SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
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|X| Preliminary proxy statement.
|_| Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2).
|_| Definitive proxy statement.
|_| Definitive additional materials.
|_| Soliciting material pursuant to Rule 14a-12.
Excelsior Funds, Inc.
---------------------
(Name of Registrant as Specified in its Charter)
N/A
---
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
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(4) Date Filed: N/A
EXCELSIOR FUNDS, INC.
Small Cap Fund
225 HIGH RIDGE ROAD
STAMFORD, CONNECTICUT 06905
October 3, 2005
Dear Shareholder:
Enclosed is a notice and a proxy statement concerning a special meeting
(the "Meeting") of shareholders of the Small Cap Fund (the "Fund"), a series of
Excelsior Funds, Inc. (the "Company") to be held on November 17, 2005. The
proposals to be discussed at the Meeting are very important. The matters you are
being asked to vote on are: (1) approval of an amendment to the Investment
Advisory Agreement for the Fund to increase the maximum contractual advisory fee
rate, and (2) approval of a change in the investment objective of the Fund to
permit the Fund to invest at least 80% of its net assets in the securities of
issuers with market capitalizations of up to $2.5 billion and to allow the Board
of Directors in the future to change the maximum market capitalization of
issuers in which the Fund is permitted to invest for purposes of this test
without need for shareholder approval. The proposed increase in the advisory fee
rate would cause the fee to be more in line, yet still below, the industry
medians. The proposed change in the investment objective of the Fund would
expand the universe of issuers in which the Fund could invest (from the current
maximum of $1.5 billion ) and allow the Board of Directors greater flexibility
in the future to adjust these capitalization criteria to reflect changes in the
marketplace without the time and expense associated with obtaining shareholder
approval for such adjustments.
Each proposal is described more fully in the enclosed proxy statement.
The Board of Directors of the Company (the "Directors") has reviewed and
approved these proposals and recommends that shareholders also approve the
proposals. Your vote is extremely important, even if you only own a few shares.
If we do not receive enough votes for a quorum, we will have to send additional
mailings or resolicit shareholders, which can be very costly and time consuming.
You may receive a reminder call to return your proxy from a representative of
the Company's investment adviser or affiliates. You can also use the Internet if
you want to vote electronically or vote by using your touch-tone telephone.
Please see your proxy card for more information and instructions on how to vote.
If you do vote electronically or by phone, you do not need to mail your proxy
card. However, if you want to later change your vote, you may do so by attending
the meeting, by submitting a new proxy card, or submitting a new vote by
touch-tone telephone or the Internet.
Thank you for your cooperation in voting on these important proposals.
If you have questions, please call your financial representative. Or, if your
questions relate specifically to the proxy statement matters, please call us
toll-free at (800) 446-1012.
Sincerely,
/s/ Mary Martinez
Mary Martinez
President
- --------------------------------------------------------------------------------
EXCELSIOR FUNDS, INC.
(the "Company")
SMALL CAP FUND
(the "Fund")
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
November 17, 2005
- --------------------------------------------------------------------------------
225 High Ridge Road
Stamford, Connecticut 06905
(800) 446-1012
A Special Meeting of Shareholders of the Fund will be held at 9:00 a.m. on
November 17, 2005, at the offices of the Company at 225 High Ridge Road,
Stamford, Connecticut 06905, for the following purposes, all of which are more
fully described in the accompanying Proxy Statement.
1. To approve an amendment to the Investment Advisory Agreement to increase
the advisory fee payable by the Fund.
2. To approve a change in the investment objective of the Fund.
3. To transact such other business as may properly come before the meeting and
any adjourned session of the meeting.
Only shareholders of record at the close of business on September 2, 2005, are
entitled to notice of, and to vote at, the meeting and any adjourned session.
By Order of the Board of Directors of the Company
/s/ Mary Martinez
President
October 3, 2005
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT WITHOUT REGARD TO THE NUMBER OF SHARES YOU OWN ON THE
RECORD DATE. ALTHOUGH YOU ARE INVITED TO ATTEND THE MEETING AND VOTE YOUR SHARES
IN PERSON, IF YOU ARE UNABLE TO ATTEND, YOU CAN VOTE EASILY AND QUICKLY BY MAIL
OR OVER THE INTERNET OR BY TOUCH-TONE TELEPHONE. IN ORDER TO VOTE BY MAIL,
PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY BALLOT, DATE AND
SIGN IT, AND RETURN IT IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR YOUR
CONVENIENCE AND NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IN ORDER TO
VOTE BY TOUCH-TONE TELEPHONE OR OVER THE INTERNET, FOLLOW THE INSTRUCTIONS ON
THE ENCLOSED PROXY CARD.
IF, AFTER VOTING, YOU LATER DECIDE TO CHANGE YOUR VOTE , YOU MAY DO SO BY
ATTENDING THE MEETING, INCLUDING ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF,
REVOKING YOUR PROXY AND VOTING YOUR SHARES IN PERSON, OR BY SUBMITTING A NEW
VOTE BY PROXY, VIA THE INTERNET OR BY TOUCH-TONE TELEPHONE. YOUR SUBSEQUENT VOTE
WILL SUPERSEDE ANY VOTE YOU PREVIOUSLY MADE. IN ORDER TO AVOID THE ADDITIONAL
EXPENSE TO THE COMPANY OF FURTHER SOLICITATION, WE ASK FOR YOUR COOPERATION IN
VOTING YOUR PROXY PROMPTLY.
- --------------------------------------------------------------------------------
EXCELSIOR FUNDS, INC.
(the "Company")
Small Cap Fund
(the "Fund")
225 High Ridge Road
Stamford, Connecticut 06905
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER 17, 2005
OVERVIEW
What is this Document and Why Have I Received It?
------------------------------------------------
This document is a Proxy Statement ("Statement") and it is being
furnished to you, as a shareholder of the Fund, in connection with the
solicitation of proxies by the Board of Directors (the "Directors") of the
Company on behalf of the Fund, for use at a Special Meeting of Shareholders to
be held at the offices of the Company at 225 High Ridge Road, Stamford,
Connecticut 06905, on November 17, 2005, at 9:00 a.m and at any adjournments or
postponements thereof (the "Meeting"). This Statement contains information that
shareholders should consider before voting on the proposals to be presented at
the Meeting.
What Are The Proposals to be Considered at the Meeting?
------------------------------------------------------
Two proposals are expected to be presented at the Meeting. The
first proposal relates to an increase in the advisory fee for the Fund. As
discussed in more detail below, the current advisory fee is well below industry
medians. This proposal would allow the fee to be raised so that it would be more
in line, yet still below, the current industry median. Even if this proposal is
approved by shareholders, the Fund's current expense ratio, adjusted to reflect
the higher advisory fee, would remain below the current industry median. The
second proposal relates to a change in the investment objective of the Fund from
a fundamental investment objective of "long-term capital appreciation by
investing primarily in companies with capitalizations of $1.5 billion or less"
to a non-fundamental investment objective of "long-term capital appreciation."
At the same time, the Fund would adopt a non-fundamental investment policy to
require that 80% of its net assets be invested in equity securities of companies
with market capitalizations ranging from $100 million to $2.5 billion. This
non-fundamental policy could be changed with 60 days advance written notice to
shareholders. The proposed change in the investment objective of the Fund would
expand the universe of issuers in which the Fund could invest (from the current
maximum of $1.5 billion ) and allow the Fund greater flexibility in the future
to adjust these capitalization criteria to reflect changes in the marketplace
without the time and expense associated with obtaining shareholder approval for
such adjustments.
How Is This Solicitation Being Made?
