... $ 10,776,590
Allocated expenses ............................................. (187,207)
------------
10,589,383
Expenses (Note 1):
Shareholder servicing fees (Note 2) ............................ $ 747,297
Administration service fees (Note 2) ........................... 186,824
Professional fees .............................................. 50,542
Amortization of organization expenses (Note 1) ................. 42,435
Registration fees .............................................. 36,045
Prospectus and shareholders' reports ........................... 26,003
Transfer agent fees (Note 2) ................................... 24,745
Trustees' fees and expenses (Note 2) ........................... 19,750
Miscellaneous expenses ......................................... 171
----------
Total expenses .............................................. 1,133,812
Less: Waiver of shareholder servicing fees (Note 2) ......... (725,026)
Less: Waiver of administration service fees (Note 2) ........ (128,164)
----------
Net expenses ................................................ 280,622
------------
Net investment income from operations .......................... $ 10,308,761
============
See notes to financial statements
Excelsior Institutional Money Fund
- --------------------------------------------------------------------------------
Statement Of Changes In Net Assets
For the Year Ended August 31,
1998 1997
---------------- ----------------
Increase (Decrease) in Net Assets:
Net investment income from operations ...................... $ 10,308,761 $ 16,949,906
---------------- ----------------
Dividends to shareholders from net investment income ....... (10,308,761) (16,949,906)
---------------- ----------------
Transactions in Shares of Beneficial Interest
($1.00 Per Share)
Net proceeds from shares sold .............................. 2,050,291,956 4,074,986,293
Reinvestment of dividends .................................. 3,681,052 6,115,286
Cost of shares redeemed .................................... (2,197,914,554) (4,058,630,393)
---------------- ----------------
Net increase (decrease) in net assets resulting from
transactions in shares of beneficial interest ......... (143,941,546) 22,471,186
---------------- ----------------
Total increase (decrease) in net assets .................. (143,941,546) 22,471,186
Net Assets:
Beginning of year .......................................... 315,760,702 293,289,516
---------------- ----------------
End of year ................................................ $ 171,819,156 $ 315,760,702
================ ================
Excelsior Institutional Money Fund
- --------------------------------------------------------------------------------
Financial Highlights
For the period
November 8, 1993
(commencement of
For the Year ended August 31, operations) to
1998 1997 1996 1995 August 31, 1994
------------- ------------- ------------- ------------ ------------------
Net Asset Value, beginning of period ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income from operations .............. 0.0551 0.0543 0.0547 0.0579 0.0308
Dividends from net investment income ............... (0.0551) (0.0543) (0.0547) (0.0579) (0.0308)
-------- -------- ------- ------- ----------
Net Asset Value, end of period ..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ==========
Total Return ....................................... 5.65% 5.57% 5.61% 5.95% 3.87%(2)
======== ======= ======= ======= ==========
Ratios:
Net investment income to average net assets (1) 5.52% 5.40% 5.55% 5.59% 4.39%(2)
Expenses to average net assets (1) ................ 0.25% 0.25% 0.25% 0.25% 0.19%(2)
Total Net Assets, end of period (000's omitted) .... $171,819 $315,761 $293,290 $638,111 $ 770,658
(1) Reflects the Fund's proportionate share of the Portfolio's expenses as well
as voluntary fee waivers by agents of the Portfolio and the Trust. If the
voluntary fee waivers had not been in place, the ratios of net investment
income and expenses to average net assets would have been as follows:
Net investment income to average net assets ..... 4.94% 4.92% 5.11% 5.16% 4.28%(2)
Expenses to average net assets .................. 0.83% 0.74% 0.69% 0.68% 0.31%(2)
(2) Annualized
See notes to financial statements
Excelsior Institutional Money Fund
- --------------------------------------------------------------------------------
Notes To Financial Statements
(1) Significant Accounting Policies
Excelsior Institutional Money Fund (the "Fund") is a series of Excelsior Funds
(the "Trust"), an open-end diversified management investment company registered
under the Investment Company Act of 1940.
U.S. Trust Company of Connecticut ("U.S. Trust Connecticut"), Chase Global Funds
Services Company ("CGFSC"), a corporate affiliate of The Chase Manhattan Bank,
and Federated Administrative Services ("FAS"), a wholly-owned subsidiary of
Federated Investors, Inc. (collectively, the "Administrators"), serve as
Administrators of the Trust. U.S. Trust Connecticut is a wholly-owned subsidiary
of U.S. Trust Corporation ("U.S. Trust"), a registered bank holding company.
Edgewood Services, Inc. ("Edgewood"), a wholly-owned subsidiary of Federated
Investors, Inc. serves as distributor to the Fund.
It is the Fund's policy, to the extent possible, to maintain a continuous net
asset value of $1.00 per share; the Fund has adopted certain investment,
valuation, dividend and distribution policies to enable it to do so.
The Fund invests all of its investable assets in the Cash Reserves Portfolio
(the "Portfolio"), an open-end diversified management investment company for
which Citibank, N.A. serves as Investment Advisor. The value of such investment
reflects the Fund's proportionate interest in the net assets of the Portfolio
(2.0% at August 31, 1998).
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
The performance of the Fund is directly affected by the performance of the
Portfolio. The financial statements of the Portfolio, including the Portfolio of
Investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
A. Investment Valuation -- Valuation of securities by the Portfolio is discussed
in Note 1A of the Portfolio's Notes to Financial Statements, which are included
elsewhere in this report.
B. Investment Income -- The Fund earns interest income, net of Portfolio
expenses, daily on its investment in the Portfolio. Realized gain and loss from
securities transactions are recorded by the Portfolio on the identified cost
basis, when recognized, and allocated to the Fund, along with net investment
income, based on its investment in the Portfolio.
C. Dividends to Shareholders -- Dividends from net investment income are
declared daily and paid monthly. Distributions from net realized gains or
losses, if any, are declared daily as income and paid monthly.
D. Federal Income Taxes -- It is the policy of the Fund to continue to qualify
as a regulated investment company, if such qualification is in the best interest
of its shareholders, by complying with the requirements of the Internal Revenue
Code applicable to regulated investment companies, and by distributing
substantially all of its taxable earnings to its shareholders.
E. Expenses -- The Fund bears all costs of its operations other than expenses
specifically assumed by the Administrators.
F. Deferred Organization Expenses -- Organization expenses have been deferred
and are being amortized on a straight line basis over a period not to exceed
five years beginning with the commencement of operations of the Fund. The amount
paid by the Fund on any redemption of the Fund's initial share, will be reduced
by the pro rata portion of any unamortized organization expenses which the
number of initial shares redeemed bears to the total number of initial shares
outstanding immediately prior to such redemption.
G. Other -- All of the net income of the Portfolio is allocated pro rata among
the Fund and the other investors in the Portfolio at the time of such
determination.
Excelsior Institutional Money Fund
- --------------------------------------------------------------------------------
Notes To Financial Statements continued
(2) Administration Fee and Other Transactions With Affiliates
A. Administration Fee -- For services provided to the Fund, the Administrators
are entitled jointly to an annual fee, payable monthly, at a maximum annual rate
of 0.10% of the average daily net assets of the Fund. For the year ended August
31, 1998, administration fees totaling $158,800 were charged by U.S. Trust
Connecticut, of which $128,164 were waived.
For the year ended August 31, 1998, the Fund paid FAS administration fees
totaling $28,024. Edgewood receives no compensation from the Fund in its
capacity as distributor of the Fund's shares.
For the year ended August 31, 1998, CGFSC received fees amounting to $24,745,
for providing transfer agency services to the Fund.
B. Shareholder Servicing Fee -- The Trust, on behalf of the Fund, has entered
into shareholder servicing agreements with United States Trust Company of New
York, a wholly-owned subsidiary of U.S. Trust, BISYS and Mid Atlantic Capital
Group Inc. (the "Service Organizations") pursuant to which each Service
Organization, as agent for its customers, provides administrative support
services. For its services, each Service Organization may receive a fee from the
Fund, which may not exceed, on an annual basis, an amount equal to 0.40% of the
average daily net assets of Fund shares owned by customers of the Service
Organization. For the year ended August 31, 1998, the Service Organizations
received fees amounting to $22,271, which is net of $725,026 which was
voluntarily waived, for providing shareholder servicing the Fund.
C. Other -- Independent Trustees receive an annual retainer of $4,000 and an
additional $250 for each meeting of the Board of Trustees attended. In addition,
the Trust reimburses independent Trustees for reasonable expenses incurred when
acting in their capacity as Trustees.
Excelsior Institutional Money Fund
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Trustees and the Shareholders of
Excelsior Funds (the Trust):
Excelsior Institutional Money Fund
In our opinion, the accompanying statement of assets and liabilities, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Excelsior Institutional Money Fund (the "Fund"), a series of the Excelsior
Funds, at August 31, 1998 and the results of its operations, the changes in its
net assets and the financial highlights for the periods indicated in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments owned at August 31, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Boston Massachusetts
October 27, 1998
- --------------------------------------------------------------------------------
Important Tax Information unaudited
For the year ended August 31, 1998, 1.5% of the income dividends paid were
derived from interest earned from U.S. Government and U.S. Government agency
obligations.
Cash Reserves Portfolio
- --------------------------------------------------------------------------------
Portfolio Of Investments August 31, 1998
Principal
Amount
Issuer (000's omitted) Value
- -------------------------------------------------------------------------------------
ASSET BACKED--11.0%
Sigma Finance Corp.*
5.64% due 8/27/99 $ 197,000 $ 196,990,868
Steers*
5.641% due 10/15/98 160,000 160,000,000
5.652% due 11/10/98 191,000 190,992,928
5.648% due 3/25/99 78,069 78,069,058
Strategic Money Market Trust
Receipts*
5.656% due 3/05/99 213,000 213,000,000
Strats Trust*
5.663% due 12/15/98 130,000 130,000,000
-------------
969,052,854
-------------
BANK NOTES--4.8%
Bank of New York
5.50% due 2/17/99 100,000 99,968,885
First Union Bank
5.49% due 9/01/99 75,000 75,000,000
FCC National Bank
5.68% due 6/03/99 50,000 49,974,737
5.86% due 10/02/98 100,000 99,995,126
Nationsbank
5.57% due 6/25/99 100,000 99,960,129
-------------
424,898,877
-------------
CERTIFICATES OF DEPOSIT
(DOMESTIC)--1.8%
Chase Manhattan Bank
5.74% due 5/10/99 57,000 56,977,486
Morgan Guaranty Trust Co.
5.55% due 2/02/99 100,000 100,000,000
-------------
156,977,486
-------------
CERTIFICATES OF DEPOSIT
(EURO)--1.1%
Barclays Bank
5.58% due 12/29/98 100,000 100,003,242
-------------
CERTIFICATES OF DEPOSIT
(YANKEE)--32.4%
ABN Amro Bank
5.62% due 4/14/99 75,000 74,977,837
Bank of Nova Scotia
5.65% due 3/29/99 38,000 37,969,974
5.59% due 8/24/99 25,000 24,997,654
Bank of Tokyo Mitsubishi
5.73% due 9/08/98 $ 400,000 $ 400,000,000
Barclays Bank
5.82% due 10/05/98 125,000 124,994,431
5.53% due 2/23/99 100,000 99,972,398
5.70% due 3/30/99 100,000 99,966,931
Bayeriche Landesbank
5.70% due 1/07/99 60,000 59,991,936
5.65% due 7/23/99 50,000 49,954,213
Credit Agricole Indosuez
5.74% due 4/26/99 75,000 74,961,397
Credit Communal de Belgique
5.62% due 3/19/99 45,000 44,975,420
Credit Suisse First Boston
5.69% due 7/06/99 100,000 100,000,000
Deutsche Bank
5.62% due 2/26/99 100,000 99,976,622
5.65% due 3/02/99 100,000 99,976,103
5.65% due 8/06/99 100,000 99,951,040
Rabobank Nederland
5.60% due 3/17/99 50,000 49,986,831
5.71% due 6/11/99 100,000 99,962,179
5.69% due 6/30/99 75,000 74,990,829
5.64% due 7/30/99 103,000 102,979,080
Societe Generale Bank
5.75% due 4/06/99 150,000 149,960,148
5.76% due 4/16/99 75,000 74,982,134
Societe Generale Bank*
5.563% due 5/20/99 175,800 175,714,046
Svenska Handelsbanken
5.75% due 5/04/99 57,000 56,981,681
5.76% due 5/25/99 75,000 74,968,617
5.74% due 6/01/99 77,000 76,960,883
Swiss Bank Corp.
5.715% due 6/14/99 100,000 99,969,983
Toronto Dominion Bank
5.71% due 6/15/99 100,000 99,969,868
5.71% due 6/23/99 85,000 84,973,674
5.54% due 8/18/99 135,000 134,898,090
-------------
2,849,963,999
-------------
COMMERCIAL PAPER--5.0%
Aspen Funding Corp.
5.88% due 9/01/98 140,000 140,000,000
General Electric Capital Corp.
5.92% due 9/01/98 100,000 100,000,000
5.44% due 9/09/98 40,000 39,951,645
Cash Reserves Portfolio
- --------------------------------------------------------------------------------
Portfolio Of Investments August 31, 1998 continued
Principal
Amount
Issuer (000's omitted) Value
- --------------------------------------------------------------------------------
J. P. Morgan & Co., Inc.
5.376% due 12/11/98 $ 25,000 $ 24,622,933
Newport Funding Corp.
5.875% due 9/01/98 140,000 140,000,000
--------------
444,574,578
--------------
CORPORATE NOTES--23.0%
Associates Corp. of North
America*
5.61% due 1/04/99 200,000 199,959,365
5.53% due 6/29/99 150,000 149,903,404
Bank One, Wisconsin*
5.65% due 10/23/98 100,000 99,988,872
Bear Stearns*
5.62% due 6/04/99 225,000 225,000,000
Credit Suisse*
5.63% due 10/07/98 200,000 200,000,000
5.63% due 11/09/98 125,000 125,000,000
J. P. Morgan & Co., Inc.*
5.57% due 7/07/99 210,000 209,896,991
Key Bank National
Association*
5.555% due 9/28/98 200,000 199,989,284
5.585% due 5/12/99 88,000 87,956,661
Merrill Lynch & Co., Inc.*
5.76% due 10/05/98 100,000 100,013,442
PNC Bank National
Association*
5.60% due 10/02/98 230,000 229,986,663
Royal Bank of Canada*
5.54% due 2/16/99 200,000 199,937,000
--------------
2,027,631,682
--------------
MEDIUM TERM NOTES--7.7%
Abbey National Treasury
Services
5.54% due 1/20/99 125,000 124,991,658
5.525% due 1/26/99 100,000 99,982,606
5.476% due 6/15/99 100,000 99,914,519
5.58% due 8/25/99 100,000 99,961,541
Norwest Financial Inc.
5.55% due 8/31/99 100,000 99,971,291
Sigma Finance Corp.
5.94% due 11/17/98 150,000 150,000,000
--------------
674,821,615
--------------
PROMISSORY NOTES--4.0%
Goldman Sachs Group*
5.699% due 11/13/98 $ 350,000 $ 350,000,000
--------------
TIME DEPOSITS--6.1%
Dresdner Bank
6.00% due 9/01/98 135,084 135,084,000
Harris Trust & Savings Bank
5.938% due 9/01/98 150,000 150,000,000
ING Bank
5.938% due 9/01/98 75,000 75,000,000
Norddeutsche Landesbank
6.00% due 9/01/98 76,200 76,200,000
Westdeutsche Landesbank
5.938% due 9/01/98 100,000 100,000,000
--------------
536,284,000
--------------
REPURCHASE AGREEMENTS--2.8%
First Union Bank Repurchase Agreement
5.83% due 9/01/98 (collateralized by
$48,468,000 Federal National Mortgage
Association, Zero coupon due 12/14/98,
valued at $48,475,849; $41,929,000,
6.96% due 4/02/07, valued at
$41,935,790; $46,763,000, 5.50% due
2/25/00, valued at $46,770,573;
$10,517,000, 6.65% due 11/14/07,
valued at $10,518,703; $47,285,000
Federal Home Loan Mortgage
Association, 5.98% due 6/18/08, valued
at $47,292,658; $31,716,000, 6.28%
due 8/19/05, valued at $31,721,136;
and $23,322,000, 6.51% due 8/18/808,
valued at $23,325,777)
250,000,000
--------------
Total Investments at
Amortized Cost 99.7% 8,784,208,333
Other Assets, Less
Liabilities 0.3 21,701,283
----------- --------------
Net Assets 100.0% $8,805,909,616
=========== ==============
* Variable interest rate -- subject to periodic change.