------------------------------------
This solicitation is being made primarily by the mailing of this
Statement and the materials accompanying it. Supplemental solicitations may be
made by mail or telephone by officers and representatives of the Company, or its
affiliates, who will receive no extra compensation for their services. The
expenses in connection with preparing and mailing this Statement and the
material accompanying it will be paid equally by the Fund and by U.S. Trust
Company, N.A. and United States Trust Company of New York, the Company's
investment advisers (collectively, the "Adviser"). The Company does not
currently anticipate engaging a professional proxy solicitation firm to assist
in the solicitation of proxies.
This Statement and the accompanying Proxy are first being sent to shareholders
on or about October 3, 2005.
Where Can I Get More Information About the Fund?
-----------------------------------------------
Additional information about the Company and the Fund is available in
(i) the Prospectus for the Company dated July 29, 2005, (ii) the Statement of
Additional Information ("SAI") dated July 29, 2005, and (iii) the Company's most
recent annual and semi-annual reports to shareholders. These documents are
available upon request and without charge by calling 800-446-1012 (or, from
overseas, (617) 483-7297), or by mail by writing Excelsior Funds, P.O. Box 8529,
Boston, Massachusetts 02286-8529 (or, if by overnight or certified mail, 66
Brooks Drive, Braintree, Massachusetts 02184). All of these documents are also
on file with the Securities and Exchange Commission (the "SEC"). You may view or
obtain these documents from the SEC (i) in person: at the SEC's Public Reference
Room in Washington, D.C., (ii) by phone: 1-800-SEC-0330, (iii) by mail: Public
Reference Section, Securities and Exchange Commission, 450 5th Street, N.W.,
Washington, D.C. 20549,(duplicating fee required), (iv) by e-mail:
publicinfo@sec.gov, or (v) by Internet: www.sec.gov.
What Are The Voting Rights And Quorum Requirements?
--------------------------------------------------
The Fund has two classes of common stock (the "Shares"): a Shares class
and a Retirement Shares class. The Record Date is September 2, 2005. As of the
close of business on September 2, 2005, the Shares class consisted of
30,507,877.55 Shares and the Retirement Shares class consisted of 59.84 Shares,
each whole Share being entitled to one vote and each fraction of a Share being
entitled to a proportionate fraction of a vote. For all proposals to be
considered at the Meeting, the Shares class and Retirement Class shares will
vote together. Only shareholders of record as of the close of business on
September 2, 2005 are entitled to vote at the Meeting. Any shareholder may
revoke a previously submitted proxy at any time prior to the Meeting by (i) a
written notification of such revocation, which must be signed, include the
shareholder's name and account number, be addressed to the Secretary of the
Company at its principal executive office, 225 High Ridge Road, Stamford,
Connecticut 06905, and be received prior to the Meeting to be effective, (ii)
voting another proxy of a later date if received prior to the Meeting, or (iii)
personally casting his or her vote at the Meeting. If the Fund receives votes by
telephone or over the Internet, it will use procedures reasonably designed to
authenticate shareholders' identities, to allow shareholders to authorize the
voting of their shares in accordance with their instructions, and to confirm
that their instructions have been properly recorded. Proxies voted by telephone
or over the Internet may be revoked at any time before they are voted in the
same manner that proxies voted by mail may be revoked. The Fund and the Adviser
will equally reimburse brokerage firms and others for their reasonable expenses
in forwarding solicitation material to the beneficial owners of shares.
More than 50% of the outstanding Shares of the Fund entitled to vote at
the Meeting must be present in person or by proxy at the Meeting in order for a
quorum to be constituted. If a quorum is not present at the Meeting, or if a
quorum is present but sufficient votes (as described below) to approve the
proposal are not received, the person or persons named as Proxy Agent may
propose one or more adjournments of the Meeting to permit further solicitation
of proxies. When voting on a proposal to adjourn the Meeting, the Proxy Agent
will consider whatever factors he or she deems relevant, which factors may
include: the nature of the proposal to be adjourned, the percentage of votes
actually cast, the percentage of negative votes actually cast, the nature of any
further solicitation and the information to be provided to shareholders in
connection therewith. For purposes of determining the presence of a quorum and
counting votes on the matters presented, Shares represented by abstentions and
"broker non-votes" will be counted as present, but not as votes cast, at the
Meeting. Since these Shares will be counted as present, but not as voting in
favor of any proposal, such "broker non-votes" will have the same effect as if
they had been cast against that proposal. "Broker non-votes" are Shares held by
brokers or nominees as to which (i) the broker or nominee does not have
discretionary voting power and (ii) the broker or nominee has not
2
received instructions from the beneficial owner or other person who is entitled
to instruct how the Shares will be voted.
All proxies solicited by the Directors that are properly executed and
received by the Secretary prior to the Meeting, and are not revoked, will be
voted at the Meeting. Shares represented by such proxies will be voted in
accordance with the instructions thereon. If no specification is made on a
proxy, it will be voted FOR the matters specified on the proxy.
As of September 2, 2005, the Adviser and its affiliates were believed
to possess voting power with respect to 16,114,207.51 (52.82%) of the
outstanding Shares class of the Fund and 59.84 (100%) of the outstanding
Retirement Shares class of the Fund. Such Shares could thereby be deemed to be
beneficially owned by the Adviser as of such date. Pursuant to the Company's
proxy voting policies, the Adviser and its affiliates will vote any Shares of
the Fund over which they have voting power in accordance with their proxy voting
policies, which require that such shares will be voted at the Meeting in
accordance with the recommendations of an independent third party proxy voting
service selected in accordance with these proxy policies.
A more detailed description of each proposal to be considered at the
Meeting follows below.
PROPOSAL 1. TO APPROVE AN AMENDMENT TO THE INVESTMENT ADVISORY AGREEMENT TO
INCREASE THE ADVISORY FEE FOR THE SMALL CAP FUND.
Description of Proposal.
------------------------
At a meeting of the Board of Directors held on July 28-29, 2005, the
Directors, including each of the Directors present at the meeting who is not an
"interested person" of the Company (the "disinterested Directors") within the
meaning of the Investment Company Act of 1940, as amended (the "1940 Act")
considered and unanimously approved, and recommended to shareholders for their
approval, a proposal to amend the Investment Advisory Agreement to increase the
advisory fee payable by the Fund.
The following table illustrates the advisory fee under the current
Investment Advisory Agreement and under the proposed amendment to the Investment
Advisory Agreement:
- -------------------------------------------------------------------------------
Current Investment Proposed Investment
Advisory Fee Advisory Fee
- -------------------------------------------------------------------------------
Small Cap Fund annual rate of 0.60% of annual rate of 0.75% of
average daily net assets average daily net assets
- -------------------------------------------------------------------------------
If approved by shareholders, the proposed advisory fee would take
effect as of the first day of the month following the approval of the proposal.
The Advisory Agreement, as thus amended, would thereafter continue in effect for
successive annual periods provided its continuance is specifically approved at
least annually by (1) a majority vote, cast in person at a meeting called for
that purpose, of the Board, including a majority of the disinterested Directors,
or (2) a vote of the holders of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act). If the proposed fee increase is not
approved by shareholders, the current fee schedule will remain in effect.
The Adviser has agreed to waive a portion of its fees or reimburse the
Fund for a portion of its expenses to the extent necessary to maintain the
Fund's total expense ratio, for its Shares class, at 1.05% and for the
Retirement shares class at 1.55%, through December 31, 2005. Effective January
1, 2006, the
3
Adviser has agreed to waive a portion of its fees or reimburse the Fund for a
portion of its expenses to the extent necessary to maintain the Fund's total
expense ratio, for its Shares class, at 1.25% and for its Retirement shares at
1.75%. These expense caps are unaffected by the proposed increase in the
advisory fee and will remain in effect whether or not the proposed fee increase
is approved. Set forth below are, as of March 31, 2005, the Fund's net assets,
the advisory fees paid by the Fund under the current fee schedule and current
expense caps for the year ended 3/31/05 and the pro forma advisory fees that
would have been paid by the Fund for the same period assuming the new fee
schedule and higher expense caps had been in place.
Net Assets at Advisory fees paid Pro forma Percentage
3/31/05 under the current advisory fees difference
fee schedule during under proposed between the fees
12 months ended fee schedule
3/31/05 during the 12
months ended
3/31/05
$488,222,522 $2,607,488(1) $3,330,041(2) 27.7%
The following example illustrates the difference in expenses that you
would pay under the current Investment Advisory Agreement versus under the
proposed amendment to the Investment Advisory Agreement, assuming the waiver by
the Advisor of a portion of its advisory fee to the extent necessary to maintain
the expense caps discussed above. The Example assumes that you invest $10,000 in
the Fund for the time periods indicated in the Fund's Shares class and in the
Fund's Retirement Shares class 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 these assumptions the difference
in your costs would be:
----------------------------------------------------------------------
Shares Class 1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------------------
annual rate of 0.60% $107 $338 $588 $1,304
of average daily net
assets(3):
----------------------------------------------------------------------
annual rate of 0.75% $124 $387 $670 $1,477
of average daily net
assets(4):
----------------------------------------------------------------------
___________________________
(1) Of this amount, the Adviser voluntarily waived $56,545 pursuant to its
commitment to maintain the Fund's expense ratio at 1.05% for the Shares Class
and 1.55% for the Retirement class.
(2) Of this amount, in order to maintain the Fund's expense ratio at 1.25% for
the Shares class and 1.75% for the Retirement class, the Adviser would not have
had to waive any portion or its fee or reimburse the Fund for any portion of its
expenses.
(3) Assumes the Fund's expense cap for its Shares class is at 1.05%.
(4) Assumes the Fund's expense cap for its Shares class is at 1.25%.
4
-----------------------------------------------------------------------------
Retirement 1 Year 3 Years 5 Years 10 Years
Shares class
-----------------------------------------------------------------------------
annual rate of 0.60% $158 $494 $853 $1,866
of average daily net
assets(5):
-----------------------------------------------------------------------------
annual rate of 0.75% $175 $542 $933 $2,030
of average daily net
assets(6):
-----------------------------------------------------------------------------
The form of amendment to the Investment Advisory Agreement is attached
to this Statement as Exhibit A.
Description of Current Investment Advisory Agreement.
-----------------------------------------------------
U.S. Trust Company, N.A., 225 High Ridge Road, Stamford, Connecticut
06905 and United States Trust Company of New York, 114 West 47th Street, New
York, New York 10036 act as the co-investment advisers to the Fund under an
Investment Advisory Agreement that provides that the Adviser identify and
analyze possible investments for the Fund, and determine the amount, timing, and
form of those investments. The Adviser has the responsibility of monitoring and
reviewing the Fund's portfolio, on a regular basis, and recommending when to
sell the investments. All purchases and sales by the Adviser of securities in
the Fund's portfolio are subject at all times to the policies set forth by the
Board of Directors. U.S. Trust Company, N.A. and United States Trust Company of
New York are wholly-owned subsidiaries of U.S. Trust Corporation, which is a
wholly-owned subsidiary of The Charles Schwab Corporation. Charles R. Schwab is
the founder, Chairman and a Director and significant shareholder of The Charles
Schwab Corporation. As a result of his positions and share ownership, Mr. Schwab
may be deemed to be a controlling person of The Charles Schwab Corporation and
its subsidiaries.(7)
The current Investment Advisory Agreement between the Fund and the
Adviser is dated May 31, 2000, as amended on December 29, 2000, and has not been
submitted to the Fund's shareholders since its approval on May 31, 2000.
On July 28-29, 2005, the Board of Directors of the Company unanimously
approved the continuation of the Investment Advisory Agreement for the Fund and
also unanimously approved the proposed amendment to the Investment Advisory
Agreement for the Fund, subject to shareholder approval of such amendment.
The Adviser's Recommendation to the Board of Directors.
------------------------------------------------------
In recommending the increase in the advisory fee for the Fund, the
Adviser first reviewed the Fund's relative position, from a fee and expense
standpoint, with other funds within a comparative small cap funds universe, as
reflected by an independent third party mutual fund statistical organization
("MFSO") . In this regard, the Adviser noted that the Fund's contractual adviser
fee of .60% was amongst the lowest (bottom 5%) of funds in the peer group. The
Adviser reviewed information with the Directors from the MFSO which indicated
that the median advisory fee for funds within the small cap funds universe
___________________________
(5) Assumes the Fund's expense cap for its Retirement Shares class is at 1.55%.
(6) Assumes the Fund's expense cap for its Retirement Shares class is at 1.75%.
(7) U.S. Trust Corporation's principal office is at 114 West 47th Street, New
York, New York 10036 and The Charles Schwab Corporation's principal office is at
101 Montgomery Street, San Francisco, California 94104-4122.
5
was .90%. The Adviser further noted that the Fund's total expense ratio was
amongst the lowest (bottom 20%) of funds in the peer group universe. The Adviser
indicated that even after the proposed fee increase, the advisory fee of .75%
would still be well below the peer group median and that the Fund's total
expense ratio would also remain below the peer group median.
The Adviser also recommended the investment advisory fee increase based
on an increased commitment of resources by the Adviser to the Fund. Operating a
small cap fund requires significantly more resources and expense on the part of
an adviser than many other types of funds primarily because of the more
extensive research costs involved in understanding smaller companies. There
tends to be less information publicly available about these companies than
larger public companies. The Adviser believes that the increase in the
investment advisory fee payable by the Fund will assist the Adviser in its
efforts to continue to increase resources to improve its research and management
capabilities and Fund performance.
The Adviser then reviewed the Fund's performance. In this regard, the
Adviser reminded the Directors that the current portfolio management team took
over responsibility for the management of the Fund in August 2001. The Adviser
then reviewed the changes to the investment process instituted by the current
portfolio management team and the additional resources dedicated to this process
in recent years. The Adviser stated that, since that time, it believed that the
Fund's performance has been competitive with the peer group. The Adviser
provided the Directors with information which indicated that, for the 12 months
ended August 2002, on a rolling 12 month basis thereafter, the Fund had
outperformed the peer group median 68% of the time and for the 36 months ended
August 2004, on a rolling 36 month basis thereafter, the Fund had outperformed
the peer group median 90% of the time. The Adviser noted that the Fund's
performance had suffered over the past six-to-twelve months and that this recent
underperformance had also negatively impacted the Fund's intermediate and long
term relative performance. The Adviser stated that, within its peer group and on
a total return basis, for the 3 year period ended 6/30/05, the Fund ranked 249
out of 476 funds, for the 5 years ended 6/30/05 the Fund ranked 275 out of 332
funds and for the 10 year period ended 6/30/05 the Fund ranked 90 out of 97
funds. For the year ended 6/30 /05, the Fund's total return of 4.56% was below
the MFSO's small cap funds average of 10.48% and below the 9.45% return of the
Russell 2000 Index. Year to date, the Fund's return of -4.29%was also below that
of the MFSO's small cap funds average -0.05% and the Russell 2000 Index -1.25%.