See notes to financial statements
Cash Reserves Portfolio
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities August 31, 1998
Assets:
Investments at value (Note 1A)................................. $8,784,208,333
Interest receivable............................................ 97,556,173
--------------
Total assets.................................................. 8,881,764,506
Liabilities:
Payable for investment purchased............................... 75,000,000
Payable to affiliate--Investment Advisory fee (Note 2A)........ 635,623
Accrued expenses and other liabilities......................... 219,267
--------------
Total liabilities............................................. 75,854,890
--------------
Net Assets..................................................... $8,805,909,616
==============
Represented by:
Paid-in capital for beneficial interests....................... $8,805,909,616
==============
Cash Reserves Portfolio
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended August 31, 1998
Interest Income (Note 1B):................................ $513,556,789
Expenses:
Investment advisory fees (Note 2A)........................ $ 13,394,307
Administrative fees (Note 2B)............................. 4,464,769
Custody and fund accounting fees.......................... 1,969,190
Audit fees................................................ 39,700
Trustees' fees............................................ 37,966
Legal fees................................................ 31,427
Miscellaneous............................................. 112,193
-------------
Total expenses......................................... 20,049,552
Less aggregate amounts waived by Investment Adviser and
Administrator (Notes 2A, and 2B)...................... (11,119,870)
Less fees paid indirectly (Note 1E).................... (797)
-------------
Net expenses........................................... 8,928,885
------------
Net investment income.................................. $504,627,904
============
See notes to financial statements
Cash Reserves Portfolio
- --------------------------------------------------------------------------------
Statement Of Changes In Net Assets
Year Ended August 31,
----------------------------------------
1998 1997
----------------- -----------------
Increase (Decrease) in Net Assets from Operations:
Net investment income....................................... $ 504,627,904 $ 339,604,126
----------------- -----------------
Capital Transactions:
Proceeds from contributions................................. 30,335,511,897 33,685,999,190
Value of withdrawals........................................ (29,691,630,125) (30,810,390,668)
----------------- -----------------
Net increase in net assets from capital transactions........ 643,881,772 2,875,608,522
----------------- -----------------
Net Increase in Net Assets.................................. 1,148,509,676 3,215,212,648
----------------- -----------------
Net Assets:
Beginning of period......................................... 7,657,399,940 4,442,187,292
----------------- -----------------
End of period............................................... $ 8,805,909,616 $ 7,657,399,940
================= =================
Cash Reserves Portfolio
- --------------------------------------------------------------------------------
Financial Highlights
Year Ended August 31,
-----------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------- --------------- ------------- -------------- ------------
Ratios/Supplemental Data:
Net assets (000's omitted)......................... $ 8,805,910 $ 7,657,400 $ 4,442,187 $ 4,765,406 $ 2,147,361
Ratio of expenses to average net assets............ 0.10% 0.10% 0.10% 0.10% 0.11%
Ratio of net investment income to average net
assets............................................ 5.65% 5.57% 5.64% 5.88% 3.87%
Note: If agents of the Portfolio had not voluntarily waived a portion of their fees for the periods indicated, the ratios would
have been as follows:
Ratios:
Expenses to average net assets..................... 0.22% 0.23% 0.23% 0.23% 0.24%
Net investment income to average net assets........ 5.53% 5.44% 5.50% 5.75% 3.74%
See notes to financial statements
Cash Reserves Portfolio
- --------------------------------------------------------------------------------
Notes To Financial Statements
(1) Significant Accounting Policies
Cash Reserves Portfolio (the Portfolio) is registered under the U.S. Investment
Company Act of 1940, as amended, as a no-load, diversified, open-end management
investment company which was organized as a trust under the laws of the State of
New York. The Declaration of Trust permits the Trustees to issue beneficial
interests in the Portfolio. Signature Financial Group (Grand Cayman), Ltd. (SFG)
acts as the Portfolios Administrator and Citibank, N.A. (Citibank) acts as the
Investment Adviser.
Citibank is a wholly-owned subsidiary of Citicorp. Citicorp announced its
intention to merge with The Travelers Group. The merger is expected to occur on
or about October 8, 1998.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio are
as follows:
A. Valuation of Investments __ Money market instruments are valued at amortized
cost, which the Trustees have determined in good faith constitutes fair value.
This method involves valuing a portfolio security at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium. The
Portfolios use of amortized cost is subject to the Portfolios compliance with
certain conditions as specified under Rule 2a-7 of the U.S. Investment Company
Act of 1940.
B. Interest Income and Expenses __ Interest income consists of interest accrued
and discount earned (including both original issue and market discount) on the
investments of the Portfolio, accrued ratably to the date of maturity, plus or
minus net realized gain or loss, if any, on investments. Expenses of the
Portfolio are accrued daily. The Portfolio bears all costs of its operations
other than expenses specifically assumed by Citibank and SFG.
C. U.S. Federal Income Taxes __ The Portfolio is con-sidered a partnership
under the U.S. Internal Revenue Code. Accordingly, no provision for federal
income taxes is necessary.
D. Repurchase Agreements __ It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian banks
vault, all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Portfolio to
monitor, on a daily basis, the market value of the repurchase agreements
underlying investments to ensure the existence of a proper level of collateral.
E. Fees Paid Indirectly __ The Portfolios custodian bank calculates its fees
based on the Portfolios average daily net assets. The fees are reduced
according to a fee arrangement, which provides for custody fees to be reduced
based on a formula developed to measure the value of cash deposited with the
custodian by the Portfolio. This amount is shown as a reduction of expenses on
the Statement of Operations.
F. Other __ Purchases, maturities and sales of money market instruments are
accounted for on the date of the transaction.
2. Investment Advisory Fees and Administrative Fees
A. Investment Advisory Fee __ The Investment advisory fees paid to Citibank, as
compensation for overall investment management services, amounted to
$13,394,307, of which $6,655,101 was voluntarily waived for the year ended
August 31, 1998. The investment advisory fees are computed at an annual rate of
0.15% of the Portfolios average daily net assets.
B. Administrative Fees __ Under the terms of an Administrative Services
Agreement, the administrative fee paid to the Administrator, as compensation
for overall administrative services and general office facilities, are computed
at the annual rate of 0.05% of the Portfolios average daily net assets. The
Cash Reserves Portfolio
- --------------------------------------------------------------------------------
Notes To Financial Statements continued
Administrative fees amounted to $4,464,769, all of which were voluntarily
waived for the year ended August 31, 1998. The Portfolio pays no compensation
directly to any Trustee or to any officer who is affiliated with the
Administrator, all of whom receive remuneration for their services to the
Portfolio from the Administrator or its affiliates. Certain of the officers and
a Trustee of the Portfolio are officers and a director of the Administrator or
its affiliates.
3. Investment Transactions
Purchases, maturities and sales of money market instruments aggregated
$346,656,360,128 and $345,459,284,002, respectively, for the year ended August
31, 1998.
4. Line of Credit
The Portfolio, along with other CitiFunds, entered into an agreement with a
bank which allows the Funds collectively to borrow up to $60 million for
temporary or emergency purposes. Interest on borrowings, if any, is charged to
the specific fund executing the borrowing at the base rate of the bank. The
line of credit requires a quarterly payment of a commitment fee based on the
average daily unused portion of the line of credit. For the year ended August
31, 1998, the commitment fee allocated to the Portfolio was $29,660. Since the
line of credit was established, there have been no borrowings.
Cash Reserves Portfolio
- --------------------------------------------------------------------------------
Independent Auditors' Report
To the Trustees and the Investors of Cash Reserves Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Cash Reserves Portfolio (the Portfolio) as at
August 31, 1998 and the related statements of operations and of changes in net
assets and the financial highlights for the periods indicated. These financial
statements and financial highlights (hereafter referred to as financial
statements) are the responsibility of the Portfolios management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments owned at
August 31, 1998 by correspondence with the custodian, provide a reasonable
basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio as at August 31, 1998, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated in accordance with U.S. generally accepted
accounting principles.
PricewaterhouseCoopers
Chartered Accountants
Toronto, Ontario
October 6, 1998
Administrators of the Fund
U.S. Trust Company of Connecticut
225 High Ridge Road
Stamford, CT 06905
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
(617) 557-8000
Federated Administrative Services
Federated Investment Tower
1001 Liberty Avenue
Pittsburgh, PA 15222
Investment Adviser of the Portfolio
Citibank, N.A.
153 East 53rd Street
New York, NY 10043
Transfer Agent of the Fund
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
(800) 909-1989
Custodian and Transfer Agent
of the Portfolio
State Street Bank & Trust Company
225 Franklin Street
Boston, MA 02110
Distributor of the Fund
Edgewood Services, Inc.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230
Independent Accountants of the Fund
PricewaterhouseCoopers LLP
160 Federal Street
Boston, MA 02110
EXCELSIOR
FUNDS
Institutional
Money Fund
Annual Report
August 31, 1998
Excelsior Institutional Money Fund
- --------------------------------------------------------------------------------
Statement Of Assets And Liabilities February 28, 1999 (unaudited)
Assets:
Investments in Cash Reserves Portfolio (the "Portfolio"), at value (Note 1) .... $ 182,597,933
-------------
Liabilities:
Dividends payable .............................................................. 495,295
Administrative servicing fees payable (Note 2) ................................. 326,133
Administration fees payable (Note 2) ........................................... 2,163
Transfer agent fees payable (Note 2) ........................................... 2,056
Other accrued expenses ......................................................... 35,627
-------------
Total liabilities ............................................................. 861,274
-------------
Net Assets for 181,736,659 shares of beneficial interest outstanding ........... $ 181,736,659
=============
Represented by:
Paid-in capital ................................................................ $ 181,736,659
=============
Net Asset Value, Offering Price and Redemption Price Per Share ................. $ 1.00
=============
Excelsior Institutional Money Fund
- --------------------------------------------------------------------------------
Statement Of Operations
For the six months ended February 28, 1999 (unaudited)
Investment Income from Portfolio (Note 1):
Interest income (includes $12,823 of net realized gains) ....... $4,718,889
Allocated expenses ............................................. (88,195)
----------
4,630,694
Expenses (Note 1):
Administrative servicing fees (Note 2) ......................... $ 352,709
Administration fees (Note 2) ................................... 88,177
Professional fees .............................................. 36,565
Registration fees .............................................. 18,040
Transfer agent fees (Note 2) ................................... 12,351
Prospectus and shareholders' reports ........................... 11,377
Trustees' fees and expenses (Note 2) ........................... 9,875
Amortization of organization expense (Note 1) .................. 8,021
Miscellaneous expenses ......................................... 500
----------
Total expenses ................................................ 537,615
Less: Waiver of administrative servicing fees (Note 2) ........ (347,705)
Less: Waiver of administration fees (Note 2) .................. (57,794)
----------
Net expenses .................................................. 132,116
----------
Net investment income from operations .......................... $4,498,578
==========
See notes to financial statements
Excelsior Institutional Money Fund
- --------------------------------------------------------------------------------
Statement Of Changes In Net Assets
Six Months Ended For the Year
February 28, 1999 Ended
(unaudited) August 31, 1998
------------------- -------------------
Increase (Decrease) in Net Assets:
Net investment income from operations ...................... $ 4,498,578 $ 10,308,761
-------------- ----------------
Dividends to shareholders from net investment income ....... (4,498,578) (10,308,761)
-------------- ----------------
Transactions in Shares of Beneficial Interest
($1.00 Per Share)
Net proceeds from shares sold .............................. 594,373,194 2,050,291,956
Reinvestment of dividends .................................. 1,602,460 3,681,052
Cost of shares redeemed .................................... (586,058,151) (2,197,914,554)
-------------- ----------------
Net increase (decrease) in net assets resulting from
transactions in shares of beneficial interest ........... 9,917,503 (143,941,546)
-------------- ----------------
Total increase (decrease) in net assets ................... 9,917,503 (143,941,546)
Net Assets:
Beginning of period ........................................ 171,819,156 315,760,702
-------------- ----------------
End of period .............................................. $ 181,736,659 $ 171,819,156
============== ================
Excelsior Institutional Money Fund
- --------------------------------------------------------------------------------
Financial Highlights
For the period
November 8, 1993
Six Months Ended (comencement of
February 28, 1999 For the Year Ended August 31, operations) to
(unaudited) 1998 1997 1996 1995 August 31, 1994
------------------ ------ ----- ---- ------ ----------------
Net Asset Value, beginning of period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income from
operations .............................. 0.0254 0.0551 0.0543 0.0547 0.0579 0.0308
Dividends from net investment
income .................................. (0.0254) 0.0551) (0.0543) (0.0547) (0.0579) ( 0.0308)
----------- -------- ------- ------- ------- ------------------
Net Asset Value, end of period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== ======== ======= ======= ======= ==================
Total Return ............................. 5.16%(2) 5.65% 5.57% 5.61% 5.95% 3.87% (2)
=========== ======== ======= ======= ======= ==================
Ratios:
Net investment income to average
net assets (1) ......................... 5.10%(2) 5.52% 5.40% 5.55% 5.59% 4.39%(2)
Expenses to average net assets (1) ...... 0.25%(2) 0.25% 0.25% 0.25% 0.25% 0.19%(2)
Total Net Assets, end of period (000's
omitted) ................................ $ 181,737 $171,819 $315,761 $293,290 $638,111 $ 770.658
(1) Reflects the Fund's proportionate share of the Portfolio's
expenses as well as voluntary fee waivers by agents of the
Portfolio and the Trust. If the voluntary fee waivers had
not been in place, the ratios of net investment income and
expenses to average net assets would have been as follows:
Net investment income to
average net assets .................... 4.64%(2) 5.06% 4.92% 5.11% 5.16% 4.28%(2)
Expenses in average net assets ........ 0.71%(2) 0.71% 0.74% 0.69% 0.68% O.31%(2)
(2) Annualized
See notes to financial statements
Excelsior Institutional Money Fund
- --------------------------------------------------------------------------------
Notes To Financial Statements (unaudited)
(1) Significant Accounting Policies
Excelsior Institutional Money Fund (the "Fund") is a series of Excelsior Funds
(the "Trust"), an open-end diversified management investment company registered
under the Investment Company Act of 1940.
U.S. Trust Company of Connecticut ("U.S. Trust Connecticut"), Chase Global Funds
Services Company ("CGFSC"), a corporate affiliate of The Chase Manhattan Bank,
and Federated Administrative Services ("FAS"), a wholly-owned subsidiary of
Federated Investors, (collectively, the "Administrators") serve as
Administrators of the Trust. U.S. Trust Connecticut is a wholly-owned subsidiary
of U.S. Trust Corporation ("U.S. Trust"), a registered bank holding company.
Edgewood Services, Inc. ("Edgewood"), a wholly-owned subsidiary of Federated
Investors, serves as distributor to the Fund.
It is the Fund's policy, to the extent possible, to maintain a continuous net
asset value of $1.00 per share; the Fund has adopted certain investment,
valuation, dividend and distribution policies to enable it to do so.
The Fund invests all of its investable assets in Cash Reserves Portfolio (the
"Portfolio"), an open-end diversified management investment company for which
Citibank, N.A. serves as Investment Advisor. The value of such investment
reflects the Fund's proportionate interest in the net assets of the Portfolio
(1.6% at February 28, 1999).
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
The performance of the Fund is directly affected by the performance of the
Portfolio. The financial statements of the Portfolio, including the Portfolio of
Investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
A. Investment Valuation -- Valuation of securities by the Portfolio is discussed
in Note 1A of the Portfolio's Notes to Financial Statements, which are included
elsewhere in this report.
B. Investment Income -- The Fund earns interest income, net of Portfolio
expenses, daily on its investment in the Portfolio. Realized gain and loss from
securities transactions are recorded by the Portfolio on the identified cost
basis, when recognized, and allocated to the Fund, along with net investment
income, based on its investment in the Portfolio.
C. Dividends to Shareholders -- Dividends from net investment income are
declared daily and paid monthly. Distributions from net realized gains or
losses, if any, are declared daily as income and paid monthly.