In reviewing the reasons for the Fund's recent relative
underperformance, the Adviser indicated that the Fund, unlike many of the funds
in the peer group, had no exposure to real estate or investments in real estate
investment trusts ("REITS"). The Adviser noted that REITS comprised
approximately 20% of the Russell 2000 Index. The Adviser stated its belief that
currently, investments in real estate and REITS presented an unattractive
risk/reward balance for the Fund, as the recent spike in real estate values, in
the Adviser's view, was unsustainable. The Adviser expressed its view that over
the long term, its decision not to invest in REITS at this time, while it has
caused relative short-term underperformance (which has also impacted the Fund's
relative intermediate and long term performance), will be in the best interests
of its shareholders, as the Adviser expected the real estate market to correct
significantly in the future.
The Adviser also noted that, in its view, the proposed increase in the
Advisory fee was rationally related to the relative cost of its small cap
services, as compared to the large cap service it provides to other funds in the
Excelsior fund family.
Summary of the Basis for the Board's Determination to Approve the
Proposal.
-----------------------------------------------------------------
At a meeting held on July 28-29, 2005, the Board of Directors of the
Company unanimously approved and recommended to shareholders of the Fund for
their approval, the amendment to the Fund's Investment Advisory Agreement (the
"Amendment") to increase the Fund's advisory fee.
6
Both in connection with the Meeting specifically dedicated to the
approval of the Amendment and at other meetings during the course of the year,
the Directors received written materials and presentations relevant to their
considerations of the Amendment. In evaluating the Amendment, the Directors
relied upon their knowledge resulting from their meetings throughout the year,
of the Adviser, its services and personnel and the Fund. At the Meeting, the
Directors also considered the Adviser's oral presentations and discussed the
information that had been provided. In connection with their deliberations, the
Directors were assisted by their independent legal counsel regarding their
responsibilities under applicable law. In determining whether to approve the
Amendment, the Directors considered the following information:
1) The nature, extent and quality of services provided by the Adviser.
The Directors considered the nature, extent and quality of services
provided by the Adviser, particularly the portfolio managers and other personnel
responsible for providing services to the Fund. The Directors noted that, in
addition to managing the investment program of the Fund, the Adviser also
provided, at its expense, certain non-advisory and compliance services,
including services under the Fund's Rule 38a-1 compliance program. In addition,
the Directors considered that the Adviser, at its own expense, has routinely
engaged its internal audit group to examine and report to the Board on a regular
basis various activities and operations of the Fund, the Adviser and the
Administrators. The Directors considered that the Adviser, pursuant to a
separate Administration Agreement with the Fund, was also responsible for
supervising the Fund's accounting agent and sub-administrator, BISYS, in the
performance of administrative, accounting and related services, including
valuation of the Fund's portfolio securities, yield calculations, reports and
filings with regulatory authorities, as well as compliance monitoring and
testing. The Directors considered the Adviser's effectiveness in ensuring the
Fund's compliance with its investment policies and restrictions and the
requirements of the 1940 Act and related securities regulations. The Directors
also believed that the Adviser had devoted substantial resources and made
substantial commitments to address new regulatory compliance requirements
applicable to the Fund.
The Directors also considered the qualifications, experience and
responsibilities of the portfolio managers for the Fund and other personnel
responsible for providing advisory services to the Fund. In particular, the
Directors focused on the Adviser's long-standing relationship with the Company,
the Adviser's overall supervisory structure, the diversity of offerings within
the Excelsior Fund family and the Adviser's portfolio manager compensation
structure. The Board believed that the Adviser had allocated substantial
resources and personnel, and had made significant financial expenditures and
commitments, to the investment management and other operations of the Fund. The
Directors reviewed and considered, based on their experience and interaction
with the Adviser, (i) the Adviser's ability to retain quality portfolio managers
and other personnel; (ii) the Adviser's diligence and attention to detail in
carrying out its responsibilities under the Advisory Agreement; (iii) the
Adviser's responsiveness to requests of the Directors; (iv) the scope and depth
of the Adviser's resources; (v) the Adviser's efforts to keep the Directors
apprised of developments relating to the Fund and the industry in general; and
(vi) the Adviser's commitment to spend additional resources on the Fund.
2) The performance of the Fund and the Adviser.
The Board reviewed the investment performance of the Fund and the
Adviser as well as the nature of the Fund's investments and its investment
strategies and the characteristics of the Fund's shareholder base. In this
regard, the Directors compared the Fund's investment performance over the short,
intermediate and longer term against the investment performance of other SEC
registered funds that have similar investment objectives and sales load
structures. The Directors also compared the Fund's investment performance over
similar periods both on an absolute basis and against its broad-based securities
market benchmark, as reflected in the Fund's current prospectus and annual
report and considered rankings and ratings of the Fund issued by independent
third parties. The Directors also considered the Adviser's explanation for the
Fund's performance. The Directors considered these comparisons helpful in their
assessment as to whether the Adviser was obtaining for the Fund's shareholders
the return and yield
7
performance that was available in the marketplace given the Fund's investment
objective, policies, strategies, limitations and restrictions. The Directors
also considered the actions taken by the Adviser to address performance concerns
raised with and by the Directors over the past year.
3) The cost of the advisory services and the profits to the Adviser and
its affiliates from the relationship with the Fund.
In connection with the Board's consideration of the Amendment, the
Directors reviewed a comparison, developed by a MFSO of the level of the Fund's
advisory fee and total expense ratio against a peer group of funds selected by
the MFSO ("Peer Group"). The Directors viewed the Peer Group information as
useful in assessing whether the Adviser was providing services at a cost that
was competitive with other similar funds. In assessing this information, the
Directors considered both the contractual Advisory Agreement rate as well as the
level of the advisory fee after waivers and/or reimbursements. The Directors
noted that the Adviser had contractually committed to waive a portion of its fee
or reimburse the Fund for a portion of its expenses to limit the Fund's total
operating expenses. The Directors also considered that the Adviser had a
consistent methodology in place for determining the fees and expenses of all the
funds with the Excelsior family of funds.
In this regard, the Directors noted that the Fund's current advisory
fee was well below market, as measured by the median fee of funds in the Peer
Group; and, further, that even with the proposed increase in the fee, the Fund's
advisory fee would remain below the median level of that of its Peer Group.
The Directors reviewed the fees charged by the Adviser to provide
similar advisory services to other registered investment companies with
substantially similar investment objectives on a sub-advisory basis
("Sub-Advised Accounts"). In evaluating this information, the Directors
considered the differences in services provided to Sub-Advised Accounts and the
Fund. The Directors also reviewed the fees charged by the Adviser to provide
similar advisory services to separate accounts with substantially similar
investment objectives as the Fund ("Separate Accounts") and the differences in
services and risks involved in managing Separate Accounts and the Fund from a
compliance and regulatory perspective.
The Directors also considered an analysis prepared by the Adviser of
the estimated profitability of the Fund to the Adviser for its most recent
fiscal year, and reviewed with the Adviser its cost allocation methodology in
connection with its profitability. The Directors compared the Adviser's overall
profitability with that of other investment advisers with the assistance of
comparisons provided by a third party consultant. The Directors used this
information to assist them in evaluating the reasonableness of the advisory fees
for the Fund.
4) The extent to which economies of scale will be realized as the Fund
grows and whether fee levels reflect those economies of scale.
The Board considered information provided by the Adviser as to whether
the Adviser had passed on and was likely to pass on to shareholders benefits
from its economies of scale. In this regard, the Directors considered various
analyses prepared by the Adviser of the estimated profitability of the Fund to
the Adviser at higher asset levels and assuming various fee and expense
structures. The Directors also considered information from a MFSO regarding
advisory fee breakpoints charged by other funds. The Directors noted that they
would continue to monitor the growth in assets of the Fund and asked the Adviser
to continue to monitor the Fund's expenses and asset size in connection with
determining when economies of scale would dictate that advisory fee breakpoints
were advisable.