D. Federal Income Taxes -- It is the policy of the Fund to continue to qualify
as a regulated investment company, if such qualification is in the best interest
of the shareholders, by complying with the requirements of the Internal Revenue
Code applicable to regulated investment companies, and by distributing
substantially all of its taxable earnings to its shareholders.
E. Expenses -- The Fund bears all costs of its operations other than expenses
specifically assumed by the Administrators.
F. Deferred Organization Expenses -- Organization expenses have been deferred
and are being amortized on a straight line basis over a period not to exceed
five years beginning with the commencement of operations of the Fund. The amount
paid by the Fund on any redemption of the Fund's initial shares will be reduced
by the pro rata portion of any unamortized organization expenses which the
number of initial shares redeemed bears to the total number of initial shares
outstanding immediately prior to such redemption.
G. Other -- All the net income of the Portfolio is allocated pro rata among the
Fund and the other investors in the Portfolio at the time of such determination.
Excelsior Institutional Money Fund
- --------------------------------------------------------------------------------
Notes To Financial Statements (unaudited) continued
(2) Administration Fee and Other Transactions With Affiliates
A. Administration Fee -- For services provided to the Fund, the Administrators
are entitled jointly to an annual fee, payable monthly, at a maximum annual rate
of 0.10% of the average daily net assets of the Fund. For the period ended
February 28, 1999, administration fees totaling $74,950 were charged by U.S.
Trust Connecticut, of which $57,794 were waived.
For the period ended February 28, 1999, the Fund paid FAS administration fees
totaling $13,227. Edgewood receives no compensation from the Fund in its
capacity as distributor of the Fund's shares.
For the period ended February 28, 1999, CGFSC received fees amounting to $12,351
for providing transfer agency services to the Fund.
B. Administrative Servicing Fee -- The Trust, on behalf of the Fund, has entered
into shareholder servicing agreements with United States Trust Company of New
York, a wholly-owned subsidiary of U.S. Trust, BISYS and Mid Atlantic Capital
Group Inc. (the "Service Organizations") pursuant to which each Service
Organization, as agent for its customers, provides administrative support
services. For its services, each Service Organization may receive a fee from the
Fund, which may not exceed, on an annual basis, an amount equal to 0.40% of the
average daily net assets of Fund shares owned by customers of the Service
Organization. For the period ended February 28, 1999, the Service Organizations
received fees amounting to $5,004, for providing shareholder servicing to the
Fund.
C. Other -- Independent Trustees receive an annual retainer of $4,000 and an
additional $250 for each meeting of the Board of Trustees attended. In addition,
the Trust reimburses independent Trustees for reasonable expenses incurred when
acting in their capacity as Trustees.
Cash Reserves Portfolio
PORTFOLIO OF INVESTMENTS February 28, 1999
(Unaudited)
Principal
Amount
Issuer (000's omitted) Value
- ------------------------------------------------------------------------------
Asset Backed -- 9.5%
- ------------------------------------------------------------------------------
Lincs-Ser *
4.936% due 3/18/99 $ 100,000 $ 99,998,386
Lincs-Ser *
4.986% due 2/15/00 87,500 87,500,000
SMM Trust *
5.047% due 1/26/00 100,000 100,000,000
Steers *
4.94% due 3/25/99 76,118 76,118,294
4.998% due 11/10/99 201,000 201,000,000
Strategic Money Market
Trust Receipts *
4.937% due 3/05/99 213,000 213,000,000
5.32% due 12/15/99 200,000 200,000,000
Strats Trust *
4.94% due 8/18/99 50,000 50,000,000
Triangle Funding Ltd.
5.07% due 10/15/99 82,000 82,000,000
--------------
1,109,616,680
--------------
Bank Notes -- 10.0%
- ------------------------------------------------------------------------------
FCC National Bank
5.12% due 5/12/99 100,000 100,001,950
5.86% due 6/03/99 50,000 49,991,365
4.90% due 12/16/99 185,000 184,929,047
First Union National Bank
5.35% due 9/13/99 50,000 50,002,582
Key Bank National
Association
4.995% due 9/23/99 350,000 349,901,233
Nationsbank *
5.00% due 11/19/99 160,000 160,000,000
5.15% due 3/12/99 50,000 50,000,000
5.04% due 6/01/99 32,000 32,000,000
4.98% due 6/10/99 100,000 100,000,000
4.82% due 6/25/99 100,000 99,984,427
--------------
1,176,810,604
--------------
Certificates Of Deposit
(Domestic) -- 4.4%
- ------------------------------------------------------------------------------
BankBoston
5.23% due 3/09/99 50,000 50,000,000
Centric Capital Corp.
4.86% due 4/19/99 55,493 55,125,914
Chase Manhattan Bank
Corp
5.74% due 5/10/99 57,000 56,993,721
- ------------------------------------------------------------------------------
Monte Rosa Capital Corp.
4.86% due 4/13/99 $ 72,625 $ 72,203,412
4.85% due 4/16/99 145,338 144,437,308
Newport Funding Corp.
4.87% due 3/01/99 140,226 140,226,000
------------
518,986,355
------------
Certificates Of Deposit (Euro) -- 7.5%
- ------------------------------------------------------------------------------
Abby National
5.07% due 5/12/99 100,000 100,000,000
Algemene Bank
5.62% due 4/14/99 75,000 74,995,666
5.50% due 9/02/99 70,000 70,168,808
Bayer Hypo Vereinsbank
5.09% due 5/10/99 100,000 100,000,000
5.09% due 5/12/99 100,000 100,001,950
Bayerische Vereinsbank
4.99% due 11/10/99 171,000 171,023,254
5.02% due 11/23/99 100,000 100,006,647
Halifax
5.07% due 5/12/99 100,000 100,000,000
International Nederlanden
Group
4.935% due 6/30/99 60,000 60,000,985
------------
876,197,310
------------
Certificates Of Deposit (Yankee) -- 25.4%
- ------------------------------------------------------------------------------
Bank of Nova Scotia
5.65% due 3/29/99 38,000 37,995,977
4.96% due 6/11/99 46,500 46,501,592
Bayerische Vereinsbank
4.91% due 7/08/99 120,000 120,000,000
Canadian Imperial Bank
5.745% due 4/27/99 54,000 54,010,520
Credit Agricole Indosuez
5.74% due 4/26/99 50,000 49,993,919
4.93% due 7/12/99 100,000 100,007,210
5.31% due 9/13/99 50,000 50,095,581
Credit Communal de Belgique
5.62% due 3/19/99 45,000 44,997,777
Credit Suisse First Boston
5.06% due 10/07/99 325,000 325,000,000
5.69% due 7/06/99 100,000 100,000,000
Deutsche Bank
5.65% due 3/02/99 100,000 99,999,869
Dresdner Bank
5.09% due 5/06/99 55,000 54,999,788
Cash Reserves Portfolio
PORTFOLIO OF INVESTMENTS (Continued) February 28, 1999
(Unaudited)
Principal
Amount
Issuer (000's omitted) Value
- ------------------------------------------------------------------------------
Landesbank Hessen
Thuringen
5.00% due 4/06/99 $ 50,000 $ 50,000,000
5.19% due 3/01/00 100,000 99,971,037
Morgan Guarantee Trust
Co
4.90% due 10/15/99 85,000 84,948,558
Rabobank Nederland
5.71% due 6/11/99 100,000 99,986,368
5.69% due 6/30/99 75,000 74,996,325
5.64% due 7/30/99 53,000 53,002,363
Societe Generale Bank
5.75% due 4/06/99 100,000 99,995,749
5.76% due 4/16/99 75,000 74,996,380
Societe Generale Bank*
4.85% due 5/20/99 175,800 175,773,654
Svenska Handelsbanken
5.75% due 5/04/99 57,000 56,995,215
5.76% due 5/25/99 75,000 74,989,972
5.74% due 6/01/99 77,000 76,986,818
Swiss Bank Corp.
5.68% due 5/28/99 40,000 40,051,628
5.715% due 6/14/99 100,000 99,988,980
Toronto Dominion
5.03% due 6/03/99 200,000 200,000,000
5.71% due 6/23/99 85,000 84,989,826
5.60% due 8/17/99 50,000 50,143,031
4.79% due 8/18/99 135,000 134,950,642
UBS AG
5.00% due 5/19/99 50,000 49,997,560
Westdeutsche Landesbank
5.125% due 9/15/99 48,000 48,035,924
5.21% due 9/22/99 50,000 50,074,907
4.84% due 11/05/99 116,000 115,969,420
--------------
2,980,446,590
--------------
Commercial Paper -- 19.3%
- ------------------------------------------------------------------------------
Aspen Funding Corp.
4.86% due 4/12/99 200,000 198,866,000
BankAmerica Corp.
4.92% due 4/09/99 50,000 49,733,500
Banco Santander
4.85% due 3/01/99 100,000 100,000,000
Barton Capital Corp.
4.87% due 4/06/99 120,285 119,699,212
Caisse d'Amortissement
4.735% due 10/08/99 76,000 73,790,859
- ------------------------------------------------------------------------------
Cregem Inc.
4.96% due 4/07/99 $ 50,000 $ 49,745,111
4.81% due 7/08/99 150,000 147,414,625
4.81% due 7/09/99 115,000 113,002,514
Deutsche Bank
4.81% due 8/10/99 165,000 161,428,575
General Electric Capital
Corp
5.12% due 3/11/99 250,000 249,644,444
4.75% due 10/04/99 125,000 121,421,007
4.75% due 10/05/99 125,000 121,404,514
4.88% due 3/01/99 75,000 75,000,000
J. P. Morgan & Co., Inc.*
4.74% due 10/04/99 70,000 67,999,983
Province de Quebec
5.04% due 3/16/99 100,000 99,790,000
Repsol International
Finance
4.87% due 7/15/99 100,000 98,160,222
Sigma Finance Corp.
5.35% due 3/05/99 120,000 119,928,667
5.125% due 2/09/00 250,000 250,000,000
Variable Funding Capital
Corp
4.85% due 3/08/99 50,000 49,952,847
--------------
2,266,982,080
--------------
Corporate Notes -- 7.4%
- ------------------------------------------------------------------------------
Associates Corp. of
North America*
4.91% due 6/29/99 150,000 149,961,490
Bear Stearns*
5.00% due 6/04/99 225,000 225,000,000
J. P. Morgan & Co., Inc.*
4.82% due 7/07/99 210,000 209,957,330
Key Bank National
Association*
4.915% due 5/12/99 88,000 87,987,666
Royal Bank of Canada*
4.92% due 6/07/99 200,000 200,011,567
------------
872,918,053
------------
Medium Term Notes -- 7.1%
- ------------------------------------------------------------------------------
Abbey National Treasury
Services
4.771% due 6/15/99 100,000 99,968,429
5.58% due 8/25/99 100,000 99,980,986
Cash Reserves Portfolio
PORTFOLIO OF INVESTMENTS (Continued) February 28, 1999
(Unaudited)
Principal
Amount
Issuer (000's omitted) Value
- ----------------------------------------------------------------
Goldman Sachs Group*
5.05% due 1/31/00 $ 335,500 $ 335,500,000
Norwest Financial Inc.
5.55% due 8/31/99 100,000 99,985,567
Sigma Finance Corp.
4.89% due 8/27/99 197,000 196,995,459
----------------
832,430,441
----------------
Time Deposits -- 7.1%
- ----------------------------------------------------------------
Banco Bilbao Vizcaya
Nassau
4.84% due 3/01/99 150,000 150,000,000
Chase Bank
4.75% due 3/01/99 386,966 386,966,000
Suntrust
4.81% due 3/01/99 50,000 50,000,000
Svenska Grand Cayman
4.844% due 3/01/99 250,000 250,000,000
----------------
836,966,000
----------------
United States Government Agency --2.6%
- ----------------------------------------------------------------
Federal Home Loan Bank
4.71% due 3/16/99 50,000 49,901,874
4.69% due 4/16/99 600 596,404
5.06% due 3/03/00 100,000 99,937,000
Federal National
Mortgage Association
4.86% due 2/10/99 100,000 99,922,269
Student Loan Marketing
Discount Note
4.69% due 4/16/99 50,000 49,700,361
----------------
300,057,908
----------------
United States Treasury Bills -- 0.3%
- ----------------------------------------------------------------
United States Treasury Bills
4.135% due 10/14/99 25,000 24,348,163
4.175% due 12/09/99 15,000 14,507,698
----------------
38,855,861
----------------
Total Investments at Value
/Amortized Cost 100.6% 11,810,267,882
Other Assets,
Less Liabilities (0.6%) (75,220,905)
------ ----------------
Net Assets 100.0% $ 11,735,046,977
===== ================
* Variable interest rate - subject to periodic change.
See notes to financial statements
Cash Reserves Portfolio
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value (Note 1A) $11,810,267,882
Interest receivable 125,683,746
- --------------------------------------------------------------------------------
Total assets 11,935,951,628
- --------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 199,908,037
Payable to affiliate--Investment Advisory fee (Note 2A) 663,133
Accrued expenses and other liabilities 333,481
- --------------------------------------------------------------------------------
Total liabilities 200,904,651
- --------------------------------------------------------------------------------
Net Assets $11,735,046,977
- --------------------------------------------------------------------------------
Represented by:
Paid-in capital for beneficial interests $11,735,046,977
- --------------------------------------------------------------------------------
Cash Reserves Portfolio
STATEMENT OF OPERATIONS
For the Six Months Ended February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Interest Income (Note 1B): $292,120,478
Expenses:
Investment Advisory fees (Note 2A) $8,190,847
Administrative fees (Note 2B) 2,730,282
Custody and fund accounting fees 1,095,415
Trustees' fees 53,954
Legal fees 32,082
Audit fees 22,300
Miscellaneous 87,395
- --------------------------------------------------------------------------------
Total expenses 12,212,275
Less aggregate amounts waived by Investment Adviser
and Administrator (Notes 2A, and 2B) (6,745,592)
Less fees paid indirectly (Note 1E) (11)
- --------------------------------------------------------------------------------
Net expenses 5,466,672
- --------------------------------------------------------------------------------
Net investment income $286,653,806
- --------------------------------------------------------------------------------
See notes to financial statements
Cash Reserves Portfolio
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
February 28, 1999 Year Ended
(Unaudited) August 31, 1998
- -------------------------------------------------------------------------------
Increase (Decrease) in Net Assets from
Operations:
Net investment income $ 286,653,806 $ 504,627,904
- -------------------------------------------------------------------------------
Capital Transactions:
Proceeds from contributions 22,079,029,546 30,335,511,897
Value of withdrawals (19,436,545,991) (29,691,630,125
- -------------------------------------------------------------------------------
Net increase in net assets from
capital transactions 2,642,483,555 643,881,772
- -------------------------------------------------------------------------------
Net Increase in Net Assets 2,929,137,361 1,148,509,676
- -------------------------------------------------------------------------------
Net Assets:
Beginning of period 8,805,909,616 7,657,399,940
- -------------------------------------------------------------------------------
End of period $ 11,735,046,977 $ 8,805,909,616
- --------------------------------------------------------------------------------
Cash Reserves Portfolio
FINANCIAL HIGHLIGHTS
Six Months Ended Year Ended August 31,
February 28, 1999 --------------------------------------------------
(Unaudited) 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets (000's omitted) $11,735,047 $8,805,910 $7,657,400 $4,442,187 $4,765,406
Ratio of expenses to
average net assets 0.10%* 0.10% 0.10% 0.10% 0.10%
Ratio of net investment
income to average
net assets 5.25%* 5.65% 5.57% 5.64% 5.88%
Note: If agents of the Portfolio had not voluntarily waived a portion of their fees for the
periods indicated, the ratios would have been as follows:
Ratios:
Expenses to average
net assets 0.22%* 0.22% 0.23% 0.23% 0.23%
Net investment income
to average net assets 5.13%* 5.53% 5.44% 5.50% 5.75%
- ----------------------------------------------------------------------------------------------------
* Annualized
See notes to financial statements
Cash Reserves Portfolio
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Significant Accounting Policies Cash Reserves Portfolio (the "Portfolio") is
registered under the U.S. Investment Company Act of 1940, as amended, as a no-
load, diversified, open-end management investment company which was organized as
a trust under the laws of the State of New York. The Declaration of Trust
permits the Trustees to issue beneficial interests in the Portfolio. Signature
Financial Group (Grand Cayman), Ltd. ("SFG") acts as the Portfolio's
Administrator and Citibank, N.A. ("Citibank") acts as the Investment Adviser.
Citibank is a wholly-owned subsidiary of Citigroup Inc. Citigroup Inc. was
formed as a result of the merger of Citicorp and Travelers Group, Inc. which was
completed on October 8, 1998.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. Valuation of Investments Money market instruments are valued at amortized
cost, which the Trustees have determined in good faith constitutes fair value.
This method involves valuing a portfolio security at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium. The
Portfolio's use of amortized cost is subject to the Portfolio's compliance with
certain conditions as specified under Rule 2a-7 of the U.S. Investment Company
Act of 1940.
B. Interest Income and Expenses Interest income consists of interest accrued
and discount earned (including both original issue and market discount) on the
investments of the Portfolio, accrued ratably to the date of maturity, plus or
minus net realized gain or loss, if any, on investments. Expenses of the
Portfolio are accrued daily. The Portfolio bears all costs of its operations
other than expenses specifically assumed by Citibank and SFG.
C. U.S. Federal Income Taxes The Portfolio is considered a partnership under
the U.S. Internal Revenue Code. Accordingly, no provision for federal income
taxes is necessary.
D. Repurchase Agreements It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Portfolio to
monitor, on a daily basis, the market value of the repurchase agreement's
underlying investments to ensure the existence of a proper level of collateral.
E. Fees Paid Indirectly The Portfolio's custodian bank calculates its fees
based on the Portfolio's average daily net assets. The fees are reduced
according to a fee arrangement, which provides for custody fees to be reduced
based on a formula developed to measure the value of cash deposited with the
custodian by the
Cash Reserves Portfolio
NOTES TO FINANCIAL STATEMENTS (Unaudited)
Portfolio. This amount is shown as a reduction of expenses on the Statement of
Operations.
F. Other Purchases, maturities and sales of money market instruments are
accounted for on the date of the transaction.
2. Investment Advisory Fees and Administrative Fees
A. Investment Advisory Fee -- The Investment advisory fees paid to Citibank,
as compensation for overall investment management services, amounted to
$8,190,847, of which $4,015,310 was voluntarily waived for the six months ended
February 28, 1999. The investment advisory fees are computed at an annual rate
of 0.15% of the Portfolio's average daily net assets.
B. Administrative Fees -- Under the terms of an Administrative Services
Agreement, the administrative fee paid to the Administrator, as compensation for
overall administrative services and general office facilities, are computed at
the annual rate of 0.05% of the Portfolio's average daily net assets. The
Administrative fees amounted to $2,730,282, all of which were voluntarily waived
for the six months ended February 28, 1999. The Portfolio pays no compensation
directly to any Trustee or to any officer who is affiliated with the
Administrator, all of whom receive remuneration for their services to the
Portfolio from the Administrator or its affiliates. Certain of the officers and
a Trustee of the Portfolio are officers and a director of the Administrator or
its affiliates.
3. Investment Transactions Purchases, maturities and sales of money market
instruments aggregated $96,550,935,887 and $93,524,876,338, respectively, for
the six months ended February 28, 1999.
4. Line of Credit The Portfolio, along with other CitiFunds, entered into an
agreement with a bank which allows the Funds collectively to borrow up to $60
million for temporary or emergency purposes. Interest on borrowings, if any, is
charged to the specific fund executing the borrowing at the base rate of the
bank. The line of credit requires a quarterly payment of a commitment fee based
on the average daily unused portion of the line of credit. For the six months
ended February 28, 1999, the commitment fee allocated to the Portfolio was
$15,271. Since the line of credit was established, there have been no
borrowings.
Administrators of the Fund
U.S. Trust Company of Connecticut
225 High Ridge Road
Stamford, CT 06905
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
(617) 557-8000
Federated Administrative Services
Federated Investment Tower
1001 Liberty Avenue
Pittsburgh, PA 15222
Investment Adviser of the Portfolio
Citibank, N.A.
153 East 53rd Street
New York, NY 10043
Transfer Agent of the Fund
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
(800) 909-1989
Distributor of the Fund
Edgewood Services, Inc.
5800 Corporate Drive
Pittsburgh, PA 15237
Independent Accountants of the Fund
PricewaterhouseCoopers LLP
160 Federal Street
Boston, MA 02110
[LOGO OF EXCELSIOR FUNDS APPEARS HERE]
Institutional
Money Fund
Semi-Annual Report
February 28, 1999
[LOGO OF EXCELSIOR FUNDS APPEARS HERE]
Money Market
Portfolios
ANNUAL REPORT
March 31, 1999
TABLE OF CONTENTS
PAGE
----
LETTER TO SHAREHOLDERS.................................................... 1
STATEMENTS OF ASSETS AND LIABILITIES...................................... 2
STATEMENTS OF OPERATIONS.................................................. 3
STATEMENTS OF CHANGES IN NET ASSETS....................................... 4
FINANCIAL HIGHLIGHTS--SELECTED PER SHARE DATA AND RATIOS.................. 6
PORTFOLIOS OF INVESTMENTS
Treasury Money Fund...................................................... 8
Government Money Fund.................................................... 9
Money Fund............................................................... 10
Tax-Exempt Money Fund.................................................... 11
New York Tax-Exempt Money Fund........................................... 14
NOTES TO FINANCIAL STATEMENTS............................................. 16
INDEPENDENT AUDITORS' REPORT.............................................. 22
FEDERAL TAX INFORMATION................................................... 22
For shareholder account information, current price and yield quotations, or to
make an initial purchase or obtain a prospectus, call the appropriate telephone
number listed below:
. Initial Purchase and Prospectus Information and Shareholder Services
1-800-446-1012 (From overseas, call 617-557-8280)
. Current Price and Yield Information 1-800-446-1012
. Internet Address: http://www.excelsiorfunds.com
This report must be preceded or accompanied by a current prospectus.
Prospectuses containing more complete information including charges and
expenses regarding Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc.
may be obtained by contacting the Funds at 1-800-446-1012.
Investors should read the current prospectus carefully prior to investing or
sending money.
Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc. are sponsored and
distributed by Edgewood Services, Inc.
You may write to Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc. at
the following address:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
SHARES IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, UNITED STATES TRUST COMPANY OF NEW YORK, U.S. TRUST COMPANY OF
CONNECTICUT, THEIR PARENT AND AFFILIATES AND SHARES ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. FUND SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
ALTHOUGH THE FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER
SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS.
Excelsior Funds, Inc.
Statements of Assets and Liabilities
March 31, 1999
New York
Treasury Government Tax-Exempt Tax-Exempt
Money Money Money Money Money
Fund Fund Fund Fund Fund
------------ ------------ ------------ -------------- ------------
ASSETS:
Investments, at cost--
see
accompanying portfolios. $494,129,536 $642,519,764 $973,162,748 $1,498,524,698 $304,973,294
============ ============ ============ ============== ============
Investments, at value
(Note 1)............... $494,129,536 $642,519,764 $973,162,748 $1,498,524,698 $304,973,294
Cash.................... -- -- -- 8,109 --
Interest receivable..... 1,908,098 1,975,296 3,192,908 8,026,543 1,518,327
Receivable for fund
shares sold............ 114,510 28,158 1,040,942 -- 69,501
Prepaid expenses........ 11,418 14,830 12,721 19,833 2,867
------------ ------------ ------------ -------------- ------------
Total Assets............ 496,163,562 644,538,048 977,409,319 1,506,579,183 306,563,989
LIABILITIES:
Payable for dividends
declared............... 1,636,764 2,414,046 3,333,443 2,875,444 635,638
Payable for fund shares
redeemed............... 47,365 -- 4,872 -- --
Investment advisory fees
payable (Note 2)....... 113,790 126,274 131,166 177,108 15,741
Administration fees
payable (Note 2)....... 69,546 80,002 125,793 203,572 40,930
Administrative service
fees payable (Note 2).. 10,549 17,911 46,088 88,383 1,208
Directors' fees payable
(Note 2)............... 4,144 4,963 4,580 20,681 3,772
Due to custodian bank... -- -- -- -- 28,549
Accrued expenses and
other payables......... 64,555 63,955 95,757 144,740 118,844
------------ ------------ ------------ -------------- ------------
Total Liabilities....... 1,946,713 2,707,151 3,741,699 3,509,928 844,682
------------ ------------ ------------ -------------- ------------
NET ASSETS............... $494,216,849 $641,830,897 $973,667,620 $1,503,069,255 $305,719,307
============ ============ ============ ============== ============
NET ASSETS consist of:
Undistributed
(distributions in
excess of) net
investment income...... $ 8,337 $ (100) $ (17) $ (8,927) $--
Accumulated net realized
gain (loss) on
investments............ 17,863 (87,250) (53,810) (161,635) --
Par value (Note 3)...... 494,193 641,953 973,896 1,503,503 305,719
Paid-in capital in
excess of par value.... 493,696,456 641,276,294 972,747,551 1,501,736,314 305,413,588
------------ ------------ ------------ -------------- ------------
Total Net Assets......... $494,216,849 $641,830,897 $973,667,620 $1,503,069,255 $305,719,307
============ ============ ============ ============== ============
Shares of Common Stock
Outstanding (Note 3).... 494,193,118 641,953,291 973,896,118 1,503,503,175 305,719,307
NET ASSET VALUE PER
SHARE................... $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
See Notes to Financial Statements
2
Excelsior Funds, Inc.
Statements of Operations
Year Ended March 31, 1999
New York
Treasury Government Tax-Exempt Tax-Exempt
Money Money Money Money Money
Fund Fund Fund Fund Fund*
----------- ----------- ----------- ----------- ----------
INVESTMENT INCOME:
Interest income........ $26,251,491 $33,308,360 $39,090,321 $47,552,339 $4,920,804
----------- ----------- ----------- ----------- ----------
EXPENSES:
Investment advisory
fees (Note 2)......... 1,554,888 1,565,967 1,834,108 3,524,089 810,114
Administration fees
(Note 2).............. 792,993 958,372 1,122,474 2,156,742 248,317
Custodian fees......... 145,124 209,408 235,942 363,808 42,029
Administrative servic-
ing fees (Note 2)..... 151,843 184,360 358,371 827,107 7,879
Legal and audit fees... 68,904 83,749 83,612 170,621 57,614
Directors' fees and ex-
penses (Note 2)....... 21,353 23,930 25,670 89,710 10,339
Registration and filing
fees.................. 15,928 15,682 19,654 18,967 2,146
Shareholder reports.... 12,809 15,845 14,706 42,376 9,207
Shareholder servicing
agent fees............ 10,897 13,138 55,294 24,636 2,290
Miscellaneous expenses. 71,160 43,777 99,571 163,237 98,856
----------- ----------- ----------- ----------- ----------
Total Expenses......... 2,845,899 3,114,228 3,849,402 7,381,293 1,288,791
Fees waived and reim-
bursed by investment
adviser and adminis-
trators (Note 2)...... (151,843) (184,360) (358,371) (827,107) (532,521)
----------- ----------- ----------- ----------- ----------
Net Expenses........... 2,694,056 2,929,868 3,491,031 6,554,186 756,270
----------- ----------- ----------- ----------- ----------
NET INVESTMENT INCOME... 23,557,435 30,378,492 35,599,290 40,998,153 4,164,534
----------- ----------- ----------- ----------- ----------
REALIZED GAIN (LOSS) ON
INVESTMENTS (Note 1):
Net realized gain
(loss) on security
transactions.......... 42,508 (18,567) 4,266 (25,479) --
----------- ----------- ----------- ----------- ----------
Net increase in net as-
sets resulting from op-
erations............... $23,599,943 $30,359,925 $35,603,556 $40,972,674 $4,164,534
=========== =========== =========== =========== ==========
* New York Tax-Exempt Money Fund commenced operations on August 3, 1998.
See Notes to Financial Statements
3
Excelsior Funds, Inc.
Statements of Changes in Net Assets
New York
Treasury Government Tax-Exempt Tax-Exempt
Money Money Money Money Money
Fund Fund Fund Fund Fund*
------------ ------------ ------------ -------------- ------------
Year Ended March 31,
1999
Net investment income... $ 23,557,435 $ 30,378,492 $ 35,599,290 $ 40,998,153 $ 4,164,534
Net realized gain (loss)
on investments......... 42,508 (18,567) 4,266 (25,479) --
------------ ------------ ------------ -------------- ------------
Net increase in net
assets resulting from
operations............. 23,599,943 30,359,925 35,603,556 40,972,674 4,164,534
Distributions to
shareholders:
From net investment
income................ (23,564,239) (30,378,492) (35,599,290) (40,998,164) (4,164,534)
In excess of net
investment income..... -- (100) (17) (8,928) --
Increase in net assets
from fund share
transactions (Note 3).. 24,540,692 41,732,622 314,791,213 106,572,629 305,719,307
------------ ------------ ------------ -------------- ------------
Net increase in net
assets................. 24,576,396 41,713,955 314,795,462 106,538,211 305,719,307
NET ASSETS:
Beginning of year...... 469,640,453 600,116,942 658,872,158 1,396,531,044 --
------------ ------------ ------------ -------------- ------------
End of year (1)........ $494,216,849 $641,830,897 $973,667,620 $1,503,069,255 $305,719,307
============ ============ ============ ============== ============
(1) Including
undistributed
(distributions in
excess of) net
investment income.. $ 8,337 $ (100) $ (17) $ (8,927) $--
============ ============ ============ ============== ============
Year Ended March 31,
1998
Net investment income... $ 19,297,100 $ 28,148,017 $ 26,060,936 $ 37,894,217
Net realized gain (loss)
on investments......... 7,136 (8,971) 12,526 (24,067)
------------ ------------ ------------ --------------
Net increase in net
assets resulting from
operations............. 19,304,236 28,139,046 26,073,462 37,870,150
Distributions to
shareholders:
From net investment
income................ (19,297,045) (28,148,017) (26,060,936) (37,894,205)
In excess of net
investment income..... (126) -- -- --
Increase in net assets
from fund share
transactions (Note 3).. 120,546,015 66,291,908 160,793,465 326,868,880
------------ ------------ ------------ --------------
Net increase in net
assets................. 120,553,080 66,282,937 160,805,991 326,844,825
NET ASSETS:
Beginning of year...... 349,087,373 533,834,005 498,066,167 1,069,686,219
------------ ------------ ------------ --------------
End of year (2)........ $469,640,453 $600,116,942 $658,872,158 $1,396,531,044
============ ============ ============ ==============
--------
(2) Including
undistributed
(distributions in
excess of) net
investment income.. $ (126) $ -- $ -- $ 12
============ ============ ============ ==============
--------
* New York Tax-Exempt Money Fund commenced operations on August 3, 1998.
See Notes to Financial Statements
4
[THIS PAGE INTENTIONALLY LEFT BLANK]
5
Excelsior Funds, Inc.
Financial Highlights-Selected Per Share Data and Ratios
For a Fund share outstanding throughout each period.