8
5) Other Factors.
In addition to the above factors, the Directors also discussed other
benefits received by the Adviser from its management of the Fund, including the
compensation payable by the Fund to the Adviser or its affiliates for other
services including administration or shareholder servicing. The Directors also
considered the payments made by the Adviser to financial intermediaries in
connection with distribution-related activities and shareholder servicing.
At a meeting held on May 20, 2005, the Directors received and
considered information on the Adviser's soft dollar usage in connection with the
Fund and the research services obtained with the Fund's brokerage. At that
meeting, the Directors also received and reviewed a report prepared by a third
party that had tested and analyzed the execution of the Fund's brokerage
transactions.
6) Conclusions.
Based on a consideration of all these factors in their totality and
after deliberation with their independent counsel, the Directors determined that
the proposed increase in advisory fee for the Small Cap Fund was fair and
reasonable in light of these factors and that the Amendment should be approved
and presented to shareholders for their approval. The Board based its decision
on evaluations of all these factors as a whole and did not consider any one
factor as all-important or controlling.
Required Vote.
-------------
The favorable vote of a "majority of the outstanding voting
securities," as defined in the 1940 Act, of the Fund is required for the
approval of this proposal. The vote of the holders of a majority of outstanding
voting securities means the vote of (l) the holders of 67% or more of the Shares
of the Fund represented at the Meeting, if more than 50% of the Shares of the
Fund are represented at the Meeting, or (2) more than 50% of the outstanding
Shares of the Fund, whichever is less. If shareholders approve this proposal,
the Fund will pay a higher advisory fee than is currently being paid. If the
shareholders of the Fund do not approve the proposal, the Fund's advisory fee
will remain the same. Shareholders should review this proposal carefully before
voting.
The Board, including a majority of the disinterested Directors,
unanimously recommends that the shareholders of the Fund vote in favor
of Proposal 1.
9
PROPOSAL 2: TO APPROVE A CHANGE IN THE INVESTMENT OBJECTIVE OF THE SMALL CAP
FUND.
Description and Risks of Proposal.
----------------------------------
At a meeting of the Board of Directors on May 20, 2005, the Directors
considered and unanimously approved, and recommended to shareholders for their
approval, a proposal to modify the investment objective of the Fund and to make
that investment objective non-fundamental. The current investment objective is
to seek long-term capital appreciation by investing primarily in companies with
capitalization of $1.5 billion or less. The Fund's current investment objective
is fundamental, meaning that it cannot be changed by the Board without approval
of the Fund's shareholders. The proposed investment objective is to seek
long-term capital appreciation. This proposed investment objective would be
non-fundamental, meaning that it could be changed by the Board without approval
of the Fund's shareholders if the Board determines that the change is in the
best interests of shareholders. The Fund's current and proposed investment
objectives are set forth below:
- ------------------------------------------------------- -----------------------------------------------------
CURRENT INVESTMENT OBJECTIVE PROPOSED INVESTMENT OBJECTIVE
(FUNDAMENTAL) (NON-FUNDAMENTAL)
------------- -----------------
- ------------------------------------------------------- -----------------------------------------------------
To seek long-term capital appreciation by investing To seek long-term capital appreciation.
primarily in companies with capitalization of $1.5
billion or less.
- ------------------------------------------------------- -----------------------------------------------------
When the Fund was created in 1992, the capitalization amount in the
Fund's investment objective was generally representative of small cap companies.
Today, the Fund's primary broad-based securities market benchmark, the Russell
2000 Index, a widely recognized small capitalization benchmark, is composed of
companies with market capitalizations of up to $3.1 billion. This capitalization
changes with market conditions. In addition, changes to the Index's composition
can change its capitalization. The Fund's current objective restricts it from
investing in companies with market capitalizations in excess of $1.5 billion,
even though many of these companies are within the Russell 2000 Index and are
generally considered to be "small capitalization" companies. The Fund's current
objective therefore unnecessarily limits the Fund's the opportunity to invest in
these "small capitalization" issuers. The Fund's Adviser believes that it would
be beneficial to the Fund's shareholders if the Fund, like many of its
competitors, has the opportunity to invest in these small capitalization
companies.
Rather than place the Fund's market capitalization focus in its
investment objective, the Fund proposes to adopt a non-fundamental policy, which
may be adjusted in the future as necessary without shareholder approval, to
invest at least 80% of its net assets in companies with market capitalizations
of up to $2.5 billion. This policy is intended to provide the Fund with the
flexibility to adjust its capitalization focus to reflect changing market
conditions. As the overall capitalization spectrum of US companies increases or
decreases over time, the Fund will have the ability to adjust its definition of
"small capitalization" issuers to reflect these changes without the need to
incur the time and expense associated with obtaining shareholder approval of
such changes. Shareholders would receive 60 days' prior written notice of any
change in this "small capitalization" definition.
The Adviser has also proposed to make the revised investment objective
non-fundamental in order to provide additional flexibility in the future to
adjust the investment program of the Fund in response to changing market
conditions and circumstances without the expense and delay associated with a
shareholder meeting to approve changes in the Fund's investment objective. The
Fund's investment objective is not required to be fundamental.
10
The Board does not expect to use this flexibility frequently, however,
the Board would be in a position to change the investment objective of the Fund
in circumstances when a change, in the Board's judgment, would be in the best
interests of the Fund's shareholders. Such circumstances could result from
changes in the securities markets that would render the achievement of the
Fund's investment objective more difficult. If the Board did decide to make such
a change in the non-fundamental investment objective, the Fund would provide
shareholders with 60 days' written notice before the effective date of such
change. If this proposal is approved, shareholders will no longer have the
ability to vote on proposed investment objective changes.
If the Fund's investment objective remains fundamental and the Board
determined that it was in the best interests of shareholders to change it, the
Fund would be required to hold a shareholder meeting to change that objective.
Obtaining shareholder approval to change the Fund's investment objective would
involve significant delays and costs.
The table below summarizes the effects of reclassifying the investment
objective from fundamental to non-fundamental:
NON-FUNDAMENTAL FUNDAMENTAL
INVESTMENT OBJECTIVE INVESTMENT OBJECTIVE
-------------------- --------------------
Who must approve changes in an Board Shareholders
investment objective?
How quickly can a change to the Relatively quickly, because the Relatively slowly, since a
investment objective be made? change can be accomplished by meeting of shareholders is
action of the Board alone, required
provided that shareholders are
provided 60 days' prior written
notice that the Fund's objective is
being changed
What is the relative cost to change Less costly to change because a Costly to change because a
an investment objective? change can be accomplished by shareholder vote requires holding
action of the Board a meeting of shareholders with
additional SEC filing
requirements and proxy
solicitation efforts
If shareholders of the Fund approve the Fund's proposed investment
objective, the amendment will take effect immediately.
Required Vote.
The favorable vote of a "majority of the outstanding voting
securities," as defined in the 1940 Act, of the Fund is required for the
approval of this proposal. The vote of the holders of a majority of outstanding
voting securities means the vote of (l) the holders of 67% or more of the Shares
of the Fund represented at the Meeting, if more than 50% of the Shares of the
Fund are represented at the Meeting, or (2) more than 50% of the outstanding
Shares of the Fund, whichever is less. If the shareholders of the Fund do not
approve the proposal, the Fund's investment objective will remain the same and
will continue to be a fundamental investment objective.
The Board, including a majority of the disinterested Directors,
unanimously recommends that the shareholders of the Fund vote
in favor of Proposal 2.
11
Information About the Adviser, Administrator and Distributor.