Net Asset Total Dividends Dividends
Value, Net Net Realized From From Net in Excess of
Beginning Investment Gain (Loss) Investment Investment Net Investment
of Period Income on Investments Operations Income Income
--------- ---------- -------------- ---------- ---------- --------------
TREASURY MONEY FUND -- (2/13/91*)
Year Ended March 31,
1995................... $1.00 $0.04165 -- $0.04165 $(0.04165) --
1996................... 1.00 0.05043 -- 0.05043 (0.05043) --
1997................... 1.00 0.04676 -- 0.04676 (0.04676) --
1998................... 1.00 0.04853 -- 0.04853 (0.04853) -- ++
1999................... 1.00 0.04543 $0.00002 0.04545 (0.04545) --
GOVERNMENT MONEY FUND -- (5/8/85*)
Year Ended March 31,
1995................... $1.00 $0.04397 -- $0.04397 $(0.04397) --
1996................... 1.00 0.05296 -- 0.05296 (0.05296) --
1997................... 1.00 0.04862 -- 0.04862 (0.04862) --
1998................... 1.00 0.05082 -- 0.05082 (0.05082) --
1999................... 1.00 0.04838 -- 0.04838 (0.04838) -- ++
MONEY FUND -- (5/3/85*)
Year Ended March 31,
1995................... $1.00 $0.04494 $0.00002 $0.04496 $(0.04496) --
1996................... 1.00 0.05336 -- 0.05336 (0.05336) --
1997................... 1.00 0.04888 -- 0.04888 (0.04888) --
1998................... 1.00 0.05139 -- 0.05139 (0.05139) --
1999................... 1.00 0.04901 -- 0.04901 (0.04901) -- ++
TAX-EXEMPT MONEY FUND -- (5/24/85*)
Year Ended March 31,
1995................... $1.00 $0.02825 -- $0.02825 $(0.02825) --
1996................... 1.00 0.03362 -- 0.03362 (0.03362) --
1997................... 1.00 0.03050 -- 0.03050 (0.03050) --
1998................... 1.00 0.03216 -- 0.03216 (0.03216) --
1999................... 1.00 0.02911 -- 0.02911 (0.02910) $(0.00001)
NEW YORK TAX-EXEMPT MONEY FUND -- (8/3/98*)
Period Ended March 31,
1999................... $1.00 $0.01711 -- $0.01711 $(0.01711) --
* Commencement of operations
** Annualized
*** Not Annualized
+ Expense ratios before waiver of fees and reimbursement of expenses (if any)
by adviser and administrators.
++ Amount represents less than $0.00001 per share.
See Notes to Financial Statements
6
Ratio of Ratio of Ratio of
Net Gross Net
Net Asset Net Assets, Operating Operating Investment
Value, End Expenses Expenses Income Fee
Total End Total of Period to Average to Average to Average Waivers
Distributions of Period Return (000's) Net Assets Net Assets+ Net Assets (Note 2)
------------- --------- ------ ----------- ---------- ----------- ---------- --------
$(0.04165) $1.00 4.25% $ 196,932 0.55% 0.57% 4.09% $0.00019
(0.05043) 1.00 5.16% 258,169 0.55% 0.57% 5.03% 0.00021
(0.04676) 1.00 4.78% 349,087 0.52% 0.54% 4.68% 0.00026
(0.04853) 1.00 4.96% 469,640 0.52% 0.54% 4.86% 0.00021
(0.04545) 1.00 4.64% 494,217 0.52% 0.55% 4.55% 0.00029
$(0.04397) $1.00 4.49% $ 725,774 0.50% 0.53% 4.38% $0.00024
(0.05296) 1.00 5.43% 461,470 0.50% 0.53% 5.36% 0.00031
(0.04862) 1.00 4.97% 533,834 0.47% 0.51% 4.86% 0.00035
(0.05082) 1.00 5.20% 600,117 0.47% 0.50% 5.09% 0.00030
(0.04838) 1.00 4.95% 641,831 0.47% 0.50% 4.85% 0.00029
$(0.04496) $1.00 4.59% $ 824,578 0.49% 0.52% 4.49% $0.00026
(0.05336) 1.00 5.47% 394,285 0.50% 0.53% 5.40% 0.00037
(0.04888) 1.00 5.00% 498,066 0.47% 0.53% 4.89% 0.00052
(0.05139) 1.00 5.26% 658,872 0.48% 0.52% 5.14% 0.00046
(0.04901) 1.00 5.01% 973,668 0.48% 0.52% 4.85% 0.00049
$(0.02825) $1.00 2.86% $ 814,890 0.49% 0.52% 2.85% $0.00030
(0.03362) 1.00 3.41% 966,711 0.49% 0.53% 3.35% 0.00042
(0.03050) 1.00 3.09% 1,069,686 0.47% 0.52% 3.05% 0.00053
(0.03216) 1.00 3.26% 1,396,531 0.47% 0.53% 3.21% 0.00053
(0.02911) 1.00 2.95% 1,503,069 0.46% 0.52% 2.91% 0.00059
$(0.01711) $1.00 1.72%*** $ 305,719 0.47%** 0.79%** 2.24%** $0.00219
See Notes to Financial Statements
7
Excelsior Funds, Inc.
Portfolio of Investments March 31, 1999
Treasury Money Fund
Principal Discount Value
Amount Rate (Note 1)
--------- -------- -----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 99.24%
Federal Home Loan Bank
$ 10,000,000 06/16/99................................... 4.74% $ 9,900,039
Student Loan Marketing Association
13,000,000 06/17/99................................... 5.15# 13,000,000
25,000,000 11/10/99................................... 5.29# 24,994,043
25,000,000 11/16/99................................... 5.08 25,000,000
13,500,000 02/22/00................................... 5.19# 13,495,318
U.S. Treasury Bills
355,000,000 04/22/99................................... 4.69 354,028,108
U.S. Treasury Notes
50,000,000 04/30/99................................... 4.63 50,071,516
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $490,489,024).......................... 490,489,024
-----------
Value
Shares (Note 1)
------ ------------
OTHER SHORT-TERM INVESTMENTS -- 0.74%
3,640,512 Dreyfus Government Cash
Management Fund
(Cost $3,640,512)................................... $ 3,640,512
------------
TOTAL INVESTMENTS
(Cost
$494,129,536*)... 99.98% $494,129,536
OTHER ASSETS &
LIABILITIES
(NET)............ 0.02 87,313
------ ------------
NET ASSETS....... 100.00% $494,216,849
====== ============
- --------
* Aggregate cost for Federal tax and book purposes.
# Variable or floating rate securities--rate disclosed is as of March 31, 1999.
See Notes to Financial Statements
8
Excelsior Funds, Inc.
Portfolio of Investments March 31, 1999
Government Money Fund
Principal Discount Value
Amount Rate (Note 1)
--------- -------- ------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 99.44%
Federal Home Loan Bank
$ 10,000,000 04/01/99................................. 4.80% $ 10,000,000
200,000,000 06/23/99................................. 4.74 197,814,333
25,000,000 02/24/00................................. 4.98 24,998,873
Student Loan Marketing Association
35,000,000 06/17/99................................. 5.15# 35,000,000
30,900,000 11/01/99................................. 5.04# 30,892,671
100,000,000 11/10/99................................. 5.29# 99,976,173
50,000,000 11/16/99................................. 5.08 50,000,000
U.S. Treasury Bills
190,000,000 04/19/99................................. 4.82 189,542,100
------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (Cost $638,224,150).......... 638,224,150
------------
Value
Shares (Note 1)
------ ------------
OTHER SHORT-TERM INVESTMENTS -- 0.67%
4,295,614 Dreyfus Government Cash Management Fund
(Cost $4,295,614)........................... $ 4,295,614
------------
TOTAL INVESTMENTS
(Cost $642,519,764*)................................... 100.11% $642,519,764
OTHER ASSETS & LIABILITIES (NET)....................... (0.11) (688,867)
------ ------------
NET ASSETS............................................. 100.00% $641,830,897
====== ============
- --------
* Aggregate cost for Federal tax and book purposes.
# Variable or floating rate securities--rate disclosed is as of March 31, 1999.
See Notes to Financial Statements
9
Excelsior Funds, Inc.
Portfolio of Investments March 31, 1999
Money Fund
Principal Discount Value
Amount Rate (Note 1)
--------- -------- ------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 48.19%
Federal Farm Credit Bank
$ 10,000,000 04/06/99............................... 4.76% $ 9,993,389
Federal Home Loan Bank
10,000,000 04/01/99............................... 4.80 10,000,000
Student Loan Marketing Association
50,000,000 01/12/00............................... 5.07# 49,984,328
89,820,000 02/11/00............................... 4.96# 89,873,393
50,000,000 03/23/00............................... 4.88# 50,000,000
U.S. Treasury Bills
260,000,000 04/19/99............................... 4.82 259,373,400
------------
TOTAL U.S. GOVERNMENT
& AGENCY OBLIGATIONS
(Cost $469,224,510).................... 469,224,510
------------
COMMERCIAL PAPER -- 24.22%
45,000,000 American Express Co., 04/06/99......... 4.92 45,000,000
45,000,000 Asset Securitization, 04/27/99......... 4.87 44,841,725
25,000,000 Campbell Soup Co., 04/05/99............ 4.95 24,982,921
11,000,000 Chevron Corp.,
04/14/99............................... 4.87 11,000,000
45,000,000 General Electric Capital Corp.,
04/13/99............................... 4.87 45,000,000
40,000,000 General Motors Acceptance Corp.,
04/07/99............................... 4.91 40,000,000
25,000,000 +Prudential Funding Corp., 08/31/99.... 4.99# 25,000,000
------------
TOTAL COMMERCIAL PAPER
(Cost $235,824,646).................... 235,824,646
------------
CERTIFICATES OF DEPOSIT -- 15.40%
25,000,000 Banque Nationale de Paris, 07/14/99.... 4.86# 25,000,000
45,000,000 Citibank Canada,
04/28/99............................... 4.88 45,000,000
40,000,000 Royal Bank of Canada, 03/22/00......... 5.15 39,988,767
40,000,000 Toronto Dominion Bank, 02/22/00........ 5.14 39,986,186
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $149,974,953)...................... 149,974,953
------------
Principal Discount Value
Amount Rate (Note 1)
--------- -------- ------------
CORPORATE BONDS -- 8.81%
Lehman Brothers Holdings, Series E,
$15,000,000 09/27/99.................................. 7.13% $ 15,112,961
25,340,000 09/27/99.................................. 7.11 25,527,962
Merrill Lynch & Co., Inc.,
45,000,000 10/04/99.................................. 5.30# 45,065,120
------------
TOTAL CORPORATE BONDS
(Cost $85,706,043)........................ 85,706,043
------------
ASSET-BACKED SECURITY -- 3.08%
30,000,000 Ford Credit Auto Owner Trust, 1999-A,
Class A2, 01/18/00
(Cost $30,000,000)........................ 5.09 30,000,000
------------
Shares
------
OTHER SHORT-TERM INVESTMENTS -- 0.25%
2,432,596 Dreyfus Government Cash Management Fund
(Cost $2,432,596)......................... 2,432,596
------------
TOTAL INVESTMENTS (Cost $973,162,748*)................. 99.95% $973,162,748
OTHER ASSETS & LIABILITIES (NET)....................... 0.05 504,872
------ ------------
NET ASSETS............................................. 100.00% $973,667,620
====== ============
- --------
* Aggregate cost for Federal tax and book purposes.
# Variable or floating rate securities--rate disclosed is as of March 31,
1999.
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At March 31, 1999,
these securities amounted to $25,000,000 or 2.57% of net assets.
See Notes to Financial Statements
10
Excelsior Tax-Exempt Funds, Inc.
Portfolio of Investments March 31, 1999
Tax-Exempt Money Fund
Principal Value
Amount (Note 1)
--------- -----------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- 65.95%
$15,000,000 Austin, Texas, Commercial Paper,
3.150%, 04/12/1999................................... $15,000,000
15,000,000 Burke County, Georgia, Development Authority,
Commercial Paper,
3.100%, 04/19/1999................................... 15,000,000
6,225,000 Burlington, Kansas, Commercial Paper, Series C1,
3.050%, 08/13/1999................................... 6,225,000
8,800,000 Burlington, Kansas, Commercial Paper, Series C2,
3.050%, 08/13/1999................................... 8,800,000
8,000,000 Dallas, Texas, Dallas Area Rapid Transit Authority,
Commercial Paper,
2.750%, 05/13/1999................................... 8,000,000
2,000,000 Dallas, Texas, Dallas Area Rapid Transit Authority,
Commercial Paper,
2.900%, 05/13/1999................................... 2,000,000
30,000,000 Dallas, Texas, Dallas Area Rapid Transit Authority,
Commercial Paper,
2.950%, 04/07/1999................................... 30,000,000
20,400,000 Dallas, Texas, Dallas Area Rapid Transit Authority,
Commercial Paper,
3.000%, 04/16/1999................................... 20,400,000
8,750,000 Dallas, Texas, Dallas Area Rapid Transit Authority,
Commercial Paper,
3.050%, 08/13/1999................................... 8,750,000
17,000,000 Houston, Texas, General Obligation Commercial Paper,
3.050%, 08/18/1999................................... 17,000,000
15,000,000 Illinois Educational Facilities Authority Revenue
Notes, 3.050%, 04/08/1999............................ 15,000,000
15,000,000 Intermountain Power Agency, Utah, 2.750%, 05/07/1999. 15,000,000
6,000,000 Intermountain Power Agency, Utah, 2.850%, 04/06/1999. 6,000,000
15,000,000 Intermountain Power Agency, Utah, 2.900%, 04/16/1999. 15,000,000
10,000,000 Jacksonville, Florida, Electric Authority Commercial
Paper, Series A,
2.950%, 05/11/1999................................... 10,000,000
20,000,000 Jacksonville, Florida, Pollution Control Refunding
Revenue Bonds, Florida Power & Light Co. Project,
2.700%, 05/14/1999................................... 20,000,000
4,000,000 Jacksonville, Florida, Pollution Control Refunding
Revenue Bonds, Florida Power & Light Co. Project,
2.850%, 04/09/1999................................... 4,000,000
14,800,000 Jasper County, Indiana, Commercial Paper, Northern
Indiana Public Services,
2.950%, 04/06/1999................................... 14,800,000
9,150,000 Jasper County, Indiana, Commercial Paper, Northern
Indiana Public Services,
2.950%, 04/06/1999................................... 9,150,000
5,000,000 Jasper County, Indiana, Commercial Paper, Northern
Indiana Public Services,
3.200%, 05/04/1999................................... 5,000,000
16,200,000 Jasper County, Indiana, Commercial Paper, Pollution
Control, 2.950%, 04/01/1999.......................... 16,200,000
18,000,000 Jasper County, Indiana, Commercial Paper, Public
Power Services,
2.850%, 05/17/1999................................... 18,000,000
25,500,000 Kentucky Asset/Liability Fund, Commercial Paper,
2.950%, 08/12/1999................................... 25,500,000
Principal Value
Amount (Note 1)
--------- -----------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- (continued)
$20,000,000 Lower Colorado River Authority, Texas, Commercial
Paper, 2.900%, 08/10/1999............................ $20,000,000
12,530,000 Maricopa County, Arizona, Commercial Paper, 2.700%,
05/10/1999........................................... 12,530,000
5,000,000 Metropolitan Transit Authority, New York, Special
Obligation Bond Anticipation Notes, Series CP1,
3.000%, 04/12/1999................................... 5,000,000
20,000,000 Nassau County, New York, Industrial Development
Agency, Civic Facility Revenue Bonds, Cold Spring
Harbor Lab Project, 3.500%, 08/18/1999............... 20,033,616
5,000,000 Nassau County, New York, Industrial Development
Agency, Civic Facility Revenue Bonds, Cold Spring
Harbor Lab Project, 4.000%, 05/18/1999............... 5,004,104
11,000,000 New Jersey State Transportation, Commercial Paper,
2.600%, 04/06/1999................................... 11,000,000
23,500,000 New York City, New York, Commercial Paper, 2.850%,
04/16/1999........................................... 23,500,000
21,400,000 New York City, New York, Municipal Water Financing
Authority, Water and Sewer Systems Revenue Bonds,
3.150%, 04/16/1999................................... 21,400,000
17,150,000 New York State Dormitory Authority, Commercial Paper,
2.900%, 04/09/1999................................... 17,150,000
10,000,000 New York State Power Authority & General Purpose
Revenue Bonds,
2.900%, 03/01/2016+.................................. 10,000,000
8,165,000 New York State Power Authority & General Purpose
Revenue Bonds,
2.900%, 08/17/1999................................... 8,165,000
10,000,000 New York State Power Authority & General Purpose
Revenue Bonds,
2.950%, 05/12/1999................................... 10,000,000
7,100,000 New York State, Local Government Assistance
Corporation, Series W,
3.100%, 04/07/1999................................... 7,100,000
45,000,000 North Carolina Municipal Power Agency, Commercial
Paper, 3.050%, 08/11/1999............................ 45,000,000
23,700,000 Nueces River, Texas, San Miguel Electric Corp.,
Commercial Paper,
2.700%, 05/11/1999................................... 23,700,000
25,000,000 Nueces River, Texas, San Miguel Electric Corp.,
Commercial Paper,
3.100%, 06/03/1999................................... 25,000,000
26,500,000 Nueces River, Texas, San Miguel Electric Corp.,
Commercial Paper,
3.150%, 06/09/1999................................... 26,500,000
10,000,000 Omaha, Nebraska, Public Power District, Commercial
Paper, 2.950%, 04/09/1999............................ 10,000,000
6,500,000 Pleasant Prarie, Wisconsin, Pollution Control
Refunding Revenue Bonds, Wisconsin Electric Power
Co., Series A, 3.050%, 09/01/2030+................... 6,500,000
2,680,000 Purdue University, Indiana, University Revenue Bonds,
Student Fee, Series E, 2.900%, 07/01/2011+........... 2,680,000
1,100,000 Purdue University, Indiana, University Revenue Bonds,
Student Fee, Series L, (AMBAC), 2.900%, 07/01/2020+.. 1,100,000
See Notes to Financial Statements
11
Excelsior Tax-Exempt Funds, Inc.
Portfolio of Investments March 31, 1999
Tax-Exempt Money Fund -- (continued)
Principal Value
Amount (Note 1)
--------- -----------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- (continued)
$25,985,000 Salt River, Arizona, Electric & Gas Commercial
Paper, 2.850%, 04/09/1999........................... $25,985,000
10,000,000 Salt River, Arizona, Electric & Gas Commercial
Paper, 2.950%, 04/12/1999........................... 10,000,000
10,000,000 Salt River, Texas, Commercial Paper, 2.850%,
04/12/1999.......................................... 10,000,000
8,000,000 Salt River, Texas, Commercial Paper, 3.000%,
04/12/1999.......................................... 8,000,000
17,700,000 San Antonio, Texas, Electric & Gas Commercial Paper,
2.800%, 05/10/1999.................................. 17,700,000
13,200,000 San Antonio, Texas, Electric & Gas Commercial Paper,
3.000%, 04/14/1999.................................. 13,200,000
6,000,000 San Antonio, Texas, Electric & Gas Commercial Paper,
3.050%, 08/13/1999.................................. 6,000,000
5,000,000 Shelby County, Tennessee, Commercial Paper, 2.750%,
04/14/1999.......................................... 5,000,000
30,000,000 Shelby County, Tennessee, Commercial Paper, 2.950%,
04/07/1999.......................................... 30,000,000
35,000,000 Shelby County, Tennessee, Commercial Paper, 2.950%,
04/08/1999.......................................... 35,000,000
15,000,000 South Carolina State, Public Service Authority
Commercial Paper,
2.750%, 05/12/1999.................................. 15,000,000
20,000,000 South Carolina State, Public Service Authority
Commercial Paper,
2.850%, 04/09/1999.................................. 20,000,000
35,000,000 South Carolina State, Public Service Authority
Commercial Paper,
3.150%, 05/04/1999.................................. 35,000,000
24,400,000 Tennessee School Board Association, Commercial
Paper, 3.100%, 08/18/1999........................... 24,400,000
50,000,000 Texas State, Tax & Revenue Anticipation Notes,
4.500%, 08/31/1999.................................. 50,328,014
20,000,000 Utah, General Obligation Commercial Paper, 2.900%,
04/05/1999.......................................... 20,000,000
30,000,000 Utah, General Obligation Commercial Paper, 2.950%,
05/11/1999.......................................... 30,000,000
19,430,000 Wisconsin State, General Obligation Commercial
Paper, 2.800%, 05/12/1999........................... 19,430,000
-----------
991,230,734
-----------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- BACKED
BY LETTERS OF CREDIT -- 33.75%
ABN AMRO BANK N.V./MORGAN GUARANTY TRUST
14,800,000 Long Island Power Authority, New York, Electric
Systems Revenue Bonds, Series 5, 3.100%,
05/01/2033+......................................... 14,800,000
BANK OF AMERICA
20,000,000 Des Moines, Iowa, Hospital Facilities Revenue Bonds,
Iowa Methodist Medical Center Project, 3.050%,
08/01/2015+......................................... 20,000,000
20,000,000 Michigan Technological University Revenue Bonds,
Series A, (AMBAC), 2.950%, 10/01/2018+.............. 20,000,000
BANK OF NOVA SCOTIA
11,000,000 New York State, Local Government Assistance
Corporation Revenue Bonds, Series G, 2.700%,
04/01/2025+......................................... 11,000,000
Principal Value
Amount (Note 1)
--------- -----------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- BACKED
BY LETTERS OF CREDIT -- (continued)
BANK OF NOVA SCOTIA/CHASE MANHATTAN BANK
$ 3,400,000 New Hampshire State Industrial Development Authority,
Pollution Control Revenue Bonds, Bangor Hydro-
Electric Co. Project, Series 1983,
3.250%, 01/01/2009+.................................. $ 3,400,000
BANK OF TOKYO MITSUBISHI
14,400,000 University of Iowa, Facilities Revenue Bonds, Human
Biology Research, Series A, 4.550%, 06/01/2005+...... 14,400,000
BARCLAYS BANK, PLC
7,700,000 Bucks County, Pennsylvania, Industrial Development
Authority Revenue Bonds, Tru Realty--Toys R Us
Project,
2.800%, 12/01/2018+.................................. 7,700,000
BAYERISCHE LANDESBANK
5,000,000 Oklahoma State Water Resources, State Line Program
Revenue Bonds,
2.900%, 09/01/2032+.................................. 5,000,000
BAYERISCHE LANDESBANK/MORGAN GUARANTY TRUST
7,485,000 New York State Job Development Authority Revenue
Bonds, Series C1-34,
2.900%, 03/01/2000+.................................. 7,485,000
3,585,000 New York State Job Development Authority Revenue
Bonds, Series D1-16,
2.900%, 03/01/2000+.................................. 3,585,000
CS FIRST BOSTON
6,900,000 Garden City, Kansas, Industrial Development Revenue
Bonds, Inland Container Corp. Project, Temple Series
1983, 3.200%, 01/01/2008+............................ 6,900,000
25,000,000 Ohio County, Kentucky, Pollution Control Revenue
Bonds, Big Rivers Electric Corp., (AMBAC), 3.050%,
06/01/2013+.......................................... 25,000,000
10,000,000 Ohio County, Kentucky, Pollution Control Revenue
Bonds, Big Rivers Electric Corp., (AMBAC), 3.050%,
10/01/2015+.......................................... 10,000,000
FIRST NATIONAL BANK OF CHICAGO
47,220,000 Coastal Bend Health Facilities Development Corp.,
Texas, Incarnate Health System, 3.000%, 08/15/2027+.. 47,220,000
FIRST UNION NATIONAL BANK
10,200,000 Wake County, North Carolina, Industrial Facilities &
Pollution Control Financing Authority Revenue Bonds,
Carolina Power & Light Co., Series 1985-B,
2.950%, 09/01/2015+.................................. 10,200,000
12,900,000 Wake County, North Carolina, Industrial Facilities &
Pollution Control Financing Authority Revenue Bonds,
Carolina Power & Light Co., Series 1985-C,
2.950%, 10/01/2015+.................................. 12,900,000
KREDIETBANK, N.V.
14,795,000 Illinois Health Facilities Authority Revenue Bonds,
Memorial Medical Center, Series C, 3.000%,
01/01/2016+.......................................... 14,795,000
See Notes to Financial Statements
12
Excelsior Tax-Exempt Funds, Inc.
Portfolio of Investments March 31, 1999
Tax-Exempt Money Fund -- (continued)
Principal Value
Amount (Note 1)
--------- -----------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- BACKED BY LETTERS OF CREDIT --
(continued)
LANDESBANK HESSEN-THURINGEN
$10,100,000 Washington State, General Obligation Bonds, Series VR
96B,
2.900%, 06/01/2020+.................................. $10,100,000
LASALLE NATIONAL BANK
16,500,000 Flint, Michigan, Hospital Building Authority Revenue
Bonds, Hurley Medical Center, Series B, 3.000%,
07/01/2015+.......................................... 16,500,000
14,000,000 Illinois Health Facilities Authority Revenue Bonds,
Ingalls Memorial Hospital,
Series B, 2.950%, 01/01/2016+........................ 14,000,000
7,165,000 Illinois Health Facilities Authority Revenue Bonds,
Ingalls Memorial Hospital,
Series C, 2.950%, 01/01/2016+........................ 7,165,000
MORGAN GUARANTY TRUST
11,300,000 Chicago, Illinois, General Obligation Bonds, 2.850%,
01/31/2000+.......................................... 11,300,000
6,900,000 Kenton County, Kentucky, Industrial Building Revenue
Bonds, Redken Labs, Inc. Project, Series 1984,
2.800%, 12/01/2014+.................................. 6,900,000
5,950,000 Maricopa County, Arizona, Pollution Control Revenue
Bonds, Arizona Public Services Co., Series B,
3.200%, 05/01/2029+.................................. 5,950,000
12,100,000 New York City, New York, General Obligation Bonds,
Series E5,
3.050%, 08/01/2016+.................................. 12,100,000
MORGAN GUARANTY TRUST/CANADIAN IMPERIAL BANK/SOCIETE
GENERALE
13,000,000 District of Columbia, Tax & Revenue Anticipation
Notes, Series B,
3.750%, 09/30/1999................................... 13,055,748
NATIONSBANK N.A.
1,700,000 Greensboro, North Carolina, Enterprise Systems
Revenue Bonds, Series B,
2.950%, 06/01/2024+.................................. 1,700,000
NORDDUETSCHE LANDESBANK
14,950,000 Brazos, Texas, Harbor Industrial Development Corp.
Revenue Bonds, Badische Corp., 2.900%, 12/01/2013+... 14,950,000
NORTHERN TRUST
25,325,000 Illinois Health Facilities Authority Revenue Bonds,
Healthcorp Affiliates, Series A, 2.900%, 11/01/2015+. 25,325,000
1,000,000 Purdue University, Indiana, University Revenue Bonds,
Student Fee, Series O, 2.900%, 07/01/2019+........... 1,000,000
RABOBANK NEDERLANDER
16,100,000 Illinois Health Facilities Authority Revenue Bonds,
Healthcorp Affiliates, Series B, 2.900%, 11/01/2015+. 16,100,000
13,125,000 Mississippi Hospital Equipment & Facilities Authority
Revenue Bonds, Mississippi Baptist Medical Center,
3.000%, 07/01/2012+.................................. 13,125,000
Principal Value
Amount (Note 1)
--------- ------------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- BACKED BY LETTERS OF CREDIT --
(continued)
TENNESSEE CONSUMER RETIREMENT SYSTEMS
$21,300,000 Tennessee State, Bond Anticipation Notes, Series A,
3.100%, 07/02/2001+................................ $ 21,300,000
TORONTO DOMINION BANK, LTD.
2,000,000 Wisconsin State Health Facilities Authority Revenue
Bonds, Franciscan Health Care, Series A2, 3.050%,
01/01/2016+........................................ 2,000,000
UNION BANK OF SWITZERLAND/MORGAN GUARANTY TRUST
13,200,000 Pennsylvania State Higher Educational Facilities
Authority Revenue Bonds, Carnegie Mellon
University, Series D, 3.050%, 11/01/2030+.......... 13,200,000
WACHOVIA BANK
27,000,000 Baltimore, Maryland, Port Facilities Revenue Bonds,
Occidental Petroleum, Series 1981, 3.000%,
10/14/2011+........................................ 27,000,000
WESTDUETSCHE LANDESBANK/CREDIT LOCAL DE
FRANCE/LANDESBANK HESSEN-THURINGEN
40,000,000 Suffolk County, New York, Tax Anticipation Notes,
Series I,
3.500%, 08/12/1999................................. 40,138,216
------------
507,293,964
------------
TOTAL INVESTMENTS
(Cost $1,498,524,698*)........................... 99.70% $1,498,524,698
OTHER ASSETS & LIABILITIES (NET)............... 0.30 4,544,557
------ --------------
NET ASSETS..................................... 100.00% $1,503,069,255
====== ==============
- --------
* Aggregate cost for Federal tax and book purposes
+ Variable rate demand bonds and notes are payable upon not more than seven
business days notice.
AMBAC--American Municipal Bond Assurance Corp.
Note:
These municipal securities meet the three highest ratings assigned by Moody's
Investors Services, Inc. or Standard and Poor's Corporation or, where not
rated, are determined by the Investment Adviser, under the supervision of the
Board of Directors, to be of comparable quality at the time of purchase to
rated instruments that may be acquired by the Fund.
At March 31, 1999, approximately, 34% of the net assets are invested in
municipal securities that have letter of credit enhancement features or
escrows in U.S. Government securities backing them, which the Fund relies on.
Without such features, the securities may or may not meet the quality
standards of securities purchased by the Fund.
At March 31, 1999, approximately, 24% and 14% of the net assets are invested
in Texas and New York municipal securities, respectively. Economic changes
affecting the state and certain of its public bodies and municipalities may
affect the ability of issuers to pay the required principal and interest
payments of the municipal securities.
See Notes to Financial Statements
13
Excelsior Tax-Exempt Funds, Inc.
Portfolio of Investments March 31, 1999
New York Tax-Exempt Money Fund
Principal Value
Amount (Note 1)
--------- ------------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- 66.35%
$10,000,000 Guam Power Authority, Commercial Paper, 2.650%,
04/01/1999.......................................... $ 10,000,000
10,000,000 Long Island Power Authority, New York, Electric
Systems, Commercial Paper, 3.000%, 04/19/1999....... 10,000,000
10,000,000 Metropolitan Transportation Authority of New York,
Commercial Paper, 2.550%, 05/11/1999................ 10,000,000
5,000,000 Metropolitan Transportation Authority of New York,
Commercial Paper, 2.600%, 05/14/1999................ 5,000,000
10,000,000 Metropolitan Transportation Authority of New York,
Commercial Paper, 2.700%, 07/14/1999................ 10,000,000
3,000,000 Metropolitan Transportation Authority of New York,
Commercial Paper, 2.750%, 05/12/1999................ 3,000,000
7,000,000 Nassau County, New York, Bond Anticipation Notes,
Series A, 3.625%, 08/17/1999........................ 7,017,924
10,500,000 Nassau County, New York, Bond Anticipation Notes,
Series B, 3.500%, 08/18/1999........................ 10,518,235
7,933,000 Nassau County, New York, Bond Anticipation Notes,
Series E, 4.000%, 05/18/1999........................ 7,940,374
2,100,000 New York City, New York, City Municipal Water
Financing Authority, Water & Sewer Systems
Commercial Paper, 2.950%, 04/19/1999................ 2,100,000
10,000,000 New York City, New York, City Municipal Water
Financing Authority, Water & Sewer Systems
Commercial Paper, 3.100%, 04/21/1999................ 10,000,000
4,000,000 New York City, New York, General Obligation
Commercial Paper, 3.100%, 04/20/1999................ 4,000,000
10,000,000 New York City, New York, Housing Development
Corporation Multifamily Rent Housing Revenue Bonds,
Parkgate Development, 2.800%, 10/15/2028+........... 10,000,000
1,845,000 New York State Dormitory Authority, Columbia
University Commercial Paper, 2.550%, 05/12/1999..... 1,845,000
5,000,000 New York State Dormitory Authority, Commercial
Paper,
2.800%, 06/10/1999.................................. 5,000,000
19,000,000 New York State Dormitory Authority, Commercial
Paper,
2.910%, 04/06/1999.................................. 19,000,000
3,000,000 New York State Dormitory Authority, Commercial
Paper,
3.000%, 08/11/1999.................................. 3,000,000
8,000,000 New York State Dormitory Authority, Commercial
Paper,
3.100%, 04/12/1999.................................. 8,000,000
10,700,000 New York State Dormitory Authority, Rockefeller
University Revenue Bonds, Series A, 2.750%,
07/01/2014+......................................... 10,700,000
Principal Value
Amount (Note 1)
--------- ------------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- (continued)
$ 1,500,000 New York State Dormitory Authority, Sloan Kettering
Cancer Center,
2.650%, 04/12/1999................................. $ 1,500,000
2,000,000 New York State Environmental Facilities, Commercial
Paper,
2.550%, 05/12/1999................................. 2,000,000
3,000,000 New York State Environmental Facilities, Commercial
Paper,
2.750%, 07/20/1999................................. 3,000,000
15,000,000 New York State Power Authority General Purpose
Revenue Bonds,
3.000%, 05/03/1999................................. 15,000,000
5,000,000 New York State Thruway Authority Highway & Bridge
Revenue Bonds, Series A, (AMBAC),
4.750%, 04/01/1999................................. 5,000,000
6,500,000 Puerto Rico Commonwealth, Tax & Revenue
Anticipation Notes, Series A, 3.500%, 07/30/1999... 6,516,344
2,500,000 Puerto Rico Government Development Bank, 2.800%,
04/01/1999......................................... 2,500,000
4,300,000 Puerto Rico Government Development Bank, 2.850%,
04/07/1999......................................... 4,300,000
3,404,000 Puerto Rico Government Development Bank, 2.950%,
06/10/1999......................................... 3,404,000
1,000,000 Rochester, New York, General Obligation Bonds,
4.000%, 10/01/1999................................. 1,005,282
11,500,000 Westchester County, New York, Healthcare System
Commercial Paper, 2.900%, 04/09/1999............... 11,500,000
------------
202,847,159
------------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- BACKED BY LETTERS OF CREDIT --
33.26%
BANK OF NOVA SCOTIA
3,000,000 New York State Local Government Assistance
Corporation, Series G, 2.700%, 04/01/2025+......... 3,000,000
6,300,000 Suffolk County, New York, Water Authority Bond
Anticipation Notes, 2.800%, 11/01/2002+............ 6,300,000
BANKERS TRUST COMPANY
1,500,000 Dutchess County, New York, Industrial Development
Agency Revenue Bonds, Toys R Us--NYTEX, Inc.