- ------------------------------------------------------------
The following individuals are directors and/or principal executive
officers of the Adviser:
- ----------------------------------------------------- ------------------------------------------------------
Name and Address Principal Occupation
---------------- --------------------
- ----------------------------------------------------- ------------------------------------------------------
U.S. Trust Company, N.A.
- ------------------------
- ----------------------------------------------------- ------------------------------------------------------
Dr. Eleanor Baum, Director Dean, School of Engineering, The Cooper Union for
The Cooper Union for the Advancement of the Advancement of Science & Art
Science & Art
51 Astor Place
New York, NY 10003
- ----------------------------------------------------- ------------------------------------------------------
Philippe de Montebello, Director Director & Chief Executive Officer of the
The Metropolitan Museum of Art Metropolitan Museum of Art
1000 Fifth Avenue
New York, NY 10028-0198
- ----------------------------------------------------- ------------------------------------------------------
Robert E. Denham, Esq., Director Partner, Munger, Tolles & Olson LLP
Munger Tolles & Olson LLP
355 South Grand Avenue
35th Floor
Los Angeles, CA 90071-1560
- ----------------------------------------------------- ------------------------------------------------------
Peter L. Malkin, Esq., Director Chairman, Wien & Malkin LLP
Wien & Malkin, LLP
Lincoln Building
60 East 42nd Street
New York, NY 10165-0015
- ----------------------------------------------------- ------------------------------------------------------
David A. Olsen, Director Retired Chairman and Chief Executive Officer of
c/o U.S. Trust Johnson & Higgins
114 West 47th Street
New York, NY 10036
- ----------------------------------------------------- ------------------------------------------------------
Carl H. Pforzheimer, III, Director Managing Partner, Carl H. Pforzheimer & Co.
Carl H. Pforzheimer & Co.
950 Third Avenue
30th Floor
New York, NY 10022
- ----------------------------------------------------- ------------------------------------------------------
Charles R. Schwab, Director (Chairman) Chairman and Chief Executive Officer, The Charles
The Charles Schwab Corporation Schwab Corporation
101 Montgomery Street
San Francisco, CA 94104
- ----------------------------------------------------- ------------------------------------------------------
H. Marshall Schwarz, Director Retired Chairman, United States Trust Company of New
United States Trust Company of New York York
114 West 47th Street
New York, NY 10036
- ----------------------------------------------------- ------------------------------------------------------
12
- ----------------------------------------------------- ------------------------------------------------------
Craig Walling, Director Chief Executive Officer & President, U.S. Trust
U.S. Trust Company, National Association Company, National Association
225 High Ridge Road
Stamford, CT 06905
- ----------------------------------------------------- ------------------------------------------------------
Peter K. Scaturro, Director President and Chief Executive Officer, United States
United States Trust Trust Corporation & United States Trust Company of
Company of New York New York
114 West 47th Street
New York, NY 10036-1532
- ----------------------------------------------------- ------------------------------------------------------
Robert N. Wilson, Director Chairman, Caxton Health Holdings; Retired Senior
Johnson & Johnson Vice Chairman of the Board, Johnson & Johnson
100 Albany Street
New Brunswick, NJ 08903
- ----------------------------------------------------- ------------------------------------------------------
Ruth A. Wooden, Director President, Public Agenda
Public Agenda
6 East 39th Street
New York, NY 10016
- ----------------------------------------------------- ------------------------------------------------------
Gerald T. Mulligan, Director Chairman of the Board, Savings Bank Life Insurance
Savings Bank Life Insurance Company of Company of Massachusetts
Massachusetts
1 Linscott Road
Woburn, MA 01801
- ----------------------------------------------------- ------------------------------------------------------
William L. Atwell, Director Executive Vice President and President, Individual
The Charles Schwab Corporation Investor Enterprise and Schwab Bank
101 Montgomery Street
San Francisco, CA 94104
- ----------------------------------------------------- ------------------------------------------------------
Christopher V. Dodds, Director Executive Vice President and Chief Financial
The Charles Schwab Corporation Officer, The Charles Schwab Corporation
101 Montgomery Street
San Francisco, CA 94104
- ----------------------------------------------------- ------------------------------------------------------
Craig Walling, President & Chief Executive President & Chief Executive Officer
Officer
U.S. Trust Company, National Association
225 High Ridge Road
Stamford, CT 06905
- ----------------------------------------------------- ------------------------------------------------------
Mark Stevens, Regional Chief Executive Officer Regional Chief Executive Officer - Southeast Region
- - Southeast Region
U.S. Trust Company, National Association
132 Royal Palm Way
Palm Beach, FL 33480
- ----------------------------------------------------- ------------------------------------------------------
13
- ----------------------------------------------------- ------------------------------------------------------
Sue W. Cole, Regional Chief Executive Officer - Regional Chief Executive Officer - Mid-Atlantic
Mid-Atlantic Region Region
U.S. Trust Company, National Association
301 North Elm Street
Greensboro, NC 27401
- ----------------------------------------------------- ------------------------------------------------------
W. Michael Funck, Regional Chief Executive Regional Chief Executive Officer - Connecticut
Officer - Connecticut
U.S. Trust Company, National Association
225 High Ridge Road
Stamford, CT 06905
- ----------------------------------------------------- ------------------------------------------------------
William J. Goodwin, Regional Chief Executive Regional Chief Executive Officer - Texas
Officer - Texas
U.S. Trust Company, National Association
2001 Ross Avenue
Suite 2700
Dallas, TX 75201
- ----------------------------------------------------- ------------------------------------------------------
Jeffrey T. Grubb, Regional Chief Executive Regional Chief Executive Officer - Pacific Northwest
Officer - Pacific Northwest
U.S. Trust Company, National Association
The River Forum, Suite 450
4380 S.W. Macadam Avenue
Portland, OR 97239
- ----------------------------------------------------- ------------------------------------------------------
Eric P. Hayes, Regional Chief Executive Officer Regional Chief Executive Officer - Upper New
- - Upper New England England
U.S. Trust Company, National Association
225 Franklin Street
Boston, MA 02210
- ----------------------------------------------------- ------------------------------------------------------
Michael Boardman, Regional Chief Executive Regional Chief Executive Officer - Minnesota
Officer - Minnesota
U.S. Trust Company, National Association
730 Second Avenue South
Suite 1400
Minneapolis, MN 55402
- ----------------------------------------------------- ------------------------------------------------------
Mark Lipson, Regional Chief Executive Officer - Regional Chief Executive Officer - California
California
U.S. Trust Company, National Association
515 S. Flower Street
Suite 2700
Los Angeles, CA 90071
- ----------------------------------------------------- ------------------------------------------------------
Neil M. McDonnell, Chief Financial Officer and Chief Financial Officer and Senior Vice President
Senior Vice President
U.S. Trust Company, National Association
225 High Ridge Road
Stamford, CT 06905
- ----------------------------------------------------- ------------------------------------------------------
14
- ----------------------------------------------------- ------------------------------------------------------
John A. Clymer, Chief Investment Officer and Chief Investment Officer and Managing Director
Managing Director
U.S. Trust Company, National Association
730 Second Avenue South
Suite 1400
Minneapolis, MN 55402
- ----------------------------------------------------- ------------------------------------------------------
Alfred B. Childs, Managing Director and Managing Director and Treasurer
Treasurer
U.S. Trust Company, National Association
2001 Ross Avenue
Suite 2700
Dallas, TX 75201
- ----------------------------------------------------- ------------------------------------------------------
Jeffrey T. Osmun, Managing Director & Chief Managing Director & Chief Fiduciary Officer &
Fiduciary Officer & Corporate Secretary Corporate Secretary
U.S. Trust Company, National Association
225 High Ridge Road
Stamford, CT 06905
- ----------------------------------------------------- ------------------------------------------------------
United States Trust Company of New York
- ---------------------------------------
- ----------------------------------------------------- ------------------------------------------------------
Dr. Eleanor Baum, Director Dean, School of Engineering, The Cooper Union for
The Cooper Union for the Advancement of the Advancement of Science & Art
Science & Art
51 Astor Place
New York, NY 10003
- ----------------------------------------------------- ------------------------------------------------------
Philippe de Montebello, Director Director & Chief Executive Officer of the
The Metropolitan Museum of Art Metropolitan Museum of Art
1000 Fifth Avenue
New York, NY 10028-0198
- ----------------------------------------------------- ------------------------------------------------------
Robert E. Denham, Esq., Director Partner, Munger, Tolles & Olson LLP
Munger Tolles & Olson LLP
355 South Grand Avenue
35th Floor
Los Angeles, CA 90071-1560
- ----------------------------------------------------- ------------------------------------------------------
Peter L. Malkin, Director Chairman, Wien & Malkin LLP
Wien & Malkin LLP
Lincoln Building
60 West 42nd Street
New York, NY 10165-0015
- ----------------------------------------------------- ------------------------------------------------------
David A. Olsen, Director Retired Chairman and Chief Executive Officer of
U.S. Trust Johnson & Higgins
114 West 47th Street
New York, NY 10036
- ----------------------------------------------------- ------------------------------------------------------
15
- ----------------------------------------------------- ------------------------------------------------------
Carl H. Pforzheimer, III, Director Managing Partner, Carl H. Pforzheimer & Co.