Project, 3.125%, 11/01/2019+....................... 1,500,000
BAYERISCHE LANDESBANK/
WESTDEUTSCHE LANDESBANK
4,600,000 New York State Local Government Assistance Corp.,
Revenue Bonds, Series A, 2.800%, 04/01/2022+....... 4,600,000
CREDIT LOCAL DE FRANCE
6,800,000 Niagara Falls, New York, Bridge Common Toll Revenue
Bonds, Series A, (FGIC), 2.750%, 10/01/2019+....... 6,800,000
4,200,000 Yonkers, New York, Industrial Development Agency,
Civic Facility Revenue Bonds, Consumers Union
Facility, 2.800%, 07/01/2019+...................... 4,200,000
See Notes to Financial Statements
14
Excelsior Tax-Exempt Funds, Inc.
Portfolio of Investments March 31, 1999
New York Tax-Exempt Money Fund -- (continued)
Principal Value
Amount (Note 1)
--------- ------------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- BACKED BY LETTERS OF CREDIT --
(continued)
CREDIT SUISSE
$ 9,000,000 New York City, New York, City Treasures Cultural
Reserve, American Museum of National History Revenue
Bonds, Series B, (MBIA), 2.750%, 04/01/2021+........ $ 9,000,000
FIRST NATIONAL BANK OF CHICAGO
9,000,000 New York City, New York, Transitional Finance
Authority, Series B2,
2.900%, 11/01/2026+................................. 9,000,000
5,000,000 New York City, New York, Transitional Finance
Authority, Series B3,
3.000%, 11/01/2028+................................. 5,000,000
LANDESBANK HESSEN-THURINGEN
3,000,000 Buffalo, New York, General Obligation Revenue
Anticipation Notes, Series A, 3.750%, 07/27/1999.... 3,007,110
1,100,000 Municipal Assistance Corporation for the City of New
York, Revenue Bonds, Subseries K3, 3.150%,
07/01/2008+......................................... 1,100,000
MORGAN GUARANTY TRUST
11,100,000 New York City, New York, General Obligation Bonds,
Subseries F6, 2.800%, 02/15/2018+................... 11,100,000
1,000,000 New York City, New York, General Obligation Bonds,
Subseries E3, 2.650%, 08/01/2023+................... 1,000,000
SOCIETE GENERALE
8,700,000 New York State Energy Research & Development
Authority, Pollution Control Revenue Bonds, Orange &
Rockland Utilities, Series A, (AMBAC), 2.750%,
08/01/2015+......................................... 8,700,000
12,600,000 New York State Local Government Assistance Corp.,
Series D, 2.850%, 04/01/2025+....................... 12,600,000
STATE STREET BANK & TRUST
1,400,000 New York City, New York, General Obligation Bonds,
Subseries E4, 3.250%, 08/01/2022+................... 1,400,000
TORONTO DOMINION BANK
2,260,000 New York State Energy Research & Development
Authority, Pollution Control Revenue Bonds, Niagara
Mohawk Corp. Project, Series A, 2.950%, 03/01/2027+. 2,260,000
UNION BANK OF SWITZERLAND
2,100,000 New York State Energy Research & Development
Authority, Pollution Control Revenue Bonds, Central
Hudson Gas & Electric, Series B,
2.950%, 06/01/2027+................................. 2,100,000
WESTDUETSCHE LANDESBANK
4,000,000 Municipal Assistance Corporation for the City of New
York, Revenue Bonds, Subseries K1, 3.150%,
07/01/2008+......................................... 4,000,000
Principal Value
Amount (Note 1)
--------- ------------
TAX-EXEMPT CASH EQUIVALENT SECURITIES -- BACKED BY LETTERS OF CREDIT --
(continued)
WESTDUETSCHE LANDESBANK/CREDIT LOCAL DE
FRANCE/LANDESBANK HESSEN-THURINGEN
$ 5,000,000 Suffolk County, New York, Tax Anticipation Notes,
Series I, 3.500%, 08/12/1999....................... $ 5,012,025
------------
$101,679,135
------------
Shares
------
OTHER INVESTMENTS -- 0.15%
447,000 Provident Institutional New York Tax-Exempt Money
Fund............................................... 447,000
------------
TOTAL INVESTMENTS
(Cost $304,973,294*)..................................... 99.76% $304,973,294
OTHER ASSETS & LIABILITIES (NET)......................... 0.24 746,013
------ ------------
NET ASSETS............................................... 100.00% $305,719,307
====== ============
- --------
* Aggregate cost for Federal tax and book purposes.
+ Variable rate demand bonds and notes are payable upon not more than seven
business days notice.
AMBAC--American Municipal Bond Assurance Corp.
FGIC--Financial Guaranty Insurance Corp.
MBIA--Municipal Bond Insurance Assoc.
Note:
These municipal securities meet the three highest ratings assigned by Moody's
Investors Services, Inc. or Standard and Poor's Corporation or, where not
rated, are determined by the Investment Adviser, under the supervision of the
Board of Directors, to be of comparable quality at the time of purchase to
rated instruments that may be acquired by the Fund.
At March 31, 1999, approximately, 33% of the net assets are invested in
municipal securities that have letter of credit enhancement features or
escrows in U.S. Government securities backing them, which the Fund relies on.
Without such features, the securities may or may not meet the quality
standards of securities purchased by the Fund.
At March 31, 1999, approximately, 91% of the net assets are invested in New
York municipal securities. Economic changes affecting the state and certain of
its public bodies and municipalities may affect the ability of issuers to pay
the required principal and interest payments of the municipal securities.
See Notes to Financial Statements
15
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
Excelsior Funds, Inc. ("Excelsior Fund") and Excelsior Tax-Exempt Funds,
Inc. ("Excelsior Tax-Exempt Fund" and collectively with Excelsior Fund, the
"Funds") were incorporated under the laws of the State of Maryland on August
2, 1984 and August 8, 1984, respectively, and are registered under the
Investment Company Act of 1940, as amended, as open-end management investment
companies.
Excelsior Fund and Excelsior Tax-Exempt Fund currently offer shares in
eighteen and seven managed investment portfolios, respectively, each having
its own investment objectives and policies. The following is a summary of
significant accounting policies for Treasury Money Fund, Government Money Fund
and Money Fund, portfolios of Excelsior Fund, Tax-Exempt Money Fund and New
York Tax-Exempt Money Fund, portfolios of Excelsior Tax-Exempt Fund (the
"Portfolios"). Such policies are in conformity with generally accepted
accounting principles and are consistently followed by the Funds in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual
results could differ from these estimates. New York Tax-Exempt Money Fund
commenced operations on August 3, 1998. The financial statements for the
remaining portfolios of the Funds are presented separately.
With regard to the Portfolios, it is the Funds' policy, to the extent
possible, to maintain a continuous net asset value per share of $1.00. Each of
the Portfolios has adopted certain investment portfolio, valuation and
dividend distribution policies to enable it to do so. However, there can be no
assurance that the net asset value per share of the Portfolios will not vary.
(a) Portfolio Valuation:
Securities are valued at amortized cost, which has been determined by
each Fund's Board of Directors to represent the fair value of the
Portfolios' investments. Amortized cost valuation involves valuing an
instrument at its cost initially and, thereafter, assuming a constant
amortization to maturity of any discount or premium.
(b) Security transactions and investment income:
Security transactions are recorded on a trade date basis. Realized gains
and losses on investments sold are recorded on the basis of identified
cost. Interest income, adjusted for amortization of premiums and, when
appropriate, discounts on investments, is earned from settlement date and
is recorded on the accrual basis.
(c) Repurchase agreements:
Excelsior Fund may purchase portfolio securities from financial
institutions deemed to be creditworthy by the investment adviser subject to
the seller's agreement to repurchase and Excelsior
16
Fund's agreement to resell such securities at mutually agreed upon prices.
Securities purchased subject to such repurchase agreements are deposited
with Excelsior Fund's custodian or sub-custodian or are maintained in the
Federal Reserve/Treasury book-entry system and must have, at all times, an
aggregate market value not less than the repurchase price (including
accrued interest).
If the value of the underlying security falls below the value of the
repurchase price, Excelsior Fund will require the seller to deposit
additional collateral by the next business day. Default or bankruptcy of
the seller may, however, expose the applicable Portfolio of Excelsior Fund
to possible delay in connection with the disposition of the underlying
securities or loss to the extent that proceeds from a sale of the
underlying securities were less than the repurchase price under the
agreement.
(d) Dividends and distributions to shareholders:
Net investment income dividends are declared daily and paid monthly. Net
realized capital gains, unless offset by any available capital loss
carryforward, are distributed to shareholders annually or more frequently
to maintain a net asset value of $1.00 per share.
Dividends and distributions are determined in accordance with Federal
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
deferral of losses on wash sales and net capital losses incurred after
October 31 and within the taxable year ("Post-October losses").
In order to avoid a Federal excise tax, each Portfolio is required to
distribute certain minimum amounts of net realized capital gain and net
investment income for the respective periods ending October 31 and December
31 in each calendar year.
(e) Federal taxes:
It is the policy of the Funds that each Portfolio continue to qualify as
a regulated investment company, if such qualification is in the best
interest of the shareholders, by complying with the requirements of the
Internal Revenue Code applicable to regulated investment companies, and by
distributing substantially all of its taxable earnings to its shareholders.
At March 31, 1999, the following Portfolios had approximate capital loss
carryforwards for Federal tax purposes available to offset future net
capital gains through the indicated expiration dates:
Expiration Date March 31,
-------------------------------------------------------
2001 2002 2003 2004 2005 2006 2007 Total
------- ------- ------- ------- ------- ------- ------- --------
Government Money Fund... $10,000 -- $48,000 $ 1,000 -- $ 6,000 $ 3,000 $ 68,000
Money Fund.............. -- -- 21,000 21,000 $12,000 -- -- 54,000
Tax-Exempt Money Fund... 18,000 $31,000 -- -- 51,000 35,000 27,000 162,000
To the extent that such carryforwards are utilized, no capital gain
distributions will be made. During the year ended March 31, 1999, the Money
Fund utilized capital loss carryforwards for Federal tax purposes totaling
approximately $4,000.
17
Post-October losses are deemed to arise on the first business day of a
Portfolio's next taxable year. The Government Money Fund incurred, and
elected to defer, net capital losses of approximately $19,000 for the year
ended March 31, 1999.
(f) Expense Allocation:
Expenses directly attributable to a Portfolio are charged to that
Portfolio. Other expenses are allocated to the respective Portfolios based
on average daily net assets.
2. Investment Advisory Fee, Administration Fee and Related Party Transactions
United States Trust Company of New York ("U.S. Trust NY") and U.S. Trust
Company of Connecticut ("U.S. Trust CT" and, collectively with U.S. Trust NY,
"U.S. Trust") serve as the investment adviser to the Portfolios. For the
services provided pursuant to the Investment Advisory Agreements, U.S. Trust
is entitled to receive a fee, computed daily and paid monthly, at the annual
rates of .25% of the average daily net assets of the Government Money Fund,
the Money Fund and the Tax-Exempt Money Fund, .30% of the average daily net
assets of the Treasury Money Fund, and .50% of the average daily net assets of
the New York Tax-Exempt Money Fund. U.S. Trust NY and U.S. Trust CT are
wholly-owned subsidiaries of U.S. Trust Corporation, a registered bank holding
company.
U.S. Trust CT, Chase Global Funds Services Company, a corporate affiliate of
The Chase Manhattan Bank, and Federated Administrative Services (collectively,
the "Administrators") provide administrative services to the Funds. For the
services provided to the Portfolios, the Administrators are entitled jointly
to annual fees, computed daily and paid monthly, based on the combined
aggregate average daily net assets of Excelsior Fund, Excelsior Tax-Exempt
Fund and Excelsior Institutional Trust (excluding the international equity
portfolios of Excelsior Fund and Excelsior Institutional Trust), all of which
are affiliated investment companies, as follows: .200% of the first $200
million, .175% of the next $200 million, and .150% over $400 million.
Administration fees payable by each Portfolio of the three investment
companies are determined in proportion to the relative average daily net
assets of the respective Portfolios for the period paid. For the year ended
March 31, 1999, administration fees charged by U.S. Trust CT were as follows:
Treasury Money Fund.............................................. $192,708
Government Money Fund............................................ 232,413
Money Fund....................................................... 275,526
Tax-Exempt Money Fund............................................ 524,126
New York Tax-Exempt Money Fund................................... 62,261
From time to time, as they may deem appropriate in their sole discretion,
U.S. Trust and the Administrators may undertake to waive a portion or all of
the fees payable to them and also may reimburse the Portfolios for a portion
of other expenses. In addition, until further notice to Excelsior Tax-Exempt
Fund, U.S. Trust intends to voluntarily waive fees and reimburse expenses to
the extent necessary for New York Tax-Exempt Money Fund to maintain an annual
expense ratio of not more than .60%. For the year ended March 31, 1999, U.S.
Trust waived investment advisory fees totaling $284,204 and U.S. Trust
reimbursed expenses totaling $240,438 for New York Tax-Exempt Money Fund
pursuant to this voluntary limitation.
18
The Funds have also entered into administrative servicing agreements with
various service organizations (which may include affiliates of U.S. Trust)
requiring them to provide administrative support services to their customers
owning shares of the Portfolios. As a consideration for the administrative
services provided by each service organization to its customers, each
Portfolio will pay the service organization an administrative service fee at
the annual rate of up to .40% of the average daily net asset value of its
shares held by the service organization's customers. Such services may include
assisting in processing purchase, exchange and redemption requests;
transmitting and receiving funds in connection with customer orders to
purchase, exchange or redeem shares; and providing periodic statements.
Administrative service fees paid to affiliates of U.S. Trust amounted to
$1,528,490 for the year ended March 31, 1999. Until further notice to the
Funds, U.S. Trust and the Administrators have voluntarily agreed to waive
investment advisory and administration fees payable by each Portfolio in an
amount equal to the administrative service fees payable (including fees paid
to affiliates of U.S. Trust) by such Portfolio. For the year ended March 31,
1999, U.S. Trust and the Administrators waived investment advisory and
administration fees in amounts equal to the administrative service fees for
the Portfolios as set forth below:
U.S. Trust Administrators
---------- --------------
Treasury Money Fund.............................. $151,843 --
Government Money Fund............................ 184,188 $172
Money Fund....................................... 358,360 11
Tax-Exempt Money Fund............................ 827,107 --
New York Tax-Exempt Money Fund................... 7,879 --
Edgewood Services, Inc. ("the Distributor"), a wholly-owned subsidiary of
Federated Investors, Inc., serves as the sponsor and distributor of the Funds.
Shares of each Portfolio are sold without a sales charge on a continuous basis
by the Distributor.
Each Director of the Funds receives an annual fee of $9,000, plus a meeting
fee of $1,500 for each meeting attended, and is reimbursed for expenses
incurred for attending meetings. The Chairman receives an additional annual
fee of $5,000.
3. Common Stock:
Excelsior Fund has authorized capital of 35 billion shares of Common Stock,
26.375 billion of which is currently classified to represent interests in one
of eighteen separate investment portfolios. Excelsior Tax-Exempt Fund has
authorized capital of 14 billion shares of Common Stock, 13 billion of which
is currently classified to represent interests in one of seven separate
investment portfolios. Authorized capital currently classified for each
Portfolio is as follows: 2 billion shares each of the Treasury Money Fund, the
Government Money Fund, the Money Fund, the Tax-Exempt Money Fund and the New
York Tax-Exempt Money Fund.
19
Each share has a par value of $.001 and represents an equal proportionate
interest in the particular Portfolio with other shares of the same Portfolio,
and is entitled to such dividends and distributions of taxable earnings on the
assets belonging to such Portfolio as are declared at the discretion of each
Fund's Board of Directors. Since the Portfolios have sold, reinvested and
redeemed shares only at a constant net asset value of $1.00 per share, the
number of shares represented by such sales, reinvestments and redemptions is
the same as the amounts shown below for such transactions.
Treasury Money Fund
--------------------------------
Year Ended Year Ended
03/31/99 03/31/98
--------------- ---------------
Sold.......................................... $ 2,679,518,952 $ 2,515,769,963
Issued as reinvestment of dividends........... 3,026,464 1,959,784
Redeemed...................................... (2,658,004,724) (2,397,183,732)
--------------- ---------------
Net Increase.................................. $ 24,540,692 $ 120,546,015
=============== ===============
Government Money Fund
--------------------------------
Year Ended Year Ended
03/31/99 03/31/98
--------------- ---------------
Sold.......................................... $ 4,372,983,435 $ 4,837,865,828
Issued as reinvestment of dividends........... 1,710,757 1,392,643
Redeemed...................................... (4,332,961,570) (4,772,966,563)
--------------- ---------------
Net Increase.................................. $ 41,732,622 $ 66,291,908
=============== ===============
Money Fund
--------------------------------
Year Ended Year Ended
03/31/99 03/31/98
--------------- ---------------
Sold.......................................... $ 4,459,113,083 $ 2,611,474,493
Issued as reinvestment of dividends........... 5,478,185 4,120,591
Redeemed...................................... (4,149,800,055) (2,454,801,619)
--------------- ---------------
Net Increase.................................. $ 314,791,213 $ 160,793,465
=============== ===============
Tax-Exempt Money Fund
--------------------------------
Year Ended Year Ended
03/31/99 03/31/98
--------------- ---------------
Sold.......................................... $ 5,351,039,833 4,454,235,468
Issued as reinvestment of dividends........... 2,425,946 1,926,989
Redeemed...................................... (5,246,893,150) (4,129,293,577)
--------------- ---------------
Net Increase.................................. $ 106,572,629 $ 326,868,880
=============== ===============
New York Tax-Exempt Money Fund
------------------------------
08/03/98*- 03/31/99
----------------------------------
Sold......................................... $ 886,545,150
Issued as reinvestment of dividends.......... 165,634
Redeemed..................................... (580,991,477)
-------------
Net Increase................................. $ 305,719,307
=============
- --------
* Commencement of operations
20
4. Line of Credit:
The Portfolios and other affiliated funds participate in a $250 million
unsecured line of credit provided by a syndication of banks under a line of
credit agreement. Borrowings may be made to temporarily finance the repurchase
of Portfolio shares. Interest is charged to each Portfolio, based on its
borrowings, at a rate equal to the Federal Funds Rate plus 2% per year. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating Portfolios at the end of
each quarter. For the year ended March 31, 1999, the Portfolios had no
borrowings under the agreement.
5. Year 2000 Risk (Unaudited):
Like other investment companies, financial and business organizations and
individuals around the world, the Portfolios could be affected adversely if
the computer systems used by the investment managers and the Portfolios' other
service providers do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The investment managers and the Portfolios' other
service providers have informed the Funds that they are taking steps to
address the Year 2000 Problem with respect to the computer systems that they
use. Currently, they do not anticipate that the transition to the 21st Century
will have any material impact on their ability to continue to service the
Portfolios at current levels. At this time, however, there can be no assurance
that their efforts will be sufficient to avoid any adverse impact on the
Portfolios as a result of the Year 2000 Problem.
21
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders
and Boards of Directors of
Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Treasury Money, Government
Money, Money, Tax-Exempt Money and New York Tax-Exempt Money (three of the
portfolios constituting the Excelsior Funds, Inc. and two of the portfolios
constituting the Excelsior Tax-Exempt Funds, Inc. (collectively, the "Fund"))
as of March 31, 1999, and the related statements of operations for the period
then ended, the statements of changes in net assets and the financial
highlights for each of the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
March 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
above mentioned Portfolios of Excelsior Funds, Inc. and Excelsior Tax-Exempt
Funds, Inc. at March 31, 1999, the results of their operations for the period
then ended, the changes in their net assets and the financial highlights for
each of the periods indicated therein, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
May 7, 1999
- --------------------------------------------------------------------------------
Federal Tax Information: (Unaudited)
For the year ended March 31, 1999, the percentage of income earned from
direct treasury obligations was as follows:
Interest
Earned
--------
Treasury Money Fund................................................. 100.00%
Government Money Fund............................................... 53.88%
Money Fund.......................................................... 21.39%
Tax-Exempt Money Fund............................................... --
New York Tax-Exempt Money Fund...................................... --
22
EXCELSIOR FUNDS, INC.
FORM N-14
---------
PART C. OTHER INFORMATION
Item 15. Indemnification
---------------
Article VII, Section 3 of Registrant's Articles of Incorporation,
incorporated herein by reference to Exhibit (1)(a) hereto, and Article VI,
Section 2 of Registrant's Amended and Restated Bylaws, incorporated herein by
reference to Exhibit (2)(a) hereto, provide for the indemnification of
Registrant's directors and officers. Indemnification of Registrant's principal
underwriter, custodian, transfer agent and co-administrators is provided for,
respectively, in Section 1.11 of the Amended and Restated Distribution Contract
incorporated herein by reference to Exhibit (7)(a) hereto, Section 12 of the
Custody Agreement incorporated herein by reference to Exhibit (9)(a) hereto,
Section 7 of the Amended and Restated Mutual Funds Transfer Agency Agreement
incorporated herein by reference to Exhibit (13)(f) hereto, and Section 6 of the
Amended and Restated Administration Agreement incorporated herein by reference
to Exhibit (13)(c) hereto. Registrant has obtained from a major insurance
carrier a directors' and officers' liability policy covering certain types of
errors and omissions. In no event will Registrant indemnify any of its
directors, officers, employees, or agents against any liability to which such
person would otherwise be subject by reason of his willful misfeasance, bad
faith or gross negligence in the performance of his duties, or by reason of his
reckless disregard of the duties involved in the conduct of his office or
arising under his agreement with Registrant. Registrant will comply with Rule
484 under the Securities Act of 1933 and Release No. 11330 under the Investment
Company Act of 1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer, or controlling person of Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
-1-
Item 16.
Exhibits:
(1) (a) Articles of Incorporation of Registrant dated August 1, 1984
(4).
(b) Articles Supplementary of Registrant dated October 29, 1985
(4).
(c) Articles Supplementary of Registrant dated September 30, 1986
(4).
(d) Articles Supplementary of Registrant dated April 10, 1987 (4).
(e) Articles Supplementary of Registrant dated April 27, 1990 (4).
(f) Articles Supplementary of Registrant dated October 26, 1990
(4).
(g) Articles Supplementary of Registrant dated January 29, 1991
(4).
(h) Articles Supplementary of Registrant dated December 23, 1992
(4).
(i) Articles Supplementary of Registrant dated August 31, 1995 (1).
(j) Articles Supplementary of Registrant dated December 28, 1995
(1).
(k) Articles Supplementary of Registrant dated September 11, 1997
(3).
(l) Articles Supplementary of Registrant dated December 22, 1997
(4).
(m) Articles Supplementary of Registrant dated November 13, 1998
(5).
(2) (a) Amended and Restated By-Laws of Registrant dated February 2,
1995 (3).
(b) Amendment No. 1 to Amended and Restated By-Laws of Registrant
dated May 16, 1997 (3).
(3) None.
(4) Agreement and Plan of Reorganization filed herewith as Appendix A to
the Combined Prospectus/Proxy Statement.
-2-
(5) (a) Articles VI, VII, VIII and X of Registrant's Articles of
Incorporation dated August 1, 1984 are incorporated herein by
reference to Exhibit 1(a) hereto.
(b) Articles I, II, IV and VI of Registrant's Amended and Restated
By-Laws are incorporated herein by reference to Exhibit 2(a)
hereto.
(6) (a) Investment Advisory Agreement among Registrant, U.S. Trust
Company of Connecticut and United States Trust Company of New
York dated May 16, 1997 with respect to the Money Fund,
Government Money Fund, Blended Equity Fund, Small Cap Fund,
Long-Term Supply of Energy Fund, Productivity Enhancers Fund,
Environmentally-Related Products and Services Fund, Aging of
America Fund, Communication and Entertainment Fund, Value and
Restructuring Fund, Global Competitors Fund, Latin America
Fund, Pacific/Asia Fund, Pan European Fund, Short-Term
Government Securities Fund and Intermediate-Term Managed Income
Fund (2).
(b) Amendment No. 1 dated July 25, 1997 to the Investment Advisory
Agreement among Registrant, U.S. Trust Company of Connecticut
and United States Trust Company of New York dated May 16, 1997
(adding the Large Cap Growth and Real Estate Funds) (3).
(c) Amendment No. 2 dated November 14, 1997 to the Investment
Advisory Agreement among Registrant, U.S. Trust Company of
Connecticut and United States Trust Company of New York dated
May 16, 1997 (adding the Emerging Markets Fund) (4).
(d) Investment Advisory Agreement among Registrant, U.S. Trust
Company of Connecticut and United States Trust Company of New
York dated May 16, 1997 with respect to the Managed Income Fund
(2).
(e) Investment Advisory Agreement among Registrant, U.S. Trust
Company of Connecticut and United States Trust Company of New
York dated May 16, 1997 with respect to the Income and Growth
Fund (2).
(f) Investment Advisory Agreement among Registrant, U.S. Trust
Company of Connecticut and United States Trust Company of New
York dated May 16, 1997 with respect to the International Fund
(2).
(g) Investment Advisory Agreement among Registrant, U.S. Trust
Company of
-3-
Connecticut and United States Trust Company of New York dated
May 16, 1997 with respect to the Treasury Money Fund (2).
(7) (a) Amended and Restated Distribution Contract dated July 31, 1998
between Registrant and Edgewood Services, Inc. (5).
(8) None.
(9) (a) Custody Agreement between Registrant and The Chase Manhattan
Bank dated September 1, 1995 (as amended and restated on August
1, 1997) (3).
(b) Amended Exhibit A dated November 28, 1997 to the Custody
Agreement dated September 1, 1995 (as amended and restated on
August 1, 1997) (4).
(c) Amendment No. 1 dated May 22, 1998 to the Custody Agreement
dated September 1, 1995 (as amended and restated on August 1,
1997) (5).
(d) Amendment No. 2 dated May 22, 1998 to the Custody Agreement
dated September 1, 1995 (as amended and restated on August 1,
1997) (5).
(e) Amendment No. 3 dated July 31, 1998 to the Custody Agreement
dated September 1, 1995 (as amended and restated on August 1,
1997) (5).
(10) None.
(11) Opinion of Drinker Biddle & Reath LLP (including consent of the
firm) (7).
(12) Opinion of Drinker Biddle & Reath LLP as to tax consequences
(including consent of the firm) (7).
(13) (a) Amended and Restated Administrative Services Plan and Related
Form of Shareholder Servicing Agreement (3).
(b) Administrative Services Plan and Related Form of Servicing
Agreement with respect to the Institutional Shares of the Money
Fund (7).
(c) Amended and Restated Administration Agreement dated July 31,
1998 among Registrant, Chase Global Funds Services Company,
Federated Administrative Services and U.S. Trust Company of
Connecticut (5).
-4-
(d) Amended and Restated Mutual Funds Transfer Agency Agreement
dated as of July 31, 1998 between Registrant and United States
Trust Company of New York (5).
(e) Letter Agreement dated September 11, 1997 with respect to the
Mutual Funds Transfer Agency Agreement dated September 1, 1995
(4).
(f) Letter Agreement dated November 14, 1997 with respect to the
Mutual Funds Transfer Agency Agreement dated September 1, 1995
(4).
(g) Amended and Restated Mutual Funds Sub-Transfer Agency Agreement
dated as of July 31, 1998 between United States Trust Company
of New York and Chase Global Funds Services Company (5).
(h) Letter Agreement dated September 11, 1997 with respect to the
Mutual Funds Sub-Transfer Agency Agreement dated September 1,
1995 (4).
(i) Letter Agreement dated November 14, 1997 with respect to the
Mutual Funds Sub-Transfer Agency Agreement dated September 1,
1995 (4).
(14) (a) Consent of Ernst & Young LLP (7).
(b) Consent of PricewaterhouseCoopers LLP (7).
(c) Consent of Drinker Biddle & Reath LLP (7).
(15) None.
(16) None.
(17) (a) Form of Proxy (7).
(b) Prospectus dated August 1, 1999 for the Money Fund and
Government Fund of Excelsior Funds, Inc. (7).
(c) Prospectus dated December 24, 1998 for the Institutional Money
Fund of Excelsior Funds (7).
-5-
Notes:
- -----
(1) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 23 to its Registration Statement on Form N-1A filed July 31, 1996.
(2) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 29 to its Registration Statement on Form N-1A filed July 31, 1997.
(3) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 30 to its Registration Statement on Form N-1A filed October 8, 1997.
(4) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 31 to its Registration Statement on Form N-1A filed March 13, 1998.
(5) Incorporated herein by reference to Registrant's Registration Statement on
Form N-14 filed April 5, 1999.
(6) Incorporated herein by reference to Registrant's Post-Effective Amendment
34 to its Registration Statement on Form N-1A filed July 29, 1999.
(7) Filed herewith.
Item 17. Undertakings
------------
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, as amended
(the "1933 Act"), the reoffering prospectus will contain the
information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement for the
securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide
offering of them.
-6-
SIGNATURES
----------
As required by the Securities Act of 1933, this registration statement
has been signed on behalf of the Registrant, in the City of Stamford and the
State of Connecticut on the 15th day of September, 1999.
EXCELSIOR FUNDS, INC.
Registrant
/s/ Frederick S. Wonham
------------------------
Frederick S. Wonham, President and Treasurer
(Signature and Title)
As required by the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Frederick S. Wonham Chairman of the Board, September 15, 1999
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Frederick S. Wonham President and Treasurer
/s/ Joseph H. Dugan Director September 15, 1999
- --------------------------------------
Joseph H. Dugan
/s/ Donald L. Campbell Director September 15, 1999
- --------------------------------------
Donald L. Campbell
/s/ Wolfe J. Frankl Director September 15, 1999
- --------------------------------------
Wolfe J. Frankl
/s/ Robert A. Robinson Director September 15, 1999
- --------------------------------------
Robert A. Robinson
/s/ Alfred Tannachion Director September 15, 1999
- --------------------------------------
Alfred Tannachion
/s/ Jonathan Piel Director September 15, 1999
- --------------------------------------
Jonathan Piel
/s/ Rodman L. Drake Director September 15, 1999
- --------------------------------------
Rodman L. Drake
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Exhibit Index
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(4) Agreement and Plan of Reorganization, filed herewith as Appendix A
to the Combined Prospectus/Proxy Statement.
(11) Opinion of Drinker Biddle & Reath LLP.
(12) Opinion of Drinker Biddle & Reath LLP as to tax consequences
(including consent of the firm).
(14) (a) Consent of Ernst & Young LLP.
(b) Consent of PricewaterhouseCoopers LLP.
(c) Consent of Drinker Biddle & Reath LLP.
(17) (a) Form of Proxy.
(b) Prospectus dated August 1, 1999 for the Money and Government
Money Funds of Excelsior Funds, Inc.
(c) Prospectus dated December 24, 1998 for the Institutional
Money Fund of Excelsior Funds.
-8-