Carl H. Pforzheimer & Co.
950 Third Avenue
30th Floor
New York, NY 10022
- ----------------------------------------------------- ------------------------------------------------------
Charles R. Schwab, Director (Chairman) Chairman and Chief Executive Officer, The Charles
The Charles Schwab Corporation Schwab Corporation
101 Montgomery Street
San Francisco, CA 94104
- ----------------------------------------------------- ------------------------------------------------------
H. Marshall Schwarz, Director Retired Chairman, United States Trust Company of
United States Trust Company of New York New York
114 West 47th Street
New York, NY 10036
- ----------------------------------------------------- ------------------------------------------------------
Craig Walling, Director Chief Executive Officer & President, U.S. Trust
U.S. Trust Company, National Association Company, National Association
225 High Ridge Road
Stamford, CT 06905
- ----------------------------------------------------- ------------------------------------------------------
Peter K. Scaturro, Director President & Chief Executive Officer, U.S. Trust
United States Trust Company of New York Corporation and United States Trust Company of New
114 West 47th Street York
New York, NY 10036-1532
- ----------------------------------------------------- ------------------------------------------------------
Robert N. Wilson, Director Chairman, Caxton Health and Holdings; Retired
Johnson & Johnson Senior Vice Chairman, Johnson & Johnson
100 Albany Street
New Brunswick, NJ 08903
- ----------------------------------------------------- ------------------------------------------------------
Ruth A. Wooden, Director President & Chief Executive Officer Public Agenda
Public Agenda
6 East 39th Street
New York, NY 10016
- ----------------------------------------------------- ------------------------------------------------------
Gerald T. Mulligan, Director Chairman of the Board, Savings Bank Life Insurance
Savings Bank Life Insurance Company of Company of Massachusetts
Massachusetts
1 Linscott Road
Woburn, MA 01801
- ----------------------------------------------------- ------------------------------------------------------
William L. Atwell, Director Executive Vice President and President, Individual
The Charles Schwab Corporation Investor Enterprise and Schwab Bank
101 Montgomery Street
San Francisco, CA 94104
- ----------------------------------------------------- ------------------------------------------------------
Christopher V. Dodds, Director Executive Vice President and Chief Financial
The Charles Schwab Corporation Officer, The Charles Schwab Corporation
101 Montgomery Street
San Francisco, CA 94104
- ----------------------------------------------------- ------------------------------------------------------
16
- ----------------------------------------------------- ------------------------------------------------------
Peter K. Scaturro, President & Chief Executive President & Chief Executive Officer, United States
Officer Trust Company of New York and U.S. Trust
United States Trust Company of New York Corporation
114 West 47th Street
New York, NY 10036-1532
- ----------------------------------------------------- ------------------------------------------------------
James Bailey, Executive Vice President and Executive Vice President and Chief Operating
Chief Operating Officer Officer, United States Trust Company of New York
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
- ----------------------------------------------------- ------------------------------------------------------
Gerald Callaghan, Executive Vice President and Executive Vice President and Chief Information
Chief Information Officer Officer, United States Trust Company of New York
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
- ----------------------------------------------------- ------------------------------------------------------
Paul K. Napoli, Executive Vice President Executive Vice President, United States Trust
United States Trust Company of New York Company of New York
114 West 47th Street
New York, NY 10036-1532
- ----------------------------------------------------- ------------------------------------------------------
Timothy J. Leach, Executive Vice President & Chief Executive Vice President & Chief Investment Officer,
Investment Officer United States Trust Company of New York
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
- ----------------------------------------------------- ------------------------------------------------------
Richard E. Brinkmann, Managing Director & Managing Director & Comptroller
Comptroller
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
- ----------------------------------------------------- ------------------------------------------------------
Douglas Singer, Managing Director & Treasurer Managing Director & Treasurer
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
- ----------------------------------------------------- ------------------------------------------------------
Carol A. Strickland, Managing Director & Managing Director & Corporate Secretary
Corporate Secretary
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
- ----------------------------------------------------- ------------------------------------------------------
James Bailey is also a Director of the Company. In addition to Mr.
Bailey, the following persons are officers of the Company and the Adviser, but
are not directors and/or principal executive officers of the Adviser, and may be
deemed to have a material direct or indirect interest (by virtue of ownership of
securities or otherwise) in the Adviser or any control person of the Adviser:
Mary Martinez, Joseph Trainor, Agnes Mullady, Scott Rhodes, Ralph Pastore, Daina
Hill, Sharon Davison and Wyndham Clark.
17
U. S. Trust Company, N.A. ("USTNA") also acts as the Fund's
administrator and supervises administration of the Fund pursuant to an
Administration Agreement. Under the Administration Agreement, USTNA supervises
the administration of all aspects of the Fund's operations, including the Fund's
receipt of services for which the Fund is obligated to pay, provides the Fund
with general office facilities and provides, at the Fund's expense, the services
of persons necessary to perform such supervisory, administrative and clerical
functions as are needed to effectively operate the Fund. For these services and
facilities, USTNA receives a fee accrued daily and paid monthly at an annual
rate of 0.200% on the first $200 million of the Fund's average daily net assets,
0.175% of the Fund's average daily net assets in excess of $200 million but not
exceeding $400 million, and 0.150% of the Fund's average daily net assets in
excess of $400 million. For the fiscal year ended March 31, 2005, USTNA received
$672,219 in administrative fees from the Fund under the Administration
Agreement. It is currently intended that USTNA will continue to provide these
services after the amendment to the Investment Advisory Agreement is approved.
BISYS Fund Services Ohio, Inc., which is located at 3435 Stelzer Road,
Columbus, Ohio 43219, serves as the Fund's sub-administrator. BISYS Fund
Services Limited Partnership, which is located at 100 Summer Street, Suite 1500,
Boston, Massachusetts 02110, serves as the principal underwriter for the Shares
of the Fund. For the fiscal year ended March 31, 2005, the Fund did not pay any
brokerage commissions to an affiliated person of the Fund, the Adviser or the
Fund's distributor.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of September 2, 2005, the Adviser and its affiliates held of record
approximately the following percentage of the outstanding Shares class shares of
the Fund, as agent or custodian for their customers:
Small Cap Fund 81.31%*
As of September 2, 2005, the Adviser and its affiliates held of record
100% of the outstanding Retirement Shares class shares.
As of September 2, 2005, the directors and officers as a group owned
beneficially less than 1% of the outstanding Shares class shares of the Fund.
As of September 2, 2005, the following shareholders owned of record or
beneficially 5% or more of the Fund's Shares class:
___________________________
* Atwell & Co. is the nominee for the Adviser. Atwell & Co., FBO 050, P.O. Box
456, Wall Street Station, New York, New York 10005 and Atwell & Co. FBO 052,
P.O. Box 2044, Peck Slip Station, New York, New York 10038.
18
Name and Address Percentage Nature of Ownership
of Fund
Shares class:
Charles Schwab & Co. Inc. 9.47% Record
Special Custody A/C for Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
19
The following table shows the nature, amount and percentage of the
Fund's Shares class shares owned by each director and principal executive
officer, as of September 2, 2005:
Amount and Nature of Percent of Ownership
Name of Director/Officer Beneficial Ownership/Title of Class in the Fund
- --------------------------------------------------------------------------------------------------
Independent Directors
- ---------------------
John D. Collins None *
Rodman L. Drake None *
Morrill Melton Hall, Jr. $2,840.55 *
Roger M. Lynch None *
Jonathan Piel None *
Frederick S. Wonham None
(Chairman of the Board) *
Interested Director
- -------------------
James L. Bailey None *
Officer
- -------
Mary Martinez** None *
* Less than 1%.
** Ms. Martinez is President of the Company.
OTHER MATTERS
While the Meeting is called to act upon any other business that may
properly come before it, at the date of this Statement the only business that
management intends to present or knows that others will present is the business
mentioned in the Notice of Meeting. The Board presently is not aware of any
other matters that will come before the Meeting. If a matter not now
anticipated, or any other matters properly
20
come before the Meeting, it is the intention that the enclosed proxy shall be
voted in accordance with the best judgment of the attorneys named therein, or
their substitutes, present and acting at the Meeting.
As a Maryland Corporation, the Company is not required and does not
intend to hold regular annual meetings. Shareholders who wish to present
proposals at any future shareholder meeting must present such proposals to the
Board at a reasonable time prior to the solicitation of any shareholder proxy.
The Board is not accepting shareholder proposals at this Meeting.
Dated: October 3, 2005
21
FORM OF PROXY
EXCELSIOR FUNDS, INC.
Small Cap Fund
225 High Ridge Road
Stamford, Connecticut 06905
- ----------------------------------- ------------------------------------ ------------------------------------
VOTE ON THE INTERNET VOTE BY PHONE VOTE BY MAIL
o Read the Proxy Statement o Read the Proxy Statement o Read the Proxy Statement
and have this card at hand and have this card at hand and have this card at hand
o Log on to o Call toll-free o Check the appropriate
www.proxyweb.com 1-800-690-6903 boxes on reverse
o Follow the on-screen o Follow the recorded o Sign and date proxy card
instructions instructions o Return promptly in the
o Do not return this paper o Do not return this paper enclosed envelope
ballot ballot
- ----------------------------------- ------------------------------------ ------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF EXCELSIOR FUNDS, INC.
SPECIAL MEETING OF SHAREHOLDERS -- NOVEMBER 17, 2005
EXCELSIOR SMALL CAP FUND
This proxy is solicited by the Board of Directors of Excelsior Funds, Inc. (the "Company") for use at a special
shareholder meeting (the "Meeting") of the Company's Small Cap Fund (the "Fund") to be held on November 17, 2005, at
9:00 a.m. (Eastern Time), at the offices of U.S. Trust Company, N.A., 225 High Ridge Road, Stamford, Connecticut
06905.
The undersigned hereby appoints Agnes Mullady and Ralph Pastore, each of them with full power of substitution, as
proxies of the undersigned to vote at the Meeting, and all adjournments and postponements thereof, all shares of
designated Class H Common Stock (Shares class) and Class H -- Special Series 1 Common Stock (Retirement Shares class)
representing interests in the Fund held of record by the undersigned on September 2, 2005, the record date for the
Meeting upon the following matters and upon any other matters that may come before the Meeting, in their discretion.
Every properly signed proxy will be voted in the manner specified thereon and, in the absence of specification, will
be treated as GRANTING authority to vote FOR the proposal. The proxies are authorized in their discretion to vote on
any other business which may properly come before the Meeting or any adjournment thereof.
Date: , 2005
-----------------------------------------------------------
-----------------------------------------------------------
Signature (s) (Sign in the box)
Please sign exactly as name appears hereon. When shares
are held by joint tenants, both should sign. When
signing as attorney or executor, administrator, trustee
or guardian please give full title as such. If a
corporation, please sign in full corporate name by
president or other authorized officer. If a partnership,
please sign in full partnership name by authorized
person.
Please fill in box(es) as shown using black or blue ink or number 2 pencil |X|.
PLEASE DO NOT USE FINE POINT PENS.
EXCELSIOR FUNDS, INC.
Small Cap Fund
FOR AGAINST ABSTAIN
1. To approve an amendment to the |_| |_| |_|
Investment Advisory Agreement to
increase the Advisory Fee payable
by the Small Cap Fund.
2. To approve a change in the |_| |_| |_|
investment objective of the Small
Cap Fund.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED ON THE OTHER SIDE.
2
Exhibit A
EXCELSIOR FUNDS, INC.
AMENDMENT NO. 2 TO THE INVESTMENT ADVISORY AGREEMENT
THIS AMENDMENT TO THE INVESTMENT ADVISORY AGREEMENT is made as
of _______, 2005, by and between EXCELSIOR FUNDS, INC., a Maryland corporation
(the "Company"), on behalf of its series the SMALL CAP FUND (the "Fund") and
U.S. TRUST COMPANY, N.A., a national bank organized under the laws of the United
States, and UNITED STATES TRUST COMPANY OF NEW YORK, a New York state-chartered
bank and trust company (together, the "Investment Adviser").
W I T N E S S E T H:
WHEREAS, the Fund and the Investment Adviser are parties to an
Investment Advisory Agreement dated as of May 31, 2000, as amended December 29,
2000, pursuant to which the Investment Adviser serves as the investment adviser
for the Fund; and
WHEREAS, the Fund and Investment Adviser desire to amend the
Investment Advisory Agreement to reflect an increase in the advisory fee payable
by the Fund to the Investment Adviser under such Agreement; and
WHEREAS, this amendment to the Investment Advisory Agreement
has been approved by the Board of Directors of the Company and the shareholders
of the Fund.
NOW, THEREFORE, the parties hereby agree as follows:
1. Paragraph 7, as it relates to the Small Cap Fund, of the
Investment Advisory Agreement is hereby amended to read as follows:
7. Compensation. For the services provided and the
expenses assumed pursuant to this Agreement, the Company will
pay the Investment Adviser and the Investment Adviser will
accept as full compensation therefore a fee, computed daily
and payable monthly, at the following annual rates: .75% of
the average daily net assets of the Small Cap Fund.
2. The Investment Advisory Agreement, as expressly amended
hereby, shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
AMENDMENT NO. 2 TO THE INVESTMENT ADVISORY AGREEMENT as of the day and year
first above written.
EXCELSIOR FUNDS, INC., on behalf of
THE SMALL CAP FUND
By: ______________________________
Name:
Title:
U.S TRUST COMPANY, N.A.
By: ______________________________
Name:
Title:
UNITED STATES TRUST COMPANY OF
NEW YORK
By: ______________________________
Name:
Title: