EXCELSIOR FUNDS INC, 497, 1997-08-11

EXCELSIOR FUNDS INC
497, 1997-08-11

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<PAGE>

[LOGO] EXCELSIOR
Excelsior Money Market Funds FUNDS INC.
TAX-EXEMPT FUNDS, INC.

- --------------------------------------------------------------------------------
This Prospectus describes the Money Fund, Government Money Fund and Treasury
Money Fund, three separate diversified portfolios offered to investors by Ex-
celsior Funds, Inc. ("Excelsior Fund"), and the Tax-Exempt Money Fund, a diver-
sified portfolio offered by Excelsior Tax-Exempt Funds, Inc. ("Excelsior Tax-
Exempt Fund"). Excelsior Fund and Excelsior Tax-Exempt Fund (collectively, the
"Companies") are open-end, management investment companies. Each portfolio (in-
dividually, a "Fund" and collectively, the "Funds") has its own investment ob-
jective and policies as follows:

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 Fund will gen-
erally invest in money market instruments, including bank obligations, commer-
cial paper and U.S. Government obligations.

GOVERNMENT 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
Fund will generally invest in short-term obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agree-
ments collateralized by such obligations.

TREASURY MONEY FUND'S investment objective is to seek current income with li-
quidity and stability of principal. The Fund invests primarily in direct short-
term obligations of the U.S. Treasury and certain agencies or instrumentalities
of the U.S. Government with a view toward providing interest income that is
generally considered exempt from state and local income taxes. Under normal
market conditions, at least 65% of the Fund's total assets will be invested in
direct U.S. Treasury obligations. The Fund will not enter into repurchase
agreements.

TAX-EXEMPT MONEY FUND'S investment objective is to seek a moderate level of
current interest income exempt from Federal income taxes consistent with sta-
bility of principal. The Tax-Exempt Money Fund will invest substantially all of
its assets in high-quality short-term Municipal Securities (as defined below).

Each of the Funds is sponsored and distributed by Edgewood Services, Inc. and
advised by United States Trust Company of New York and U.S. Trust Company of
Connecticut (collectively, the "Investment Adviser" or "U.S. Trust").

This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1997 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to the address shown above or by calling (800) 446-1012. The
Statement of Additional Information, as it may be supplemented from time to
time, is incorporated by reference in its entirety into this Prospectus. The
Securities and Exchange Commission maintains a World Wide Web site
(http://www.sec.gov) that contains the Statement of Additional Information and
other information regarding the Companies.

SHARES IN THE FUNDS ("SHARES") ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, U.S. TRUST, ITS PARENT OR AFFILIATES AND THE SHARES ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY OR OBLIGATIONS OF OR OTHERWISE SUP-
PORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. THE FUNDS SEEK TO
MAINTAIN THEIR NET ASSET VALUE PER SHARE AT $1.00 FOR PURPOSES OF PURCHASES AND
REDEMPTIONS, ALTHOUGH THERE CAN BE NO ASSURANCE THAT THEY WILL DO SO ON A CON-
TINUOUS BASIS. INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

August 1, 1997
<PAGE>

EXPENSE SUMMARY

<TABLE>
<CAPTION>
GOVERNMENT TREASURY TAX-EXEMPT
MONEY MONEY MONEY MONEY
FUND FUND FUND FUND
----- ---------- -------- ----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load...................... None None None None
Sales Load on Reinvested Dividends........ None None None None
Deferred Sales Load....................... None None None None
Redemption Fees........................... None None None None
Exchange Fees............................. None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (after fee waivers)/1/...... .19% .21% .28% .20%
12b-1 Fees................................ None None None None
Other Operating Expenses
Administrative Servicing Fee/1/.......... .06% .04% .02% .05%
Other Expenses........................... .22% .22% .22% .22%
---- ---- ---- ----
Total Operating Expenses (after fee
waivers)/1/.............................. .47% .47% .52% .47%
==== ==== ==== ====
</TABLE>
- -------
1. The Investment Adviser and administrators may from time to time voluntarily
waive part of their respective fees, which waivers may be terminated at any
time. Until further notice, the Investment Adviser and/or administrators in-
tend to voluntarily waive fees in an amount equal to the Administrative Ser-
vicing Fee. Without such fee waivers, "Advisory Fees" would be .25%, .25%,
.30% and .25%; and "Total Operating Expenses" would be .53%, .51%, .54% and
.52% for the Money, Government Money, Treasury Money and Tax-Exempt Money
Funds, respectively.

Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption of your investment at the end of the
following periods.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Fund...................................... $ 5 $15 $26 $59
Government Money Fund........................... 5 15 26 59
Treasury Money Fund............................. 5 17 29 65
Tax-Exempt Money Fund........................... 5 15 26 59
</TABLE>

The foregoing expense summary and example are intended to assist the investor
in understanding the costs and expenses that an investor in Shares of the Funds
will bear directly or indirectly. The expense summary sets forth advisory and
other expenses payable with respect to Shares of the Funds for the fiscal year
ended March 31, 1997. For more complete descriptions of the Funds' operating
expenses, see "Management of the Funds" in this Prospectus and the financial
statements and notes incorporated by reference in the Statement of Additional
Information.

THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.

2
<PAGE>

FINANCIAL HIGHLIGHTS

The following tables include selected data for a Share outstanding throughout
each period and other performance information derived from the financial state-
ments included in Excelsior Fund's and Excelsior Tax-Exempt Fund's Annual Re-
ports to Shareholders for the fiscal year ended March 31, 1997 (the "Financial
Statements"). The information contained in the Financial Highlights for each
period has been audited by Ernst & Young LLP, Excelsior Fund's and Excelsior
Tax-Exempt Fund's independent auditors. The following tables should be read in
conjunction with the Financial Statements and notes thereto. More information
about the performance of each Fund is also contained in the Annual Report to
Shareholders, which may be obtained from Excelsior Fund and Excelsior Tax-Ex-
empt Fund without charge by calling the number on the front cover of this Pro-
spectus.

MONEY FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Income From
Investment
Operations
Net Investment
Income......... 0.04888 0.05336 0.04494 0.02780 0.03234 0.05165 0.07589 0.08454 0.07698 0.06260
Net Gains or
(Losses) on
Securities
(both realized
and
unrealized).... 0.00000 0.00000 0.00002 0.00000 0.00000 0.00017 0.00001 0.00000 0.00000 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total From
Investment
Operations..... 0.04888 0.05336 0.04496 0.02780 0.03234 0.05182 0.07590 0.08454 0.07698 0.06260
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less
Distributions
Dividends From
Net Investment
Income......... (0.04888) (0.05336) (0.04496) (0.02780) (0.03234) (0.05165) (0.07589) (0.08454) (0.07698) (0.06260)
Distributions
From Net
Realized Gain
on Investments. 0.00000 0.00000 0.00000 0.00000 0.00000 (0.00019) 0.00000 0.00000 0.00000 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total
Distributions.. (0.04888) (0.05336) (0.04496) (0.02780) (0.03234) (0.05184) (0.07589) (0.08454) (0.07698) (0.06260)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Total Return..... 5.00% 5.47% 4.59% 2.82% 3.25% 5.19% 7.64% 8.71% 7.76% 6.28%
Ratios/Supplemental
Data
Net Assets, End
of Period
(in millions).. $ 498.07 $ 394.29 $ 824.58 $ 736.08 $ 784.02 $ 574.27 $ 471.32 $ 432.37 $ 369.69 $ 321.27
Ratio of Net
Operating
Expenses to
Average Net
Assets......... 0.47% 0.50% 0.49% 0.51% 0.51% 0.51% 0.52% 0.55% 0.56% 0.55%
Ratio of Gross
Operating
Expenses to
Average Net
Assets/1/...... 0.53% 0.53% 0.52% 0.51% 0.51% 0.51% 0.52% 0.55% 0.56% 0.55%
Ratio of Net
Income to
Average Net
Assets......... 4.89% 5.40% 4.49% 2.78% 3.21% 5.11% 7.56% 8.42% 7.71% 6.25%
</TABLE>
- -------
NOTES:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

3
<PAGE>

GOVERNMENT MONEY FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Income From
Investment
Operations
Net Investment
Income......... 0.04862 0.05296 0.04397 0.02736 0.03205 0.05069 0.07379 0.08379 0.07498 0.06111
Net Gains or
(Losses) on
Securities
(both realized
and
unrealized).... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00002 0.00008 0.00000 0.00000 (0.00002)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total From
Investment
Operations..... 0.04862 0.05296 0.04397 0.02736 0.03205 0.05071 0.07387 0.08379 0.07498 0.06109
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less
Distributions
Dividends From
Net Investment
Income......... (0.04862) (0.05296) (0.04397) (0.02736) (0.03205) (0.05069) (0.07379) (0.08379) (0.07498) (0.06111)
Distributions
From Net
Realized Gain
on Investments. 0.00000 0.00000 0.00000 0.00000 0.00000 (0.00005) (0.00005) (0.00001) 0.00000 (0.00023)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total
Distributions.. (0.04862) (0.05296) (0.04397) (0.02736) (0.03205) (0.05074) (0.07384) (0.08380) (0.07498) (0.06134)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Total Return..... 4.97% 5.43% 4.49% 2.77% 3.20% 5.09% 7.31% 8.30% 7.49% 6.44%
Ratios/Supplemental
Data
Net Assets, End
of Period
(in millions).. $ 533.83 $ 461.47 $ 725.77 $1,034.91 $ 710.49 $ 740.69 $ 700.22 $ 392.02 $ 241.13 $ 198.32
Ratio of Net
Operating
Expenses to
Average Net
Assets......... 0.47% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.57% 0.57% 0.56%
Ratio of Gross
Operating
Expenses to
Average Net
Assets/1/...... 0.51% 0.53% 0.53% 0.50% 0.50% 0.50% 0.50% 0.57% 0.57% 0.56%
Ratio of Net
Income to
Average Net
Assets......... 4.86% 5.36% 4.38% 2.74% 3.20% 5.09% 7.31% 8.30% 7.49% 6.10%
</TABLE>
- -------
NOTES:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

4
<PAGE>

TAX-EXEMPT MONEY FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Income From
Investment
Operations
Net Investment
Income......... 0.03050 0.03362 0.02825 0.01938 0.02395 0.03849 0.05292 0.05808 0.05348 0.04572
Net Gains or
(Losses) on
Securities
(both realized
and
unrealized).... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 (0.00001) 0.00000 0.00000 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total From
Investment
Operations..... 0.03050 0.03362 0.02825 0.01938 0.02395 0.03849 0.05291 0.05808 0.05348 0.04572
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less
Distributions
Dividends From
Net Investment
Income......... (0.03050) (0.03362) (0.02825) (0.01938) (0.02395) (0.03849) (0.05292) (0.05808) (0.05348) (0.04572)
Distributions
From Net
Realized Gain
on Investments. 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total
Distributions.. (0.03050) (0.03362) (0.02825) (0.01938) (0.02395) (0.03849) (0.05292) (0.05808) (0.05348) (0.04572)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Total Return..... 3.09% 3.41% 2.86% 1.96% 2.42% 3.92% 5.42% 5.97% 5.48% 4.67%
Ratios/Supplemental
Data
Net Assets, End
of Period
(in millions).. $1,069.69 $ 966.71 $ 814.89 $ 694.58 $ 659.33 $ 666.35 $ 662.34 $ 600.06 $ 525.30 $ 580.98
Ratio of Net
Operating
Expenses to
Average Net
Assets......... 0.47% 0.49% 0.49% 0.52% 0.52% 0.52% 0.53% 0.55% 0.53% 0.52%
Ratio of Gross
Operating
Expenses to
Average Net
Assets/1/...... 0.52% 0.53% 0.52% 0.52% 0.52% 0.52% 0.53% 0.55% 0.53% 0.52%
Ratio of Net
Income to
Average Net
Assets......... 3.05% 3.35% 2.85% 1.94% 2.39% 3.84% 5.28% 5.79% 5.33% 4.58%
</TABLE>
- -------
NOTES:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

5
<PAGE>

TREASURY MONEY FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991/1/
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------- --------- ---------
Income From Investment
Operations
Net Investment Income. 0.04676 0.05043 0.04165 0.02590 0.02987 0.04731 0.00782
Net Gains or (Losses)
on Securities (both
realized and
unrealized).......... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00036 0.00001
--------- --------- --------- --------- --------- --------- ---------
Total From Investment
Operations........... 0.04676 0.05043 0.04165 0.02590 0.02987 0.04767 0.00783
--------- --------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net
Investment Income.... (0.04676) (0.05043) (0.04165) (0.02590) (0.02987) (0.04731) (0.00782)
Distributions From Net
Realized Gain on
Investments.......... 0.00000 0.00000 0.00000 0.00000 (0.00030) (0.00011) 0.00000
--------- --------- --------- --------- --------- --------- ---------
Total Distributions... (0.04676) (0.05043) (0.04165) (0.02590) (0.03017) (0.04742) (0.00782)
--------- --------- --------- --------- --------- --------- ---------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= =========
Total Return............ 4.78% 5.16% 4.25% 2.62% 3.06% 4.85% 0.78%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions). $ 349.09 $ 258.17 $ 196.93 $ 254.68 $ 227.79 $ 172.29 $ 110.37
Ratio of Net Operating
Expenses to Average
Net Assets........... 0.52% 0.55% 0.55% 0.58% 0.58% 0.52% 0.09%/2/
Ratio of Gross
Operating Expenses to
Average Net
Assets/3/............ 0.54% 0.57% 0.57% 0.58% 0.58% 0.57% 0.60%/2/
Ratio of Net Income to
Average Net Assets... 4.68% 5.03% 4.09% 2.59% 2.97% 4.60% 5.98%/2/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was February 13, 1991.
2. Annualized.
3. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

6
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The Investment Adviser uses its best efforts to achieve the investment objec-
tive of each Fund, although its achievement cannot be assured. The investment
objective of each Fund may not be changed without a vote of the holders of a
majority of the particular Fund's outstanding Shares (as defined under "Miscel-
laneous"). Except as noted below in "Investment Limitations," the investment
policies of each Fund may be changed without a vote of the holders of a major-
ity of the outstanding Shares of such Fund.

Each Fund uses the amortized cost method to value securities in its portfolio
and has a dollar-weighted average portfolio maturity not exceeding 90 days.

MONEY 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. The Fund
will generally invest in money market instruments, such as bank certificates of
deposit, bankers' acceptances, commercial paper (including variable and float-
ing rate instruments) and corporate bonds with remaining maturities of 13
months or less, as well as obligations issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities and repurchase agreements collateral-
ized by such obligations. Additional information about the Fund's policies and
portfolio instruments is set forth below under "Portfolio Instruments and Other
Investment Information."

GOVERNMENT MONEY FUND

The Government 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
Fund will invest in obligations with remaining maturities of 13 months or less
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and repurchase agreements collateralized by such obligations. See "Portfolio
Instruments and Other Investment Information" for information on other portfo-
lio instruments in which the Fund may invest.

TREASURY MONEY FUND

The Treasury Money Fund's investment objective is to seek current income with
liquidity and stability of principal. The Fund invests primarily in direct ob-
ligations of the U.S. Treasury with remaining maturities of 13 months or less,
such as Treasury bills and notes. Under normal market conditions, the Fund will
invest at least 65% of its total assets in direct U.S. Treasury obligations.
The Fund may also from time to time invest in obligations with remaining matu-
rities of 13 months or less 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,
Tennessee Valley Authority and the Student Loan Marketing Association. Income
on direct investments in U.S. Treasury securities and obligations of the afore-
mentioned 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 in-
vestments 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. See "Taxes--State and Local." The Trea-
sury Money Fund will not enter into repurchase agreements.

TAX-EXEMPT MONEY FUND

The Tax-Exempt Money Fund's investment objective is to seek a moderate level
of current interest income exempt from Federal income taxes consistent with
stability of principal. The Fund will invest substantially all of its assets in
high-quality debt obligations exempt from Federal income tax issued by or on
behalf of states, territories, and possessions of the United States, the Dis-
trict of Columbia, and their authorities, agen-

7
<PAGE>

cies, instrumentalities, and political subdivisions ("Municipal Securities").
Portfolio securities in the Fund will generally have remaining maturities of
not more than 13 months. (See "Portfolio Instruments and Other Investment In-
formation.")

The Tax-Exempt Money Fund is designed for investors in relatively high tax
brackets who are seeking a moderate amount of tax-free income with stability of
principal and less price volatility than would normally be associated with in-
termediate-term and long-term Municipal Securities.

The Tax-Exempt Money Fund invests in Municipal Securities which are determined
by the Investment Adviser to present minimal credit risks. As a matter of fun-
damental policy, except during temporary defensive periods, the Fund will main-
tain 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 major-
ity of its outstanding Shares). However, from time to time on a temporary de-
fensive basis due to market conditions, the Tax-Exempt Money Fund may hold
uninvested cash reserves or invest in taxable obligations in such proportions
as, in the opinion of the Investment Adviser, prevailing market or economic
conditions may warrant. Uninvested cash reserves will not earn income. Should
the Fund invest in taxable obligations, it would purchase: (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 depos-
it, commercial paper, and bankers' acceptances; (iv) repurchase agreements col-
lateralized by U.S. Government obligations or other money market instruments;
or (v) securities issued by other investment companies that invest in high-
quality, short-term securities.

The Tax-Exempt Money Fund may also invest from time to time in "private activ-
ity bonds" (see "Types of Municipal Securities" below), the interest on which
is treated as a specific tax preference item under the Federal alternative min-
imum tax. Investments in such securities, however, will not exceed under normal
market conditions 20% of the Fund's net assets when added together with any
taxable investments by the Fund.

Although the Tax-Exempt Money Fund does not presently intend to do so on a
regular basis, it may invest more than 25% of its assets in Municipal Securi-
ties the interest on which is paid solely from revenues of similar projects, if
such investment is deemed necessary or appropriate by the Investment Adviser.
To the extent that the Fund's assets are concentrated in Municipal Securities
payable from revenues on similar projects, the Fund will be subject to the pe-
culiar risks presented by such projects to a greater extent than it would be if
the Fund's assets were not so concentrated.

PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION

GOVERNMENT OBLIGATIONS

Government obligations acquired by the Money, Government Money, Treasury Money
and Tax-Exempt Money Funds 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, the Tennessee Valley Authority and the Student Loan Marketing Asso-
ciation. Obligations of certain agencies and instrumentalities of the U.S. Gov-
ernment 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 pro-
vide 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 Investment Adviser believes that the credit risk with
respect to the instrumentality is minimal.

8
<PAGE>

Securities issued or guaranteed by the U.S. Government have historically in-
volved 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.

As stated above, the Treasury Money Fund will purchase primarily direct obli-
gations of the U.S. Treasury and obligations of those agencies or instrumen-
talities of the U.S. Government interest income from which is generally not
subject to state and local income taxes.

MONEY MARKET INSTRUMENTS

"Money market instruments" that may be purchased by the Money, Government
Money, and Tax-Exempt Money Funds in accordance with their investment objec-
tives and policies stated above 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 de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"),
or by a savings and loan association or savings bank which is insured by the
Savings Association Insurance Fund of 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 pur-
chase. Investments in bank obligations of foreign branches of domestic finan-
cial 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 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 Secu-
rities."

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 im-
position of withholding taxes on interest income, possible seizure or nation-
alization of foreign deposits, the possible establishment of exchange con-
trols, 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 ac-
counting, auditing, reporting, and recordkeeping standards than those applica-
ble 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 Investment Adviser believes that the credit risk with respect to the
instrument is minimal.

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 instru-
ment purchased by a Fund, the Fund may, from time to time as specified in the
instrument, demand payment of the principal of the instrument or may resell
the instrument to a third party. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if
the issuer defaulted on its payment obligation or during periods that the Fund
is not entitled to exercise its demand rights, and the Fund could, for this or
other reasons, suffer a loss with respect to such instrument. Any security
which cannot be disposed of within seven days without taking a reduced price
will be considered an illiquid security

9
<PAGE>

subject to the 10% limitation discussed below under "Illiquid Securities."
While the Funds will in general invest only in securities that mature within
13 months of date of purchase, they may invest in variable and floating rate
instruments which have nominal maturities in excess of 13 months if such in-
struments have demand features that comply with conditions established by the
Securities and Exchange Commission ("SEC") (see "Additional Information on
Portfolio Instruments--Variable and Floating Rate Instruments" in the State-
ment of Additional Information).

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.

QUALITY OF INVESTMENTS

The Funds may only invest in: (i) securities in the two highest rating cate-
gories of a nationally recognized statistical rating organization ("NRSRO"),
provided that if they are rated by more than one NRSRO, at least one other
NRSRO rates them in one of its two highest categories; and (ii) unrated secu-
rities determined to be of comparable quality at the time of purchase (collec-
tively, "Eligible Securities"). The rating symbols of the NRSROs which the
Funds may use are described in the Appendix to the Statement of Additional In-
formation.

REPURCHASE AGREEMENTS

The Money, Government Money and 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"). A Fund will en-
ter into repurchase agreements only with financial institutions that are
deemed to be creditworthy by the Investment Adviser, pursuant to guidelines
established by the Boards of Directors. No Fund will enter into repurchase
agree ments with the Investment Adviser or any of its affiliates. Repurchase
agreements with remaining maturities in excess of seven days will be consid-
ered illiquid securities and will be subject to the 10% limit described below
under "Illiquid Securities."

The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund
at not less than the repurchase price. Default or bankruptcy of the seller
would, however, expose a Fund to possible delay in connection with the dispo-
sition of the underlying securities or loss to the extent that proceeds from a
sale of the underlying securities were less than the repurchase price under
the agreement. Income on the repurchase agreements will be taxable.

SECURITIES LENDING

To increase return on their portfolio securities, the Money Fund and Govern-
ment Money Fund 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. There may be risks of delay in receiving additional collateral
or in recovering the securities loaned or even a loss of rights in the collat-
eral should the borrower of the securities fail financially. However, loans
are made only to borrowers deemed by the Investment Adviser to be of good
standing and when, in the Investment Adviser's judgment, the income to be
earned from the loan justifies the attendant risks.

INVESTMENT COMPANY SECURITIES

In connection with the management of their daily cash positions, the Funds
may invest in securities issued by other investment companies which invest in

10
<PAGE>

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
Money Fund will invest in securities of investment companies only if such com-
panies 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 Investment Company Act of 1940, as amended
(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 securi-
ties 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 ex-
penses 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.

TYPES OF MUNICIPAL SECURITIES

The two principal classifications of Municipal Securities which may be held
by the Tax-Exempt Money Fund are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge
of its full faith, credit, and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the pro-
ceeds of a special excise tax or other specific revenue source such as the
user of the facility being financed. Private activity obligations are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity revenue obli-
gations is usually directly related to the credit standing of the corporate
user of the facility involved.

The Tax-Exempt Money Fund's portfolio may also include "moral obligation" se-
curities, which are normally issued by special-purpose 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 restora-
tion of which is a moral commitment but not a legal obligation of the state or
municipality which created the issuer. There is no limitation on the amount of
moral obligation securities that may be held by the Fund.

The Tax-Exempt Money Fund may also 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 Money Fund intends 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. "Stripped" Municipal Securi-
ties are considered illiquid securities subject to the 10% limit described be-
low under "Illiquid Securities."

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<PAGE>

WHEN-ISSUED AND FORWARD TRANSACTIONS AND STAND-BY COMMITMENTS

The Funds may purchase eligible securities on a "when-issued" basis and may
purchase or sell such securities on a "forward commitment" basis. These trans-
actions involve a commitment by a Fund to purchase or sell particular securi-
ties with payment and delivery taking place in the future beyond the normal
settlement date at a stated price and yield. Securities purchased on a "for-
ward commitment" or "when-issued" basis are recorded as an asset and are sub-
ject to changes in value based upon changes in the general level of interest
rates. Absent unusual market conditions, "forward commitments" and "when-
issued" purchases will not exceed 25% of the value of a Fund's total assets,
and the length of such commitments will not exceed 45 days. The Funds do not
intend to engage in "when-issued" purchases or "forward commitments" for spec-
ulative purposes, but only in furtherance of their investment objectives.

In addition, the Tax-Exempt Money Fund may acquire "stand-by commitments"
with respect to Municipal Securities held by it. Under a "stand-by commit-
ment," a dealer agrees to purchase at the Fund's option specified Municipal
Securities at a specified price. The Tax-Exempt Money Fund will acquire
"stand-by commitments" solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes. "Stand-by com-
mitments" acquired by the Tax-Exempt Money Fund would be valued at zero in de-
termining the Fund's net asset value. Further information concerning "stand-by
commitments" is contained in the Statement of Additional Information under
"Additional Information on Portfolio Instruments."

BORROWING AND REVERSE REPURCHASE AGREEMENTS

Each Fund may borrow funds, in an amount up to 10% of the value of its total
assets, for temporary or emergency purposes, such as meeting larger than an-
ticipated redemption requests, and not for leverage. Each Fund may also agree
to sell portfolio securities to financial institutions such as banks and bro-
ker-dealers and to repurchase them at a mutually agreed date and price (a "re-
verse repurchase agreement"). The SEC views reverse repurchase agreements as a
form of borrowing. At the time a Fund enters into a reverse repurchase agree-
ment, it will place in a segregated custodial account liquid assets having a
value equal to the repurchase price, including accrued interest. Reverse re-
purchase agreements involve the risk that the market value of the securities
sold by a Fund may decline below the repurchase price of those securities.

ILLIQUID SECURITIES

No Fund will knowingly invest more than 10% of the value of its net assets in
securities that are illiquid. 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 Investment Adviser, acting under guidelines approved and
monitored by the Board, that an adequate trading market exists for that secu-
rity. This investment practice could have the effect of increasing the level
of illiquidity in a Fund during any period that qualified institutional buyers
become uninterested in purchasing these restricted securities.

INVESTMENT LIMITATIONS

The investment limitations set forth below are matters of fundamental policy
and may not be changed with respect to a Fund without the vote of the holders
of a majority of the Fund's outstanding Shares (as defined under "Miscellane-
ous").

No Fund may:

1. 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 secu-
rities of such issuer, provided that up to 25% of the value of each Fund's
total assets may be invested without

12
<PAGE>

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; and

2. Borrow money except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing. (This borrowing provision is included solely to fa-
cilitate the orderly sale of portfolio securities to accommodate abnormally
heavy redemption requests and is not for leverage purposes.) A Fund will not
purchase portfolio securities while borrowings in excess of 5% of its total
assets are outstanding.

The Treasury Money Fund may not:

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.

* * *

If a percentage limitation is satisfied at the time of investment, a later in-
crease 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. 1 above: (a) a security is considered to be is-
sued 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) secu-
rities 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.

The Funds are subject to additional investment limitations which are deemed
matters of their fundamental policies and, as such, may not be changed without
a requisite shareholder vote. Among such limitations are a prohibition on con-
centrating investments in a particular industry or group of industries and a
policy of limiting investments in illiquid securities to 10% of a Fund's net
assets. For a full description of the Funds' additional fundamental investment
limitations, see the Statement of Additional Information.

PRICING OF SHARES

The net asset value of each Fund is determined and the Shares of each 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). Net asset value and pricing for each Fund
are determined on each day the Exchange and the Investment Adviser are open for
trading ("Business Day"). Currently, the holidays which the Funds observe are
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Me-
morial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas. Net
asset value per Share for purposes of pricing sales and redemptions is calcu-
lated 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 outstand-
ing Shares. The assets in each Fund are valued by the Funds' administrators
based upon the amortized cost method.

13
<PAGE>

HOW TO PURCHASE AND REDEEM SHARES

DISTRIBUTOR

Shares in each Fund are continuously offered for sale by the Companies' spon-
sor and distributor, Edgewood Services, Inc. (the "Distributor"), a wholly-
owned subsidiary of Federated Investors. The Distributor is a registered
broker/dealer. Its principal business address is Clearing Operations, P.O. Box
897, Pittsburgh, PA 15230-0897.

At various times the Distributor may implement programs under which a deal-
er's sales force may be eligible to win nominal awards for certain sales ef-
forts or under which the Distributor will make payments to any dealer that
sponsors sales contests or recognition programs conforming to criteria estab-
lished by the Distributor, or that participates in sales programs sponsored by
the Distributor. The Distributor in its discretion may also from time to time,
pursuant to objective criteria established by the Distributor, pay fees to
qualifying dealers for certain services or activities which are primarily in-
tended to result in sales of Shares of the Funds. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by the
Distributor out of its own assets and not out of the assets of the Funds.

In addition, the Distributor may offer to pay a fee from its own assets to
financial institutions for the continuing investment of customers' assets in
the Funds or for providing substantial marketing, sales and operational sup-
port. The support may include initiating customer accounts, participating in
sales, educational and training seminars, providing sales literature, and en-
gineering computer software programs that emphasize the attributes of the
Funds. Such payments will be predicated upon the amount of Shares the finan-
cial institution sells or may sell, and/or upon the type and nature of sales
or marketing support furnished by the financial institution.

PURCHASE OF SHARES

Shares in each Fund are offered without any purchase or redemption charge im-
posed by the Companies. The Distributor has established several procedures for
purchasing Shares in order to accommodate different types of investors.

Shares may be purchased directly by individuals ("Direct Investors") or by
institutions ("Institutional Investors" and, collectively with Direct Invest-
ors, "Investors"). Shares may also be purchased by customers ("Customers") of
the Investment Adviser, its affiliates and correspondent banks, and other in-
stitutions ("Shareholder Organizations") that have entered into agreements
with 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 orders for its Customers and to transmit, on a timely basis, payment
for such orders to Chase Global Funds Services Company ("CGFSC"), the Funds'
sub-transfer agent, in accordance with the procedures agreed to by the Share-
holder Organization and the Distributor. Confirmations of all such Customer
purchases and redemptions will be sent by CGFSC to the particular Shareholder
Organization. As an alternative, a Shareholder Organization may elect to es-
tablish its Customers' accounts of record with CGFSC. In this event, even if
the Shareholder Organization continues to place its Customers' purchase and
redemption orders with the Funds, CGFSC will send confirmations of such trans-
actions and periodic account statements directly to the shareholders of
record. Shares in the Funds bear the expense of fees payable to Shareholder
Organizations for such services. See "Management of the Funds--Shareholder Or-
ganizations."

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<PAGE>

446-1012.) An investor purchasing Shares through a registered investment ad-
viser or certified financial planner may incur transaction charges in connec-
tion with such purchases. Such investors should contact their registered in-
vestment adviser or certified financial planner for further information on
transaction fees. Investors may also purchase Shares directly from the Distrib-
utor in accordance with procedures described below under "Purchase Procedures."

PURCHASE PROCEDURES

General

Direct Investors may purchase Shares by completing the Application for pur-
chase of Shares accompanying this Prospectus and mailing it, together with a
check payable to Excelsior Funds, to:

Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

Subsequent investments in an existing account in any Fund may be made at any
time by sending to the above address a check payable to Excelsior Funds along
with: (a) the detachable form that regularly accompanies the confirmation of a
prior transaction; (b) a subsequent order form which may be obtained from
CGFSC; or (c) a letter stating the amount of the investment, the name of the
Fund and the account number in which the investment is to be made. Institu-
tional Investors may purchase Shares by transmitting their purchase orders to
CGFSC by telephone at (800) 446-1012 or by terminal access. Institutional In-
vestors must pay for Shares with Federal funds or funds immediately available
to CGFSC.

Purchases by Wire

Investors may also purchase Shares by wiring Federal funds to CGFSC. Prior to
making an initial investment by wire, an Investor must telephone CGFSC at (800)
446-1012 (from overseas, call (617) 557-8280) for instructions. Federal funds
and registration instructions should be wired through the Federal Reserve Sys-
tem to:

The Chase Manhattan Bank
ABA #021000021
Excelsior Funds, Account No. 9102732915
For further credit to:
Excelsior Funds
Wire Control Number
Account Registration (including account number)

Investors making initial investments by wire must promptly complete the Appli-
cation accompanying this Prospectus and forward it to CGFSC. Redemptions by In-
vestors will not be processed until the completed Application for purchase of
Shares has been received by CGFSC and accepted by the Distributor. Investors
making subsequent investments by wire should follow the above instructions.

Other Purchase Information

Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500 per Fund. The minimum subse-
quent investment for both types of investors is $50 per Fund. Customers may
agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may charge a Customer's account fees for auto-
matic investment and other cash management services provided. The Companies re-
serve the right to reject any purchase order, in whole or in part, or to waive
any minimum investment requirements.

REDEMPTION PROCEDURES

15
<PAGE>

credit such Customer accounts with the redemption proceeds on a timely basis.
Redemption orders for Institutional Investors must be transmitted to CGFSC by
telephone at (800) 446-1012 or by terminal access. No charge for wiring redemp-
tion payments to Shareholder Organizations or Institutional Investors is im-
posed by the Companies, although Shareholder Organizations may charge a Custom-
er's account for wiring redemption proceeds. Information relating to such re-
demption services and charges, if any, is available from the Shareholder Orga-
nizations. 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 ad-
viser 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).

Redemption by Mail

Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:

Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

A written redemption request to CGFSC must (i) state the number of Shares to
be redeemed, (ii) identify the shareholder account number and tax identifica-
tion number, and (iii) be signed by each registered owner exactly as the Shares
are registered. If the Shares to be redeemed were issued in certificate form,
the certificates must be endorsed for transfer (or accompanied by a duly exe-
cuted stock power) and must be submitted to CGFSC together with the redemption
request. A redemption request for an amount in excess of $50,000 per account,
or for any amount if the proceeds are to be sent elsewhere than the address of
record, must be accompanied by signature guarantees from an eligible guarantor
institution approved by CGFSC in accordance with its Standards, Procedures and
Guidelines for the Acceptance of Signature Guarantees ("Signature Guarantee
Guidelines"). Eligible guarantor institutions generally include banks,
broker/dealers, credit unions, national securities exchanges, registered secu-
rities associations, clearing agencies and savings associations. All eligible
guarantor institutions must participate in the Securities Transfer Agents Me-
dallion Program ("STAMP") in order to be approved by CGFSC pursuant to the Sig-
nature Guarantee Guidelines. Copies of the Signature Guarantee Guidelines and
information on STAMP can be obtained from CGFSC at (800) 446-1012 or at the ad-
dress given above. CGFSC may require additional supporting documents for re-
demptions made by corporations, executors, administrators, trustees and guardi-
ans. A redemption request will not be deemed to be properly received until
CGFSC receives all required documents in proper form. Payment for Shares re-
deemed will ordinarily be made by mail within five Business Days after receipt
by CGFSC of the redemption request in good order. Questions with respect to the
proper form for redemption requests should be directed to CGFSC at (800) 446-
1012 (from overseas, call (617) 557-8280).

Redemption by Wire or Telephone

Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do so, may redeem Shares by instructing CGFSC by
wire or telephone to wire the redemption proceeds directly to the Direct In-
vestor'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 share-
holder of record at his or her address of record. Institutional Investors may
also have their Shares redeemed by wire 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 In-

16
<PAGE>

vestors must be paid to the same bank and account as designated on the Appli-
cation or in written instructions subsequently received by CGFSC.

Investors may request that Shares be redeemed and redemption proceeds wired
on the same day if telephone redemption instructions are received by 1:00 p.m.
(Eastern Time) on the day of redemption. Shares redeemed and wired on the same
day will not receive the dividend declared on the day of redemption. Redemp-
tion requests made after 1:00 p.m. (Eastern Time) will receive the dividend
declared on the day of redemption, and redemption proceeds will be wired the
following Business Day. To request redemption of Shares by wire, Direct In-
vestors should call CGFSC at (800) 446-1012 (from overseas, call (617) 557-
8280).

In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, a Direct Investor must send a written request to the Companies, c/o
CGFSC, at the address listed above under "Redemption by Mail." Such request
must be signed by the Direct Investor, with signatures guaranteed (see "Re-
demption by Mail" above, for details regarding signature guarantees). Further
documentation may be requested.

CGFSC and the Distributor reserve the right to refuse a wire or telephone re-
demption if it is believed advisable to do so. Procedures for redeeming Shares
by wire or telephone may be modified or terminated at any time by the Compa-
nies, CGFSC or the Distributor. THE COMPANIES, CGFSC AND THE DISTRIBUTOR WILL
NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING UPON TELE-
PHONE 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 IN-
STRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.

During periods of substantial economic or market change, telephone redemp-
tions may be difficult to complete. If an Investor is unable to contact CGFSC
by telephone, the Investor may also deliver the redemption request to CGFSC in
writing at the address noted above under "How to Purchase and Redeem Shares--
Redemption by Mail."

Redemption by Check

Except as described in "Investor Programs" below, Direct Investors in the
Funds may redeem Shares, without charge, by check drawn on the Direct Invest-
or'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 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
Shares by check must indicate this in the Application for purchase of Shares
and must submit a signature card with signatures guaranteed with such Applica-
tion. The signature card is included in the Application for the purchase of
Shares contained in this 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 under "Redemption by Mail"
and must be accompanied by a signature card with signatures guaranteed (see
"Redemption by Mail" above, for details regarding signature guarantees).

Stop payment instructions with respect to checks may be given to the Compa-
nies 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.

17
<PAGE>

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 re-
demption 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. A Direct Investor who anticipates the need for more immediate access to
his or her investment should purchase Shares by Federal funds or bank wire or
by certified or cashier's check. Banks normally impose a charge in connection
with the use of bank wires, as well as certified checks, cashier's checks and
Federal funds. If a Direct Investor's purchase check is not collected, the
purchase will be cancelled and CGFSC will charge a fee of $25.00 to the Direct
Investor's account.

Other Redemption Information

Except as provided in "Investor Programs" below, Investors may be required to
redeem Shares in a Fund upon 60 days' written notice if due to investor re-
demptions the balance in the particular account with respect to the Fund re-
mains below $500. If a Customer has agreed with a particular Shareholder Or-
ganization to maintain a minimum balance in his or her account at the institu-
tion with respect to Shares of a Fund, and the balance in such account falls
below that minimum, the Customer may be obliged by the Shareholder Organiza-
tion to redeem all or part of his or her Shares to the extent necessary to
maintain the required minimum balance.

The Companies may also redeem Shares involuntarily or make payment for re-
demption in securities if it appears appropriate to do so in light of the Com-
panies' responsibilities under the 1940 Act.

EFFECTIVE TIME OF PURCHASES AND REDEMPTIONS

Purchase orders for Shares which are received in good order no later than
1:00 p.m. (Eastern Time) on any Business Day will be effective as of 1:00 p.m.
and will receive the dividend declared on the day of purchase as long as CGFSC
receives payment in Federal funds prior to the close of regular trading hours
on the Exchange (currently 4:00 p.m., Eastern Time). Purchase orders received
in good order after 1:00 p.m. (Eastern Time) and prior to 4:00 p.m. (Eastern
Time), on any Business Day for which payment in Federal funds has been re-
ceived by 4:00 p.m. (Eastern Time), will be effective as of 4:00 p.m., and
will begin receiving dividends the following day. Purchase orders for Shares
made by Direct Investors are not effective until the amount to be invested has
been converted to Federal funds. In those cases in which a Direct Investor
pays for Shares by check, Federal funds will generally become available two
Business Days after a purchase order is received. In certain circumstances,
the Companies may not require that amounts invested by Shareholder Organiza-
tions on behalf of their Customers or by Institutional Investors be converted
into Federal funds. Redemption orders are executed at the net asset value per
Share next determined after receipt of the order.

INVESTOR PROGRAMS

EXCHANGE PRIVILEGE

Investors and Customers of Shareholder Organizations may, after appropriate
prior authorization and without an exchange fee imposed by the Companies, ex-
change Shares in a Fund having a value of at least $500 for shares of any
other portfolio offered by the Companies, or for Trust Shares of Excelsior In-
stitutional Trust, provided that such other shares may legally be sold in the
state of the Investor's residence.

Excelsior Fund currently offers 12 additional portfolios as follows:

Short-Term Government Securities Fund, a fund seeking a high level of cur-
rent income by investing principally in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agree-
ments collateralized by such obligations, and having a dollar-weighted aver-
age portfolio maturity of 1 to 3 years;

18
<PAGE>

Intermediate-Term Managed Income Fund, a fund seeking a high level of cur-
rent interest income by investing principally in investment grade or better
debt obligations and money market instruments, and having a dollar-weighted
average portfolio maturity of 3 to 10 years;

Managed Income Fund, a fund seeking higher current income primarily through
investments in investment grade debt obligations, U.S. Government obligations
and money market instruments;

Blended Equity Fund, a fund seeking long-term capital appreciation through
investments in a diversified portfolio of primarily equity securities;

Income and Growth Fund, a fund seeking to provide moderate current income
and to achieve capital appreciation as a secondary objective by investing in
common stock, preferred stock and securities convertible into common stock;

Long-Term Supply of Energy Fund, a fund seeking long-term capital apprecia-
tion by investing in companies benefitting from the availability, development
and delivery of secure hydrocarbon and other energy sources (if revised in-
vestment policies are approved at a Special Meeting of Shareholders called
for August 18, 1997, this fund will be renamed the "Energy and Natural Re-
sources Fund" and will seek long-term capital appreciation by investing pri-
marily in companies that are in the energy and other natural resources groups
of industries and, to a more limited extent, in gold and other precious metal
bullion and coins);

Value and Restructuring Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their restructuring or redeploy-
ment of assets and operations in order to become more competitive or profit-
able;

Small Cap Fund, a fund seeking long-term capital appreciation by investing
primarily in companies with capitalization of $1 billion or less;

International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;

Latin America Fund, a fund seeking long-term capital appreciation through
investments in companies and securities of governments based in all countries
in Central and South America;

Pacific/Asia Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Asia and on the
Asian side of the Pacific Ocean; and

Pan European Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Europe.

Excelsior Tax-Exempt Fund currently offers 5 additional portfolios as fol-
lows:

Short-Term Tax-Exempt Securities Fund, a diversified fund seeking a high
level of current interest income exempt from Federal income taxes through in-
vestments in municipal obligations and having a dollar-weighted average port-
folio maturity of 1 to 3 years;

Intermediate-Term Tax-Exempt Fund, a diversified fund seeking a high level
of current income exempt from Federal income taxes through investments in mu-
nicipal obligations and having a dollar-weighted average portfolio maturity
of 3 to 10 years;

Long-Term Tax-Exempt Fund, a diversified fund attempting to maximize current
interest income exempt from Federal income taxes through investments in mu-
nicipal obligations and having a dollar-weighted average portfolio maturity
of 10 to 30 years;

New York Intermediate-Term Tax-Exempt Fund, a non-diversified fund designed
to provide New York investors with a high level of current interest income
exempt from Federal and, to the extent possible, New York state and New York
City income taxes; this fund in vests primarily in New York municipal obliga-
tions and has a dollar-weighted average portfolio maturity of 3 to 10 years;
and

19
<PAGE>

California Tax-Exempt Income Fund, a non-diversified fund designed to pro-
vide California investors with as high a level of current interest income ex-
empt from Federal and, to the extent possible, California state personal in-
come taxes as is consistent with relative stability of principal; this fund
invests primarily in California municipal obligations and has a dollar-
weighted average portfolio maturity of 3 to 10 years.

Excelsior Institutional Trust currently offers Trust Shares in the following
investment portfolios:

Optimum Growth Fund, a fund seeking superior, risk-adjusted total return
through investments in a diversified portfolio of equity securities whose
growth prospects, in the opinion of its investment adviser, appear to exceed
that of the overall market; and

Value Equity Fund, a fund seeking long-term capital appreciation through in-
vestments in a diversified portfolio of equity securities whose market value,
in the opinion of its investment adviser, appears to be undervalued relative
to the marketplace.

An exchange involves a redemption of all or a portion of the Shares in a Fund
and the investment of the redemption proceeds in shares of another portfolio of
the Companies or Excelsior Institutional Trust. The redemption will be made at
the per Share net asset value of the Shares being redeemed next determined af-
ter the exchange request is received in good order. The shares of the portfolio
to be acquired will be purchased at the per share net asset value of those
shares next determined after receipt of the exchange request in good order.

Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in a Fund. For further
information regarding exchange privileges, shareholders should call (800) 446-
1012 (from overseas, call (617) 557-8280). Investors exercising the exchange
privilege with the other portfolios of the Companies or Excelsior Institutional
Trust should request and review the prospectuses of such funds. Such prospec-
tuses may be obtained by calling the numbers listed above. In order to prevent
abuse of this privilege to the disadvantage of other shareholders, Excelsior
Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust reserve the
right to limit the number of exchange requests of Investors and Customers of
Shareholder Organizations to no more than six per year. The Companies may mod-
ify or terminate the exchange program at any time upon 60 days' written notice
to shareholders, and may reject any exchange request.

Exchanges by Telephone. For shareholders who have previously selected the tel-
ephone exchange option, an exchange order may be placed by calling
(800) 446-1012 (from overseas, please call (617) 557-8280). By establishing the
telephone exchange option, a shareholder authorizes CGFSC and the Distributor
to act upon telephone instructions believed to be genuine. THE COMPANIES, EX-
CELSIOR INSTITUTIONAL TRUST, CGFSC AND THE DISTRIBUTOR ARE NOT RESPONSIBLE FOR
THE AUTHENTICITY OF EXCHANGE REQUESTS RECEIVED BY TELEPHONE THAT ARE REASONABLY
BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS
ARE GENUINE, THE COMPANIES AND EXCELSIOR INSTITUTIONAL TRUST WILL USE SUCH PRO-
CEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS
AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.

SYSTEMATIC WITHDRAWAL PLAN

An Investor who owns Shares of a Fund with a value of $10,000 or more may es-
tablish a Systematic Withdrawal Plan. The Investor may request a declining-bal-
ance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an investor must complete the Supplemental Applica-
tion contained in this Prospectus and mail it to CGFSC at the address given
above. Further information on establishing a Systematic Withdrawal Plan may be
obtained by calling (800) 446-1012 (from overseas, call (617) 557-8280).

20
<PAGE>

Shareholder Organizations may, at their discretion, establish similar system-
atic withdrawal plans with respect to the Shares held by their Customers. In-
formation about such plans and the applicable procedures may be obtained by
Customers directly from their Shareholder Organizations.

RETIREMENT PLANS

Shares are available for purchase by Investors in connection with the follow-
ing tax-deferred prototype retirement plans offered by United States Trust
Company of New York:

IRAs (including "rollovers" from existing retirement plans) for individuals
and their spouses;

Profit Sharing and Money-Purchase Plans for corporations and self-employed
individuals and their partners to benefit themselves and their employees; and

Keogh Plans for self-employed individuals.

Investors investing in the Funds pursuant to Profit Sharing and Money-Pur-
chase Plans and Keogh Plans are not subject to the minimum investment and
forced redemption provisions described above. The minimum initial investment
for IRAs is $250 per Fund and the minimum subsequent investment is $50 per
Fund. Detailed information concerning eligibility, service fees and other mat-
ters related to these plans can be obtained by calling (800) 446-1012 (from
overseas, call (617) 557-8280). Customers of Shareholder Organizations may
purchase Shares of the Funds pursuant to retirement plans if such plans are
offered by their Shareholder Organizations.

AUTOMATIC INVESTMENT PROGRAM

The Automatic Investment Program permits Investors to purchase Shares (mini-
mum of $50 per Fund per transaction) at regular intervals selected by the In-
vestor. The minimum initial investment for an Automatic Investment Program ac-
count is $50 per Fund. Provided the Investor's financial institution allows
automatic withdrawals, Shares are purchased by transferring funds from an In-
vestor's checking, bank money market or NOW account designated by the Invest-
or. At the Investor's option, the account designated will be debited in the
specified amount, and Shares will be purchased, once a month, on either the
first or fifteenth day, or twice a month, on both days.

To establish an Automatic Investment account, an Investor must complete the
Supplemental Application contained in this Prospectus and mail it to CGFSC. An
Investor may cancel his participation in this Program or change the amount of
purchase at any time by mailing written notification to CGFSC, P.O. Box 2798,
Boston, MA 02208-2798 and notification will be effective three Business Days
following receipt. The Companies may modify or terminate this privilege at any
time or charge a service fee, although no such fee currently is contemplated.

DIVIDENDS AND DISTRIBUTIONS

The net investment income of the Funds is declared daily as a dividend to the
persons who are shareholders of the respective Funds immediately after the
1:00 p.m. pricing of Shares on the day of declaration. All such dividends are
paid within ten days after the end of each month or within seven days after
the redemption of all of a shareholder's Shares of a Fund. For dividend pur-
poses, a Fund's investment income is reduced by accrued expenses directly at-
tributable to that Fund and the general expenses of the particular Company
prorated to that Fund on the basis of its relative net assets. Net realized
capital gains, if any, are distributed at least annually.

All dividends and distributions paid on Shares held of record by the Invest-
ment Adviser and its affiliates or correspondent banks will be paid in cash.
Direct and Institutional Investors and Customers of other Shareholder Organi-
zations will receive dividends and distributions in additional Shares of the
Fund on which the dividend is paid or the distribution made (as determined on
the payable date), unless they have requested in writing (received by CGFSC at
the Compa-

21
<PAGE>

nies' address prior to the payment date) to receive dividends and distributions
in cash. Reinvested dividends and distributions receive the same tax treatment
as those paid in cash.

TAXES

FEDERAL

Each of the Funds qualified for its last taxable year as a "regulated invest-
ment company" under the Internal Revenue Code of 1986, as amended (the "Code").
Each Fund expects to so qualify in future years. Such qualification generally
relieves a Fund of liability for Federal income taxes to the extent its earn-
ings are distributed in accordance with the Code.

Qualification as a regulated investment company under the Code requires, among
other things, that a Fund distribute to its shareholders an amount equal to at
least the sum of 90% of its investment company taxable income and 90% of its
exempt-interest income (if any) net of certain deductions for each taxable
year. In general, a Fund's investment company taxable income will be its tax-
able income (including interest) subject to certain adjustments and excluding
the excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. The taxable Funds intend to
distribute substantially all of their investment company taxable income each
year. Such dividends will be taxable as ordinary income to Fund shareholders
who are not currently exempt from Federal income taxes, whether such income is
received in cash or reinvested in additional Shares. (Federal income taxes for
distributions to IRAs and qualifying pension plans are deferred under the
Code.) Because all of each Fund's net investment income is expected to be de-
rived from earned interest, it is anticipated that no part of any distributions
will be eligible for the dividends received deduction for corporations.

Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by a Fund on December 31 of such
year in the event such dividends are actually paid during January of the fol-
lowing year.

The Tax-Exempt Money Fund: The Tax-Exempt Money Fund's policy is to pay divi-
dends each year equal to at least the sum of 90% of its net exempt-interest in-
come and 90% of its investment company taxable income, if any. Dividends de-
rived from exempt-interest income ("exempt-interest dividends") may be treated
by the Fund's shareholders as items of interest excludable from their gross in-
come under Section 103(a) of the Code, unless, under the circumstances applica-
ble to the particular shareholder, exclusion would be disallowed. (See State-
ment of Additional Information under "Additional Information Concerning Tax-
es.")

If the Tax-Exempt Money Fund should hold certain "private activity bonds" is-
sued after August 7, 1986, the portion of dividends paid by the Fund which is
attributable to interest on such bonds must be included in a shareholder's Fed-
eral alternative minimum taxable income, as an item of tax preference, for the
purpose of determining liability (if any) for the 26% to 28% alternative mini-
mum tax for individuals and the 20% alternative minimum tax and the environmen-
tal tax applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of .12% on the excess of
the corporation's modified Federal alternative minimum taxable income over $2
million. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the tax-
ability of such benefits.

Dividends payable by the Tax-Exempt Money Fund which are derived from taxable
income or from long-term or short-term capital gains will be subject to Federal
income tax, whether such dividends are paid in the form of cash or additional
Shares.

If a shareholder holds Shares of the Tax-Exempt Money Fund for six months or
less and during that

22
<PAGE>

time receives an exempt-interest dividend on those Shares, any loss recognized
on the sale or exchange of those Shares will be disallowed to the extent of
the exempt-interest dividend.

STATE AND LOCAL

The Treasury Money Fund is structured to provide shareholders, to the extent
permissible by Federal and state law, with income that is exempt or excluded
from taxation at the state and local level. Most states--by statute, judicial
decision or administrative action--have taken the position that dividends of a
regulated investment company such as the Treasury Money Fund that are attrib-
utable to interest on obligations of the U.S. Treasury and certain U.S. Gov-
ernment agencies and instrumentalities (including those authorized for pur-
chase by the Fund) are the functional equivalent of interest from such obliga-
tions and are, therefore, exempt from state and local income taxes. As a re-
sult, substantially all dividends paid by the Treasury Money Fund to share-
holders residing in those states will be exempt or excluded from state income
tax.

Nevertheless in some jurisdictions, exempt-interest dividends and other dis-
tributions paid by the Tax-Exempt Money Fund may be taxable to shareholders
under state or local law as dividend income, even though all or a portion of
such distributions is derived from interest on tax-exempt obligations which,
if realized directly, would be exempt from such income taxes.

MISCELLANEOUS

The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situa-
tions. Shareholders will be advised annually as to the Federal income tax con-
sequences of distributions made each year.

MANAGEMENT OF THE FUNDS

The business and affairs of the Funds are managed under the direction of the
Companies' Boards of Directors. The Statement of Additional Information con-
tains the names of and general background information concerning the Compa-
nies' directors.

INVESTMENT ADVISER

United States Trust Company of New York ("U.S. Trust New York") and U.S.
Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively with
U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as the
Investment Adviser to the Funds. U.S. Trust New York is a state-chartered bank
and trust company and a member bank of the Federal Reserve System and is one
of the twelve members of the New York Clearing House Association. U.S. Trust
Connecticut is a Connecticut state bank and trust company. U.S. Trust New York
and U.S. Trust Connecticut are wholly-owned subsidiaries of U.S. Trust Corpo-
ration, a registered bank holding company.

The Investment Adviser provides trust and banking services to individuals,
corporations, and institutions both nationally and internationally, including
investment management, estate and trust administration, financial planning,
corporate trust and agency banking, and personal and corporate banking. On De-
cember 31, 1996, the Asset Management Groups of U.S. Trust New York and U.S.
Trust Connecticut had approximately $53 billion in aggregate assets under man-
agement. U.S. Trust New York has its principal offices at 114 W. 47th Street,
New York, New York 10036. U.S. Trust Connecticut has its principal offices at
225 High Ridge Road, East Building, Stamford, Connecticut 06905.

The Investment Adviser manages each Fund, makes decisions with respect to and
places orders for all purchases and sales of its portfolio securities, and
maintains records relating to such purchases and sales. For the services pro-
vided and expenses assumed pursuant to its Investment Advisory Agreements, the
Investment

23
<PAGE>

Adviser is entitled to a fee, computed daily and paid monthly, at the annual
rate of .25% of the average daily net assets of each of the Money, Government
Money and Tax-Exempt Money Funds. For the services provided and expenses as-
sumed with respect to the Treasury Money Fund, the Investment Adviser is enti-
tled to a fee, computed daily and paid monthly, at the annual rate of .30% of
the Fund's average daily net assets.

Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the Funds pursuant to advisory agreements substantially similar to the Invest-
ment Advisory Agreements currently in effect for the Funds. For the fiscal
year ended March 31, 1997, U.S. Trust New York received an advisory fee at the
effective annual rates of .19%, .21%, .28% and .20% of the average daily net
assets of the Money, Government Money, Treasury Money and Tax-Exempt Money
Funds, respectively. For the same period, U.S. Trust New York waived advisory
fees at the effective annual rates of .06%, .04%, .02% and .05% of the average
daily net assets of the Money, Government Money, Treasury Money and Tax-Exempt
Money Funds, respectively.

From time to time, the Investment Adviser may voluntarily waive all or a
portion of the advisory fees payable to it by a Fund, which waiver may be ter-
minated at any time. See "Management of the Funds--Shareholder Organizations"
for additional information on fee waivers.

ADMINISTRATORS

CGFSC, Federated Administrative Services and U.S. Trust Connecticut serve as
the Funds' administrators (the "Administrators") and provide them with general
administrative and operational assistance. The Administrators also serve as
administrators of the other portfolios of the Companies and of all the portfo-
lios of Excelsior Institutional Trust, which are also advised by the Invest-
ment Adviser and its affiliates and distributed by the Distributor. For the
services provided to all portfolios of the Companies and Excelsior Institu-
tional Trust (except the international portfolios of Excelsior Fund and Excel-
sior Institutional Trust), the Administrators are entitled jointly to annual
fees, computed daily and paid monthly, based on the combined aggregate average
daily net assets of the Companies and Excelsior Institutional Trust (excluding
the international portfolios of Excelsior Fund and Excelsior Institutional
Trust) as follows:

<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY NET ASSETS OF BOTH
COMPANIES AND EXCELSIOR INSTITUTIONAL TRUST (EXCLUDING THE
INTERNATIONAL PORTFOLIOS OF EXCELSIOR FUND
AND EXCELSIOR INSTITUTIONAL TRUST) ANNUAL FEE
---------------------------------------------------------- ----------
<S> <C>
first $200 million.................................................. .200%
next $200 million................................................... .175%
over $400 million................................................... .150%
</TABLE>

Administration fees payable to the Administrators by each portfolio of the
Companies and of 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. See "Management of the Funds--Shareholder Organizations" for ad-
ditional information on fee waivers.

SHAREHOLDER ORGANIZATIONS

As described above under "Purchase of Shares," each Company has agreements
with certain Shareholder Organizations--firms that provide services, which may
include acting as record shareholder, to their Customers who beneficially own
Shares. As a consideration for these services, a Fund will pay the Shareholder
Organization an administrative service fee up

24
<PAGE>

to the annual rate of .40% of the average daily net asset value of its Shares
held by the Shareholder Organization's Customers. Such services, which are de-
scribed more fully in the Statement of Additional Information under "Manage-
ment of the Funds--Shareholder Organizations," may include assisting in
processing purchase, exchange and redemption requests; transmitting and re-
ceiving funds in connection with Customer orders to purchase, exchange or re-
deem Shares; and providing periodic statements. It is the responsibility of
Shareholder Organizations to advise Customers of any fees that they may charge
in connection with a Customer's investment. Until further notice, the Invest-
ment Adviser and Administrators have voluntarily agreed to waive fees payable
by a Fund in an aggregate amount equal to administrative service fees payable
by that Fund.

BANKING LAWS

Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a regis-
tered, open-end investment company continuously engaged in the issuance of its
shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Shares of the Funds, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks gen-
erally from acting as investment adviser, transfer agent, or custodian to such
an investment company, or from purchasing shares of such company for and upon
the order of customers. The Investment Adviser, CGFSC and certain Shareholder
Organizations may be subject to such banking laws and regulations. State secu-
rities laws may differ from the interpretations of Federal law discussed in
this paragraph and banks and financial institutions may be required to regis-
ter as dealers pursuant to state law.

Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Investment Adviser and such
Shareholder Organizations might be required to alter materially or discontinue
the investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Funds' method of operations would
affect their net asset values per Share or result in financial loss to any
shareholder.

DESCRIPTION OF CAPITAL STOCK

Excelsior Fund (formerly UST Master Funds, Inc.) was organized as a Maryland
corporation on August 2, 1984. Currently, Excelsior Fund has authorized capi-
tal of 35 billion shares of Common Stock, $.001 par value per share, classi-
fied into 40 series of shares representing interests in 20 investment portfo-
lios. Excelsior Fund's Charter authorizes the Board of Directors to classify
or reclassify any class of shares of Excelsior Fund into one or more classes
or series. Shares of Class A, Class B and Class G represent interests in the
Money Fund, Government Money Fund and Treasury Money Fund Funds, respectively.

Excelsior Tax-Exempt Fund (formerly UST Master Tax-Exempt Funds, Inc.) was
organized as a Maryland corporation on August 8, 1984. Currently, Excelsior
Tax-Exempt Fund has authorized capital of 14 billion shares of Common Stock,
$.001 par value per share, classified into 6 classes of shares representing 6
investment portfolios currently being offered. Excelsior Tax-Exempt Fund's
Charter authorizes the Board of Directors to classify or reclassify any class
of shares of Excelsior Tax-Exempt Fund into one or more classes or series.
Shares of Class A Common Stock represent interests in the Tax-Exempt Money
Fund's Shares.

Each Share 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.

25
<PAGE>

Shareholders are entitled to one vote for each full share held, and frac-
tional votes for fractional shares held, and will vote in the aggregate and
not by class, except as otherwise expressly required by law.

Certificates for Shares will not be issued unless expressly requested in
writing to CGFSC and will not be issued for fractional Shares.

As of July 14, 1997, U.S. Trust and its affiliates held of record substan-
tially 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 shares.

CUSTODIAN AND TRANSFER AGENT

The Chase Manhattan Bank ("Chase"), a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Funds' assets. Communi-
cations to the custodian should be directed to Chase, Mutual Funds Service Di-
vision, 3 Chase MetroTech Center, 8th Floor, Brooklyn, NY 11245.

U.S. Trust New York serves as the Funds' transfer and dividend disbursing
agent. U.S. Trust New York has also entered into a sub-transfer agency ar-
rangement with CGFSC, 73 Tremont Street, Boston, Massachusetts 02108-3913,
pursuant to which CGFSC provides certain transfer agent, dividend disbursement
and registrar services to the Funds.

YIELD INFORMATION

From time to time, in advertisements or in reports to shareholders, the
yields of the Funds may be quoted and compared to those of other mutual funds
with similar investment objectives and to other relevant indexes or to
rankings prepared by independent services or other financial or industry pub-
lications that monitor the performance of mutual funds. For example, the
yields of the Funds may be compared to the applicable averages compiled by
Donoghue's Money Fund Report, a widely recognized independent publication that
monitors the performance of money market 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.

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.

Each Fund may advertise its Shares' seven-day yield which refers to the in-
come generated over a particular seven-day period identified in the advertise-
ment 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 ad-
vertise the "effective yields" of Shares which are calculated similarly but,
when annualized, income is assumed to be reinvested, thereby making the effec-
tive yields slightly higher because of the compounding effect of the assumed
reinvestment.

In addition, the Tax-Exempt Money Fund may from time to time advertise the
"tax-equivalent yields" of Shares to demonstrate the level of taxable yield
necessary to produce an after-tax yield equivalent to that achieved by the
Fund. This yield is computed by increasing the yields of the Fund's Shares
(calculated as above) by the amount necessary to reflect the payment of Fed-
eral income taxes at a stated tax rate.

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 necessarily be used to compare an investment in the Funds with
bank deposits, savings accounts and similar investment alternatives which of-
ten provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that yield is gen-

26
<PAGE>

erally a function of the kind and quality of the instruments held in a portfo-
lio, 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.

MISCELLANEOUS

Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds'
independent auditors.

The staff of the SEC has expressed the view that the use of this combined
Prospectus for the Funds may subject the Funds to liability for losses arising
out of any statement or omission regarding a particular Fund. The Companies do
not believe, however, that such risk is significant under the circumstances.

As used in this Prospectus, a "vote of the holders of a majority of the out-
standing 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 in-
vestment 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 outstand- ing shares of such Company or such Fund are represented at the
meeting in person or by proxy.

Inquiries regarding any of the Funds may be directed to the Distributor at
the address listed under "Distributor."

27
<PAGE>

INSTRUCTIONS FOR NEW ACCOUNT APPLICATION

OPENING YOUR ACCOUNT:

Complete the Application(s) and mail to: FOR OVERNIGHT DELIVERY: send to:

Excelsior Funds Excelsior Funds
c/o Chase Global Funds Services c/o Chase Global Funds Services
Company Company
P.O. Box 2798 73 Tremont Street
Boston, MA 02208-2798 Boston, MA 02108-3913

Please enclose with the Application(s) your check made payable to the "Ex-
celsior Funds" in the amount of your investment.

For direct wire purchases please refer to the section of the Prospectus en-
titled "How to Purchase and Redeem Shares--Purchase Procedures."

MINIMUM INVESTMENTS:

Except as provided in the Prospectus, the minimum initial investment is $500
per Fund; subsequent investments must be in the minimum amount of $50 per
Fund. Investments may be made in excess of these minimums.

REDEMPTIONS:

Shares can be redeemed in any amount and at any time in accordance with pro-
cedures described in the Prospectus. In the case of shares recently purchased
by check, redemption proceeds will not be made available until the transfer
agent is reasonably assured that the check has been collected in accordance
with applicable banking regulations.

Certain legal documents will be required from corporations or other organi-
zations, executors and trustees, or if redemption is requested by anyone other
than the shareholder of record. Written redemption requests in excess of
$50,000 per account must be accompanied by signature guarantees.

SIGNATURES: Please be sure to sign the Application(s).

If the shares are registered in the name of:
- an individual, the individual should sign.
- joint tenants, both tenants should sign.
- a custodian for a minor, the custodian should sign.
- a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).*
- a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).*
* A corporate resolution or appropriate certificate may be required.

QUESTIONS:

If you have any questions regarding the Application or redemption require-
ments, please contact the sub-transfer agent at (800) 446-1012 between 9:00
a.m. and 5:00 p.m. (Eastern Time).

28
<PAGE>

[LOGO] EXCELSIOR CHASE GLOBAL FUNDS SERVICES COMPANY NEW
FUNDS INC. CLIENT SERVICES ACCOUNT
TAX-EMEMPT FUNDS, INC P.O. Box 2798 APPLICATION
Boston, MA 02208-2798
(800) 446-1012
-----------------------------------------------------------------------------

-----------------------------------------------------------------------------
ACCOUNT REGISTRATION
-----------------------------------------------------------------------------
[_] Individual [_] Joint Tenants [_] Trust [_] Gift/Transfer to Minor
[_] Other ___________________________

Note: Joint tenant registration will be as "joint tenants
with right of survivorship" unless otherwise specified. Trust
registrations should specify name of the trust, trustee(s),
beneficiary(ies), and the date of the trust instrument.
Registration for Uniform Gifts/Transfers to Minors should be
in the name of one custodian and one minor and include the
state under which the custodianship is created (using the
minor's Social Security Number ("SSN")). For IRA accounts a
different application is required.

------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
Identification #

( )
------------------------------ -----------------------------
Name Telephone #

------------------------------
Address
[_] U.S. Citizen
[_] Other (specify)
------------------------------ ----------
City/State/Zip Code

-----------------------------------------------------------------------------
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 PER
FUND AND $50 PER FUND, RESPECTIVELY. MAKE CHECKS PAYABLE TO "EXCELSIOR
FUNDS.")
-----------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
INITIAL INVESTMENT INITIAL INVESTMENT
[_] Money Fund $ ____________ 803 [_] Government Money Fund $ ____________ 804
[_] Tax-Exempt Money Fund $ ____________ 806 [_] Treasury Money Fund $ ____________ 811
[_] Other______________ $ ____________
TOTAL INITIAL INVESTMENT: $ __________________
</TABLE>

NOTE: If investing A. BY MAIL: Enclosed is a check in the
by wire, you must amount of $ _____ payable to "Excelsior
obtain a Bank Wire Funds."
Control Number. To B. BY WIRE: A bank wire in the amount
do so, please call of $ has been sent to the Fund from
(800) 446-1012 and
ask for the Wire ------------------ ---------------
Desk. Name of Bank Wire Control
Number

CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and
dividend distributions will be reinvested in additional
shares unless appropriate boxes below are checked:

[_] All dividends are to be [_] reinvested [_] paid in cash
[_] All capital gains are to be [_] reinvested [_] paid in cash

-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------

TELEPHONE EXCHANGE AND AUTHORITY TO TRANSMIT
REDEMPTION REDEMPTION PROCEEDS TO PRE-
DESIGNATED ACCOUNT.
[_] I/We appoint CGFSC as I/We hereby authorize CGFSC to
my/our agent to act upon act upon instructions received
instructions received by by telephone to withdraw $500
telephone in order to effect or more from my/our account in
the telephone exchange and the Excelsior Funds and to
redemption privileges. I/We wire the amount withdrawn to
hereby ratify any the following commercial bank
instructions given pursuant account. I/We understand that
to this authorization and CGFSC charges an $8.00 fee for
agree that Excelsior Fund, each wire redemption, which
Excelsior Tax-Exempt Fund, will be deducted from the
Excelsior Institutional proceeds of the redemption.
Trust, CGFSC and their
directors, trustees, officers Title on Bank Account*_________
and employees will not be
liable for any loss, Name of Bank __________________
liability, cost or expense
for acting upon instructions Bank A.B.A. Number ____________
believed to be genuine and
in accordance with the Account Number ________________
procedures described in the
then current Prospectus. To Bank Address __________________
the extent that Excelsior
Fund, Excelsior Tax-Exempt City/State/Zip Code ___________
Fund and Excelsior (attach voided check here)
Institutional Trust fail to
use reasonable procedures as A corporation, trust or
a basis for their belief, partnership must also submit a
they or their service "Corporate Resolution" (or
contractors may be liable "Certificate of Partnership")
for instructions that prove indicating the names and
to be fraudulent or titles of officers authorized
unauthorized. to act on its behalf.
* TITLE ON BANK AND FUND
I/We further acknowledge ACCOUNT MUST BE IDENTICAL.
that it is my/our
responsibility to read the
Prospectus of any Fund into
which I/we exchange.

[_] I/We do not wish to have
the ability to exercise
telephone redemption and
exchange privileges. I/We
further understand that all
exchange and redemption
requests must be in writing.

SPECIAL PURCHASE AND
REDEMPTION PLANS
I/We have completed and
attached the Supplemental
Application for:

[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan
<PAGE>

- --------------------------------------------------------------------------------
CHECK WRITING PRIVILEGE
- --------------------------------------------------------------------------------
[_] I/We wish to take advantage of the check writing privilege
and have signed and attached the Check Writing Signature
Card to this application.
[_] I/We do not wish to take advantage of the check writing
privilege at this time, but I/we may elect to do so at a
later date.

SIGNATURE CARD SIGNATURE REQUIREMENTS. If the shares are
registered in the name of:

. AN INDIVIDUAL, the individual must sign the Card.

. JOINT ACCOUNT, both individuals must sign the Card.

. INSTITUTIONAL ACCOUNT, an officer must sign the Card
indicating corporate, trust or partnership office or title.

. TRUST ACCOUNT, trustee or other fiduciary must sign the
Card indicating capacity.

. CUSTODIAN FOR MINOR, custodian must sign the Card.
- --------------------------------------------------------------------------------
AGREEMENTS AND SIGNATURES
- --------------------------------------------------------------------------------

By signing this application, I/we hereby certify under
penalty of perjury that the information on this application
is complete and correct and that as required by Federal law:

[_] I/WE CERTIFY THAT (1) THE NUMBER(S) SHOWN ON THIS FORM
IS/ARE THE CORRECT TAXPAYER IDENTIFICATION NUMBER(S) AND (2)
I/WE ARE NOT SUBJECT TO BACKUP WITHHOLDING EITHER BECAUSE
I/WE HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE
THAT I/WE ARE SUBJECT TO BACKUP WITHHOLDING, OR THE IRS HAS
NOTIFIED ME/US THAT I AM/WE ARE NO LONGER SUBJECT TO BACKUP
WITHHOLDING. (NOTE: IF ANY OR ALL OF PART 2 IS NOT TRUE,
PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)

[_] IF NO TAXPAYER IDENTIFICATION NUMBER ("TIN") OR SSN HAS
BEEN PROVIDED ABOVE, I/WE HAVE APPLIED, OR INTEND TO APPLY,
TO THE IRS OR THE SOCIAL SECURITY ADMINISTRATION FOR A TIN OR
A SSN, AND I/WE UNDERSTAND THAT IF I/WE DO NOT PROVIDE THIS
NUMBER TO CGFSC WITHIN 60 DAYS OF THE DATE OF THIS
APPLICATION, OR IF I/WE FAIL TO FURNISH MY/OUR CORRECT SSN OR
TIN, I/WE MAY BE SUBJECT TO A PENALTY AND A 31% BACKUP
WITHHOLDING ON DISTRIBUTIONS AND REDEMPTION PROCEEDS. (PLEASE
PROVIDE THIS NUMBER ON FORM W-9. YOU MAY REQUEST THE FORM BY
CALLING CGFSC AT THE NUMBER LISTED ABOVE).

I/We represent that I am/we are of legal age and capacity to
purchase shares of the Excelsior Funds. I/We have received,
read and carefully reviewed a copy of the appropriate Fund's
current Prospectus and agree to its terms and by signing
below I/we acknowledge that neither the Fund nor the
Distributor is a bank and that Fund shares are not deposits
or obligations of, or guaranteed or endorsed by, U.S. Trust,
its parent or affiliates and Fund 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; that while the Funds seek to maintain
their net asset value per share at $1.00 for purposes of
purchases and redemptions, there can be no assurance that
they will be able to do so on a continuous basis; and
investment in the Funds involves investment risk, including
the possible loss of the principal amount invested.

THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO
ANY PROVISIONS OF THIS FORM OTHER THAN THE CERTIFICATIONS
REQUIRED TO AVOID BACKUP WITHHOLDING.

X ___________________________ Date __________________________
Owner Signature

X ___________________________ Date __________________________
Co-Owner Signature

Sign exactly as name(s) of registered owner(s) appear(s) above
(including legal title if signing for a corporation, trust
custodial account, etc.)

- --------------------------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
- --------------------------------------------------------------------------------
We hereby submit this application for the purchase of shares
in accordance with the terms of our selling agreement with
Edgewood Services, Inc., and with the Prospectus and
Statement of Additional Information of each Fund purchased.

----------------------------- -------------------------------
Investment Dealer's Name Source of Business Code

----------------------------- -------------------------------
Main Office Address Branch Number

----------------------------- -------------------------------
Representative's Number Representative's Name

----------------------------- -------------------------------
Branch Address Telephone

----------------------------- -------------------------------
Investment Dealer's Title
Authorized Signature
<PAGE>

[LOGO] EXCELSIOR CHASE GLOBAL FUNDS SERVICES COMPANY SUPPLEMENTAL
FUNDS INC. CLIENT SERVICES APPLICATION
TAX-EXEMPT P.O. Box 2798 SPECIAL INVESTMENT AND
FUNDS, INC. Boston, MA 02208-2798 WITHDRAWAL OPTIONS
(800) 446-1012
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
-----------------------------------------------------------------------------
Fund Name __________________ Account Number _________________
Owner Name _________________ Social Security or Taxpayer ID
Street Address _____________ Number _________________________
Resident City, State, Zip Code __________
of [_] U.S. [_] Other ____ [_] Check here if this is a change of address
-----------------------------------------------------------------------------
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
-----------------------------------------------------------------------------
A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash

B. PAYMENT ORDER: Complete only if distribution checks are to be payable
to another party. Make distribution checks payable to:

Name of Your Bank ______________
Name _______________________ Bank Account Number ____________
Address ____________________ Address of Bank ________________
City, State, Zip Code ________________________________________

From: ______________________ Account No. ____________________
(Fund)
To: ________________________ Account No. ____________________
(Fund)
-----------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN [_] YES [_] NO
-----------------------------------------------------------------------------
I/We hereby authorize CGFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable net asset value determined
on that day.

[_] Monthly on the 1st day
[_] Monthly on the 15th day
[_] Monthly on both the 1st and 15th days

Amount of each debit (minimum $50 per Fund) $ ________________________

NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
-----------------------------------------------------------------------------
EXCELSIOR FUNDS
CLIENT SERVICES AUTOMATIC INVESTMENT PLAN
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
BANK AUTHORIZATION
-----------------------------------------------------------------------------

-------------------- ----------------------------------------
Bank Name Bank Address Bank Account Number

I/We authorize you, the above named bank, to debit my/our
account for amounts drawn by CGFSC, acting as my agent for
the purchase of Fund shares. I/We agree that your rights in
respect to each withdrawal shall be the same as if it were a
check drawn upon you and signed by me/us. This authority
shall remain in effect until revoked in writing and received
by you. I/We agree that you shall incur no liability when
honoring debits, except a loss due to payments drawn against
insufficient funds. I/We further agree that you will incur no
liability to me if you dishonor any such withdrawal. This
will be so even though such dishonor results in the
cancellation of that purchase.

---------------------------- --------------------------------
Account Holder's Name Joint Account Holder's Name

X ________________ ________ X __________________ ___________
Signature Date Signature Date

<PAGE>

- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN [_] YES [_] NO NOT AVAILABLE FOR IRA'S
- --------------------------------------------------------------------------------

AVAILABLE TO SHAREHOLDERS WITH ACCOUNT BALANCES OF $10,000 OR
MORE.
I/We hereby authorize CGFSC to redeem the necessary number of
shares from my/our Excelsior Fund Account on the designated
dates in order to make the following periodic payments:

[_] Monthly on the 24th day
[_] Quarterly on the 24th day of January, April, July and October
[_] Other ____________________

(This request for participation in the Plan must be received
by the 18th day of the month in which you wish withdrawals to
begin.)

Amount of each check ($100 minimum) $ _______________________

Please make check payable to: (To be completed only if
redemption proceeds to be paid to other than account
holder of record or mailed to address other than address
of record)

Recipient ________________________________

Street Address ___________________________

City, State, Zip Code ____________________

NOTE: If recipient of checks is not the registered
shareholder, signature(s) below must be guaranteed. A
corporation, trust or partnership must also submit a
"Corporate Resolution" (or "Certification of Partnership")
indicating the names and titles of officers authorized to act
on its behalf.

- --------------------------------------------------------------------------------
AGREEMENT AND SIGNATURES
- --------------------------------------------------------------------------------

The investor(s) certifies and agrees that the certifications,
authorizations, directions and restrictions contained herein
will continue until CGFSC receives written notice of any
change or revocation. Any change in these instructions must
be in writing with all signatures guaranteed (if applicable).

Date ______________________

X X
------------------------------- -----------------------------

Signature Signature
------------------------------- -----------------------------
Signature Guarantee* Signature Guarantee*
(if applicable) (if applicable)

X X
------------------------------- -----------------------------
Signature Signature

------------------------------- -----------------------------
Signature Guarantee* Signature Guarantee*
(if applicable) (if applicable)

- --------------------------------------------------------------------------------

Attach Copy of Voided Check Here
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY............................................................ 2
FINANCIAL HIGHLIGHTS....................................................... 3
INVESTMENT OBJECTIVES AND POLICIES......................................... 7
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION..................... 8
INVESTMENT LIMITATIONS..................................................... 12
PRICING OF SHARES.......................................................... 13
HOW TO PURCHASE AND REDEEM SHARES.......................................... 14
INVESTOR PROGRAMS.......................................................... 18
DIVIDENDS AND DISTRIBUTIONS................................................ 21
TAXES...................................................................... 22
MANAGEMENT OF THE FUNDS.................................................... 23
DESCRIPTION OF CAPITAL STOCK............................................... 25
CUSTODIAN AND TRANSFER AGENT............................................... 26
YIELD INFORMATION.......................................................... 26
MISCELLANEOUS.............................................................. 27
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................... 28
</TABLE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' STATEMENT OF ADDI-
TIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OF-
FERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REP-
RESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANIES
OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
COMPANIES OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.

USTMMP897

[LOGO]
FUNDS INC.
TAX-EXEMPT FUNDS, INC

MONEY FUND
GOVERNMENT MONEY FUND
TREASURY MONEY FUND
TAX-EXEMPT MONEY FUND

Prospectus
August 1, 1997
<PAGE>

GINTEL [LOGO] EXCELSIOR
FUNDS INC.
TAX-EXEMPT FUNDS, INC.

AVAILABLE THROUGH THE GINTEL GROUP

- --------------------------------------------------------------------------------
Money Fund For purchase or account information, call
Government Money Fund (800) 344-3092. For current prices and yield
Treasury Money Fund information, call (800) 759-4171. (From
Tax-Exempt Money Fund overseas, call (617) 482-9300.)

This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1997 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to the address shown above or by calling (800) 446-1012. The
Statement of Additional Information, as it may be supplemented from time to
time, is incorporated by reference in its entirety into this Prospectus. The
Securities and Exchange Commission maintains a World Wide Web site
(http://www.sec.gov.) that contains the Statement of Additional Information and
other information regarding the Companies.

TABLE OF CONTENTS

USTMMP897

Gintel

MONEY FUND

GOVERNMENT MONEY FUND

EXCELSIOR FUNDS, INC.
AVAILABLE THROUGH THE GINTEL GROUP

PROSPECTUS

AUGUST 1, 1997

TREASURY MONEY FUND

TAX-EXEMPT MONEY FUND

EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
AVAILABLE THROUGH EDGEWOOD SERVICES, INC.

GINTEL & CO.
6 GREENWICH OFFICE PARK
GREENWICH, CT 06831

TOLL FREE
(800) 344-3092
<PAGE>

CHECK WRITING SIGNATURE CARD EXCELSIOR FUNDS, INC.
MONEY FUND AND GOVERNMENT MONEY FUND

By signing on the reverse, I/we hereby appoint as agent The Chase Manhattan
Bank ("Chase") and, as such agent, Chase is hereby authorized and directed,
upon presentment of check(s), to request the redemption of shares of the
applicable Fund registered in my/our name(s) in the amount of such check(s)
drawn on my/our Fund account. I/We further authorize Chase Global Funds
Services Company ("CGFSC"), the sub-transfer agent, to accept and execute
instructions relating to this check writing privilege. I/We agree that Chase
and CGFSC, acting as agents on my/our behalf in connection with the foregoing
check writing privileges, shall be liable only for their own willful
misfeasance, bad faith or gross negligence.

I/We acknowledge that this check writing arrangement is subject to the
applicable terms and restrictions, including charges, set forth in the current
Prospectus for each Fund with respect to which I/we have arranged to redeem
Fund shares by check writing. I/We understand and agree to be bound and
subject to Chase's rules, regulations and associated laws governing check
collection, as amended from time to time.

Stop payment instructions must be given to CGFSC by calling toll-free (800)
446-1012.

To take advantage of the check writing privilege, please complete the
Signature Card on the reverse. Each person signing below guarantees the
genuineness of the other's signature. You will receive a supply of checks
approximately 3 weeks after this application is processed.
<PAGE>

Account Number ______________________ FUND
----
______________ _______________ _____
Last Name First M.I. [_] Money Fund

Last Name First M.I. [_] Government
Money Fund

By signing this Signature Card, the undersigned agree(s) that check writing
privileges will be subject to the instructions and rules of Excelsior Fund,
Excelsior Tax-Exempt Fund and Chase, as now in effect and as amended from time
to time, as they pertain to the use of redemption checks.
(Please use black ink)

[_] Check here if both signatures required on checks.
______________ [_] Check here if only one signature required on checks.
Signature

______________ If neither box is checked, all checks will require both
Joint Signature signatures.

EXCELSIOR FUNDS, INC.
<PAGE>

CHECK WRITING SIGNATURE CARD EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.

Stop payment instructions must be given to CGFSC by calling toll-free (800)
446-1012.

Account Number ______________________ FUND
----
_________________ ______________ ____ [_] Money Fund [_] Tax-Exempt Money
Last Name First M.I. Fund

_________________ ______________ ____ [_] Government [_] Treasury
Last Name First M.I. Money Fund Money Fund

By signing this Signature Card, the undersigned agree(s) that
check writing privileges will be subject to the instructions
and rules of Excelsior Fund, Excelsior Tax-Exempt Fund and
Chase, as now in effect and as amended from time to time, as
they pertain to the use of redemption checks.

(Please use black ink) [_] Check here if both signatures
required on checks.
[_] Check here if only one signature
required on checks.
_____________________________________ If neither box is checked, all checks
Signature will require both signatures.

_____________________________________
Joint Signature
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
<PAGE>

[LOGO]
EXCELSIOR
FUNDS INC.

Excelsior Fixed-Income Funds

- --------------------------------------------------------------------------------
73 Tremont Street For initial purchase information, current
Boston, Massachusetts 02108-3913 prices, yield and performance information
and existing account information, call (800)
446-1012. (From overseas, call (617) 557-
8280.)
- --------------------------------------------------------------------------------
This Prospectus describes three separate portfolios offered to investors by Ex-
celsior Funds, Inc. ("Excelsior Fund"), an open-end management investment com-
pany. Each portfolio (individually, a "Fund" and collectively, the "Funds") has
its own investment objective and policies as follows:

SHORT-TERM GOVERNMENT SECURITIES FUND'S investment objective is to seek a high
level of current income consistent with stability of principal by investing
principally in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements collateralized by such
obligations. As a result, the interest income on such investments generally
should be exempt from state and local personal income taxes in most states. The
Fund will generally have a dollar-weighted average portfolio maturity of one to
three years.

INTERMEDIATE-TERM MANAGED INCOME FUND'S investment objective is to seek as
high a level of current interest income consistent with relative stability of
principal by investing principally in investment grade or better debt obliga-
tions and money market instruments. The Fund will ordinarily have a dollar-
weighted average portfolio maturity of three to ten years.

MANAGED INCOME FUND'S investment objective is to seek higher current income
consistent with what is believed to be prudent risk of capital. Subject to this
investment objective, the Fund's investment adviser will consider the total
rate of return on portfolio securities in managing the Fund. Under normal mar-
ket or economic conditions, the Fund will invest a majority of its assets in
investment grade debt obligations and money market instruments.

This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1997 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to Excelsior Fund at its address shown above or by calling
(800) 446-1012. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus. The Securities and Exchange Commission maintains a World Wide
Web site (http://www.sec.gov) that contains the Statement of Additional Infor-
mation and other information regarding Excelsior Fund.

SHARES IN THE FUNDS ("SHARES") ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, U.S. TRUST, ITS PARENT AND AFFILIATES AND THE SHARES ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED
BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.

AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.

August 1, 1997
<PAGE>

PROSPECTUS SUMMARY

EXCELSIOR FUNDS, INC. is an investment company offering various investment
portfolios with differing objectives and policies. Founded in 1984, Excelsior
Fund currently offers 20 Funds with combined assets of approximately $3 bil-
lion. See "Description of Capital Stock."

INVESTMENT ADVISER: United States Trust Company of New York and U.S. Trust
Company of Connecticut (collectively, "U.S. Trust" or the "Investment Advis-
er"), serve as the Funds' investment adviser. U.S. Trust offers a variety of
specialized financial and fiduciary services to high-net worth individuals,
institutions and corporations. Excelsior Fund offers investors access to U.S.
Trust's services. See "Management of the Funds--Investment Adviser."

INVESTMENT OBJECTIVES AND POLICIES: Generally, the Short-Term Government Se-
curities Fund is a diversified investment portfolio which invests principally
in obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and the Intermediate-Term Managed Income and Managed Income
Funds are diversified investment portfolios which invest principally in in-
vestment grade or better debt obligations. The Funds' investment objectives
and policies are summarized on the cover and explained in greater detail later
in this Prospectus. See "Investment Objectives and Policies," "Portfolio In-
struments and Other Investment Information" and "Investment Limitations."

HOW TO INVEST: The Funds' Shares are offered at their net asset value. Ex-
celsior Fund does not impose a sales load on purchases of Shares. See "How to
Purchase and Redeem Shares."

The minimum initial investment is $500 per Fund, and the minimum subsequent
investment is $50 per Fund. The easiest way to invest is to complete the ac-
count application which accompanies this Prospectus and to send it with a
check to the address noted on the application. Investors may also invest by
wire and through investment dealers or institutional investors with appropri-
ate sales agreements with Excelsior Fund. See "How to Purchase and Redeem
Shares."

HOW TO REDEEM: Redemptions may be requested directly from Excelsior Fund by
mail, wire or telephone. Investors investing through another institution
should request redemptions through their Shareholder Organization. See "How to
Purchase and Redeem Shares."

INVESTMENT RISKS AND CHARACTERISTICS: Generally, each Fund is affected di-
rectly by credit markets and fluctuations in interest rates. Although each
Fund generally seeks to invest for the long term, each Fund may engage in
short-term trading of portfolio securities. A high rate of portfolio turnover
may involve correspondingly greater transaction costs which must be borne di-
rectly by a Fund and ultimately by its shareholders. Investments in non-in-
vestment grade obligations may subject the Intermediate-Term Managed Income
and Managed Income Funds to increased risk of loss upon default. Such securi-
ties are generally unsecured, are often subordinated debt and are often issued
by entities with high levels of indebtedness and that are more sensitive to
adverse economic conditions. Investments in the obligations of foreign issuers
may subject the Intermediate-Term Managed Income and Managed Income Funds to
additional investment risks, including fluctuations in foreign exchange rates,
future political and economic developments and the possible imposition of ex-
change controls or other foreign governmental laws or restrictions. See "In-
vestment Policies Common to Intermediate-Term Managed Income and Managed In-
come Funds--Risk Factors." Investment in the Funds should not be considered a
complete investment program.

2
<PAGE>

EXPENSE SUMMARY

<TABLE>
<CAPTION>
SHORT-TERM INTERMEDIATE- MANAGED
GOVERNMENT TERM MANAGED INCOME
SECURITIES FUND INCOME FUND FUND
--------------- ------------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load .................... None None None
Sales Load on Reinvested Dividends....... None None None
Deferred Sales Load...................... None None None
Redemption Fee........................... None None None
Exchange Fees............................ None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (after fee waivers)/1/..... .21% .30% .61%
12b-1 Fees............................... None None None
Other Operating Expenses
Administrative Servicing Fee/1/........ .08% .05% .04%
Other Expenses......................... .32% .28% .25%
---- ---- ----
Total Operating Expenses (after fee
waivers)/1/............................. .61% .63% .90%
==== ==== ====
</TABLE>
- -------
1. The Investment Adviser and administrators may from time to time voluntarily
waive part of their respective fees, which waivers may be terminated at any
time. Until further notice, the Investment Adviser and/or administrators
intend to voluntarily waive fees in an amount equal to the Administrative
Servicing Fee; and to further waive fees and reimburse expenses to the ex-
tent necessary for the Short-Term Government Securities and Intermediate-
Term Managed Income Funds to maintain annual expense ratios of not more
than .62% and .72%, respectively. Without such fee waivers, "Advisory Fees"
would be .30%, .35% and .75%, and "Total Operating Expenses" would be .70%,
.68% and 1.04% for the Short-Term Government Securities, Intermediate-Term
Managed Income and Managed Income Funds, respectively.

Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption of your investment at the end of the
following periods:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Short-Term Government Securities Fund........... $ 6 $20 $34 $ 76
Intermediate-Term Managed Income Fund........... 6 20 35 79
Managed Income Fund............................. 9 29 50 111
</TABLE>

The foregoing expense summary and example are intended to assist the in-
vestor in understanding the costs and expenses that an investor in Shares of
the Funds will bear directly or indirectly. The expense summary sets forth ad-
visory and other expenses payable with respect to Shares of the Funds for the
fiscal year ended March 31, 1997. For more complete descriptions of the Funds'
operating expenses, see "Management of the Funds" in this Prospectus and the
financial statements and notes incorporated by reference in the Statement of
Additional Information.

3
<PAGE>

FINANCIAL HIGHLIGHTS

The following tables include selected data for a Share outstanding throughout
each period and other performance information derived from the financial state-
ments included in Excelsior Fund's Annual Report to Shareholders for the year
ended March 31, 1997 (the "Financial Statements"). The information contained in
the Financial Highlights for each period has been audited by Ernst & Young LLP,
Excelsior Fund's independent auditors. The following tables should be read in
conjunction with the Financial Statements and notes thereto. More information
about the performance of each Fund is also contained in the Annual Report to
Shareholders, which may be obtained from Excelsior Fund without charge by call-
ing the number on the front cover of this Prospectus.

SHORT-TERM GOVERNMENT SECURITIES FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------ PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $ 6.98 $ 6.89 $ 6.93 $ 7.06 $ 7.00
------ ------ ------ ------ ------
Income From Investment Opera-
tions
Net Investment Income...... 0.38 0.40 0.33 0.24 0.06
Net Gains or (Losses) on
Securities (both realized
and unrealized)........... (0.06) 0.09 (0.04) (0.09) 0.06
------ ------ ------ ------ ------
Total From Investment Oper-
ations.................... 0.32 0.49 0.29 0.15 0.12
------ ------ ------ ------ ------
Less Distributions
Dividends From Net Invest-
ment Income............... (0.37) (0.40) (0.33) (0.24) (0.06)
Dividends From Net Realized
Gain on Investments....... 0.00 0.00 0.00 (0.02) 0.00
Distributions in Excess of
Net Realized Gain on In-
vestments................. 0.00 0.00 0.00 (0.02) 0.00
------ ------ ------ ------ ------
Total Distributions........ (0.37) (0.40) (0.33) (0.28) (0.06)
------ ------ ------ ------ ------
Net Asset Value, End of Peri-
od.......................... $ 6.93 $ 6.98 $ 6.89 $ 6.93 $ 7.06
====== ====== ====== ====== ======
Total Return/2/.............. 4.77% 7.27% 4.30% 2.12% 1.70%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)............. $30.80 $25.07 $25.22 $25.23 $13.37
Ratio of Net Operating Ex-
penses to Average Net As-
sets...................... 0.61% 0.61% 0.61% 0.62% 0.62%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/................. 0.70% 0.80% 0.67% 0.65% 0.82%/3/
Ratio of Net Income to Av-
erage Net Assets.......... 5.42% 5.72% 4.80% 3.42% 3.62%/3/
Portfolio Turnover Rate.... 82.0% 77.0% 198.0% 267.0% 93.0%/3/
</TABLE>
- -------
NOTES:
1.Inception date of the Fund was December 31, 1992.
2.Total return data does not reflect the sales load payable on purchases of
Shares prior to February 14, 1997.
3.Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

4
<PAGE>

INTERMEDIATE-TERM MANAGED INCOME FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $ 7.06 $ 6.75 $ 6.83 $ 7.19 $ 7.00
------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income...... 0.41 0.43 0.39 0.31 0.08
Net Gains or (Losses) on
Securities (both realized
and unrealized)........... (0.19) 0.31 (0.07) (0.27) 0.19
------ ------ ------ ------ ------
Total From Investment
Operations................ 0.22 0.74 0.32 0.04 0.27
------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income......... (0.41) (0.43) (0.39) (0.31) (0.08)
Dividends From Net Realized
Gain on Investments....... 0.00 0.00 0.00 0.00 0.00
Distributions in Excess of
Net Realized Gain
on Investments............ 0.00 0.00 (0.01) (0.09) 0.00
------ ------ ------ ------ ------
Total Distributions........ (0.41) (0.43) (0.40) (0.40) (0.08)
------ ------ ------ ------ ------
Net Asset Value, End of
Period...................... $ 6.87 $ 7.06 $ 6.75 $ 6.83 $ 7.19
====== ====== ====== ====== ======
Total Return/2/.............. 3.25% 11.13% 4.95% 0.45% 3.86%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)............. $78.44 $68.64 $47.93 $42.56 $19.48
Ratio of Net Operating
Expenses to Average
Net Assets................ 0.63% 0.64% 0.66% 0.69% 0.72%/3/
Ratio of Gross Operating
Expenses to Average
Net Assets/4/............. 0.68% 0.68% 0.68% 0.69% 0.98%/3/
Ratio of Net Income to
Average Net Assets........ 5.91% 6.06% 5.91% 4.31% 4.69%/3/
Portfolio Turnover Rate.... 129.0% 129.0% 682.0% 385.0% 66.00%/3/
</TABLE>
- -------
NOTES:
1.Inception date of the Fund was December 31, 1992.
2.Total return data does not reflect the sales load payable on purchases of
Shares prior to February 14, 1997.
3.Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

5
<PAGE>

MANAGED INCOME FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------ ------ ------- ------- ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $ 8.84 $ 8.39 $ 8.57 $ 9.64 $ 9.15 $ 9.12 $ 8.77 $ 8.51 $ 8.61 $ 9.01
------- ------ ------ ------- ------- ------ ------ ------ ------- ------
Income From Investment
Operations
Net Investment Income.. 0.51 0.55 0.51 0.47 0.58 0.65 0.67 0.69 0.66 0.67
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... (0.24) 0.44 (0.18) (0.26) 0.79 0.27 0.44 0.32 (0.06) (0.08)
------- ------ ------ ------- ------- ------ ------ ------ ------- ------
Total From Investment
Operations............ 0.27 0.99 0.33 0.21 1.37 0.92 1.11 1.01 0.60 0.59
------- ------ ------ ------- ------- ------ ------ ------ ------- ------
Less Distributions
Dividends From Net
Investment Income..... (0.51) (0.54) (0.51) (0.47) (0.58) (0.65) (0.67) (0.69) (0.66) (0.67)
Dividends From Net
Realized Gain on
Investments........... 0.00 0.00 0.00 (0.31) (0.30) (0.24) (0.09) (0.06) (0.04) (0.32)
Distributions in Excess
of Net Realized Gain
on Investments........ 0.00 0.00 0.00 (0.50) 0.00 0.00 0.00 0.00 0.00 0.00
------- ------ ------ ------- ------- ------ ------ ------ ------- ------
Total Distributions.... (0.51) (0.54) (0.51) (1.28) (0.88) (0.89) (0.76) (0.75) (0.70) (0.99)
------- ------ ------ ------- ------- ------ ------ ------ ------- ------
Net Asset Value, End of
Period................. $ 8.60 $ 8.84 $ 8.39 $ 8.57 $ 9.64 $ 9.15 $ 9.12 $ 8.77 $ 8.51 $ 8.61
======= ====== ====== ======= ======= ====== ====== ====== ======= ======
Total Return/1/......... 3.17% 11.86% 4.06% 1.73% 15.74% 10.36% 13.37% 12.03% 7.18% 7.20%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $185.90 $88.90 $86.02 $110.90 $110.62 $96.32 $52.74 $38.75 $ 19.53 $12.67
Ratio of Net Operating
Expenses to Average
Net Assets............ 0.90% 0.96% 1.00% 0.90% 0.89% 1.05% 1.11% 1.13% 1.07% 0.86%
Ratio of Gross
Operating Expenses to
Average
Net Assets/2/......... 1.04% 1.12% 1.12% 1.06% 1.04% 1.05% 1.11% 1.14% 1.24% 1.32%
Ratio of Net Income to
Average Net Assets.... 5.90% 6.09% 6.09% 4.89% 6.19% 6.97% 7.57% 7.73% 7.69% 7.76%
Portfolio Turnover
Rate.................. 238.0% 165.0% 492.0% 459.0% 455.0% 369.0% 342.0% 350.0% 1226.0% 576.0%
</TABLE>
- -------
NOTES:
1. Total return data does not reflect the sales load payable on purchases of
Shares prior to February 14, 1997.
2. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

6
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The Investment Adviser will use its best efforts to achieve the investment ob-
jective of each Fund, although their achievement cannot be assured. The invest-
ment objective of each Fund may not be changed without a vote of the holders of
a majority of the particular Fund's outstanding Shares (as defined under "Mis-
cellaneous"). Except as noted below and in "Investment Limitations," the in-
vestment policies of each Fund may be changed without the vote of the holders
of a majority of the outstanding Shares of such Fund.

SHORT-TERM GOVERNMENT SECURITIES FUND

The Short-Term Government Securities Fund's investment objective is to seek a
high level of current income consistent with stability of principal by invest-
ing principally in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements collateralized by such
obligations. Under normal circumstances, at least 65% of the Fund's total as-
sets will be invested in such securities. As a result, the interest income on
such investments generally should be exempt from state and local personal in-
come taxes in most states. In all states this tax exemption is passed through
to the Fund's shareholders. The Fund will generally have a dollar-weighted av-
erage portfolio maturity of one to three years. Changes in interest rates will
affect the value of the portfolio investments held by the Short-Term Government
Securities Fund. As a result, investment in the Short-Term Government Securi-
ties Fund should not be considered a complete investment program. Additional
information about the Fund's policies and portfolio instruments is set forth
below under "Portfolio Instruments and Other Investment Information."

INTERMEDIATE-TERM MANAGED INCOME FUND

The Intermediate-Term Managed Income Fund's investment objective is to seek as
high a level of current interest income as is consistent with relative stabil-
ity of principal. The Fund will have a dollar-weighted average portfolio matu-
rity of three to ten years.

MANAGED INCOME FUND

The Managed Income Fund's investment objective is to seek high current income
consistent with what is believed to be prudent risk of capital. Subject to this
investment objective, the Investment Adviser will consider the market value ap-
preciation of portfolio securities in managing the Fund. The Managed Income
Fund's dollar-weighted average portfolio maturity will vary from time to time
in light of current market and economic conditions, the comparative yields on
instruments with different maturities and other factors.

INVESTMENT POLICIES COMMON TO INTERMEDIATE-TERM MANAGED INCOME AND MANAGED
INCOME FUNDS

The Intermediate-Term Managed Income and Managed Income Funds may invest in
the following types of securities: corporate debt obligations such as bonds,
debentures, obligations convertible into common stocks and money market instru-
ments; preferred stocks; and obligations issued or guaranteed by the U.S. Gov-
ernment and its agencies or instrumentalities. The Intermediate-Term Managed
Income and Managed Income Funds are also permitted to enter into repurchase
agreements. The Intermediate-Term Managed Income and Managed Income Funds may,
from time to time, invest in debt obligations exempt from Federal income tax
issued by or on behalf of states, territories and possessions of the United
States, the District of Columbia and their authorities, agencies, instrumental-
ities and political subdivisions ("Municipal Bonds"). The purchase of Municipal
Bonds may be advantageous when, as a result of prevailing economic, regulatory
or other circumstances, the performance of such securities, on a pre-tax basis,
is comparable to that of corporate or U.S. Government debt obligations.

Under normal market conditions, at least 75% of the Intermediate-Term Managed
Income and Managed Income Fund's total assets will be invested in investment-
grade debt obligations rated within the three highest ratings of Standard &
Poor's Ratings Group ("S&P") or Moody's Investor Service, Inc. ("Moody's") (or
in unrated obligations considered to be of comparable credit quality by the In-
vestment Ad-

7
<PAGE>

viser) and in U.S. Government obligations and money market instruments of the
types listed below under "Money Market Instruments." When, in the opinion of
the Investment Adviser, a defensive investment posture is warranted, the Funds
may invest temporarily and without limitation in high quality, short-term
money market instruments.

Unrated securities will be considered of investment grade if deemed by the
Investment Adviser to be comparable in quality to instruments so rated, or if
other outstanding obligations of the issuers of such securities are rated
"Baa/BBB" or better. It should be noted that obligations rated in the lowest
of the top four ratings ("Baa" by Moody's or "BBB" by S&P) are considered to
have some speculative characteristics and are more sensitive to economic
change than higher rated bonds.

The Intermediate-Term Managed Income and Managed Income Funds may invest up
to 25% of their respective total assets in: preferred stocks; dollar-denomi-
nated debt obligations of foreign issuers, including foreign corporations and
foreign governments; and dollar-denominated debt obligations of U.S. companies
issued outside the United States (see additional limitation on investments in
obligations of foreign branches of U.S. banks and U.S. branches of foreign
banks under "Money Market Instruments" below). The Intermediate-Term Managed
Income and Managed Income Funds may also enter into foreign currency exchange
transactions for hedging purposes. The Intermediate-Term Managed Income and
Managed Income Funds may invest up to 10% and 25% of their respective total
assets in obligations rated below the four highest ratings of S&P or Moody's
(commonly called "junk bonds") with no minimum rating required. The Intermedi-
ate-Term Managed Income and Managed Income Funds will not invest in common
stocks, and any common stocks received through conversion of convertible debt
obligations will be sold in an orderly manner as soon as possible. Changes in
interest rates will affect the value of the portfolio investments held by the
Intermediate-Term Managed Income and Managed Income Funds.

RISK FACTORS

Investments in the obligations of foreign issuers may subject the Intermedi-
ate-Term Managed Income and Managed Income Funds to additional investment
risks including fluctuations in foreign exchange rates, future political and
economic developments and the possible imposition of exchange controls or
other foreign governmental laws or restrictions. In addition, with respect to
certain countries, there is the possibility of expropriation of assets, con-
fiscatory taxation, political or social instability or diplomatic developments
which could adversely affect investments in those countries. There may be less
publicly available information about a foreign company than about a U.S. com-
pany, and foreign companies may not be subject to accounting, auditing and fi-
nancial reporting standards and requirements comparable to or as uniform as
those of U.S.-based companies. Foreign securities markets, while growing in
volume, have, for the most part, substantially less volume than U.S. markets,
and securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable U.S.-based companies. Transaction costs
on foreign securities markets are generally higher than in the United States.
There is generally less government supervision and regulation of foreign ex-
changes, brokers and issuers than there is in the United States. The Interme-
diate-Term Managed Income and Managed Income Funds might have greater diffi-
culty taking appropriate legal action in a foreign court. Interest payable on
a Fund's foreign portfolio securities may be subject to foreign withholding
taxes. To the extent such taxes are not offset by credits or deductions al-
lowed to investors under the Federal income tax provisions, they may reduce
the net return to the shareholders.

The Intermediate-Term Managed Income and Managed Income Funds' investments in
obligations rated below the four highest ratings of S&P and Moody's have dif-
ferent risks than investments in securities that are rated "investment grade."
Risk of loss upon default by the borrower is significantly greater because
lower-rated securities are generally unsecured and are often subordinated to
other creditors of the issuer, and because the issuers frequently have high
levels of indebtedness and are more sensitive to adverse eco-

8
<PAGE>

nomic conditions, such as recessions, individual corporate developments and in-
creasing interest rates than are investment grade issuers. As a result, the
market price of such securities, and the net asset value of the Funds' Shares,
may be particularly volatile.

Additional risks associated with lower-rated fixed-income securities are (a)
the relative youth and growth of the market for such securities, (b) the rela-
tively low trading market liquidity for the securities, (c) the impact that
legislation may have on the high-yield bond market (and, in turn, on the Funds'
net asset value and investment practices), (d) the operation of mandatory sink-
ing fund or call/redemption provisions during periods of declining interest
rates whereby the Funds may be required to reinvest premature redemption pro-
ceeds in lower yielding portfolio securities, and (e) the creditworthiness of
the issuers of such securities. During an economic downturn or substantial pe-
riod of rising interest rates, highly-leveraged issuers may experience finan-
cial stress which would adversely affect their ability to service their princi-
pal and interest payment obligations, to meet projected business goals and to
obtain additional financing. An economic downturn could also disrupt the market
for lower-rated bonds generally and adversely affect the value of outstanding
bonds and the ability of the issuers to repay principal and interest. If the
issuer of a lower-rated security held by the Intermediate-Term Managed Income
and Managed Income Funds defaulted, the Fund could incur additional expenses to
seek recovery. Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may also decrease the values and liquidity of lower-
rated securities held by the Fund, especially in a thinly traded market. Final-
ly, the Funds' trading in fixed-income securities to achieve capital apprecia-
tion entails risks that capital losses rather than gains will result. As a re-
sult, investment in the Intermediate-Term Managed Income and Managed Income
Funds should not be considered a complete investment program.

Debt obligations rated "BB," "B" or "CCC" by S&P are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" represents the
lowest degree of speculation and "CCC" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse condi-
tions. The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating. The rating "C" is typically
applied to debt subordinated to senior debt which is assigned an actual or im-
plied "CCC-" debt rating, and may be used to cover a situation where a bank-
ruptcy petition has been filed, but debt service payments are continued. The
rating "CI" is reserved for income bonds on which no interest is being paid.
Debt obligations rated "D" are in default, and payments of interest and/or re-
payment of principal is in arrears. The ratings from "AA" through "CCC" are
sometimes modified by the addition of a plus or minus sign to show relative
standing within the major rating categories. Moody's has a similar classifica-
tion scheme for non-investment grade debt obligations. Debt obligations rated
"Ba," "B," "Caa," "Ca" and "C" provide questionable protection of interest and
principal. The rating "Ba" indicates that a debt obligation has some specula-
tive characteristics. The rating "B" indicates a general lack of characteris-
tics of desirable investment. Debt obligations rated "Caa" are of poor quality,
while debt obligations rated "Ca" are considered highly speculative. "C" repre-
sents the lowest rated class of debt obligations. Moody's applies numerical
modifiers 1, 2 and 3 in each generic classification from "Aa" to "B" in its
bond rating system. The modifier "1" indicates that a security ranks in the
higher end of its rating category; the modifier "2" reflects a mid-range rank-
ing; and the modifier "3" indicates that the security ranks at the lower end of
its generic rating category.

PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION

MONEY MARKET INSTRUMENTS

Money market instruments that may be purchased by the Intermediate-Term Man-
aged Income and Man-

9
<PAGE>

aged Income Funds in accordance with their investment objectives and policies
stated above 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 de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation, or by a
savings and loan association or savings bank which is insured by the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation. Bank
obligations acquired by a Fund may also include U.S. dollar-denominated obli-
gations of foreign branches of U.S. banks and obligations of domestic branches
of foreign banks. Investments in bank obligations of foreign branches of do-
mestic financial institutions or of domestic branches of foreign banks are
limited so that no more than 5% of the value of the Managed Income Fund's to-
tal assets will be invested in obligations of any one foreign or domestic
branch and no more than 20% of the Fund's total assets at the time of purchase
will be invested in the aggregate in such obligations. Investments in time de-
posits are limited to no more than 5% of the value of a Fund's total assets at
time of purchase.

Investments by the Funds in commercial paper will consist of issues that are
rated "A-2" or better by S&P or "Prime-2" or better by Moody's. In addition,
each Fund may acquire unrated commercial paper that is determined by the In-
vestment Adviser at the time of purchase to be of comparable quality to rated
instruments that may be acquired by the particular Fund.

Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instru-
ment purchased by a Fund, a 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 the 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. Any security
which cannot be disposed of within seven days without taking a reduced price
will be considered an illiquid security subject to the 10% limitation dis-
cussed below under "Illiquid Securities."

GOVERNMENT OBLIGATIONS

Government obligations acquired by the Funds 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 Ad-
ministration, Federal Home Loan Banks, the Tennessee Valley Authority and the
Student Loan Marketing Association. Obligations of certain agencies and in-
strumentalities 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 author-
ity 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. Govern-
ment-sponsored instrumentalities if it is not obligated to do so by law. Obli-
gations of such instrumentalities will be purchased only when the Investment
Adviser believes that the credit risk with respect to the instrumentality is
minimal. The Statement of Additional Information contains further information
on the various types of U.S. Government obligations.

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<PAGE>

REPURCHASE AGREEMENTS

As stated above, each Fund may agree to purchase portfolio securities subject
to the seller's agreement to repurchase them at a mutually agreed upon date and
price ("repurchase agreements"). Each Fund will enter into repurchase agree-
ments only with financial institutions such as banks or broker/dealers which
are deemed to be creditworthy by the Investment Adviser under guidelines ap-
proved by Excelsior Fund's Board of Directors. No Fund will enter into repur-
chase agreements with the Investment Adviser or its affiliates. Repurchase
agreements with remaining maturities in excess of seven days will be considered
illiquid securities subject to the 10% limit described below under "Illiquid
Securities."

The seller under a repurchase agreement will be required to maintain the value
of the obligations subject to the agreement 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. Income on the repur-
chase agreements will be taxable.

INVESTMENT COMPANY SECURITIES

The Funds may also 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.
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 com-
pany, 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 indi-
rectly bear the expenses of the Fund and the other investment company, some or
all of which would be duplicative. Such securities will be acquired by the
Funds within the limits prescribed by the Investment Company Act of 1940, as
amended (the "1940 Act") which include, subject to certain exceptions, a prohi-
bition against a Fund investing more than 10% of the value of its total assets
in such securities.

WHEN-ISSUED AND FORWARD TRANSACTIONS AND STAND-BY COMMITMENTS

Each of the Funds 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 se-
curities with payment and delivery taking place in the future, beyond the nor-
mal 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. 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 con-
ditions, and that the length of such commitments will not exceed 45 days. The
Funds do not intend to engage in "when-issued" purchases and forward commit-
ments for speculative purposes, but only in furtherance of their investment ob-
jectives.

In addition, the Intermediate-Term Managed Income and Managed Income Funds may
acquire "stand-by commitments" with respect to Municipal Bonds held by them.
Under a "stand-by commitment," a dealer agrees to purchase at a Fund's option
specified Municipal Bonds at a specified price. The Intermediate-Term Managed
Income and Managed Income Funds will acquire "stand-by commitments" solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. "Stand-by commitments" acquired by a Fund
would be valued at zero in determining the Fund's net asset value.

TYPES OF MUNICIPAL BONDS

The two principal classifications of Municipal Bonds which may be held by the
Intermediate-Term Managed Income and Managed Income Funds are "general ob-

11
<PAGE>

ligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit, and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific rev-
enue source such as the user of the facility being financed. Private activity
bonds held by the Funds are in most cases revenue securities and are not pay-
able from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity revenue bonds is usually directly related to the
credit standing of the corporate user of the facility involved.

The Intermediate-Term Managed Income and Managed Income Funds' portfolios may
also include "moral obligation" securities, which are normally issued by spe-
cial-purpose public authorities. If the issuer of moral obligation securities
is unable to meet its debt service obligations from current revenues, it may
draw on a reserve fund, the restoration of which is a moral commitment, but not
a legal obligation of the state or municipality which created the issuer. There
is no limitation on the amount of moral obligation securities that may be held
by the Intermediate-Term Managed Income and Managed Income Funds. The Invest-
ment Adviser will consider investments in Municipal Bonds for the Intermediate-
Term Managed Income and Managed Income Funds when the Investment Adviser be-
lieves that the total return on such securities is attractive relative to that
of taxable securities.

FUTURES CONTRACTS

The Funds may enter into interest rate futures contracts as a hedge against
changes in market conditions. An interest rate futures contract represents a
firm commitment by which two parties agree to take or make delivery of fixed-
income securities on the last trading date of the contract and the price at
which the futures contract is originally struck.

The Funds will not engage in transactions in futures contracts for specula-
tion, but only as a hedge against changes in market values of securities which
they hold or intend to purchase where the transactions are intended to reduce
risks inherent in the management of the Funds. Each Fund may engage in futures
contracts only to the extent permitted by the Commodity Futures Trading Commis-
sion ("CFTC") and the Securities and Exchange Commission ("SEC"). As of the
date of this Prospectus, each Fund intends to limit its hedging transactions in
futures contracts so that, immediately after any such transaction, the aggre-
gate initial margin that is required to be posted by the Fund under the rules
of the exchange on which the futures contract is traded does not exceed 5% of
the Fund's total assets, after taking into account any unrealized profits and
unrealized losses on the Fund's open contracts.

When investing in futures contracts, the Funds must satisfy certain asset seg-
regation requirements to ensure that the use of futures is unleveraged. When a
Fund takes a long position in a futures contract, it must maintain a segregated
account containing liquid assets equal to the purchase price of the contract,
less any margin or deposit. When a Fund takes a short position in a futures
contract, the Fund must maintain a segregated account containing liquid assets
in an amount equal to the market value of the securities underlying such con-
tract (less any margin or deposit), which amount must be at least equal to the
market price at which the short position was established. Asset segregation re-
quirements are not applicable when a Fund "covers" a futures position generally
by entering into an offsetting position.

Transactions by a Fund in futures contracts may subject the Fund to a number
of risks. Successful use of futures by a Fund is subject to the ability of the
Investment Adviser to anticipate correctly movements in the direction of the
market. There may be an imperfect correlation, or no correlation at all, be-
tween movements in the price of the futures contracts and movements in the
price of the instruments being hedged. In addition, investments in futures may
subject a Fund to losses due to unanticipated market movements which are poten-
tially unlimited. Further, there is no assurance that a liquid market will ex-
ist for any particular

12
<PAGE>

futures contract at any particular time. Consequently, a Fund may realize a
loss on a futures transaction that is not offset by a favorable movement in
the price of securities which it holds or intends to purchase or may be unable
to close a futures position in the event of adverse price movements.

SECURITIES LENDING

To increase return on its portfolio securities, each Fund may lend its port-
folio securities to broker/dealers pursuant to agreements requiring the loans
to be continuously secured by collateral equal at all times in value to at
least the market value of the securities loaned. Collateral for such loans may
include cash, securities of the U.S. Government, its agencies or instrumental-
ities, or an irrevocable letter of credit issued by a bank which meets the in-
vestment standards of a Fund, or any combination thereof. Such loans will not
be made if, as a result, the aggregate of all outstanding loans of a Fund ex-
ceeds 30% of the value of its total assets. There may be risks of delay in re-
ceiving 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 Invest-
ment Adviser to be of good standing and when, in the Investment Adviser's
judgment, the income to be earned from the loan justifies the attendant risks.

BORROWING AND REVERSE REPURCHASE AGREEMENTS

Each Fund may borrow funds, in an amount up to 10% of the value of its total
assets, for temporary or emergency purposes, such as meeting larger than an-
ticipated redemption requests, and not for leverage. Each Fund may also agree
to sell portfolio securities to financial institutions such as banks and bro-
ker-dealers and to repurchase them at a mutually agreed date and price (a "re-
verse repurchase agreement"). The SEC views reverse repurchase agreements as a
form of borrowing. At the time a Fund enters into a reverse repurchase agree-
ment, it will place in a segregated custodial account liquid assets having a
value equal to the repurchase price, including accrued interest. Reverse
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

PORTFOLIO TURNOVER

Although each Fund generally seeks to invest for the long term, each Fund may
sell a portfolio investment immediately after its acquisition if the Invest-
ment Adviser believes that such a disposition is consistent with a Fund's in-
vestment objective. Portfolio investments may be sold for a variety of rea-
sons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold the investments. A high rate
of portfolio turnover may involve correspondingly greater transaction costs,
which must be borne directly by a Fund and ultimately by its shareholders.
Portfolio turnover will not be a limiting factor in making portfolio deci-
sions. Each Fund's portfolio turnover rate is not expected to exceed 400%.
High portfolio turnover may result in the realization of substantial net capi-
tal gains. To the extent that net short-term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
Federal income tax purposes. (See "Financial Highlights" and "Taxes--Feder-
al.")

13
<PAGE>

INVESTMENT LIMITATIONS

The investment limitations enumerated below are matters of fundamental policy
and may not be changed without the vote of the holders of a majority of a
Fund's outstanding Shares (as defined under "Miscellaneous").

A Fund may not:

1. Purchase securities of any one issuer, other than U.S. Government obliga-
tions, if immediately after such purchase more than 5% of the value of its
total assets would be invested in the securities of such issuer, except that
up to 25% of the value of its total assets may be invested without regard to
this 5% limitation;

2. Borrow money except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing, provided that each Fund may enter into futures con-
tracts and futures options. (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;

3. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that (a) with respect to the Managed Income Fund,
there is no limitation with respect to securities issued or guaranteed by the
U.S. Government or domestic bank obligations, (b) with respect to the Short-
Term Government Securities and Intermediate-Term Managed Income Funds, there
is no limitation with respect to securities issued or guaranteed by the U.S.
Government and (c) 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

4. Make loans, except that (i) the Fund may purchase or hold debt securities
in accordance with its investment objective and policies, and may enter into
repurchase agreements with respect to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, and (ii) each Fund may
lend portfolio securities in an amount not exceeding 30% of its total assets.

In addition, the Managed Income Fund may not:

5. Knowingly invest more than 10% of the value of its total assets in illiq-
uid securities, including repurchase agreements with remaining maturities in
excess of seven days, restricted securities, and other securities for which
market quotations are not readily available; and

6. Invest in obligations of foreign branches of financial institutions or in
domestic branches of foreign banks if immediately after such purchase (i)
more than 5% of the value of its total assets would be invested in obliga-
tions 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.

* * *

In addition to the investment limitations described above, as a matter of fun-
damental policy for each Fund, which may not be changed without the vote of the
holders of a majority of the Fund's outstanding shares, a Fund may not invest
in the securities of any single issuer if, as a result, the Fund holds more
than 10% of the outstanding voting securities of such issuer.

14
<PAGE>

In Investment Limitation No. 1 above: (a) a security is considered to be is-
sued 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) secu-
rities issued or guaranteed by the United States Government, its agencies or
instrumentalities (including securities backed by the full faith and credit of
the United States) are deemed to be U.S. Government obligations.

The Short-Term Government Securities and Intermediate-Term Managed Income
Funds may not knowingly invest more than 10% of the value of their respective
net assets in illiquid securities, including repurchase agreements with remain-
ing maturities in excess of seven days, restricted securities and other securi-
ties for which market quotations are not readily available. This investment
policy may be changed by Excelsior Fund's Board of Directors without share-
holder approval.

The Managed Income Fund will not invest more than 25% of the value of its to-
tal assets in domestic bank obligations.

With respect to all investment policies, if a percentage limitation is satis-
fied at the time of investment, a later increase or decrease in such percentage
resulting from a change in the value of a Fund's portfolio securities will not
constitute a violation of such limitation.

PRICING OF SHARES

The net asset value of each Fund's Shares is determined and priced for pur-
chases and redemptions at the close of regular trading hours on the New York
Stock Exchange (the "Exchange"), currently 4:00 p.m. (Eastern Time). Net asset
value and pricing for each Fund's Shares are determined on each day the Ex-
change and the Investment Adviser are open for trading ("Business Day"). Cur-
rently, the holidays which Excelsior Fund observes are New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor 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 allocable to a Fund, less the liabilities
charged to the Fund, by the number of its outstanding Shares.

Assets in the Funds which are traded on a recognized stock exchange are valued
at the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Securities traded on only over-the-counter markets are valued on the basis of
closing over-the-counter bid prices. Securities for which there were no trans-
actions are valued at the average of the most recent bid and asked prices. A
futures contract is valued at the last sales price quoted on the principal ex-
change or board of trade on which such contract is traded, or in the absence of
a sale, the mean between the last bid and asked prices. Restricted securities,
securities for which market quotations are not readily available, and other as-
sets are valued at fair value pursuant to guidelines adopted by the Board of
Directors. Absent unusual circumstances, portfolio securities maturing in 60
days or less are normally valued at amortized cost. The net asset value of
Shares in the Funds will fluctuate as the market value of their portfolio secu-
rities changes in response to changing market rates of interest and other fac-
tors.

Portfolio securities held by the Intermediate-Term Managed Income and Managed
Income Funds which are primarily traded on foreign securities exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, except that when an event subsequent to the time when
value was so established is likely to have changed such value, then the fair
value of those securities will be determined by consideration of other factors
under the direction of the Board of Directors. A security which is

15
<PAGE>

listed or traded on more than one exchange is valued at the quotation on the
exchange determined to be the primary market for such security. Investments in
foreign debt securities having a maturity of 60 days or less are valued based
upon the amortized cost method. All other foreign securities are valued at the
last current bid quotation if market quotations are available, or at fair
value as determined in accordance with guidelines adopted by the Board of Di-
rectors. For valuation purposes, quotations of foreign securities in foreign
currency are converted to U.S. dollars equivalent at the prevailing market
rate on the day of conversion. Some of the securities acquired by the Funds
may be traded on foreign exchanges or over-the-counter markets on days which
are not Business Days. In such cases, the net asset value of the Shares may be
significantly affected on days when investors can neither purchase nor redeem
a Fund's Shares.

The Funds' administrators have undertaken to price the securities in the
Funds' portfolios and may use one or more pricing services to value certain
portfolio securities in the Funds where the prices provided are believed to
reflect the fair market value of such securities. The methods used by the
pricing services and the valuations so established will be reviewed by the ad-
ministrators under the general supervision of the Board of Directors.

HOW TO PURCHASE AND REDEEM SHARES

DISTRIBUTOR

Shares in each Fund are continuously offered for sale by Excelsior Fund's
sponsor and distributor, Edgewood Services, Inc. (the "Distributor"), a whol-
ly-owned subsidiary of Federated Investors. The Distributor is a registered
broker/dealer. Its principal business address is Clearing Operations, P.O. Box
897, Pittsburgh, PA 15230-0897.

PURCHASE OF SHARES

Shares in each Fund are sold at their net asset value per Share next computed
after a purchase order is received in good order by the sub-transfer agent or
another entity on behalf of Excelsior Fund. The Distributor has established
several procedures for purchasing Shares in order to accommodate different
types of investors.

16
<PAGE>

agreements with Excelsior Fund. A Shareholder Organization may elect to hold of
record Shares for its Customers and to record beneficial ownership of Shares on
the account statements provided by it to its Customers. If it does so, it is
the Shareholder Organization's responsibility to transmit to the Distributor
all purchase orders for its Customers and to transmit, on a timely basis, pay-
ment for such orders 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 Cus-
tomer purchases and redemptions will be sent by CGFSC to the particular Share-
holder 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 re-
demption orders with the Funds, CGFSC will send confirmations of such transac-
tions and periodic account statements directly to the shareholders of record.
Shares in the Funds bear the expense of fees payable to Shareholder Organiza-
tions for such services. See "Management of the Funds--Shareholder Organiza-
tions."

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 finan-
cial planner may incur transaction charges in connection with such purchases.
Such investors should contact their registered investment adviser or certified
financial planner for further information on transaction fees. Investors may
also purchase Shares directly from the Distributor in accordance with proce-
dures described below under "Purchase Procedures."

PURCHASE PROCEDURES

General

Direct Investors may purchase Shares by completing the Application for pur-
chase of Shares accompanying this Prospectus and mailing it, together with a
check payable to Excelsior Funds, to:

Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

Purchases by Wire

Investors may also purchase Shares by wiring Federal funds to CGFSC. Prior to
making an initial investment by wire, an Investor must telephone CGFSC at
(800) 446-1012 (from overseas, call (617) 557-8280) for instructions. Federal
funds and registration instructions should be wired through the Federal Reserve
System to:

The Chase Manhattan Bank
ABA #021000021
Excelsior Funds, Account No. 9102732915
For further credit to:
Excelsior Funds
Wire Control Number
Account Registration (including account number)

17
<PAGE>

Other Purchase Information

Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or ini- tial aggregate investment by a Shareholder Organi-
zation investing on behalf of its Customers is $500 per Fund. The minimum sub-
sequent investment for both types of investors is $50 per Fund. Customers may
agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may charge a Customer's account fees for auto-
matic investment and other cash management services provided. Excelsior Fund
reserves the right to reject any purchase order, in whole or in part, or to
waive any minimum investment requirements.

REDEMPTION PROCEDURES

Customers of Shareholder Organizations holding Shares of record may redeem all
or part of their investments in the Funds in accordance with procedures gov-
erning their accounts at the Shareholder Organizations. It is the responsibil-
ity of the Shareholder Organizations to transmit redemption orders to CGFSC and
credit such Customer accounts with the redemption proceeds on a timely basis.
Redemption orders for Institutional Investors must be transmitted to CGFSC by
telephone at (800) 446-1012 or by terminal access. No charge for wiring redemp-
tion payments to Shareholder Organizations or Institutional Investors is im-
posed by Excelsior Fund, although Shareholder Organizations may charge a Cus-
tomer's account for wiring redemption proceeds. Information relating to such
redemption services and charges, if any, is available from the Shareholder Or-
ganizations. An investor redeeming Shares through a registered investment ad-
viser or certified financial planner may incur transaction charges in connec-
tion with such redemptions. Such investors should contact their registered in-
vestment adviser or certified financial planner for further information on
transaction fees. Investors may redeem all or part of their Shares in accor-
dance with any of the procedures described below (these procedures also apply
to Customers of Shareholder Organizations for whom individual accounts have
been established with CGFSC).

Redemption by Mail

Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:

Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

18
<PAGE>

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 made by corporations, executors, adminis-
trators, trustees and guardians. A redemption request will not be deemed to be
properly received until CGFSC receives all required documents in proper form.
Payment for Shares redeemed will ordinarily be made by mail within five Busi-
ness Days after receipt by CGFSC of the redemption request in good order.
Questions with respect to the proper form for redemption requests should be
directed to CGFSC at (800) 446-1012 (from overseas, call (617) 557-8280).

Redemption by Wire or Telephone

Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do so, may redeem Shares by instructing CGFSC
by wire or telephone to wire the redemption proceeds directly to the Direct
Investor's account at any commercial bank in the United States. Direct Invest-
ors who are shareholders of record may also redeem Shares by instructing CGFSC
by telephone to mail a check for redemption proceeds of $500 or more to the
shareholder of record at his or her address of record. Institutional Investors
may also redeem Shares by instructing CGFSC by telephone at (800) 446-1012 or
by terminal access. Only redemptions of $500 or more will be wired to a Direct
Investor's account. The redemption proceeds for Direct Investors must be paid
to the same bank and account as designated on the Application or in written
instructions subsequently received by CGFSC.

In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, a Direct Investor must send a written request to Excelsior Fund, c/o
CGFSC, at the address listed above under "Redemption by Mail." Such requests
must be signed by the Direct Investor, with signatures guaranteed (see "Re-
demption by Mail" above, for details regarding signature guarantees). Further
documentation may be requested.

CGFSC and the Distributor reserve the right to refuse a wire or telephone re-
demption if it is believed advisable to do so. Procedures for redeeming Shares
by wire or telephone may be modified or terminated at any time by Excelsior
Fund, CGFSC or the Distributor. EXCELSIOR FUND, CGFSC AND THE DISTRIBUTOR WILL
NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING UPON TELE-
PHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING
TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCELSIOR FUND WILL USE
SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE IN-
STRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.

If any portion of the Shares to be redeemed represents an investment made by
personal check, Excelsior Fund and CGFSC reserve the right not to honor the
redemption until CGFSC is reasonably satisfied that the check has been col-
lected in accordance with the applicable banking regulations which may take up
to 15 days. A Direct Investor who anticipates the need for more immediate ac-
cess to his or her investment should purchase Shares by Federal funds or bank
wire or by certified or cashier's check. Banks normally impose a charge in
connection with the use of bank wires, as well as certified checks, cashier's
checks and Federal funds. If a Direct Investor's purchase check is not col-
lected, the purchase will be cancelled and CGFSC will charge a fee of $25.00
to the Direct Investor's account.

Other Redemption Information

Except as described in "Investor Programs" below, Investors may be required
to redeem Shares in a Fund

19
<PAGE>

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.

GENERAL

Purchase and redemption orders for Shares which are received in good order
prior to the close of regular trading hours on the Exchange (currently 4:00
p.m., Eastern Time) on any Business Day are priced according to the net asset
value determined on that day. Purchase orders received in good order after the
close of regular trading hours on the Exchange are priced at the net asset
value per Share determined on the next Business Day.

INVESTOR PROGRAMS

EXCHANGE PRIVILEGE

Investors and Customers of Shareholder Organizations may, after appropriate
prior authorization and without an exchange fee imposed by Excelsior Fund, ex-
change Shares in any Fund having a value of at least $500 for shares of any
other portfolio offered by Excelsior Fund or Excelsior Tax-Exempt Funds, Inc.
("Excelsior Tax-Exempt Fund"), or for Trust Shares of Excelsior Institutional
Trust, provided that such other shares may legally be sold in the state of the
Investor's residence.

Excelsior Fund currently offers 12 additional portfolios as follows:

Money Fund, a money market fund seeking as high a level of current income as
is consistent with liquidity and stability of principal through investments
in high-quality money market instruments maturing within 13 months;

Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaranteed by the U.S. Govern-
ment, its agencies and instrumentalities and repurchase agreements collater-
alized by such obligations;

Treasury Money Fund, a money market fund seeking current income generally
exempt from state and local income taxes through investments in direct short-
term obligations issued by the U.S. Treasury and certain agencies or instru-
mentalities of the U.S. Government;

Blended Equity Fund, a fund seeking long-term capital appreciation through
investments in a diversified portfolio of primarily equity securities;

Small Cap Fund, a fund seeking long-term capital appreciation by investing
primarily in companies with capitalization of $1 billion or less;

International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;

20
<PAGE>

Latin America Fund, a fund seeking long-term capital appreciation through
investments in companies and securities of governments based in all countries
in Central and South America;

Pacific/Asia Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Asia and on the
Asian side of the Pacific Ocean; and

Pan European Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Europe.

Excelsior Tax-Exempt Fund currently offers 6 portfolios as follows:

Tax-Exempt Money Fund, a diversified tax-exempt money market fund seeking a
moderate level of current interest income exempt from Federal income taxes
through investing primarily in high-quality municipal obligations maturing
within 13 months;

Long-Term Tax-Exempt Fund, a diversified fund seeking to maximize current
interest income exempt from Federal income taxes through investments in mu-
nicipal obligations and having a dollar-weighted average portfolio maturity
of 10 to 30 years;

New York Intermediate-Term Tax-Exempt Fund, a non-diversified fund designed
to provide New York investors with a high level of current interest income
exempt from Federal and, to the extent possible, New York state and New York
City income taxes; this fund invests primarily in New York municipal obliga-
tions and has a dollar-weighted average portfolio maturity of 3 to 10 years;
and

Excelsior Institutional Trust currently offers Trust Shares in the following
investment portfolios:

Optimum Growth Fund, a fund seeking superior, risk-adjusted total return by
investing in a diversified portfolio of equity securities whose growth pros-
pects, in the opinion of its investment adviser, appear to exceed that of the
overall market; and

Value Equity Fund, a fund seeking long-term capital appreciation by invest-
ing in a diversified portfolio of equity securities whose market value, in
the opinion of its investment adviser, appears to be undervalued relative to
the marketplace.

An exchange involves a redemption of all or a portion of the Shares in a Fund
and the investment of the redemption proceeds in shares of another portfolio
of Excelsior Fund, Excelsior Tax-Exempt Fund or Excelsior Institutional Trust.
The redemption will be made at the per Share net asset value of the Shares be-
ing 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 ex-
change request in good order.

21
<PAGE>

Trust should request and review the prospectuses of such funds. Such prospec-
tuses may be obtained by calling the telephone numbers listed above. In order
to prevent abuse of this privilege to the disadvantage of other shareholders,
Excelsior Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust
reserve the right to limit the number of exchange requests of Investors and
Customers of Shareholder Organizations to no more than six per year. Excelsior
Fund may modify or terminate the exchange program at any time upon 60 days'
written notice to shareholders, and may reject any exchange request.

For Federal income tax purposes, an exchange of Shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Be-
fore making an exchange, an investor should consult a tax or other financial
adviser to determine tax consequences.

Exchanges by Telephone. For shareholders who have previously selected the
telephone exchange option, an exchange order may be placed by calling (800)
446-1012 (from overseas, please call (617) 557-8280). By establishing the tel-
ephone exchange option, a shareholder authorizes CGFSC and the Distributor to
act upon telephone instructions believed to be genuine. EXCELSIOR FUND, EXCEL-
SIOR TAX-EXEMPT FUND, EXCELSIOR INSTITUTIONAL TRUST, CGFSC AND THE DISTRIBUTOR
ARE NOT RESPONSIBLE FOR THE AUTHENTICITY OF EXCHANGE REQUESTS RECEIVED BY TEL-
EPHONE THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM
THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCELSIOR FUND, EXCELSIOR TAX-EXEMPT
FUND AND EXCELSIOR INSTITUTIONAL TRUST WILL USE SUCH PROCEDURES AS ARE CONSID-
ERED REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS AND REQUESTING INFOR-
MATION AS TO ACCOUNT REGISTRATION.

SYSTEMATIC WITHDRAWAL PLAN

An Investor who owns Shares of a Fund with a value of $10,000 or more may es-
tablish a Systematic Withdrawal Plan. The Investor may request a declining-
balance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an investor must complete the Supplemental Appli-
cation contained in this Prospectus and mail it to CGFSC at the address given
above. Further information on establishing a Systematic Withdrawal Plan may be
obtained by calling (800) 446-1012 (from overseas, call (617) 557-8280).

RETIREMENT PLANS

Shares are available for purchase by Investors in connection with the follow-
ing tax-deferred prototype retirement plans offered by United States Trust
Company of New York:

IRAs (including "rollovers" from existing retirement plans) for individuals
and their spouses;

Profit Sharing and Money-Purchase Plans for corporations and self-employed
individuals and their partners to benefit themselves and their employees; and

Keogh Plans for self-employed individuals.

AUTOMATIC INVESTMENT PROGRAM

The Automatic Investment Program permits Investors to purchase Shares (mini-
mum of $50 per Fund per

22
<PAGE>

transaction) at regular intervals selected by the Investor. The minimum ini-
tial investment for an Automatic Investment Program account is $50 per Fund.
Provided the Investor's financial institution allows automatic withdrawals,
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 op-
tion, the account designated will be debited in the specified amount, and
Shares will be purchased, once a month, on either the first or fifteenth day,
or twice a month, on both days.

The Automatic Investment Program is one means by which an Investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time mar-
ket performance, a fixed dollar amount is invested in Shares at predetermined
intervals. This may help Investors to reduce their average cost per Share be-
cause the agreed upon fixed investment amount allows more Shares to be pur-
chased during periods of lower Share prices and fewer Shares during periods of
higher prices. In order to be effective, Dollar Cost Averaging should usually
be followed on a sustained, consistent basis. Investors should be aware, how-
ever, that Shares bought using Dollar Cost Averaging are purchased without re-
gard to their price on the day of investment or to market trends. In addition,
while Investors may find Dollar Cost Averaging to be beneficial, it will not
prevent a loss if an Investor ultimately redeems his Shares at a price which
is lower than their purchase price.

To establish an Automatic Investment account permitting Investors to use the
Dollar Cost Averaging investment method described above, an Investor must com-
plete the Supplemental Application contained in this Prospectus and mail it to
CGFSC. An Investor may cancel his participation in this Program or change the
amount of purchase at any time by mailing written notification to CGFSC, P.O.
Box 2798, Boston, MA 02208-2798 and notification will be effective three Busi-
ness Days following receipt. Excelsior Fund may modify or terminate this priv-
ilege at any time or charge a service fee, although no such fee currently is
contemplated. An Investor may also implement the Dollar Cost Averaging method
on his own initiative or through other entities.

DIVIDENDS AND DISTRIBUTIONS

Each Fund's net income for dividend purposes consists of (i) all accrued in-
come, whether taxable or tax-exempt, plus discount earned on the Fund's as-
sets, less (ii) amortization of premium on such assets, accrued expenses di-
rectly attributable to the Fund, and the general expenses or the expenses com-
mon to more than one Fund (e.g., legal, administrative, accounting, and Direc-
tors' fees) prorated to each Fund on the basis of its relative net assets.

The net investment income of the Funds is declared daily as a dividend to the
persons who are shareholders of the respective Funds at the opening of busi-
ness on the day of declaration. All such dividends are paid within ten days
after the end of each month or within seven days after the redemption of all
of a shareholder's Shares of a Fund. Net realized capital gains are distrib-
uted at least annually.

All dividends and distributions paid on Shares held of record by the Invest-
ment Adviser and its affiliates or correspondent banks will be paid in cash.
Direct and Institutional Investors and Customers of other Shareholder Organi-
zations will receive dividends and distributions in additional Shares of the
Fund on which the dividend or distribution is paid (as determined on the pay-
able date), unless they have requested in writing (received by CGFSC at Excel-
sior Fund's address prior to the payment date) to receive dividends and dis-
tributions in cash. Reinvested dividends and distributions receive the same
tax treatment as those paid in cash.

TAXES

FEDERAL

Each of the Funds qualified for its last taxable year as a "regulated invest-
ment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Each Fund expects to so qualify in future years. Such qualification
generally relieves a Fund of liability for Federal income taxes to the extent
its earnings are distributed in accordance with the Code.

23
<PAGE>

Qualification as a regulated investment company requires, among other things,
that a Fund distribute to its shareholders an amount equal to at least the sum
of 90% of its investment company taxable income and 90% of its exempt-interest
income (if any), net of certain deductions for each taxable year. In general,
a Fund's investment company taxable income will be its taxable income (includ-
ing interest) subject to certain adjustments and excluding the excess of any
net long-term capital gain for the taxable year over the net short-term capi-
tal loss, if any, for such year. Each Fund intends to distribute substantially
all of its investment company taxable income each year. Such dividends will be
taxable as ordinary income to a Fund's shareholders who are not currently ex-
empt from Federal income taxes, whether such income is received in cash or re-
invested in additional Shares. (Federal income taxes for distributions to IRAs
and qualified pension plans are deferred under the Code.) The dividends re-
ceived deduction for corporations will apply to such distributions to the ex-
tent of the total qualifying dividends received by a Fund from domestic corpo-
rations for the taxable year. It is anticipated that only a small part (if
any) of the dividends paid by a Fund will be eligible for the dividends re-
ceived deduction.

Distribution by a Fund of the excess of its net long- term capital gain over
its net short-term capital loss is taxable to shareholders as long-term capi-
tal gain, regardless of how long the shareholder has held the Shares and
whether such gains are received in cash or reinvested in additional Shares.
Such distributions are not eligible for the dividends received deduction.

An investor considering buying Shares of a Fund on or just before the record
date of a dividend should be aware that the amount of the forthcoming dividend
payment, although in effect a return of capital, will be taxable to him.

A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Shares depending upon the tax basis of such Shares and
their price at the time of redemption, transfer or exchange. If a shareholder
holds Shares for six months or less and during that time receives a capital
gain dividend on those Shares, any loss recognized on the sale or exchange of
those Shares will be treated as a long-term capital loss to the extent of the
capital gain dividend. Generally, a shareholder may include sales charges in-
curred upon the purchase of Shares in his tax basis for such Shares for the
purpose of determining gain or loss on a redemption, transfer or exchange of
such Shares. However, if the shareholder effected an exchange of such Shares
for Shares of another Fund within 90 days of the purchase and was able to re-
duce the sales charges previously applicable to the new Shares (by virtue of
the exchange privilege), the amount equal to reduction may not be included in
the tax basis of the shareholder's exchanged Shares for the purpose of deter-
mining gain or loss, but may be included (subject to the limitation) in the
tax basis of the new Shares.

The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situa-
tions. Shareholders will be advised at least annually as to the Federal income
tax consequences of distributions made each year.

STATE AND LOCAL

Purchasers are advised to consult their tax advisers concerning the applica-
tion of state and local taxes, which may have different consequences from
those of the Federal income tax law described above.

24
<PAGE>

MANAGEMENT OF THE FUNDS

The business and affairs of the Funds are managed under the direction of Ex-
celsior Fund's Board of Directors. The Statement of Additional Information
contains the names of and general background information concerning Excelsior
Fund's directors.

INVESTMENT ADVISER

The Investment Adviser manages each Fund, makes decisions with respect to and
places orders for all purchases and sales of each Fund's portfolio securities,
and maintains records relating to such purchases and sales.

The Short-Term Government Securities Fund's portfolio manager, G. Michael
O'Neil, III, is the person primarily responsible for the day-to-day management
of the Fund's investment portfolio. Mr. O'Neil, a Senior Vice President and
Manager of Money Market Investments at U.S. Trust, has been with U.S. Trust
since 1989 and has been the Fund's portfolio manager since December 1996.

The Intermediate-Term Managed Income and Managed Income Funds' portfolio man-
ager, Alexander R. Powers, is the person primarily responsible for the day-to-
day management of the Funds' investment portfolios. Mr. Powers, a Senior Vice
President and Manager of Taxable Fixed Income Investments, has been with U.S.
Trust since 1996 and has managed the Funds since August 1997. Prior to joining
U.S. Trust, Mr. Powers was a Manager of Fixed Income Investments with Chase
Asset Management.

For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreements, the Investment Adviser is entitled to be paid a fee, com-
puted daily and paid monthly, at the annual rates of .30% of the average daily
net assets of the Short-Term Government Securities Fund, .35% of the average
daily net assets of the Intermediate-Term Managed Income Fund, and .75% of the
average daily net assets of the Managed Income Fund.

Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the Funds pursuant to advisory agreements substantially similar to the Invest-
ment Advisory Agreements currently in effect for the Funds. For the fiscal
year ended March 31, 1997, U.S. Trust New York received advisory fees at the
effective annual rates of .21%, .30% and .61% of the average daily net assets
of the Short-Term Government Securities, Intermediate-Term Managed Income and
Managed Income Funds, respectively. For that same period, U.S. Trust New York
waived advisory fees at the effective annual rates of .09%, .05% and .14% of
the average daily net assets of the Short-Term Government Securities, Interme-
diate-Term Managed Income and Managed Income Funds, respectively.

25
<PAGE>

From time to time, the Investment Adviser may voluntarily waive all or a por-
tion of the advisory fees payable to it by a Fund, which waiver may be termi-
nated at any time. See "Management of the Funds--Shareholder Organizations"
for additional information on fee waivers.

ADMINISTRATORS

CGFSC, Federated Administrative Services and U.S. Trust Connecticut serve as
the Funds' administrators (the "Administrators") and provide them with general
administrative and operational assistance. The Administrators also serve as
administrators of the other portfolios of Excelsior Fund and of all the port-
folios of Excelsior Tax-Exempt Fund and Excelsior Institutional Trust, which
are also advised by the Investment Adviser and its affiliates and distributed
by the Distributor. For the services provided to all portfolios of Excelsior
Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust (except the
international portfolios of Excelsior Fund and Excelsior Institutional Trust),
the Administrators are entitled jointly to annual fees, computed daily and
paid monthly, based on the combined aggregate average daily net assets of the
three companies (excluding the international portfolios of Excelsior Fund and
Excelsior Institutional Trust) as follows:

<TABLE>
<CAPTION>
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
-------------------------------------------------- ----------
<S> <C>
first $200 million................................................... .200%
next $200 million.................................................... .175%
over $400 million.................................................... .150%
</TABLE>

Administration fees payable to the Administrators by each portfolio of Excel-
sior Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust are al-
located in proportion to their relative average daily net assets at the time
of determination. From time to time, the Administrators may voluntarily waive
all or a portion of the administration fee payable to them by a Fund, which
waivers may be terminated at any time. See "Management of the Funds--Share-
holder Organizations" for additional information on fee waivers.

Prior to May 16, 1997, CGFSC, Federated Administrative Services and U.S.
Trust New York served as the Funds' administrators pursuant to an administra-
tion agreement substantially similar to the administration agreement currently
in effect for the Funds. For the fiscal year ended March 31, 1997, CGFSC, Fed-
erated Administrative Services and U.S. Trust New York received an aggregate
administration fee at the effective annual rates of .154%, .152% and .153% of
the average daily net assets of the Short-Term Government Securities, Interme-
diate-Term Managed Income and Managed Income Funds, respectively, and waived
administration fees at the effective annual rates of .002% and .001% of the
average daily net assets of the Intermediate-Term Managed Income and Managed
Income Funds, respectively.

SHAREHOLDER ORGANIZATIONS

As described above under "Purchase of Shares," Excelsior Fund has agreements
with certain Shareholder Organizations--firms that provide services, which may
include acting as record shareholder, to their Customers who beneficially own
Shares. As a consideration for these services, a Fund will pay the Shareholder
Organization an administrative service fee up to the annual rate of .40% of
the average daily net asset value of its Shares held by the Shareholder Orga-
nization's Customers. Such services, which are described more fully in the
Statement of Additional Information under "Management of the Funds--Share-
holder Organizations," may include assisting in processing purchase, exchange
and redemption requests; transmitting and receiving funds in connection with
Customer orders to purchase, exchange or redeem Shares; and providing periodic
statements. It is the responsibility of Shareholder Organizations to advise
Customers of any fees that they may charge in connection with a Customer's in-
vestment. Until further notice, the Investment Adviser and Administrators have
voluntarily agreed to waive fees payable by a Fund in an aggregate amount
equal to administrative service fees payable by that Fund.

26
<PAGE>

BANKING LAWS

DESCRIPTION OF CAPITAL STOCK

Excelsior Funds, Inc. (formerly UST Master Funds, Inc.) was organized as a
Maryland corporation on August 2, 1984. Currently, Excelsior Fund has autho-
rized capital of 35 billion shares of Common Stock, $.001 par value per share,
classified into 40 series of shares representing interests in 20 investment
portfolios. Excelsior Fund's Charter authorizes the Board of Directors to
classify or reclassify any class of shares of Excelsior Fund into one or more
classes or series. Shares of Class D, Class S and Class T Common Stock repre-
sent interests in the Managed Income, Short-Term Government Securities and In-
termediate-Term Managed Income Funds, respectively.

Each Share represents an equal proportionate interest in the particular Fund
with other shares of the Fund, and is entitled to such dividends and distribu-
tions out of the income earned on the assets belonging to such Fund as are de-
clared in the discretion of Excelsior Fund's Board of Directors.

Shareholders are entitled to one vote for each full Share held, and frac-
tional votes for fractional Shares held, and will vote in the aggregate and
not by class, except as otherwise expressly required by law.

Certificates for Shares will not be issued unless expressly requested in
writing to CGFSC and will not be issued for fractional Shares.

As of July 14, 1997, U.S. Trust and its affiliates held of record substan-
tially all of Excelsior Fund's outstanding shares as agent or custodian for
their customers, but did not own such shares beneficially because they did not
have voting or investment discretion with respect to such shares..

CUSTODIAN AND TRANSFER AGENT

27
<PAGE>

PERFORMANCE AND YIELD INFORMATION

From time to time, in advertisements or in reports to shareholders, the per-
formance and yields of the Funds may be quoted and compared to those of other
mutual funds with similar investment objectives and to other relevant indexes
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of a Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds.

Performance and 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 na-
ture, may also be used in comparing the performance and yields of the Funds.

Each Fund may advertise its effective yield which is calculated by dividing
its average daily net investment income per Share during a 30-day (or one
month) base period identified in the advertisement by its net asset value per
Share on the last day of the period, and annualizing the result on a semian-
nual basis.

From time to time, each Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure
reflects the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring
period. Average total return figures will be given for the most recent one-
year period and may be given for other periods as well (such as from the com-
mencement of a Fund's operations, or on a year-by-year basis). Each Fund may
also use aggregate total return figures for various periods, representing the
cumulative change in the value of an investment in the Fund for the specific
period. Both methods of calculating total return assume that dividends and
capital gain distributions made by a Fund during the period are reinvested in
Fund Shares.

Performance and yields will fluctuate and any quotation of performance and
yield should not be considered as representative of a Fund's future perfor-
mance. Since yields fluctuate, yield data cannot necessarily be used to com-
pare an investment in the Funds with bank deposits, savings accounts and simi-
lar investment alternatives which often provide an agreed or guaranteed fixed
yield for a stated period of time. Shareholders should remember that the per-
formance and yield are generally functions of the kind and quality of the in-
struments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any fees charged by the Shareholder Organizations with re-
spect to accounts of Customers that have invested in Shares will not be in-
cluded in calculations of yield and performance.

MISCELLANEOUS

Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds'
independent auditors.

As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of Excelsior Fund or a particular Fund means, with respect to
the approval of an investment advisory agreement or a change in a fundamental
investment policy, the affirmative vote of the lesser of (a) more than 50% of
the outstanding shares of Excelsior Fund or such Fund, or (b) 67% or more of
the shares of Excelsior Fund or such Fund present at a meeting if more than
50% of the outstanding shares of Excelsior Fund or such Fund are represented
at the meeting in person or by proxy.

Inquiries regarding any of the Funds may be directed to the Distributor at
the address listed under "Distributor."

28
<PAGE>

INSTRUCTIONS FOR NEW ACCOUNT APPLICATION

OPENING YOUR ACCOUNT:

Complete the Application(s) FOR OVERNIGHT DELIVERY: send to:
and mail to:

Excelsior Funds Excelsior Funds
c/o Chase Global Funds Services c/o Chase Global Funds Services
Company Company
P.O. Box 2798 73 Tremont Street
Boston, MA 02208-2798 Boston, MA 02108-3913

Please enclose with the Application(s) your check made payable to the "Ex-
celsior Funds" in the amount of your investment.

For direct wire purchases please refer to the section of the Prospectus en-
titled "How to Purchase and Redeem Shares--Purchase Procedures."

MINIMUM INVESTMENTS:

REDEMPTIONS:

SIGNATURES: Please be sure to sign the Application(s).

* A corporate resolution or appropriate certificate may be required.

QUESTIONS:

If you have any questions regarding the Application or redemption require-
ments, please contact the sub-transfer agent at (800) 446-1012 between 9:00
a.m. and 5:00 p.m. (Eastern Time).

29
<PAGE>

CHASE GLOBAL FUNDS SERVICES COMPANY
[LOGO] CLIENT SERVICES NEW
EXCELSIOR P.O. Box 2798 ACCOUNT
FUNDS, INC. Boston, MA 02208-2798 APPLICATION
(800) 446-1012
-----------------------------------------------------------------------------

-----------------------------------------------------------------------------
ACCOUNT REGISTRATION
-----------------------------------------------------------------------------

[_] Individual [_] Joint Tenants [_] Trust [_] Gift/Transfer to Minor

[_] Other _______________________________

Note: Joint tenant registration will be as "joint tenants with right of
survivorship" unless otherwise specified. Trust registrations should specify
name of the trust, trustee(s), beneficiary(ies), and the date of the trust
instrument. Registration for Uniform Gifts/Transfers to Minors should be in
the name of one custodian and one minor and include the state under which
the custodianship is created (using the minor's Social Security Number
("SSN")). For IRA accounts a different application is required.

------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
Identification #
------------------------------
Name ( )
-----------------------------
------------------------------ Telephone #
Address

------------------------------ [_] U.S. Citizen
City/State/Zip Code [_] Other (specify) ________________

<TABLE>
<S> <C> <C> <C>
INITIAL INVESTMENT INITIAL INVESTMENT
[_] Short-Term Government [_] Intermediate-Term Managed
Securities Fund $ ____________ 823 Income Fund $ ____________ 824
[_] Managed Income Fund $ ____________ 805 [_] Other _________________ $ ____________

TOTAL INITIAL INVESTMENT: $ ____________
</TABLE>

NOTE: If investing A. BY MAIL: Enclosed is a check in the amount of
by wire, you must $ _____ payable to "Excelsior Funds."
obtain a Bank Wire B. BY WIRE: A bank wire in the amount of $______
Control Number. To has been sent to the Fund from _________________
do so, please call _____________________ Name of Bank
(800) 446-1012 and Wire Control Number
ask for the Wire
Desk.

CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and
dividend distributions will be reinvested in additional
shares unless appropriate boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash

-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------

TELEPHONE EXCHANGE AND REDEMPTION
[_] I/We appoint CGFSC as my/our agent to act upon instructions received by
telephone in order to effect the telephone exchange and redemption
privileges. I/We hereby ratify any instructions given pursuant to this
authorization and agree that Excelsior Fund, Excelsior Tax-Exempt Fund,
Excelsior Institutional Trust, CGFSC and their directors, trustees, officers
and employees will not be liable for any loss, liability, cost or expense
for acting upon instructions believed to be genuine and in accordance with
the procedures described in the then current Prospectus. To the extent that
Excelsior Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust
fail to use reasonable procedures as a basis for their belief, they or their
service contractors may be liable for instructions that prove to be
fraudulent or unauthorized.

I/We further acknowledge that it is my/our responsibility to read the
Prospectus of any Fund into which I/we exchange. [_] I/We do not wish to
have the ability to exercise telephone redemption and exchange privileges.
I/We further understand that all exchange and redemption requests must be in
writing.

SPECIAL PURCHASE AND REDEMPTION PLANS
I/We have completed and attached the Supplemental Application for:

[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan

AUTHORITY TO TRANSMIT REDEMPTION PROCEEDS TO PRE-DESIGNATED ACCOUNT.
I/We hereby authorize CGFSC to act upon instructions received by telephone
to withdraw $500 or more from my/our account in the Excelsior Funds and to
wire the amount withdrawn to the following commercial bank account. I/We
understand that CGFSC charges an $8.00 fee for each wire redemption, which
will be deducted from the proceeds of the redemption.

Title on Bank Account*____________________________________________________

Name of Bank _____________________________________________________________

Bank A.B.A. Number ___________________ Account Number ___________________

Bank Address _____________________________________________________________

City/State/Zip Code ______________________________________________________
(attach voided check here)

A corporation, trust or partnership must also submit a "Corporate
Resolution" (or "Certificate of Partnership") indicating the names and
titles of officers authorized to act on its behalf.
* TITLE ON BANK AND FUND ACCOUNT MUST BE IDENTICAL.
<PAGE>

- --------------------------------------------------------------------------------
AGREEMENTS AND SIGNATURES
- --------------------------------------------------------------------------------

By signing this application, I/we hereby certify under penalty of perjury that
the information on this application is complete and correct and that as
required by Federal law:

[_] I/WE CERTIFY THAT (1) THE NUMBER(S) SHOWN ON THIS FORM IS/ARE THE CORRECT
TAXPAYER IDENTIFICATION NUMBER(S) AND (2) I/WE ARE NOT SUBJECT TO BACKUP
WITHHOLDING EITHER BECAUSE I/WE HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE
SERVICE THAT I/WE ARE SUBJECT TO BACKUP WITHHOLDING, OR THE IRS HAS NOTIFIED
ME/US THAT I AM/WE ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING. (NOTE: IF ANY
OR ALL OF PART 2 IS NOT TRUE, PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)

[_] IF NO TAXPAYER IDENTIFICATION NUMBER ("TIN") OR SSN HAS BEEN PROVIDED
ABOVE, I/WE HAVE APPLIED, OR INTEND TO APPLY, TO THE IRS OR THE SOCIAL
SECURITY ADMINISTRATION FOR A TIN OR A SSN, AND I/WE UNDERSTAND THAT IF I/WE
DO NOT PROVIDE THIS NUMBER TO CGFSC WITHIN 60 DAYS OF THE DATE OF THIS
APPLICATION, OR IF I/WE FAIL TO FURNISH MY/OUR CORRECT SSN OR TIN, I/WE MAY BE
SUBJECT TO A PENALTY AND A 31% BACKUP WITHHOLDING ON DISTRIBUTIONS AND
REDEMPTION PROCEEDS. (PLEASE PROVIDE THIS NUMBER ON FORM W-9. YOU MAY REQUEST
THE FORM BY CALLING CGFSC AT THE NUMBER LISTED ABOVE).

I/We represent that I am/we are of legal age and capacity to purchase shares
of the Excelsior Funds. I/We have received, read and carefully reviewed a copy
of the appropriate Fund's current Prospectus and agree to its terms and by
signing below I/we acknowledge that neither the Fund nor the Distributor is a
bank and that Fund Shares are not deposits or obligations of, or guaranteed or
endorsed by, U.S. Trust, its parent and affiliates and the Shares are not
federally insured by, guaranteed by, obligations of or otherwise supported by
the U.S. Government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other governmental agency; and that an investment in the
Funds involves investment risks, including possible loss of principal amount
invested.

THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISIONS
OF THIS FROM OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.

X __________________________________ Date _______________________________
Owner Signature

X __________________________________ Date _______________________________
Co-Owner Signature

Sign exactly as name(s) of registered owner(s) appear(s) above (including
legal title if signing for a corporation, trust custodial account, etc.).

We hereby submit this application for the purchase of shares in accordance
with the terms of our selling agreement with Edgewood Services, Inc., and with
the Prospectus and Statement of Additional Information of each Fund purchased.

------------------------------------ --------------------------------------
Investment Dealer's Name Source of Business Code

------------------------------------ --------------------------------------
Main Office Address Branch Number

------------------------------------ --------------------------------------
Representative's Number Representative's Name

------------------------------------ --------------------------------------
Branch Address Telephone

------------------------------------ --------------------------------------
Investment Dealer's Authorized Title
Signature
<PAGE>

CHASE GLOBAL FUNDS SERVICES COMPANY
[LOGO] CLIENT SERVICES SUPPLEMENTAL
EXCELSIOR P.O. Box 2798 APPLICATION
FUNDS INC. Boston, MA 02208-2798 SPECIAL INVESTMENT AND
(800) 446-1012 WITHDRAWAL OPTIONS

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
- --------------------------------------------------------------------------------

Fund Name ________________________ Account Number _____________________
Social Security or Taxpayer ID
Owner Name _______________________ Number _____________________________
Street Address ___________________ City, State, Zip Code ______________
Resident of [_] U.S. [_] Other ___ [_] Check here if this is a change of
address

- --------------------------------------------------------------------------------
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
- --------------------------------------------------------------------------------

A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash

B. PAYMENT ORDER: Complete only if distribution checks are to be payable
to another party. Make distribution checks payable to:

Name of Your Bank ____________________
Name _______________________ Bank Account Number __________________
Address ____________________ Address of Bank ______________________
City, State, Zip Code __________________________________________________

From: ______________________ Account No. __________________________
(Fund)
To: ________________________ Account No. __________________________
(Fund)

- -------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN [_] YES [_] NO
- -------------------------------------------------------------------------------

I/We hereby authorize CGFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable net asset value determined
on that day.

[_] Monthly on the 1st day [_] Monthly on the 15th day
[_] Monthly on both the 1st and 15th days

Amount of each debit (minimum $50 per Fund) $ ________________________

NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------
EXCELSIOR FUNDS
CLIENT SERVICES AUTOMATIC INVESTMENT PLAN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BANK AUTHORIZATION
- --------------------------------------------------------------------------------

__________________ ______________________ ____________________________
Bank Name Bank Address Bank Account Number

I/We authorize you, the above named bank, to debit my/our account for
amounts drawn by CGFSC, acting as my agent for the purchase of Fund shares.
I/We agree that your rights in respect to each withdrawal shall be the same
as if it were a check drawn upon you and signed by me/us. This authority
shall remain in effect until revoked in writing and received by you. I/We
agree that you shall incur no liability when honoring debits, except a loss
due to payments drawn against insufficient funds. I/We further agree that
you will incur no liability to me if you dishonor any such withdrawal. This
will be so even though such dishonor results in the cancellation of that
purchase.

---------------------------------- --------------------------------------
Account Holder's Name Joint Account Holder's Name

X ___________________ ___________ X ____________________ ______________
Signature Date Signature Date
<PAGE>

AVAILABLE TO SHAREHOLDERS WITH ACCOUNT BALANCES OF $10,000 OR MORE.
I/We hereby authorize CGFSC to redeem the necessary number of shares from
my/our Excelsior Fund Account on the designated dates in order to make the
following periodic payments:

[_] Monthly on the 24th day [_] Quarterly on the 24th day of January, April,
July and October [_] Other___________________________

(This request for participation in the Plan must be received by the 18th day of
the month in which you wish withdrawals to begin.)

Amount of each check ($100 minimum) $ ___________________________________

Please make check payable to: Recipient ________________________________
(To be completed only if
redemption proceeds to be paid Street Address ___________________________
to other than account holder of
record or mailed to address City, State, Zip Code ____________________
other than address of record)

NOTE: If recipient of checks is not the registered shareholder, signature(s)
below must be guaranteed. A corporation, trust or partnership must also submit
a "Corporate Resolution" (or "Certification of Partnership") indicating the
names and titles of officers authorized to act on its behalf.

- --------------------------------------------------------------------------------
AGREEMENT AND SIGNATURES
- --------------------------------------------------------------------------------

The investor(s) certifies and agrees that the certifications, authorizations,
directions and restrictions contained herein will continue until CGFSC
receives written notice of any change or revocation. Any change in these
instructions must be in writing with all signatures guaranteed (if
applicable).

Date ______________________

X X
---------------------------------- ------------------------------------
Signature Signature

---------------------------------- ------------------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)

X X
--------------------------------- ------------------------------------
Signature Signature

------------------------------- ------------------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)

- --------------------------------------------------------------------------------

Attach Copy of Voided Check Here

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY......................................................... 2
EXPENSE SUMMARY............................................................ 3
FINANCIAL HIGHLIGHTS....................................................... 4
INVESTMENT OBJECTIVES AND POLICIES......................................... 7
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION..................... 9
INVESTMENT LIMITATIONS..................................................... 14
PRICING OF SHARES.......................................................... 15
HOW TO PURCHASE AND REDEEM SHARES.......................................... 16
INVESTOR PROGRAMS.......................................................... 20
DIVIDENDS AND DISTRIBUTIONS................................................ 23
TAXES...................................................................... 23
MANAGEMENT OF THE FUNDS.................................................... 25
DESCRIPTION OF CAPITAL STOCK............................................... 27
CUSTODIAN AND TRANSFER AGENT............................................... 27
PERFORMANCE AND YIELD INFORMATION.......................................... 28
MISCELLANEOUS.............................................................. 28
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................... 29
</TABLE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' STATEMENT OF ADDI-
TIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OF-
FERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REP-
RESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EXCELSIOR
FUND OR BY ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
EXCELSIOR FUND OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.

USTFXIP897

[LOGO]
EXCELSIOR
FUNDS INC.

SHORT-TERM GOVERNMENT SECURITIES FUND

INTERMEDIATE-TERM MANAGED INCOME FUND

MANAGED INCOME FUND

Prospectus
August 1, 1997
<PAGE>

[LOGO]
EXCELSIOR
Excelsior Equity Funds FUNDS INC.

- --------------------------------------------------------------------------------
73 Tremont Street For initial purchase information, current
Boston, MA 02108-3913 prices, performance information and existing
account information, call (800) 446-1012.
(From overseas, call (617) 557-8280.)
- --------------------------------------------------------------------------------
This Prospectus describes four separate portfolios offered to investors by Ex-
celsior Funds, Inc. ("Excelsior Fund"), an open-end, management investment com-
pany. Each portfolio (individually, a "Fund" and collectively, the "Funds") has
its own investment objective and policies as follows:

BLENDED EQUITY FUND seeks long-term capital appreciation by investing in com-
panies believed by the Investment Adviser to represent good long-term values
not currently recognized in the market prices of their securities.

INCOME AND GROWTH FUND seeks moderate current income with capital appreciation
as a secondary goal by investing in common stock, preferred stock and securi-
ties convertible into common stock.

VALUE AND RESTRUCTURING FUND seeks long-term capital appreciation by investing
in companies which the Investment Adviser believes will benefit from their re-
structuring or redeployment of assets and operations in order to become more
competitive or profitable.

SMALL CAP FUND seeks long-term capital appreciation by investing primarily in
companies with capitalization of $1 billion or less.

This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1997 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to Excelsior Fund at its address shown above or by calling
(800) 446-1012. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus. The Securities and Exchange Commission maintains a World Wide
Web site (http://www.sec.gov) that contains the Statement of Additional Infor-
mation and other information regarding Excelsior Fund.

AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.

August 1, 1997
<PAGE>

PROSPECTUS SUMMARY

INVESTMENT ADVISER: United States Trust Company of New York and U.S. Trust
Company of Connecticut (collectively, "U.S. Trust" or the "Investment Advis-
er") serve as the Funds' investment adviser. U.S. Trust offers a variety of
specialized financial and fiduciary services to high-net worth individuals,
institutions and corporations. Excelsior Fund offers investors access to U.S.
Trust's services. See "Management of the Funds--Investment Adviser."

INVESTMENT OBJECTIVES AND POLICIES: Generally, each Fund is a diversified
investment portfolio which invests in equity securities. The Income and Growth
Fund also may invest significantly in bonds. The Funds' investment objectives
and policies are summarized on the cover and explained in greater detail later
in this Prospectus. See "Investment Objectives and Policies," "Portfolio In-
struments and Other Investment Information" and "Investment Limitations."

HOW TO INVEST: The Funds' Shares are offered at their net asset value. Ex-
celsior Fund does not impose a sales load on purchases of Shares. See "How to
Purchase and Redeem Shares."

The minimum to start an account is $500 per Fund, with a minimum of $50 per
Fund for subsequent investments. The easiest way to invest is to complete the
account application which accompanies this Prospectus and to send it with a
check to the address noted on the application. Investors may also invest by
wire and through investment dealers or institutional investors with appropri-
ate sales agreements with Excelsior Fund. See "How to Purchase and Redeem
Shares."

INVESTMENT RISKS AND CHARACTERISTICS: Generally, each Fund is subject to
market and industry risk. Market risk is the possibility that stock prices
will decline over short or even extended periods. The stock markets tend to be
cyclical, with periods of generally rising prices and periods of generally de-
clining prices. These cycles will affect the values of each Fund. Because the
Funds may invest in securities of foreign issuers, they are subject to the
risks of fluctuations of the value of foreign currency relative to the U.S.
dollar and other risks associated with such investments. Because the Income
and Growth Fund also invests in bonds and other fixed-income securities, it
will also be affected directly by fluctuations in interest rates and the
credit markets. Investments in non-investment grade obligations may subject
the Income and Growth Fund to increased risk of loss upon default. Such secu-
rities are generally unsecured, are often subordinated debt and are often is-
sued by entities with high levels of indebtedness and that are more sensitive
to adverse economic conditions. Although each Fund generally seeks to invest
for the long term, each Fund may engage in short-term trading of portfolio se-
curities. A high rate of portfolio turnover may involve correspondingly
greater transaction costs which must be borne directly by a Fund and ulti-
mately by its shareholders. Investment in the Funds should not be considered a
complete investment program. See "Investment Objectives and Policies."

2
<PAGE>

EXPENSE SUMMARY

<TABLE>
<CAPTION>
BLENDED VALUE AND
EQUITY INCOME AND RESTRUCTURING SMALL CAP
FUND GROWTH FUND FUND FUND
------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load............... None None None None
Sales Load on Reinvested Dividends. None None None None
Deferred Sales Load................ None None None None
Redemption Fees.................... None None None None
Exchange Fees...................... None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Advisory Fees (after fee waiv-
ers)/1/........................... .70% .67% .56% .52%
12b-1 Fees......................... None None None None
Other Operating Expenses
Administrative Servicing Fee/1/... .05% .08% .04% .08%
Other Expenses.................... .26% .28% .31% .34%
----- ----- ---- ----
Total Operating Expenses (after fee
waivers)/1/ ...................... 1.01% 1.03% .91% .94%
===== ===== ==== ====
</TABLE>

- -------
1. The Investment Adviser and administrators may, from time to time, voluntar-
ily waive part of their respective fees, which waivers may be terminated at
any time. Until further notice, the Investment Adviser and/or administrators
intend to voluntarily waive fees in an amount equal to the Administrative
Servicing Fee; and to further waive fees and reimburse expenses to the ex-
tent necessary for Shares of each of the Value and Restructuring and Small
Cap Funds to maintain an annual expense ratio of not more than .99%. Without
such fee waivers, "Advisory Fees" would be .75%, .75%, .60% and .60%, and
"Total Operating Expenses" would be 1.06%, 1.11%, .95% and 1.02% for the
Blended Equity, Income and Growth, Value and Restructuring and Small Cap
Funds, respectively.

Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual returns and (2) redemption of your investment at the end of the
following periods:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Blended Equity Fund............................. $10 $32 $56 $124
Income and Growth Fund.......................... 11 33 57 126
Value and Restructuring Fund.................... 9 29 50 112
Small Cap Fund.................................. 10 30 52 115
</TABLE>

The foregoing expense summary and example are intended to assist investors in
understanding the costs and expenses that an investor in Shares of the Funds
will bear directly or indirectly. The expense summary sets forth advisory and
other expenses payable with respect to Shares of the Funds for the fiscal year
ended March 31, 1997. For more complete descriptions of the Funds' operating
expenses, see "Management of the Funds" and "Description of Capital Stock" in
this Prospectus and the financial statements and notes incorporated by refer-
ence in the Statement of Additional Information.

3
<PAGE>

FINANCIAL HIGHLIGHTS

The following tables include selected data for a Share outstanding throughout
each period and other performance information derived from the financial
statements included in Excelsior Fund's Annual Report to Shareholders for
the year ended March 31, 1997 (the "Financial Statements"). The information
contained in the Financial Highlights for each period has been audited by Ernst
& Young LLP, Excelsior Fund's independent auditors. The following tables should
be read in conjunction with the Financial Statements and notes thereto. More
information about the performance of each Fund is also contained in the Annual
Report to Shareholders, which may be obtained from Excelsior Fund without
charge by calling the number on the front cover of this Prospectus.

BLENDED EQUITY FUND
(FORMERLY, THE EQUITY FUND)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 24.43 $ 21.40 $ 19.17 $ 18.77 $ 16.28 $14.13 $13.87 $13.22 $11.32 $ 13.56
------- ------- ------- ------- ------- ------ ------ ------ ------ --------
Income From Investment
Operations
Net Investment Income.. 0.18 0.12 0.07 0.05 0.08 0.13 0.28 0.34 0.19 0.15
Net Gains or (Losses)
on Securities
(both realized and
unrealized)........... 2.50 5.21 2.67 1.16 3.01 2.23 0.39 1.26 1.88 (1.63)
------- ------- ------- ------- ------- ------ ------ ------ ------ --------
Total From Investment
Operations............ 2.68 5.33 2.74 1.21 3.09 2.36 0.67 1.60 2.07 (1.48)
------- ------- ------- ------- ------- ------ ------ ------ ------ --------
Less Distributions
Dividends From Net
Investment Income..... (0.14) (0.11) (0.04) (0.08) (0.09) (0.21) (0.23) (0.34) (0.17) (0.14)
Dividends in Excess of
Net Investment Income. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and
Options............... (1.16) (2.19) (0.47) (0.39) (0.51) 0.00 (0.18) (0.61) 0.00 (0.62)
Distributions in Excess
of Net Realized Gain
on Investments and
Options............... 0.00 0.00 0.00 (0.34) 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------ ------ ------ ------ --------
Total Distributions.... (1.30) (2.30) (0.51) (0.81) (0.60) (0.21) (0.41) (0.95) (0.17) (0.76)
------- ------- ------- ------- ------- ------ ------ ------ ------ --------
Net Asset Value, End of
Period................. $ 25.81 $ 24.43 $ 21.40 $ 19.17 $ 18.77 $16.28 $14.13 $13.87 $13.22 $ 11.32
======= ======= ======= ======= ======= ====== ====== ====== ====== ========
Total Return/1/ ........ 11.09% 26.45% 14.65% 6.54% 19.26% 16.87% 5.11% 11.98% 18.52% (11.24)%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $306.99 $188.57 $137.42 $122.26 $106.14 $71.62 $29.87 $25.98 $17.61 $ 13.58
Ratio of Net Operating
Expenses to Average
Net Assets............ 1.01% 1.05% 1.05% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16% 1.16%
Ratio of Gross
Operating Expenses to
Average
Net Assets/2/ ........ 1.06% 1.12% 1.08% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16% 1.16%
Ratio of Net Investment
Income to Average
Net Assets............ 0.71% 0.55% 0.36% 0.25% 0.51% 0.87% 2.21% 2.45% 1.62% 1.26%
Portfolio Turnover
Rate.................. 39.0% 27.0% 23.0% 17.0% 24.0% 20.0% 41.0% 53.0% 46.0% 67.0%
Average Commission Rate
Paid/3/............... $0.0663 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- -------
NOTES:
1. Total return data does not reflect the sales load payable on purchases of
Shares prior to February 14, 1997.
2. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
3. Only required for fiscal years beginning on or after September 1, 1995.

4
<PAGE>

INCOME AND GROWTH FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------ ------ ------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 14.45 $ 11.82 $11.94 $11.45 $ 9.10 $ 8.36 $ 8.84 $ 9.09 $ 8.12 $ 8.95
------- ------- ------ ------ ------ ------ ------- ------ ------ -------
Income From Investment
Operations
Net Investment Income.. 0.33 0.39 0.38 0.31 0.27 0.30 0.29 0.40 0.28 0.44
Net Gains or (Losses)
on Securities
(both realized and
unrealized)........... 1.45 2.61 0.26 0.46 2.43 0.72 (0.43) 0.19 1.15 (0.93)
------- ------- ------ ------ ------ ------ ------- ------ ------ -------
Total From Investment
Operations............ 1.78 3.00 0.64 0.77 2.70 1.02 (0.14) 0.59 1.43 (0.49)
------- ------- ------ ------ ------ ------ ------- ------ ------ -------
Less Distributions
Dividends From Net
Investment Income..... (0.35) (0.31) (0.35) (0.27) (0.35) (0.28) (0.34) (0.39) (0.46) (0.21)
Dividends in Excess of
Net Investment Income. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and
Options............... (0.63) (0.06) (0.41) (0.01) 0.00 0.00 0.00 (0.45) 0.00 (0.13)
Distributions in Excess
of Net Realized Gain
on Investments and
Options............... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------ ------ ------ ------ ------- ------ ------ -------
Total Distributions.... (0.98) (0.37) (0.76) (0.28) (0.35) (0.28) (0.34) (0.84) (0.46) (0.34)
------- ------- ------ ------ ------ ------ ------- ------ ------ -------
Net Asset Value, End of
Period................. $ 15.25 $ 14.45 $11.82 $11.94 $11.45 $ 9.10 $ 8.36 $ 8.84 $ 9.09 $ 8.12
======= ======= ====== ====== ====== ====== ======= ====== ====== =======
Total Return/1/......... 12.61% 25.83% 5.74% 6.69% 30.45% 12.42% (1.30%) 6.14% 18.36% (5.43%)
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $132.77 $127.50 $99.93 $96.68 $51.30 $23.25 $ 19.59 $23.66 $14.62 $ 6.66
Ratio of Net Operating
Expenses to Average
Net Assets............ 1.03% 1.05% 1.06% 1.17% 1.15% 1.23% 1.28% 1.24% 1.22% 1.27%
Ratio of Gross
Operating Expenses to
Average Net Assets/2/. 1.11% 1.11% 1.09% 1.17% 1.15% 1.23% 1.28% 1.24% 1.22% 1.27%
Ratio of Net Investment
Income to Average Net
Assets................ 2.17% 2.95% 3.31% 2.77% 2.76% 3.52% 3.64% 4.47% 4.09% 6.20%
Portfolio Turnover
Rate.................. 25.0% 22.0% 36.0% 28.0% 28.0% 81.0% 148.0% 29.0% 24.0% 27.0%
Average Commission Rate
Paid/3/............... $0.0777 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- -------
NOTES:
1. Total return data does not reflect the sales load payable on purchases of
Shares prior to February 14, 1997.
2. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
3. Only required for fiscal years beginning on or after September 1, 1995.

5
<PAGE>

VALUE AND RESTRUCTURING FUND

(FORMERLY, THE BUSINESS AND INDUSTRIAL RESTRUCTURING FUND)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------- PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------- ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 14.03 $10.55 $ 9.64 $ 7.71 $ 7.00
------- ------ ------ ------ -------
Income From Investment
Operations
Net Investment Income..... 0.13 0.10 0.07 0.06 0.02
Net Gains or (Losses) on
Securities (both realized
and unrealized).......... 2.36 3.71 1.02 1.96 0.69
------- ------ ------ ------ -------
Total From Investment
Operations............... 2.49 3.81 1.09 2.02 0.71
------- ------ ------ ------ -------
Less Distributions
Dividends From Net
Investment Income........ (0.12) (0.09) (0.06) (0.07) 0.00
Dividends in Excess of Net
Investment Income........ 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and Options.. (0.47) (0.24) (0.12) (0.02) 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options.. 0.00 0.00 0.00 0.00 0.00
------- ------ ------ ------ -------
Total Distributions....... (0.59) (0.33) (0.18) (0.09) 0.00
------- ------ ------ ------ -------
Net Asset Value, End of
Period..................... $ 15.93 $14.03 $10.55 $ 9.64 $ 7.71
======= ====== ====== ====== =======
Total Return/2/............. 18.09% 36.48% 11.49% 26.40% 10.14%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)............ $124.01 $74.05 $30.18 $14.44 $ 1.94
Ratio of Net Operating
Expenses to Average
Net Assets............... 0.91% 0.91% 0.98% 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average
Net Assets/4/............ 0.95% 0.95% 1.08% 1.73% 5.85%3
Ratio of Net Investment
Income to Average
Net Assets............... 0.90% 0.88% 0.83% 0.77% 2.48%/3/
Portfolio Turnover Rate... 62.0% 56.0% 82.0% 75.0% 9.0%/3/
Average Commission Rate
Paid/5/.................. $0.0755 N/A N/A N/A N/A
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5. Only required for fiscal years beginning on or after September 1, 1995.

6
<PAGE>

SMALL CAP FUND

(FORMERLY, THE EARLY LIFE CYCLE FUND)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------- PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
-------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 10.78 $ 9.77 $ 8.66 $ 7.40 $7.00
-------- ------- ------- ------- -----
Income From Investment
Operations
Net Investment Income
(Loss)............... (0.03) (0.02) (0.02) (0.01) 0.00
Net Gains or (Losses)
on Securities (both
realized and
unrealized).......... (1.43) 1.72 1.31 1.36 0.40
-------- ------- ------- ------- -----
Total From Investment
Operations........... (1.46) 1.70 1.29 1.35 0.40
-------- ------- ------- ------- -----
Less Distributions
Dividends From Net
Investment Income.... 0.00 0.00 0.00 0.00 0.00
Dividends in Excess of
Net Investment
Income............... 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and
Options.............. (0.10) (0.69) (0.18) (0.09) 0.00
Distributions in
Excess of Net
Realized Gain on
Investments and
Options.............. (0.39) 0.00 0.00 0.00 0.00
-------- ------- ------- ------- -----
Total Distributions... (0.49) (0.69) (0.18) (0.09) 0.00
-------- ------- ------- ------- -----
Net Asset Value, End of
Period................. $ 8.83 $ 10.78 $ 9.77 $ 8.66 $7.40
======== ======= ======= ======= =====
Total Return/2/......... (14.33)% 18.29% 15.16% 18.27% 5.71%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions). $ 53.26 $ 78.06 $ 47.78 $ 24.95 $5.51
Ratio of Net Operating
Expenses to Average
Net Assets........... 0.94% 0.90% 0.96% 0.95% 0.99%/3/
Ratio of Gross
Operating Expenses to
Average Net
Assets/4/............ 1.02% 0.98% 1.04% 1.15% 2.70%/3/
Ratio of Net
Investment
Income/(Loss) to
Average Net Assets... (0.26)% (0.17)% (0.23)% (0.25)% 0.12%/3/
Portfolio Turnover
Rate................. 55.0% 38.0% 42.0% 20.0% 4.0%/3/
Average Commission
Rate Paid/5/......... $ 0.0433 N/A N/A N/A N/A
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5. Only required for fiscal years beginning on or after September 1, 1995.

7
<PAGE>

U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES

U.S. Trust offers a variety of specialized fiduciary and financial services
to high-net worth individuals, institutions and corporations. As one of the
largest institutions of its type, U.S. Trust prides itself in offering an at-
tentive and high level of service to each of its clients. The Excelsior Funds
offer individual investors access to U.S. Trust's services.

Philosophy. In managing investments for the Funds, U.S. Trust follows a long-
term investment philosophy which generally does not change with the short-term
variability of financial markets or fundamental conditions. U.S. Trust's ap-
proach begins with the conviction that all worthwhile investments are grounded
in value. The Investment Adviser believes that an investor can identify funda-
mental values that eventually should be reflected in market prices. U.S. Trust
believes that over time, a disciplined search for fundamental value will
achieve better results than attempting to take advantage of short-term price
movements.

Implementation of this long-term value philosophy consists of searching for,
identifying and obtaining the benefits of present or future investment values.
For example, such values may be found in a company's future earnings potential
or in its existing resources and assets. Accordingly, U.S. Trust in managing
investments for the Funds is constantly engaged in assessing, comparing and
judging the worth of companies, particularly in comparison to the price the
markets place on such companies' shares.

Strategies. In order to translate its investment philosophy into more spe-
cific guidance for selection of investments, the Investment Adviser uses three
specific strategies. These strategies, while identified separately, may over-
lap so that more than one may be applied in an investment decision.

U.S. Trust's "PROBLEM/OPPORTUNITY STRATEGY" seeks to identify industries and
companies with the capabilities to provide solutions to or benefit from com-
plex problems such as the changing demographics and aging of the U.S. popula-
tion or the need to enhance industrial productivity. U.S. Trust's second
strategy is a "TRANSACTION VALUE" comparison of a company's real underlying
asset value with the market price of its shares and with the sale prices for
similar assets changing ownership in public market transactions. Differences
between a company's real asset value and the price of its shares often are
corrected over time by restructuring of the assets or by market recognition of
their value. U.S. Trust's third strategy involves identifying "EARLY LIFE CY-
CLE" companies whose products are in their earlier stages of development or
that seek to exploit new markets. Frequently such companies are smaller compa-
nies, but early life cycle companies may also include larger established com-
panies with new products or markets for existing products. The Investment Ad-
viser believes that over time the value of such companies should be recognized
in the market.

Themes. To complete U.S. Trust's investment philosophy in managing the Funds,
the three portfolio strategies discussed above are applied in concert with
other "longer-term investment themes" to identify investment opportunities.
The Investment Adviser believes these longer-term themes represent strong and
inexorable trends. The Investment Adviser also believes that understanding the
instigation, catalysts and effects of these longer-term trends should help to
identify companies that are beneficiaries of these trends.

INVESTMENT OBJECTIVES AND POLICIES

The Investment Adviser will use its best efforts to achieve the investment
objective of each Fund, although their achievement cannot be assured. The in-
vestment objective of each Fund is "fundamental," meaning that it may not be
changed without a vote of the holders of a majority of the particular Fund's
outstanding Shares (as defined under "Miscellaneous"). Except as noted below
in "Investment Limitations," the investment policies of each Fund may be
changed without a vote of the holders of a majority of the outstanding Shares
of such Fund.

8
<PAGE>

BLENDED EQUITY FUND

The Blended Equity Fund's investment objective is to seek long-term capital
appreciation. The Blended Equity Fund invests in companies which the Investment
Adviser believes have value currently not recognized in the market prices of
the companies' securities. The Investment Adviser uses the investment philoso-
phy, strategies and themes discussed above to identify such investment values
and to diversify the Fund's investments over a variety of industries and types
of companies. See "Investment Policies Common to the Blended Equity, Value and
Restructuring and Small Cap Funds" for a discussion of various investment poli-
cies applicable to the Blended Equity Fund.

VALUE AND RESTRUCTURING FUND

The Value and Restructuring Fund seeks long-term capital appreciation by in-
vesting in companies which the Investment Adviser believes will benefit from
their restructuring or redeployment of assets and operations in order to become
more competitive or profitable. Such companies may include those involved in
prospective mergers, consolidations, liquidations, spin-offs, financial
restructurings and reorganizations. The business activities of such companies
are not limited in any way. Under normal conditions, at least 65% of the Fund's
total assets will be invested in companies of the type described in this para-
graph. The Investment Adviser's focus is to find companies whose restructuring
activities offer significant value and investment potential. For the past sev-
eral years, leveraged buy-outs and mergers have been prominent trends. Current-
ly, a great deal of value is being created as companies deleverage, recapital-
ize, and rationalize their operations in order to increase profitability. There
is risk in these types of investments. For example, should a company be unsuc-
cessful in reducing its debt, it may be forced into default on its debt, in-
creasing its debt or bankruptcy.

SMALL CAP FUND

The Small Cap Fund seeks long-term capital appreciation by investing primarily
in smaller companies which are in the earlier stages of their development, yet
which have demonstrated or are expected to achieve substantial long-term earn-
ings growth. In selecting companies for investment, the Investment Adviser
looks for innovative companies whose potential has not yet been fully recog-
nized by the securities markets. Under normal conditions, at least 65% of the
Fund's total assets will be invested in companies with capitalization of $1
billion or less. The risk and venture oriented nature of such companies natu-
rally entails greater risk for investors when contrasted with investing in more
established companies. The Fund may also invest in larger or more mature compa-
nies engaged in new and higher growth potential operations. These companies may
also be positioned for accelerating earnings because of rejuvenated management,
new products, new markets for existing products or structural changes in the
economy.

INVESTMENT POLICIES COMMON TO THE BLENDED EQUITY, VALUE AND RESTRUCTURING AND
SMALL CAP FUNDS

Under normal market and economic conditions, each of the Blended Equity, Value
and Restructuring and Small Cap Funds will invest at least 65% of its total as-
sets in common stock, preferred stock and securities convertible into common
stock. Normally, up to 35% of each such Fund's total assets may be invested in
other securities and instruments including, e.g., other investment-grade debt
securities, warrants, options, and futures instruments as described in more de-
tail below. During temporary defensive periods or when the Investment Adviser
believes that suitable stocks or convertible securities are unavailable, each
Fund may hold cash or invest some or all of its assets in U.S. Government secu-
rities, high-quality money market instruments and repurchase agreements collat-
eralized by the foregoing obligations.

In managing the Blended Equity, Value and Restructuring and Small Cap Funds,
the Investment Adviser seeks to purchase securities having value currently not
recognized in the market price of a security, consistent with the strategies
discussed above.

9
<PAGE>

Portfolio holdings will include common stocks of companies having capitaliza-
tions of varying amounts, and all Funds will invest in the securities of high
growth, small companies where the Investment Adviser expects earnings and the
price of the securities to grow at an above-average rate. As discussed above,
the Small Cap Fund emphasizes such companies. Certain securities owned by the
Blended Equity, Value and Restructuring and Small Cap Funds may be traded only
in the over-the-counter market or on a regional securities exchange, may be
listed only in the quotation service commonly known as the "pink sheets," and
may not be traded every day or in the volume typical of trading on a national
securities exchange. As a result, there may be a greater fluctuation in the
value of a Fund's Shares, and a Fund may be required, in order to meet redemp-
tions or for other reasons, to sell these securities at a discount from market
prices, to sell during periods when such disposition is not desirable, or to
make many small sales over a period of time.

The Blended Equity, Value and Restructuring and Small Cap Funds may invest in
the securities of foreign issuers. The Funds may invest indirectly in the secu-
rities of foreign issuers through sponsored and unsponsored American Depository
Receipts ("ADRs"). ADRs represent receipts typically issued by a U.S. bank or
trust company which evidence ownership of underlying securities of foreign is-
suers. Investments in unsponsored ADRs involve additional risk because finan-
cial information based on generally accepted accounting principles ("GAAP") may
not be available for the foreign issuers of the underlying securities. ADRs may
not necessarily be denominated in the same currency as the underlying securi-
ties into which they may be converted. The Blended Equity, Value and Restruc-
turing and Small Cap Funds may also enter into foreign currency exchange trans-
actions for hedging purposes.

INCOME AND GROWTH FUND

The Income and Growth Fund has two investment objectives. Its primary invest-
ment objective is to seek to provide moderate current income and then, as a
secondary objective, to achieve capital appreciation from its investments. In
attempting to achieve these two objectives, the Income and Growth Fund invests,
during normal market and economic conditions, a substantial portion of its as-
sets in common stock, preferred stock and securities convertible into common
stock. The Fund's investments in equity securities will be income-oriented, and
it is expected that a portion of its assets will be invested on a regular basis
in debt obligations.

The Fund may invest in the securities of foreign issuers. The Fund may also
invest indirectly in the securities of foreign issuers through sponsored and
unsponsored ADRs. For information on ADRs, see "Investment Policies Common to
the Blended Equity, Value and Restructuring and Small Cap Funds." The Fund may
also enter into foreign currency exchange transactions for hedging purposes.

In managing the equity portion of the Income and Growth Fund, the Investment
Adviser will generally select securities that are expected to pay dividends and
other distributions which will result in moderate current income when added to
the income from the Fund's non-equity investments. As a general matter, the In-
vestment Adviser will use the three strategies described above in "U.S. Trust's
Investment Philosophy and Strategies"--problem/opportunity, transaction value,
and early life cycle. In applying these strategies, however, the Investment Ad-
viser will place greater emphasis on the current and anticipated income of par-
ticular securities and lesser emphasis on the potential for capital apprecia-
tion. As a result, the Income and Growth Fund can be expected to have a rela-
tively smaller proportion of its assets invested in common shares of early life
cycle companies than the Blended Equity, Value and Restructuring and Small Cap
Funds. The Investment Adviser may also purchase equity securities for the In-
come and Growth Fund from time to time without regard to the strategies out-
lined above if it determines that the purchase is in furtherance of the Fund's
investment objectives.

10
<PAGE>

Debt obligations may be acquired by the Income and Growth Fund to produce in-
come and (under certain conditions) capital appreciation, and may include both
convertible and non-convertible corporate and government bonds, debentures,
money market instruments, repurchase agreements collateralized by U.S. Govern-
ment obligations, and other types of instruments listed in the next paragraph.
Except as stated below, investments in debt obligations will be limited to
those that are considered to be investment grade-i.e., debt obligations clas-
sified within the four highest ratings of Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("S&P") or, if unrated, which
are determined by the Investment Adviser to be of comparable quality. However,
the Investment Adviser may at any time acquire other, non-investment grade ob-
ligations when it believes that their investment characteristics make them de-
sirable acquisitions for the Income and Growth Fund in light of its investment
objectives and current portfolio mix, so long as, under normal market and eco-
nomic conditions, no more than 5% of the Fund's total assets are invested in
non-investment grade debt obligations. Notwithstanding the foregoing, the Fund
may invest up to 35% of its total assets in non-investment grade convertible
debt obligations. Non-investment grade obligations (those that are rated "Ba"
or lower by Moody's and, at the same time, "BB" or lower by S&P or unrated ob-
ligations), commonly referred to as "junk bonds", have speculative character-
istics. Risks associated with lower-rated debt securities are (a) the relative
youth and growth of the market for such securities, (b) the sensitivity of
such securities to interest rate and economic changes, (c) the lower degree of
protection of principal and interest payments, (d) the relatively low trading
market liquidity for the securities, (e) the impact that legislation may have
on the high yield bond market (and, in turn, on the Fund's net asset value and
investment practices), and (f) the creditworthiness of the issuers of such se-
curities. During an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
adversely effect their ability to service their principal and interest payment
obligations, to meet projected business goals and to obtain additional financ-
ing. An economic downturn could also disrupt the market for lower-rated bonds
and adversely effect the value of outstanding bonds and the ability of the is-
suers to repay principal and interest. If the issuer of a debt obligation held
by the Fund defaulted, the Fund could incur additional expenses to seek recov-
ery. Adverse publicity and investor perceptions, whether or not based on fun-
damental analysis, may also decrease the values and liquidity of lower-rated
securities held by the Fund, especially in a thinly traded market.

Debt obligations rated "BB," "B" or "CCC" by S&P are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" represents the
lowest degree of speculation and "CCC" the highest degree of speculation.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions. The rating "CC" is typically applied to debt subordinated to se-
nior debt that is assigned an actual or implied "CCC" rating. The rating "C"
is typically applied to debt subordinated to senior debt which is assigned an
actual or implied "CCC-" debt rating, and may be used to cover a situation
where a bankruptcy petition has been filed, but debt service payments are con-
tinued. The rating "CI" is reserved for income bonds on which no interest is
being paid. Debt obligations rated "D" are in default, and payments of inter-
est and/or repayment of principal is in arrears. The ratings from "AA" through
"CCC" are sometimes modified by the addition of a plus or minus sign to show
relative standing within the major rating categories. Moody's has a similar
classification scheme for non-investment grade debt obligations. Debt obliga-
tions rated "Ba," "B," "Caa," "Ca" and "C" provide questionable protection of
interest and principal. The rating "Ba" indicates that a debt obligation has
some speculative characteristics. The rating "B" indicates a general lack of
characteristics of desirable investment. Debt obligations rated "Caa" are of
poor quality, while debt obli-

11
<PAGE>

gations rated "Ca" are considered highly speculative. "C" represents the low-
est rated class of debt obligations. Moody's applies numerical modifiers 1, 2
and 3 in each generic classification from "Aa" to "B" in its bond rating sys-
tem. The modifier "1" indicates that a security ranks in the higher end of its
rating category; the modifier "2" reflects a mid-range ranking; and the modi-
fier "3" indicates that the security ranks at the lower end of its generic
rating category.

In addition, the Income and Growth Fund may invest up to 10% of its total as-
sets in other types of instruments, including warrants, options and other
rights to purchase securities; liquidating trust receipts; limited partnership
interests; certificates of beneficial ownership; creditor claims; and loan
participations. Such instruments may represent ownership or creditor interests
in a wide range of assets or businesses, and may be acquired by the Income and
Growth Fund for either income purposes (as would normally be the case with in-
struments such as liquidating trust receipts) or capital appreciation (as
would be the case with warrants and options). In certain instances, there may
be no established market for such instruments. The Income and Growth Fund
will, however, at no time invest more than 10% of the value of its net assets
in securities that are illiquid or for which market quotations are not readily
available. Further, certain of these instruments may have speculative charac-
teristics. For example, certain instruments may be issued by companies that
are insolvent or have otherwise defaulted on their debt obligations. Such com-
panies may be involved in bankruptcy reorganization proceedings. Warrants and
options acquired by the Income and Growth Fund are subject to the possible
loss of the entire premium paid by the Fund if the market price of the under-
lying security falls below the exercise price. The Investment Adviser will
purchase such obligations only when it determines that the potential return
justifies the attendant risks. The investment features of the foregoing in-
struments and investment risks involving their acquisition are described fur-
ther in the Statement of Additional Information. Additionally, some of the
instruments described above may not be "securities" or may not produce quali-
fying income for purposes of the provisions of the Internal Revenue Code of
1986, as amended, applicable to investment companies. See "Taxes--Federal" be-
low for a discussion of such provisions.

RISK FACTORS

Each Fund is subject to market risk and interest rate risk. Market risk is
the possibility that stock prices will decline over short or even extended pe-
riods. The stock markets tend to be cyclical, with periods of generally rising
prices and periods of generally declining prices. These cycles will affect the
values of each Fund. In addition, the prices of bonds and other debt instru-
ments generally fluctuate inversely with interest rate changes. Factors af-
fecting debt securities will affect all of the Funds' debt holdings.

Smaller capitalized companies may have limited product lines, markets, or fi-
nancial resources, or may be dependent upon a small management group, and
their securities may be subject to more abrupt or erratic market movements
than larger capitalized or more established companies, both because their se-
curities typically are traded in lower volume and because the issuers typi-
cally are subject to a greater degree to changes in their earnings and
prospects.

12
<PAGE>

to or as uniform as those of U.S.-based companies. Foreign securities markets,
while growing in volume, have, for the most part, substantially less volume
than U.S. markets, and securities of many foreign companies are less liquid
and their prices more volatile than securities of comparable U.S.-based compa-
nies. Transaction costs on foreign securities markets are generally higher
than in the United States. There is generally less government supervision and
regulation of foreign exchanges, brokers and issuers than there is in the
United States and a Fund might have greater difficulty taking appropriate le-
gal action in a foreign court. Dividends and interest payable on a Fund's for-
eign portfolio securities may be subject to foreign withholding taxes. To the
extent such taxes are not offset by credits or deductions allowed to investors
under the Federal income tax provisions, they may reduce the net return to the
shareholders.

Because of the risks associated with common stock investments, the Funds are
intended to be long-term investment vehicles and are not designed to provide
investors with a means of speculating on short-term stock market movements.
The Funds should not be considered a complete investment program. In view of
the specialized nature of their investment activities, investment in the
Blended Equity, Value and Restructuring and Small Cap Funds' Shares may be
suitable only for those investors who can invest without concern for current
income and are financially able to assume risk in search of long-term capital
gains.

Securities of companies discussed in this section may be more volatile than
the overall market.

PORTFOLIO INSTRUMENTS AND OTHER
INVESTMENT INFORMATION

MONEY MARKET INSTRUMENTS

All Funds may invest in "money market instruments," which include, among
other things, bank obligations, commercial paper and corporate bonds with re-
maining maturities of 13 months or less.

Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"),
or by a savings and loan association or savings bank which is insured by the
Savings Association Insurance Fund of the FDIC. Bank obligations also include
U.S. dollar-denominated obligations of foreign branches of U.S. banks and ob-
ligations of domestic branches of foreign banks. Investments in bank obliga-
tions of foreign branches of domestic financial institutions or of domestic
branches of foreign banks are limited so that no more than 5% of the value of
a Fund's total assets may be invested in any one branch, and no more than 20%
of a particular Fund's total assets at the time of purchase may be invested in
the aggregate in such obligations (see investment limitation No. 5 below under
"Investment Limitations"). Investments in time deposits are limited to no more
than 5% of the value of a Fund's total assets at the time of purchase.

13
<PAGE>

be disposed of within seven days without taking a reduced price will be consid-
ered an illiquid security subject to the 10% limitation discussed below under
"Investment Limitations."

GOVERNMENT OBLIGATIONS

All Funds may invest in U.S. Government obligations, including U.S. Treasury
Bills and the obligations of Federal Home Loan Banks, Federal Farm Credit
Banks, Federal Land Banks, the Federal Housing Administration, the Farmers Home
Administration, the Export-Import Bank of the United States, the Small Business
Administration, the Government National Mortgage Association, the Federal Na-
tional Mortgage Association, the General Services Administration, the Student
Loan Marketing Association, the Central Bank for Cooperatives, the Federal Home
Loan Mortgage Corporation, the Federal Intermediate Credit Banks and the Mari-
time Administration.

REPURCHASE AGREEMENTS

In order to effectively manage their cash holdings, the Funds may enter into
repurchase agreements. Each Fund will enter into repurchase agreements only
with financial institutions that are deemed to be creditworthy by the Invest-
ment Adviser, pursuant to guidelines established by Excelsior Fund's Board of
Directors. No Fund will enter into repurchase agreements with the Investment
Adviser or any of its affiliates. Repurchase agreements with remaining maturi-
ties in excess of seven days will be considered illiquid securities and will be
subject to the 10% limit described below under "Illiquid Securities."

The seller under a repurchase agreement will be required to maintain the value
of the securities which are subject to the agreement and held by a Fund at not
less than the repurchase price. Default or bankruptcy of the seller would, how-
ever, 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.

SECURITIES LENDING

To increase return on its portfolio securities, each Fund may lend its portfo-
lio 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 in-
clude cash, securities of the U.S. Government, its agencies or instrumentali-
ties, or an irrevocable letter of credit issued by a bank, or any combination
thereof. Such loans will not be made if, as a result, the aggregate of all out-
standing loans of a Fund exceeds 30% of the value of its total assets. There
may be risks of delay in receiving additional collateral or in recovering the
securities loaned or even a loss of rights in the collateral should the bor-
rower of the securities fail financially. However, loans are made only to bor-
rowers deemed by the Investment Adviser to be of good standing and when, in the
Investment Adviser's judgment, the income to be earned from the loan justifies
the attendant risks.

OPTIONS

To further increase return on their portfolio securities in accordance with
their respective investment objectives and policies, the Funds may enter into
option transactions as described below.

The Income and Growth, Value and Restructuring and Small Cap Funds may pur-
chase put and call options listed on a national securities exchange and issued
by the Options Clearing Corporation in an amount not exceeding 5% of a Fund's
net assets, as described further in the Statement of Additional Information.
Such options may relate to particular securities or to various stock or bond
indices. Purchasing options is a specialized investment technique which entails
a substantial risk of a complete loss of the amounts paid as premiums to the
writer of the options.

In addition, each Fund may engage in writing covered call options (options on
securities owned by the particular Fund) and enter into closing purchase trans-
actions with respect to such options. Such options

14
<PAGE>

must be listed on a national securities exchange and issued by the Options
Clearing Corporation. The aggregate value of the securities subject to options
written by each Fund may not exceed 25% of the value of its net assets. By
writing a covered call option, a Fund forgoes the opportunity to profit from
an increase in the market price of the underlying security above the exercise
price except insofar as the premium represents such a profit, and it will not
be able to sell the underlying security until the option expires or is exer-
cised or the Fund effects a closing purchase transaction by purchasing an op-
tion of the same series. The use of covered call options is not a primary in-
vestment technique of the Funds and such options will normally be written on
underlying securities as to which the Investment Adviser does not anticipate
significant short-term capital appreciation. Additional information on option
practices, including particular risks thereof, is provided in the Funds'
Statement of Additional Information.

FUTURES CONTRACTS

The Blended Equity, Value and Restructuring and Small Cap Funds may also en-
ter into interest rate futures contracts, other types of financial futures
contracts and related futures options, as well as any index or foreign market
futures which are available on recognized exchanges or in other established
financial markets.

The Blended Equity, Value and Restructuring and Small Cap Funds will not en-
gage in futures transactions for speculation, but only as a hedge against
changes in market values of securities which a Fund holds or intends to pur-
chase. The Funds will engage in futures transactions only to the extent per-
mitted by the Commodity Futures Trading Commission ("CFTC") and the Securities
and Exchange Commission ("SEC"). When investing in futures contracts, the
Funds must satisfy certain asset segregation requirements to ensure that the
use of futures is unleveraged. When a Fund takes a long position in a futures
contract, it must maintain a segregated account containing liquid assets equal
to the purchase price of the contract, less any margin or deposit. When a Fund
takes a short position in a futures contract, the Fund must maintain a segre-
gated account containing liquid assets in an amount equal to the market value
of the securities underlying such contract (less any margin or deposit), which
amount must be at least equal to the market price at which the short position
was established. Asset segregation requirements are not applicable when a Fund
"covers" an options or futures position generally by entering into an offset-
ting position. Each Fund will limit its hedging transactions in futures con-
tracts and related options so that, immediately after any such transaction,
the aggregate initial margin that is required to be posted by the Fund under
the rules of the exchange on which the futures contract (or futures option) is
traded, plus any premiums paid by the Fund on its open futures options posi-
tions, does not exceed 5% of the Fund's total assets, after taking into ac-
count any unrealized profits and unrealized losses on the Fund's open con-
tracts (and excluding the amount that a futures option is "in-the-money" at
the time of purchase). An option to buy a futures contract is "in-the-money"
if the then-current purchase price of the underlying futures contract exceeds
the exercise or strike price; an option to sell a futures contract is "in-the-
money" if the exercise or strike price exceeds the then-current purchase price
of the contract that is the subject of the option. In addition, the use of
futures contracts is further restricted to the extent that no more than 10% of
a Fund's total assets may be hedged.

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<PAGE>

there is no assurance that a liquid market will exist for any particular
futures contract (or option) at any particular time. Consequently, a Fund may
realize a loss on a futures transaction that is not offset by a favorable
movement in the price of securities which it holds or intends to purchase or
may be unable to close a futures position in the event of adverse price move-
ments.

INVESTMENT COMPANY SECURITIES

In connection with the management of its daily cash positions, each Fund may
invest in securities issued by other investment companies which invest in
high-quality, short-term debt securities and which determine their net asset
value per share based on the amortized cost or penny-rounding method. The In-
come and Growth Fund may also purchase securities of unit investment trusts
registered with the SEC as investment companies. In addition to the advisory
fees and other expenses a Fund bears directly in connection with its own oper-
ations, 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 ex-
penses. 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 du-
plicative. Such securities will be acquired by each Fund within the limits
prescribed by the Investment Company Act of 1940, as amended (the "1940 Act")
which include, subject to certain exceptions, a prohibition against a Fund in-
vesting more than 10% of the value of its total assets in such securities.

WHEN-ISSUED AND FORWARD TRANSACTIONS

Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transac-
tions involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place in the future, beyond the normal set-
tlement date, at a stated price and yield. Securities purchased on a "forward
commitment" or "when-issued" basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. It
is expected that "forward commitments" and "when-issued" purchases will not
exceed 25% of the value of a Fund's total assets absent unusual market condi-
tions, and that the length of such commitments will not exceed 45 days. The
Funds do not intend to engage in "when-issued" purchases and "forward commit-
ments" for speculative purposes, but only in furtherance of their investment
objectives.

BORROWING AND REVERSE REPURCHASE AGREEMENTS

ILLIQUID SECURITIES

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<PAGE>

PORTFOLIO TURNOVER

Each Fund may sell a portfolio investment immediately after its acquisition if
the Investment Adviser believes that such a disposition is consistent with the
investment objective of the particular Fund. Portfolio investments may be sold
for a variety of reasons, such as a more favorable investment opportunity or
other circumstances bearing on the desirability of continuing to hold such in-
vestments. A high rate of portfolio turnover may involve correspondingly
greater brokerage commission expenses and other transaction costs, which must
be borne directly by a Fund and ultimately by its shareholders. High portfolio
turnover may result in the realization of substantial net capital gains. To the
extent net short-term capital gains are realized, any distributions resulting
from such gains are considered ordinary income for Federal income tax purposes.
(See "Financial Highlights" and "Taxes--Federal.")

INVESTMENT LIMITATIONS

The investment limitations enumerated below are matters of fundamental policy
and may not be changed with respect to a Fund without the vote of the holders
of a majority of a Fund's outstanding Shares (as defined under "Miscellane-
ous").

A Fund may not:

3. Make loans, except that (i) each Fund may purchase or hold debt securi-
ties in accordance with its investment objective and policies, and may enter
into repurchase agreements with respect to obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, (ii) each Fund may
lend portfolio securities in an amount not exceeding 30% of its total assets,
and (iii) the Income and Growth Fund may purchase or hold creditor claims,
loan participations and other instruments in accordance with its investment
objectives and policies; and

4. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that (a) with respect to the Blended Equity and In-
come and Growth Funds, there is no limitation with respect to securities is-
sued or guaranteed by the U.S. Government or domestic bank obligations, (b)
with respect to the Value and Restructuring and Small Cap Funds, there is no
limitation with respect to securities issued or guaranteed by the U.S. Gov-
ernment, and (c) neither all finance companies, as a group, nor all utility
companies, as a group, are considered a single industry for purposes of this
policy.

Each of the Blended Equity and Income and Growth Funds may not:

5. Invest in obligations of foreign branches of financial institutions or in
domestic branches of foreign banks, if immediately after such purchase
(i) more than 5% of the value of its total assets would be invested in obli-
gations of any one foreign

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<PAGE>

branch of the financial institution or domestic branch of a foreign bank; or
(ii) more than 20% of its total assets would be invested in foreign branches
of financial institutions or in domestic branches of foreign banks; and

6. Knowingly invest more than 10% of the value of its total assets in illiq-
uid securities, including repurchase agreements with remaining maturities in
excess of seven days, restricted securities, and other securities for which
market quotations are not readily available.

* * *

In addition to the investment limitations described above, no Fund may invest
in the securities of any single issuer if, as a result, the Fund holds more
than 10% of the outstanding voting securities of such issuer.

The Value and Restructuring and Small Cap Funds may not invest in obligations
of foreign branches of financial institutions or in domestic branches of for-
eign banks if immediately after such purchase (i) more than 5% of the value of
their respective total assets would be invested in obligations of any one for-
eign branch of the financial institution or domestic branch of a foreign bank;
or (ii) more than 20% of their respective total assets would be invested in
foreign branches of financial institutions or in domestic branches of foreign
banks. The Value and Restructuring and Small Cap Funds may not knowingly invest
more than 10% of the value of their respective net assets in illiquid securi-
ties, including repurchase agreements with remaining maturities in excess of
seven days, restricted securities and other securities for which market quota-
tions are not readily available. These investment policies may be changed by
Excelsior Fund's Board of Directors without shareholder approval.

The Blended Equity and Income and Growth Funds will not invest more than 25%
of the value of their respective total assets in domestic bank obligations.

With respect to all investment policies, if a percentage limitation is satis-
fied at the time of investment, a later increase or decrease in such percentage
resulting from a change in value of a Fund's portfolio securities will not con-
stitute a violation of such limitation.

PRICING OF SHARES

The net asset value of each Fund is determined and the Shares of each Fund are
priced at the close of regular trading hours on the New York Stock Exchange
(the "Exchange"), currently 4:00 p.m. (Eastern Time). Net asset value and pric-
ing for each Fund are determined on each day the Exchange and the Investment
Adviser are open for trading ("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, Thanksgiving Day
and Christmas. A Fund's net asset value per Share for purposes of pricing sales
and redemptions is calculated by dividing the value of all securities and other
assets allocable to the Fund, less the liabilities allocable to the Fund, by
the number of its outstanding Shares.

Assets in the Funds which are traded on a recognized domestic stock exchange
are valued at the last sale price on the securities exchange on which such se-
curities are primarily traded or at the last sale price on the national securi-
ties market. Securities traded only on over-the-counter markets are valued on
the basis of closing over-the-counter bid prices. Securities for which there
were no transactions are valued at the average of the most recent bid and asked
prices. An option or futures contract is valued at the last sales price quoted
on the principal exchange or board of trade on which such option or contract is
traded, or in the absence of a sale, the mean between the last bid and asked
prices. Restricted securities, securities for which market quotations are not
readily available, and other assets are valued at fair value, pursuant to
guidelines adopted by Excelsior Fund's Board of Directors.

Portfolio securities which are primarily traded on foreign securities ex-
changes are generally valued at

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<PAGE>

the preceding closing values of such securities on their respective exchanges,
except that when an event subsequent to the time where value was so estab-
lished is likely to have changed such value, then the fair value of those se-
curities will be determined by consideration of other factors under the direc-
tion of the Board of Directors. A security which is listed or traded on more
than one exchange is valued at the quotation on the exchange determined to be
the primary market for such security. Investments in debt securities having a
maturity of 60 days or less are valued based upon the amortized cost method.
All other foreign securities are valued at the last current bid quotation if
market quotations are available, or at fair value as determined in accordance
with guidelines adopted by the Board of Directors. For valuation purposes,
quotations of foreign securities in foreign currency are converted to U.S.
dollars equivalent at the prevailing market rate on the day of conversion.
Some of the securities acquired by the Funds may be traded on foreign ex-
changes or over-the-counter markets on days which are not Business Days. In
such cases, the net asset value of the Shares may be significantly affected on
days when investors can neither purchase nor redeem a Fund's Shares. Excelsior
Fund's administrators have undertaken to price the securities in the Funds'
portfolios, and may use one or more independent pricing services in connection
with this service.

HOW TO PURCHASE AND REDEEM SHARES

DISTRIBUTOR

PURCHASE OF SHARES

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<PAGE>

("Shareholder Organizations") that have entered into agreements with Excelsior
Fund. A Shareholder Organization may elect to hold of record Shares for its
Customers and to record beneficial ownership of Shares on the account state-
ments provided by it to its Customers. If it does so, it is the Shareholder Or-
ganization's responsibility to transmit to the Distributor all purchase orders
for its Customers and to transmit, on a timely basis, payment for such orders
to Chase Global Funds Services Company ("CGFSC"), the Funds' sub-transfer
agent, in accordance with the procedures agreed to by the Shareholder Organiza-
tion and the Distributor. Confirmations of all such Customer purchases and re-
demptions will be sent by CGFSC to the particular Shareholder Organization. As
an alternative, a Shareholder Organization may elect to establish its Custom-
ers' accounts of record with CGFSC. In this event, even if the Shareholder Or-
ganization continues to place its Customers' purchase and redemption orders
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 servic-
es. See "Management of the Funds--Shareholder Organizations."

Customers wishing to purchase Shares through their Shareholder Organization
should contact such entity directly for appropriate instructions. (For a list
of Shareholder Organizations in your area, call (800) 446-1012.) An investor
purchasing Shares through a registered investment adviser or certified
financial planner may incur transaction charges in connection with such pur-
chases. Such investors should contact their registered investment adviser or
certified financial planner for further information on transaction fees. In-
vestors may also purchase Shares directly from the Distributor in accordance
with procedures described below under "Purchase Procedures."

PURCHASE PROCEDURES

General

Direct Investors may purchase Shares by completing the Application for pur-
chase of Shares accompanying this Prospectus and mailing it, together with a
check payable to Excelsior Funds, to:

Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

Purchases by Wire

Investors may also purchase Shares by wiring Federal funds to CGFSC. Prior to
making an initial investment by wire, an Investor must telephone CGFSC at
(800) 446-1012 (from overseas, call (617) 557-8280) for instructions. Federal
funds and registration instructions should be wired through the Federal Reserve
System to:

The Chase Manhattan Bank
ABA #021000021
Excelsior Funds, Account No. 9102732915
For further credit to:
Excelsior Funds
Wire Control Number
Account Registration (including account number)

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<PAGE>

OTHER PURCHASE INFORMATION

Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500 per Fund. The minimum subse-
quent investment for both types of investors is $50 per Fund. Customers may
agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may charge a Customer's account fees for auto-
matic investment and other cash management services provided. Excelsior Fund
reserves the right to reject any purchase order, in whole or in part, or to
waive any minimum investment requirements.

REDEMPTION PROCEDURES

Customers of Shareholder Organizations holding Shares of record may redeem all
or part of their invest-ments in the Funds in accordance with procedures gov-
erning their accounts at the Shareholder Organizations. It is the responsibil-
ity of the Shareholder Organizations to transmit redemption orders to CGFSC and
credit such Customer accounts with the redemption proceeds on a timely basis.
Redemption orders for Institutional Investors must be transmitted to CGFSC by
telephone at (800) 446-1012 or by terminal access. No charge for wiring redemp-
tion payments to Shareholder Organizations or Institutional Investors is im-
posed by Excelsior Fund, although Shareholder Organizations may charge a Cus-
tomer's account for wiring redemption proceeds. Information relating to such
redemption services and charges, if any, is available from the Shareholder Or-
ganizations. An investor redeeming Shares through a registered investment ad-
viser or certified financial planner may incur transaction charges in connec-
tion with such redemptions. Such investors should contact their registered in-
vestment adviser or certified financial planner for further information on
transaction fees. Investors may redeem all or part of their Shares in accor-
dance with any of the procedures described below (these procedures also apply
to Customers of Shareholder Organizations for whom individual accounts have
been established with CGFSC).

REDEMPTION BY MAIL

Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:

Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

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<PAGE>

in order to be approved by CGFSC pursuant to the Signature Guarantee Guide-
lines. Copies of the Signature Guarantee Guidelines and information on STAMP
can be obtained from CGFSC at (800) 446-1012 or at the address given above.
CGFSC may require additional supporting documents for redemptions made by cor-
porations, executors, administrators, trustees and guardians. A redemption re-
quest will not be deemed to be properly received until CGFSC receives all re-
quired documents in proper form. Payment for Shares redeemed will ordinarily
be made by mail within five Business Days after receipt by CGFSC of the re-
demption request in good order. Questions with respect to the proper form for
redemption requests should be directed to CGFSC at (800) 446-1012 (from over-
seas, call (617) 557-8280).

REDEMPTION BY WIRE OR TELEPHONE

Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do so, may redeem Shares by instructing CGFSC
by wire or telephone to wire the redemption proceeds directly to the Direct
Investor's account at any commercial bank in the United States. Direct Invest-
ors who are shareholders of record may also redeem Shares by instructing CGFSC
by telephone to mail a check for redemption proceeds of $500 or more to the
shareholder of record at his or her address of record. Institutional Investors
may also redeem Shares by instructing CGFSC by telephone at (800) 446-1012 or
by terminal access. Only redemptions of $500 or more will be wired to a Direct
Investor's account. The redemption proceeds for Direct Investors must be paid
to the same bank and account as designated on the Application or in written
instructions subsequently received by CGFSC.

In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, a Direct Investor must send a written request to Excelsior Fund, c/o
CGFSC, at the address listed above under "Redemption by Mail." Such requests
must be signed by the Direct Investor, with signatures guaranteed (see "Re-
demption by Mail" above, for details regarding signature guarantees). Further
documentation may be requested.

CGFSC and the Distributor reserve the right to re- fuse 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 Ex-
celsior Fund, CGFSC or the Distributor. EXCELSIOR FUND, CGFSC, AND THE DIS-
TRIBUTOR WILL NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACT-
ING UPON TELEPHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN
ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCELSIOR FUND
WILL USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING
THOSE INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.

OTHER REDEMPTION INFORMATION

Except as described in "Investor Programs" below, Investors may be required
to redeem Shares in a Fund

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<PAGE>

GENERAL

INVESTOR PROGRAMS

EXCHANGE PRIVILEGE

Investors and Customers of Shareholder Organizations may, after appropriate
prior authorization and without an exchange fee imposed by Excelsior Fund, ex-
change Shares in a Fund having a value of at least $500 for shares of any other
portfolio offered by Excelsior Fund or Excelsior Tax-Exempt Funds, Inc. ("Ex-
celsior Tax-Exempt Fund") or for Trust Shares of Excelsior Institutional Trust,
provided that such other shares may legally be sold in the state of the Invest-
or's residence.

Excelsior Fund currently offers 11 additional portfolios as follows:

Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities and repurchase agreements collateral-
ized by such obligations;

Managed Income Fund, a fund seeking higher current income primarily through
investments in investment grade debt obligations, U.S. Government obligations
and money market instruments;

23
<PAGE>

in companies that are in the energy and other natural resources groups of in-
dustries and, to a more limited extent, in gold and other precious metal bul-
lion and coins);

International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;

Latin America Fund, a fund seeking long-term capital appreciation through
investments in companies and securities of governments based in all countries
in Central and South America;

Pacific/Asia Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Asia and on the
Asian side of the Pacific Ocean; and

Pan European Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Europe.

Excelsior Tax-Exempt Fund currently offers 6 portfolios as follows:

New York Intermediate-Term Tax-Exempt Fund, a non- diversified fund designed
to provide New York in vestors with a high level of current interest income
exempt from Federal and, to the extent possible, New York state and New York
City income taxes; this fund invests primarily in New York municipal obliga-
tions and has a dollar-weighted average portfolio maturity of 3 to 10 years;
and

Excelsior Institutional Trust currently offers Trust Shares in the following
investment portfolios:

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<PAGE>

Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in a Fund. For further
information regarding exchange privileges, shareholders should call (800) 446-
1012 (from overseas, call (617) 557-8280). Investors exercising the exchange
privilege with the other portfolios of Excelsior Fund, Excelsior Tax-Exempt
Fund or Excelsior Institutional Trust should request and review the prospec-
tuses of such funds. Such prospectuses may be obtained by calling the numbers
listed above. In order to prevent abuse of this privilege to the disadvantage
of other shareholders, Excelsior Fund, Excelsior Tax-Exempt Fund and Excelsior
Institutional Trust reserve the right to limit the number of exchange requests
of Investors and Customers of Shareholder Organizations to no more than six
per year. Excelsior Fund may modify or terminate the exchange program at any
time upon 60 days' written notice to shareholders, and may reject any exchange
request.

Exchanges by Telephone. For shareholders who have previously selected the
telephone exchange option, an exchange order may be placed by calling (800)
446-1012 (from overseas, please call (617) 557-8280). By establishing the
telephone exchange option, a shareholder authorizes CGFSC and the Distributor
to act upon telephone instructions believed to be genuine. EXCELSIOR FUND,
EXCELSIOR TAX-EXEMPT FUND, EXCELSIOR INSTITUTIONAL TRUST, CGFSC AND THE
DISTRIBUTOR ARE NOT RESPONSIBLE FOR THE AUTHENTICITY OF EXCHANGE REQUESTS
RECEIVED BY TELEPHONE THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN
ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCELSIOR FUND,
EXCELSIOR TAX-EXEMPT FUND AND EXCELSIOR INSTITUTIONAL TRUST WILL USE SUCH
PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE
INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.

SYSTEMATIC WITHDRAWAL PLAN

RETIREMENT PLANS

Shares are available for purchase by Investors in connection with the follow-
ing tax-deferred prototype retirement plans offered by United States Trust
Company of New York:

IRAs (including "rollovers" from existing retirement plans) for individuals
and their spouses;

Profit Sharing and Money-Purchase Plans for corporations and self-employed
individuals and their partners to benefit themselves and their employees; and

Keogh Plans for self-employed individuals.

25
<PAGE>

minimum subsequent investment is $50 per Fund. Detailed information concerning
eligibility, service fees and other matters related to these plans can be ob-
tained by calling (800) 446-1012 (from overseas, call (617) 557-8280). Custom-
ers 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

DIVIDENDS AND DISTRIBUTIONS

Dividends from the net investment income of the Funds are declared and paid
quarterly. For dividend purposes, a Fund's investment income is reduced by ac-
crued expenses directly attributable to that Fund and the general expenses of
Excelsior Fund prorated to that Fund on the basis of its relative net assets.
Net realized capital gains are distributed at least annually. Dividends and
distributions will reduce the net asset value of each of the Funds by the
amount of the dividend or distribution. All dividends and distributions paid
on Shares held of record by the Investment Adviser and its affiliates or cor-
respondent banks will be paid in cash. Direct and Institutional Investors and
Customers of other Shareholder Organizations will receive dividends and dis-
tributions in additional Shares of the Fund on which the dividend or distribu-
tion is paid (as determined on the payable date), unless they have requested
in writing (received by CGFSC at Excelsior Fund's address prior to the payment
date) to receive dividends and distributions in cash. Reinvested dividends and
distributions receive the same tax treatment as those paid in cash.

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<PAGE>

TAXES

FEDERAL

Each of the Funds qualified for its last taxable year as a "regulated invest-
ment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Each Fund expects to so qualify in future years. Such qualification
generally relieves a Fund of liability for Federal income taxes to the extent
its earnings are distributed in accordance with the Code.

Qualification as a regulated investment company under the Code requires,
among other things, that a Fund distribute to its shareholders an amount equal
to at least 90% of its investment company taxable income for each taxable
year. In general, a Fund's investment company taxable income will be its in-
come (including dividends and interest), subject to certain adjustments and
excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year. Each Fund intends
to distribute substantially all of its investment company taxable income each
year. Such dividends will be taxable as ordinary income to Fund shareholders
who are not currently exempt from Federal income taxes, whether such income is
received in cash or reinvested in additional Shares. (Federal income taxes for
distributions to IRAs and qualified pension plans are deferred under the
Code.) The dividends received deduction for corporations will apply to such
ordinary income distributions to the extent of the total qualifying dividends
received by a Fund from domestic corporations for the taxable year.

Distribution by a Fund of the excess of its net long- term capital gain over
its net short-term capital loss is taxable to shareholders as long-term capi-
tal gain, regardless of how long the shareholders have held their Shares and
whether such gains are received in cash or reinvested in additional Shares.
Such distributions are not eligible for the dividends received deduction.

A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Shares depending upon the tax basis of such Shares and
their price at the time of redemption, transfer or exchange. If a shareholder
holds Shares for six months or less and during that time receives a capital
gain dividend on those Shares, any loss recognized on the sale or exchange of
those Shares will be treated as a long-term capital loss to the extent of the
capital gain dividend. Generally, a shareholder may include sales charges in-
curred upon the purchase of Shares in his tax basis for such Shares for the
purpose of determining gain or loss on a redemption, transfer or exchange of
such Shares. However, if the shareholder effected an exchange of such Shares
for Shares of another Fund within 90 days of the purchase and was able to re-
duce the sales charges previously applicable to the new Shares (by virtue of
the exchange privilege), the amount equal to such reduction may not be in-
cluded in the tax basis of the shareholder's exchanged Shares for the purpose
of determining gain or loss, but may be included (subject to the same limita-
tion) in the tax basis of the new Shares.

27
<PAGE>

forward contracts) derived with respect to the Fund's business of investing in
such stock, securities or currencies. The Treasury Department may by regula-
tion exclude from qualifying income foreign currency gains which are not di-
rectly related to a Fund's principal business of investing in stock or securi-
ties, or options and futures with respect to stock or securities. Any income
derived by a Fund from a partnership or trust is treated for this purpose as
derived with respect to the Fund's business of investing in stock, securities
or currencies only to the extent that such income is attributable to items of
income which would have been qualifying income if realized by the Fund in the
same manner as by the partnership or trust. Some of the investments that the
Income and Growth Fund may make (such as liquidating trust receipts and credi-
tor claims) may not be securities or may not produce qualifying income. There-
fore, it may be necessary for the Investment Adviser to restrict the invest-
ments of that Fund to ensure that non-qualifying income does not exceed 10% of
that Fund's total gross income for a taxable year.

STATE AND LOCAL

MANAGEMENT OF THE FUNDS

INVESTMENT ADVISER

The Blended Equity Fund's portfolio co-managers, David A. Tillson, Bruce
Tavel and Leigh H. Weiss, are the persons primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. Tillson, a Man-
aging Director and Senior Portfolio Manager of the Personal Investment Divi-
sion of U.S. Trust, has been with U.S. Trust since 1993, and has managed the
Fund since December 1994. Prior to

28
<PAGE>

joining U.S. Trust, Mr. Tillson was the founder and President of TDA Capital
Management Company, and a Senior Vice President of Matrix Asset Advisors until
1993. He was also a Vice President and Senior Portfolio Manager with V C S & O
Asset Management until 1990. Mr. Tavel, a Senior Vice President and head of
U.S. Trust's Structured Investments Division, has been with U.S. Trust since
1980 and has managed the Fund since August 1997. Mr. Weiss, a Senior Vice
President and Senior Portfolio Manager, has been with U.S. Trust since 1993
and has managed the Fund since August 1997. Prior to joining U.S. Trust,
Mr. Weiss was a portfolio manager with Goldman, Sachs & Co.

The Income and Growth Fund's portfolio manager, Richard L. Bayles, is the
person primarily responsible for the day-to-day management of the investment
portfolio. Mr. Bayles, a Managing Director and Senior Portfolio Manager of the
Personal Investment Division of U.S. Trust, has been with U.S. Trust since
1990 and has managed the Fund since 1990. Prior to his reassociation with U.S.
Trust, Mr. Bayles was a Managing Director at John W. Bristol and Company, an
investment advisory firm, from 1987 to 1990.

The Value and Restructuring Fund's portfolio manager, David J. Williams, is
the person primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Williams, a Managing Director and Senior Portfolio
Manager of the Personal Investment Division of U.S. Trust, has been with U.S.
Trust since 1987 and has managed the Fund since its inception.

The Small Cap Fund's portfolio co-managers are Jay B. Springer and Diana L.
Chaney. Mr. Springer, a Managing Director and Senior Portfolio Manager of the
Personal Investment Division of U.S. Trust, has been with U.S. Trust since
June 1983 and has managed the Fund since January 1997. Ms. Chaney, a Vice
President of the Personal Investment Division of U.S. Trust, has been with
U.S. Trust since May 1995 and has managed the Fund since January 1997. Ms.
Chaney was previously with Smith Barney Investment Advisers where she was Di-
rector of Money Management from 1987 to 1995.

For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreements, the Investment Adviser is entitled to be paid a fee, com-
puted daily and paid monthly, at the annual rates of: .75% of the average
daily net assets of the Blended Equity and Income and Growth Funds; and .60%
of the average daily net assets of the Value and Restructuring and Small Cap
Funds.

Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the Funds pursuant to advisory agreements substantially similar to the Invest-
ment Advisory Agreements currently in effect for the Funds. For the fiscal
year ended March 31, 1997, U.S. Trust New York received an advisory fee at the
effective annual rates of .70%, .67%, .56%, and .52% of the average daily net
assets of the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap Funds, respectively. For the same period, U.S Trust New York waived
advisory fees at the effective annual rates of .05%, .08%, .04%, and .08% of
the average daily net assets of the Blended Equity, Income and Growth, Value
and Restructuring and Small Cap Funds, respectively.

In executing portfolio transactions for the Funds, the Investment Adviser may
use affiliated brokers in accordance with the requirements of the 1940 Act.
The Investment Adviser may also take into account the sale of Excelsior Fund's
shares in allocating brokerage transactions.

ADMINISTRATORS

29
<PAGE>

istrators also serve as administrators of the other portfolios of Excelsior
Fund and of all the portfolios of Excelsior Tax-Exempt Fund and Excelsior In-
stitutional Trust, which are also advised by the Investment Adviser and its
affiliates and distributed by the Distributor. For the services provided to
all portfolios of Excelsior Fund, Excelsior Tax-Exempt Fund and Excelsior In-
stitutional Trust (except the international portfolios of Excelsior Fund and
Excelsior Institutional Trust), the Administrators are entitled jointly to an-
nual 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:

<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY NET ASSETS
OF EXCELSIOR FUND, EXCELSIOR TAX-EXEMPT FUND AND EXCELSIOR
INSTITUTIONAL TRUST (EXCLUDING THE INTERNATIONAL ANNUAL
PORTFOLIOS OF EXCELSIOR FUND AND EXCELSIOR INSTITUTIONAL TRUST) FEE
--------------------------------------------------------------- ------
<S> <C>
first $200 million..................................................... .200%
next $200 million...................................................... .175%
over $400 million...................................................... .150%
</TABLE>

Prior to May 16, 1997, CGFSC, Federated Administrative Services and U.S.
Trust New York served as the Funds' administrators pursuant to an administra-
tion agreement substantially similar to the administration agreement currently
in effect for the Funds. For the fiscal year ended March 31, 1997, CGFSC, Fed-
erated Administrative Services and U.S. Trust New York received an aggregate
administration fee at the effective annual rates of .153%, .153%, .154% and
.154% of the average daily net assets of the Blended Equity, Income and
Growth, Value and Restructuring and Small Cap Funds, respectively, and waived
administration fees at the effective annual rates of .001% and .001% of the
average daily net assets of the Blended Equity and Income and Growth Funds,
respectively.

SHAREHOLDER ORGANIZATIONS

BANKING LAWS

30
<PAGE>

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 invest-
ment adviser, transfer agent, or custodian to such an investment company, or
from purchasing shares of such company for and upon the order of customers.
The Investment Adviser, CGFSC and certain Shareholder Organizations may be
subject to such banking laws and regulations. State securities laws may differ
from the interpretations of Federal law discussed in this paragraph and banks
and financial institutions may be required to register as dealers pursuant to
state law.

DESCRIPTION OF CAPITAL STOCK

Each Share in a Fund represents an equal proportionate interest in the par-
ticular Fund with other shares of the same class, and is entitled to such div-
idends and distributions out of the income earned on the assets belonging to
such Fund as are declared in the discretion of Excelsior Fund's Board of Di-
rectors. Excelsior Fund's Charter authorizes the Board of Directors to clas-
sify or reclassify any class of shares into one or more additional classes or
series.

Excelsior Fund's shareholders are entitled to one vote for each full share
held and fractional votes for fractional shares held and will vote in the ag-
gregate and not by class, except as otherwise expressly required by law.

Certificates for Shares will not be issued unless expressly requested in
writing to CGFSC and will not be issued for fractional Shares.

CUSTODIAN AND TRANSFER AGENT

PERFORMANCE INFORMATION

31
<PAGE>

tions that monitor the performance of mutual funds. For example, the perfor-
mance of a Fund may be compared to data prepared by Lipper Analytical Servic-
es, Inc., a widely recognized independent service which monitors the perfor-
mance of mutual funds. The performance of the Blended Equity, Value and Re-
structuring and Small Cap Funds may be also compared to the Standard & Poor's
500 Stock Index ("S&P 500"), an unmanaged index of common stocks of 500 compa-
nies, most of which are listed on the Exchange, the Consumer Price Index, or
the Dow Jones Industrial Average, a recognized unmanaged index of common
stocks of 30 industrial companies listed on the Exchange.

Performance data as reported in national financial publications, including
but not limited to Money Magazine, Forbes, Barron's, The Wall Street Journal
and The New York Times, or in publications of a local or regional nature, may
also be used in comparing the performance of the Funds.

From time to time, each Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure
reflects the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring
period. Average total return figures will be given for the most recent one-
year period, and may be given for other periods as well (such as from the com-
mencement of a Fund's operations, or on a year-by-year basis). Each Fund may
also use aggregate total return figures for various periods, representing the
cumulative change in the value of an investment in the Fund for the specific
period. Both methods of calculating total return assume that dividends and
capital gain distributions made by a Fund during the period are reinvested in
Fund Shares.

Performance will fluctuate and any quotation of performance should not be
considered as representative of a Fund's future performance. Shareholders
should remember that performance is generally a function of the kind and qual-
ity of the instruments held in a portfolio, operating expenses, and market
conditions. Any fees charged by Shareholder Organizations with respect to ac-
counts of Customers that have invested in Shares will not be included in cal-
culations of performance.

MISCELLANEOUS

Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds'
independent auditors.

Inquiries regarding any of the Funds may be directed to the Distributor at
the address listed under "Distributor."

32
<PAGE>

INSTRUCTIONS FOR NEW ACCOUNT APPLICATION

OPENING YOUR ACCOUNT:

Complete the Application(s) and mail to: FOR OVERNIGHT DELIVERY: send to:

Excelsior Funds Excelsior Funds
c/o Chase Global Funds Services c/o Chase Global Funds Services
Company Company
P.O. Box 2798 Sub-Transfer Agent
Boston, MA 02208-2798 Boston, MA 02108-3913

Please enclose with the Application(s) your check made payable to the "Ex-
celsior Funds" in the amount of your investment.

For direct wire purchases please refer to the section of the Prospectus en-
titled "How to Purchase and Redeem Shares--Purchase Procedures."

MINIMUM INVESTMENTS:

REDEMPTIONS:

SIGNATURES: Please be sure to sign the Application(s).

QUESTIONS:

If you have any questions regarding the Application or redemption require-
ments, please contact the sub-transfer agent at (800) 446-1012 between 9:00
a.m. and 5:00 p.m. (Eastern Time).

33
<PAGE>

[LOGO] CHASE GLOBAL FUNDS SERVICES COMPANY NEW
EXCELSIOR CLIENT SERVICES ACCOUNT
FUNDS INC. P.O. Box 2798 APPLICATION
Boston, MA 02208-2798
(800) 446-1012
-----------------------------------------------------------------------------

------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
Identification #
------------------------------ ( )
Name -----------------------------
------------------------------ Telephone #
Address
------------------------------
City/State/Zip Code [_] U.S. Citizen [_] Other (specify) ____

<TABLE>
<CAPTION>
FUND INITIAL INVESTMENT FUND INITIAL INVESTMENT
<S> <C> <C> <C>
[_] Blended Equity Fund $ ____________ 800 [_] Value & Restructuring Fund $ ____________ 818
[_] Income and Growth Fund $ ____________ 801 [_] Small Cap Fund $ ____________ 812
[_] Other ----------------------------- $ ____________

TOTAL INITIAL INVESTMENT:
</TABLE>

NOTE: If investing A. BY MAIL: Enclosed is a check in the
by wire, you must amount of $ ____________ payable to "Excelsior
obtain a Bank Wire Funds."
Control Number. To B. BY WIRE: A bank wire in the amount
do so, please call of $ ________________ has been sent to the Fund
(800) 446-1012 and from
ask for the Wire ------------------ ---------------------
Desk. Name of Bank Wire Control Number

CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and
dividend distributions will be reinvested in additional
shares unless appropriate boxes below are checked:

All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash

-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------

TELEPHONE EXCHANGE AND AUTHORITY TO TRANSMIT
REDEMPTION REDEMPTION PROCEEDS TO PRE-
DESIGNATED ACCOUNT.

[_] I/We appoint CGFSC as I/We hereby authorize CGFSC to
my/our agent to act upon act upon instructions received
instructions received by by telephone to withdraw $500
telephone in order to effect or more from my/our account in
the telephone exchange and the Excelsior Funds and to
redemption privileges. I/We wire the amount withdrawn to
hereby ratify any the following commercial bank
instructions given pursuant account. I/We understand that
to this authorization and CGFSC charges an $8.00 fee for
agree that Excelsior Fund, each wire redemption, which
Excelsior Tax-Exempt Fund, will be deducted from the
Excelsior Institutional proceeds of the redemption.
Trust, CGFSC and their
directors, trustees, Title on Bank Account*_________
officers and employees will Name of Bank __________________
not be liable for any loss, Bank A.B.A. Number ____________
liability, cost or expense Account Number ________________
for acting upon instructions Bank Address __________________
believed to be genuine and City/State/Zip Code ___________
in accordance with the (attach voided check here)
procedures described in the
then current Prospectus. To A corporation, trust or
the extent that Excelsior partnership must also submit a
Fund, Excelsior Tax-Exempt "Corporate Resolution" (or
Fund and Excelsior "Certificate of Partnership")
Institutional Trust fail to indicating the names and
use reasonable procedures as titles of officers authorized
a basis for their belief, to act on its behalf.
they or their service * TITLE ON BANK AND FUND
contractors may be liable ACCOUNT MUST BE IDENTICAL.
for instructions that prove
to be fraudulent or
unauthorized.

I/We further acknowledge
that it is my/our
responsibility to read the
Prospectus of any Fund into
which I/we exchange.

[_] I/We do not wish to have
the ability to exercise
telephone redemption and
exchange privileges. I/We
further understand that all
exchange and redemption
requests must be in writing.

SPECIAL PURCHASE AND
REDEMPTION PLANS
I/We have completed and
attached the Supplemental
Application for:
[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan

<PAGE>

- -----------------------------------------------------------------
AGREEMENT AND SIGNATURES
- -----------------------------------------------------------------
By signing this application, I/we hereby certify under
penalty of perjury that the information on this application
is complete and correct and that as required by Federal law:

I/We represent that I am/we are of legal age and capacity to
purchase shares of the Excelsior Funds. I/We have received,
read and carefully reviewed a copy of the appropriate Fund's
current Prospectus and agree to its terms and by signing
below I/we acknowledge that neither the Fund nor the
Distributor is a bank and that Fund Shares are not deposits
or obligations of, or guaranteed or endorsed by, U.S. Trust,
its parent and affiliates and the Shares are not federally
insured by, guaranteed by, obligations of or otherwise
supported by the U.S. Government, the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any
other governmental agency; and that an investment in the
Funds involves investment risks, including possible loss of
principal amount invested.

THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO
ANY PROVISIONS OF THIS FORM OTHER THAN THE CERTIFICATIONS
REQUIRED TO AVOID BACKUP WITHHOLDING.

X ___________________________ Date __________________________
Owner Signature

X ___________________________ Date __________________________
Co-Owner Signature

Sign exactly as name(s) of registered owner(s) appear(s) above
(including legal title if signing for a corporation, trust
custodial account, etc.).

- -----------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
- -----------------------------------------------------------------

We hereby submit this application for the purchase of shares
in accordance with the terms of our selling agreement with
Edgewood Services, Inc., and with the Prospectus and
Statement of Additional Information of each Fund purchased.

----------------------------- -------------------------------
Investment Dealer's Name Source of Business Code

----------------------------- -------------------------------
Main Office Address Branch Number

----------------------------- -------------------------------
Representative's Number Representative's Name

----------------------------- -------------------------------
Branch Address Telephone

----------------------------- -------------------------------
Investment Dealer's Title
Authorized Signature
<PAGE>

[LOGO] CHASE GLOBAL FUNDS SERVICES COMPANY SUPPLEMENTAL
EXCELSIOR CLIENT SERVICES APPLICATION
FUND INC. P.O. Box 2798 SPECIAL INVESTMENT AND
Boston, MA 02208-2798 WITHDRAWAL OPTIONS
(800) 446-1012

-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
-----------------------------------------------------------------------------

Fund Name __________________________ Account Number _________________

Owner Name _________________________ Social Security or Taxpayer ID
Number _________________________
Street Address _____________________ City, State, Zip Code __________

Resident of [_] U.S. [_] Other ____ [_] Check here if this is a
change of address

-----------------------------------------------------------------------------
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
-----------------------------------------------------------------------------

A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:

All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash

B. PAYMENT ORDER: Complete only if distribution checks are to be payable
to another party. Make distribution checks payable to:

Name of Your Bank ______________

Name _______________________ Bank Account Number ____________

Address ____________________ Address of Bank ________________

City, State, Zip Code ________________________________________

[_] Monthly on the 1st day [_] Monthly on the 15th day
[_] Monthly on both the 1st and 15th days

Amount of each debit (minimum $50 per Fund) $ ________________________

NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.

-----------------------------------------------------------------------------
EXCELSIOR FUNDS
CLIENT SERVICES AUTOMATIC INVESTMENT PLAN
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
BANK AUTHORIZATION
-----------------------------------------------------------------------------

-------------------- ---------------------- -----------------------
Bank Name Bank Address Bank Account Number

---------------------------- --------------------------------
Account Holder's Name Joint Account Holder's Name

X ________________ ________ X _________________ ___________
Signature Date Signature Date
<PAGE>

- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN [_]YES [_]NO NOT AVAILABLE FOR IRA'S
- --------------------------------------------------------------------------------

AVAILABLE TO SHAREHOLDERS WITH ACCOUNT BALANCES OF $10,000 OR MORE. I/We
hereby authorize CGFSC to redeem the necessary number of shares from my/our
Excelsior Fund Account on the designated dates in order to make the following
periodic payments:

[_] Monthly on the 24th day [_] Quarterly on the 24th day of
January, April, July and October
[_] Other__________________

(This request for participation in the Plan must be received by the 18th day
of the month in which you wish withdrawals to begin.)

Amount of each check ($100 minimum) $______________

Please make check payable to: Recipient _____________________________
(To be completed only if
redemption proceeds to be paid to Street Address ________________________
other than account holder of
record or mailed to address other City, State, Zip Code _________________
than address of record)

NOTE: If recipient of checks is not the registered shareholder, signature(s)
below must be guaranteed. A corporation, trust or partnership must also submit
a "Corporate Resolution" (or "Certification of Partnership") indicating the
names and titles of officers authorized to act on its behalf.

- --------------------------------------------------------------------------------
AGREEMENT AND SIGNATURES
- --------------------------------------------------------------------------------

The investor(s) certifies and agrees that the certifications, authorizations,
directions and restrictions contained herein will continue until CGFSC
receives written notice of any change or revocation. Any change in these
instructions must be in writing with all signatures guaranteed (if
applicable).

Date ______________________

X X
------------------------------------ ------------------------------------
Signature Signature

------------------------------------ ------------------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)

X X
------------------------------------ ------------------------------------
Signature Signature

------------------------------------ ------------------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)

- --------------------------------------------------------------------------------

Attach Copy of Voided Check Here
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY......................................................... 2
EXPENSE SUMMARY............................................................ 3
FINANCIAL HIGHLIGHTS....................................................... 4
U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES.......................... 8
INVESTMENT OBJECTIVES AND
POLICIES.................................................................. 8
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION..................... 13
INVESTMENT LIMITATIONS..................................................... 17
PRICING OF SHARES.......................................................... 18
HOW TO PURCHASE AND REDEEM SHARES.......................................... 19
INVESTOR PROGRAMS.......................................................... 23
DIVIDENDS AND DISTRIBUTIONS................................................ 26
TAXES...................................................................... 27
MANAGEMENT OF THE FUNDS.................................................... 28
DESCRIPTION OF CAPITAL STOCK............................................... 31
CUSTODIAN AND TRANSFER AGENT............................................... 31
PERFORMANCE INFORMATION.................................................... 31
MISCELLANEOUS.............................................................. 32
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................... 33
</TABLE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' STATEMENT OF ADDI-
TIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OF-
FERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EXCELSIOR
FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
EXCELSIOR FUND OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.

USTEQP897

[LOGO]
EXCELSIOR
FUNDS INC.

BLENDED EQUITY FUND

INCOME AND GROWTH FUND

VALUE AND RESTRUCTURING FUND

SMALL CAP FUND

Prospectus
August 1, 1997

<PAGE>

[LOGO]
EXCELSIOR
FUNDS INC.
Excelsior Equity Funds

This Prospectus describes five separate portfolios offered to investors by Ex-
celsior Funds, Inc. ("Excelsior Fund"), an open-end, management investment com-
pany. Each portfolio (individually, a "Fund" and collectively, the "Funds") has
its own investment objective and policies as follows:

PRODUCTIVITY ENHANCERS FUND seeks long-term capital appreciation by investing
in companies which the Investment Adviser believes will benefit from their
roles as innovators, developers and suppliers of goods and services which en-
hance service and manufacturing productivity or companies that are most effec-
tive at obtaining and applying productivity enhancement developments.

ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND seeks long-term capital ap-
preciation by investing in companies which the Investment Adviser believes will
benefit from their provision of products, technologies and services related to
conservation, protection and restoration of the environment.

AGING OF AMERICA FUND seeks long-term capital appreciation by investing in
companies which the Investment Adviser believes will benefit from the changes
occurring in the demographic structure of the U.S. population, particularly its
growing population of individuals over the age of 40.

COMMUNICATION AND ENTERTAINMENT FUND seeks long-term capital appreciation by
investing in companies which the Investment Adviser believes will benefit from
the technological and international transformation of the communications and
entertainment industries, particularly the convergence of information, communi-
cation and entertainment media.

GLOBAL COMPETITORS FUND seeks long-term capital appreciation by investing pri-
marily in U.S.-based companies which the Investment Adviser believes will bene-
fit from their position as effective and strong competitors on a global basis.

This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1997 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to Excelsior Fund at its address shown above or by calling
(800) 446-1012. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus. The Securities and Exchange Commission maintains a World Wide
Web site (http://www.sec.gov) that contains the Statement of Additional Infor-
mation and other information regarding Excelsior Fund.

AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.

August 1, 1997
<PAGE>

PROSPECTUS SUMMARY

INVESTMENT OBJECTIVES AND POLICIES: Generally, each Fund is a diversified
investment portfolio which invests in equity securities. The Funds' investment
objectives and policies are summarized on the cover and explained in greater
detail later in this Prospectus. See "Investment Objectives and Policies,"
"Portfolio Instruments and Other Investment Information" and "Investment Limi-
tations."

HOW TO INVEST: The Funds' Shares are offered at their net asset value. Ex-
celsior Fund does not impose a sales load on purchases of Shares. See "How to
Purchase and Redeem Shares."

2
<PAGE>

EXPENSE SUMMARY

<TABLE>
<CAPTION>
PRODUCTIVITY ENVIRONMENTALLY- AGING OF COMMUNICATION GLOBAL
ENHANCERS RELATED PRODUCTS AMERICA AND ENTERTAINMENT COMPETITORS
FUND AND SERVICES FUND FUND FUND FUND
------------ ----------------- -------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales Load.... None None None None None
Sales Load on Reinvested
Dividends.............. None None None None None
Deferred Sales Load..... None None None None None
Redemption Fees......... None None None None None
Exchange Fees........... None None None None None
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory Fees (after fee
waivers)/1/............ .50% .26% .55% .55% .55%
12b-1 Fees.............. None None None None None
Other Operating Expenses
Administrative Servic-
ing Fee/1/............ .05% .05% .05% .05% .05%
Other Expenses......... .43% .68% .35% .39% .29%
---- ---- ---- ---- ----
Total Operating Expenses
(after fee waivers)/1/
....................... .98% .99% .95% .99% .89%
==== ==== ==== ==== ====
</TABLE>
- -------
1. The Investment Adviser and administrators may, from time to time, voluntar-
ily waive part of their respective fees, which waivers may be terminated at
any time. Until further notice, the Investment Adviser and/or administra-
tors intend to voluntarily waive fees in an amount equal to the Administra-
tive Servicing Fee; and to further waive fees and reimburse expenses to the
extent necessary for Shares of each of the Productivity Enhancers, Environ-
mentally-Related Products and Services, Aging of America, Communication and
Entertainment and Global Competitors Funds, respectively, to maintain an
annual expense ratio of not more than .99%. Without such fee waivers, "Ad-
visory Fees" would be .60%, .60%, .60%, .60%, and .60% and "Total Operating
Expenses" would be 1.08%, 1.33%, 1.00%, 1.04% and .94% for the Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment and Global Competitors Funds, respectively.

Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual returns and (2) redemption of your investment at the end of the
following periods:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Productivity Enhancers Fund.................... $10 $31 $54 $120
Environmentally-Related Products and Services
Fund.......................................... 10 32 55 121
Aging of America Fund.......................... 10 30 53 117
Communication and Entertainment Fund........... 10 32 55 121
Global Competitors Fund........................ 9 28 49 110
</TABLE>

The foregoing expense summary and example are intended to assist investors
in understanding the costs and expenses that an investor in Shares of the
Funds will bear directly or indirectly. The expense summary sets forth advi-
sory and other expenses payable with respect to Shares of the Funds for the
fiscal year ended March 31, 1997. For more complete descriptions of the Funds'
operating expenses, see "Management of the Funds" and "Description of Capital
Stock" in this Prospectus and the financial statements and notes incorporated
by reference in the Statement of Additional Information.

3
<PAGE>

FINANCIAL HIGHLIGHTS

PRODUCTIVITY ENHANCERS FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------- PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------- ------ ------- ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $ 8.83 $ 8.12 $ 7.88 $ 6.94 $ 7.00
------- ------ ------- ------ -------
Income From Investment
Operations
Net Investment Income
(Loss).................. (0.02) 0.02 (0.01) 0.00 0.01
Net Gains or (Losses) on
Securities (both
realized and
unrealized)............. 0.16 2.12 0.35 0.96 (0.07)
------- ------ ------- ------ -------
Total From Investment
Operations.............. 0.14 2.14 0.34 0.96 (0.06)
------- ------ ------- ------ -------
Less Distributions
Dividends From Net
Investment Income....... 0.00 (0.02) 0.00 0.00 0.00
Dividends in Excess of
Net Investment Income... 0.00 (0.01) 0.00 (0.02) 0.00
Distributions From Net
Realized Gain on
Investments and Options. (0.80) (1.40) (0.10) 0.00 0.00
Distributions in Excess
of Net Realized Gain on
Investments and Options. 0.00 0.00 0.00 0.00 0.00
------- ------ ------- ------ -------
Total Distributions...... (0.80) (1.43) (0.10) (0.02) 0.00
------- ------ ------- ------ -------
Net Asset Value, End of
Period.................... $ 8.17 $ 8.83 $ 8.12 $ 7.88 $ 6.94
======= ====== ======= ====== =======
Total Return/2/............ 1.02% 26.97% 4.45% 13.81% (0.86)%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)........... $ 18.06 $29.07 $ 18.27 $15.70 $ 3.37
Ratio of Net Operating
Expenses to Average Net
Assets.................. 0.98% 0.98% 0.99% 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/............... 1.08% 1.06% 1.21% 1.49% 4.23%/3/
Ratio of Net Investment
Income/(Loss) to Average
Net Assets.............. (0.16)% 0.20% (0.10)% 0.01% 1.29%/3/
Portfolio Turnover Rate.. 300.0% 472.0% 276.0% 198.0% 183.0%/3/
Average Commission Rate
Paid/5/................. $0.0797 N/A N/A N/A N/A
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5. Only required for fiscal years beginning on or after September 1, 1995.

4
<PAGE>

ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------- PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------- ------- ------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 7.73 $ 6.21 $ 6.24 $ 6.95 $ 7.00
------- ------- ------- -------- -------
Income From Investment
Operations
Net Investment Income
(Loss)............... 0.01 (0.02) (0.01) 0.00 0.00
Net Gains or (Losses)
on Securities (both
realized and
unrealized).......... 1.61 1.54 (0.01) (0.71) (0.05)
------- ------- ------- -------- -------
Total From Investment
Operations........... 1.62 1.52 (0.02) (0.71) (0.05)
------- ------- ------- -------- -------
Less Distributions
Dividends From Net
Investment Income.... (0.01) 0.00 0.00 0.00 0.00
Dividends in Excess of
Net Investment
Income............... 0.00 0.00 (0.01) 0.00 0.00
Distributions From Net
Realized Gain on
Investments and
Options.............. 0.00 0.00 0.00 0.00 0.00
Distributions in
Excess of Net
Realized Gain on
Investments and
Options.............. 0.00 0.00 0.00 0.00 0.00
------- ------- ------- -------- -------
Total Distributions... (0.01) 0.00 (0.01) 0.00 0.00
------- ------- ------- -------- -------
Net Asset Value, End of
Period................. $ 9.34 $ 7.73 $ 6.21 $ 6.24 $ 6.95
======= ======= ======= ======== =======
Total Return/2/......... 21.22% 24.48% (0.27)% (10.15)% (0.71)%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions). $ 8.87 $ 3.95 $ 4.36 $ 4.53 $ 2.45
Ratio of Net Operating
Expenses to Average
Net Assets........... 0.99% 0.99% 0.99% 0.99% 0.99%/3/
Ratio of Gross
Operating Expenses to
Average Net
Assets/4/............ 1.33% 2.46% 2.42% 2.20% 2.83%/3/
Ratio of Net
Investment
Income/(Loss) to
Average Net Assets... 0.15% (0.18)% (0.10)% (0.07)% 0.32%/3/
Portfolio Turnover
Rate................. 73.0% 64.0% 61.0% 28.0% 0%
Average Commission
Rate Paid/5/......... $0.0711 N/A N/A N/A N/A
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5. Only required for fiscal years beginning on or after September 1, 1995.

5
<PAGE>

AGING OF AMERICA FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------- PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------- ------- ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $ 9.81 $ 7.84 $ 6.99 $ 7.01 $7.00
------- ------- ------ ------ -----
Income From Investment
Operations
Net Investment Income.... 0.07 0.05 0.04 0.03 0.01
Net Gains or (Losses) on
Securities (both
realized and
unrealized)............. 0.72 1.97 0.85 (0.02) 0.00
------- ------- ------ ------ -----
Total From Investment
Operations.............. 0.79 2.02 0.89 0.01 0.01
------- ------- ------ ------ -----
Less Distributions
Dividends From Net
Investment Income....... (0.07) (0.05) (0.04) (0.03) 0.00
Dividends in Excess of
Net Investment Income... 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and Options. (0.39) 0.00 0.00 0.00 0.00
Distributions in Excess
of Net Realized Gain on
Investments and Options. 0.00 0.00 0.00 0.00 0.00
------- ------- ------ ------ -----
Total Distributions...... (0.46) (0.05) (0.04) (0.03) 0.00
------- ------- ------ ------ -----
Net Asset Value, End of
Period.................... $ 10.14 $ 9.81 $ 7.84 $ 6.99 $7.01
======= ======= ====== ====== =====
Total Return/2/............ 8.18% 25.80% 12.80% 0.13% 0.14%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)........... $ 45.06 $ 44.79 $22.17 $10.58 $2.39
Ratio of Net Operating
Expenses to Average Net
Assets.................. 0.95% 0.93% 0.99% 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/............... 1.00% 0.97% 1.26% 1.82% 3.87%/3/
Ratio of Net Investment
Income to Average Net
Assets.................. 0.67% 0.54% 0.63% 0.59% 0.77%/3/
Portfolio Turnover Rate.. 86% 34.0% 14.0% 24.0% 14.0%/3/
Average Commission Rate
Paid/5/................. $0.0831 N/A N/A N/A N/A
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5. Only required for fiscal years beginning on or after September 1, 1995.

6
<PAGE>

COMMUNICATION AND ENTERTAINMENT FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------- PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------- ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 10.32 $ 9.64 $ 8.75 $ 7.61 $7.00
------- ------ ------ ------ -----
Income From Investment
Operations
Net Investment Income..... 0.00 0.03 0.04 0.02 0.01
Net Gains or (Losses) on
Securities (both realized
and unrealized).......... 0.05 1.30 1.06 1.52 0.60
------- ------ ------ ------ -----
Total From Investment
Operations............... 0.05 1.33 1.10 1.54 0.61
------- ------ ------ ------ -----
Less Distributions
Dividends From Net
Investment Income........ 0.00 (0.03) (0.04) (0.03) 0.00
Dividends in Excess of Net
Investment Income........ 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and Options.. (0.05) (0.62) (0.17) (0.37) 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options.. 0.00 0.00 0.00 0.00 0.00
------- ------ ------ ------ -----
Total Distributions....... (0.05) (0.65) (0.21) (0.40) 0.00
------- ------ ------ ------ -----
Net Asset Value, End of
Period..................... $ 10.32 $10.32 $ 9.64 $ 8.75 $7.61
======= ====== ====== ====== =====
Total Return/2/............. 0.34% 13.48% 12.87% 20.07% 8.71%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)............ $34.70 $46.95 $29.91 $21.02 $5.79
Ratio of Net Operating
Expenses to Average Net
Assets................... 0.99% 0.92% 0.98% 0.98% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/................ 1.04% 0.97% 1.06% 1.16% 2.20%/3/
Ratio of Net Investment
Income (Loss) to Average
Net Assets............... (0.03)% 0.28% 0.46% 0.29% 1.06%/3/
Portfolio Turnover Rate... 65.0% 65.0% 56.0% 60.0% 25.0%/3/
Average Commission Rate
Paid/5/.................. $0.0677 N/A N/A N/A N/A
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5.Only required for fiscal years beginning on or after September 1, 1995.

7
<PAGE>

GLOBAL COMPETITORS FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------- PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------- ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 10.83 $ 8.59 $ 7.69 $ 7.28 $7.00
------- ------ ------ ------ -----
Income From Investment
Operations
Net Investment Income..... 0.06 0.07 0.07 0.05 0.01
Net Gains or (Losses) on
Securities (both realized
and unrealized).......... 0.66 2.27 0.90 0.41 0.27
------- ------ ------ ------ -----
Total From Investment
Operations............... 0.72 2.34 0.97 0.46 0.28
------- ------ ------ ------ -----
Less Distributions
Dividends from Net
Investment Income........ (0.07) (0.06) (0.07) (0.05) 0.00
Dividends in Excess of Net
Investment Income........ 0.00 0.00 0.00 0.00 0.00
Distributions from Net
Realized Gain on
Investments and Options.. (0.09) (0.02) 0.00 0.00 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options.. 0.00 (0.02) 0.00 0.00 0.00
------- ------ ------ ------ -----
Total Distributions....... (0.16) (0.10) (0.07) (0.05) 0.00
------- ------ ------ ------ -----
Net Asset Value, End of
Period..................... $ 11.39 $10.83 $ 8.59 $ 7.69 $7.28
======= ====== ====== ====== =====
Total Return/2/............. 6.64% 27.39% 12.73% 6.29% 4.00%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)............ $ 81.92 $71.30 $25.50 $10.06 $2.04
Ratio of Net Operating
Expenses to Average Net
Assets................... 0.89% 0.89% 0.97% 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/................ 0.94% 0.93% 1.18% 1.72% 3.97%/3/
Ratio of Net Investment
Income to Average Net
Assets................... 0.54% 0.73% 1.04% 0.81% 0.82%/3/
Portfolio Turnover Rate... 25% 17.0% 29.0% 19.0% 0%
Average Commission Rate
Paid/5/.................. $0.0873 N/A N/A N/A N/A
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5. Only required for fiscal years beginning on or after September 1, 1995.

8
<PAGE>

U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES

Themes. To complete U.S. Trust's investment philosophy, in managing the
Funds, the three portfolio strategies discussed above are applied in concert
with other "longer-term investment themes" to identify investment opportuni-
ties. The Investment Adviser believes these longer-term themes represent
strong and inexorable trends. The Investment Adviser also believes that under-
standing the instigation, catalysts and effects of these longer-term trends
should help to identify companies that are beneficiaries of these trends.

INVESTMENT OBJECTIVES AND POLICIES

9
<PAGE>

The Funds have the common investment objective of long-term capital apprecia-
tion. As noted above, the Funds are based on themes identified and followed by
the Investment Adviser. Each Fund's key policies are discussed below. Addi-
tional policies common to all of the Funds are discussed after this section.

PRODUCTIVITY ENHANCERS FUND--invests in companies which the Investment Ad-
viser believes will benefit from their roles as innovators, developers and
suppliers of goods and services which enhance service and manufacturing pro-
ductivity or companies that are most effective at obtaining and applying pro-
ductivity enhancement developments. The essential criteria for such products
and services is that they have the ability to increase a user's productivity,
e.g., enable the user to generate equal or greater economic value at lower to-
tal unit cost than alternatives or provide measurable improvement of produc-
tivity by the provider or the user. Such companies may include but are not
limited to production automation manufacturers, computer hardware and software
producers and distributors, communications and mobile telephone providers, and
companies involved with cost control, asset redeployment and downsizing activ-
ities and enhancing the utilization of technology. Under normal conditions, at
least 65% of the Fund's total assets will be invested in companies of the type
described in this paragraph.

ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND--invests in companies
which the Investment Adviser believes will benefit from their provision of
products, technologies and services related to conservation, protection and
restoration of the environment. Such companies may include but are not limited
to companies engaged in waste management and pollution control, prevention and
cleanup activities. The Fund is not intended to be an "environmentally cor-
rect" fund and may invest in companies without regard to whether they are en-
gaged in operations harmful to the environment. Under normal conditions, at
least 65% of the Fund's total assets will be invested in companies of the type
described in this paragraph.

The Fund may also invest a portion of its assets in securities of companies
that offer products and services used by individuals in response to ecological
concerns and concerns relating to their social environment. Such investments
may include, without limitation, securities of companies that produce protec-
tive clothing, sunscreens and personal security products.

AGING OF AMERICA FUND--invests in companies which the Investment Adviser be-
lieves will benefit from the changes occurring in the demographic structure of
the U.S. population, particularly its growing proportion of individuals over
the age of 40. In analyzing companies for this Fund, the Investment Adviser
considers carefully the ongoing changes in the mean and median ages of the
U.S. population and the resulting effects on the lifestyles and day-to-day
economic actions of the population as a whole. Companies currently positioned
to benefit from such changes include health care, pharmaceutical, biotechnol-
ogy and similar health-related firms. In addition, certain clothing, financial
services, entertainment, real estate and housing, food and beverage and other
types of companies may be positioned to benefit from the demographic changes.
Under normal conditions, at least 65% of the Fund's total assets will be in-
vested in companies of the type described in this paragraph.

COMMUNICATION AND ENTERTAINMENT FUND--invests in companies which the Invest-
ment Adviser believes will benefit from the technological and international
transformation of the communications and entertainment industries, particu-
larly the convergence of information, communication and entertainment media.
Such companies may include those engaged in the development, production, sale
and distribution of products or services in the broadcast, radio and televi-
sion, leisure, entertainment, amusement, publishing, telecommunications serv-
ices and equipment, and telephone utilities industries. In analyzing companies
for investment, the Investment Adviser may focus on firms which the Investment
Adviser believes are innovators of or will benefit from the melding of comput-
er, communications and entertainment technologies. Under normal

10
<PAGE>

conditions, at least 65% of the Fund's total assets will be invested in compa-
nies of the type described in this paragraph.

GLOBAL COMPETITORS FUND--invests primarily in U.S.-based companies which the
Investment Adviser believes will benefit from their position as effective and
strong competitors on a global basis. Such companies are characterized by their
ability to supply something unique or of greater value, or to deliver goods and
services more efficiently or reliably. These companies develop and implement
international marketing strategies for their goods and services. The range of
businesses encompassed by this policy is broad and, by way of example, may in-
clude companies engaged in soft drink production and sales, clothing manufac-
turers, tobacco product producers, precision instrument and aerospace provid-
ers, and a variety of communications systems, biotechnology and high technology
suppliers. While the Fund will invest primarily in U.S.-based companies with
such features, up to 20% of the Fund's assets may be invested in non-U.S.-based
global competitors. The Fund will not engage in currency hedging in an attempt
to anticipate currency fluctuations with respect to any such foreign invest-
ments. Under normal conditions, the Fund will invest in securities of issuers
from at least three countries and at least 65% of the Fund's total assets will
be invested in companies of the type described in this paragraph.

INVESTMENT POLICIES COMMON TO THE FUNDS

Under normal market and economic conditions, each Fund will invest at least
65% of its total assets in common stock, preferred stock and securities con-
vertible into common stock. Normally, up to 35% of each Fund's total assets may
be invested in other securities and instruments including, e.g., other invest-
ment-grade debt securities, warrants, options, and futures instruments as de-
scribed in more detail below. During temporary defensive periods or when the
Investment Adviser believes that suitable stocks or convertible securities are
unavailable, each Fund may hold cash or invest some or all of its assets in
U.S. Government securities, high-quality money market instruments and repur-
chase agreements collateralized by the foregoing obligations.

In managing the Funds, the Investment Adviser seeks to purchase securities
having value currently not recognized in the market price of a security, con-
sistent with the strategies discussed above.

Portfolio holdings will include common stocks of companies having capitaliza-
tions of varying amounts, and all Funds will invest in the securities of high
growth, small companies where the Investment Adviser expects earnings and the
price of the securities to grow at an above-average rate. Certain securities
owned by the Funds may be traded only in the over-the-counter market or on a
regional securities exchange, may be listed only in the quotation service com-
monly known as the "pink sheets," and may not be traded every day or in the
volume typical of trading on a national securities exchange. As a result, there
may be a greater fluctuation in the value of a Fund's Shares, and a Fund may be
required, in order to meet redemptions or for other reasons, to sell these se-
curities at a discount from market prices, to sell during periods when such
disposition is not desirable, or to make many small sales over a period of
time.

The Funds may invest in the securities of foreign issuers. The Funds may in-
vest indirectly in the securities of foreign issuers through sponsored and
unsponsored American Depository Receipts ("ADRs"). ADRs represent receipts typ-
ically issued by a U.S. bank or trust company which evidence ownership of un-
derlying securities of foreign issuers. Investments in unsponsored ADRs involve
additional risk because financial information based on generally accepted ac-
counting principles ("GAAP") may not be available for the foreign issuers of
the underlying securities. ADRs may not necessarily be denominated in the same
currency as the underlying securities into which they may be converted.

RISK FACTORS

Each Fund is subject to market risk, interest rate risk and in some cases in-
dustry risk. Market risk is the

11
<PAGE>

possibility that stock prices will decline over short or even extended peri-
ods. The stock markets tend to be cyclical, with periods of generally rising
prices and periods of generally declining prices. These cycles will affect the
values of each Fund. In addition, the prices of bonds and other debt instru-
ments generally fluctuate inversely with interest rate changes. Factors af-
fecting debt securities will affect all of the Funds' debt holdings.

Environmentally-related investments are affected generally by issues and un-
certainties impacting the specialty chemicals, engineering and construction,
machinery and pollution control industries. Such factors include the supply,
demand, and other normal competitive factors for the various portfolio compa-
nies' products and services. The environmental products and services industry
generally has been affected positively by legislation resulting in stricter
governmental regulations and enforcement policies for both commercial and gov-
ernmental generators of waste, as well as by specific expenditures for cleanup
efforts. Chemical products are affected, for example, by product obsolescence
and competition; the handling of hazardous chemicals and products; and the po-
tential for calamitous accidents. In addition to supply and demand factors,
engineering, construction and machinery companies are affected by changes in
interest rates and governmental spending and financing of public works and
cleanup projects. Finally, all of these types of companies are heavily af-
fected by regulation of various governments, including the federal Environmen-
tal Protection Agency and its state counterparts. As regulations are developed
and enforced, such companies may be required to alter or cease production of a
product or service or to agree to restrictions on their operations.

Companies in the various communications and entertainment industries encoun-
ter intense competition, short product life cycles and rapidly changing con-
sumer tastes. In addition, companies in the telecommunications and utilities
industries are subject to heavy governmental regulation.

All Funds may invest in the securities of foreign issuers. Investments in
foreign securities involve certain risks not ordinarily associated with in-
vestments in domestic securities. Such risks include fluctuations in foreign
exchange rates, future political and economic developments, and the possible
imposition of exchange controls or other foreign governmental laws or restric-
tions. In addition, with respect to certain countries there is the possibility
of expropriation of assets, confiscatory taxation, political or social insta-
bility or diplomatic developments which could adversely affect investments in
those countries. There may be less publicly available information about a for-
eign company than about a U.S. company, and foreign companies may not be sub-
ject to accounting, auditing and financial reporting standards and require-
ments comparable to or as uniform as those of U.S.-based companies. Foreign
securities markets, while growing in volume, have, for the most part, substan-
tially less volume than U.S. markets, and securities of many foreign companies
are less liquid and their prices more volatile than securities of comparable
U.S.-based companies. Transaction costs on foreign securities markets are gen-
erally higher than in the United States. There is generally less government
supervision and regulation of foreign exchanges, brokers and issuers than
there is in the United States and a Fund might have greater difficulty taking
appropriate legal action in a foreign court. Dividends and interest payable on
a Fund's foreign portfolio securities may be subject to foreign withholding
taxes. To the extent such taxes are not offset by credits or deductions al-
lowed to investors under the Federal income tax provisions, they may reduce
the net return to the shareholders.

Because of the risks associated with common stock investments, the Funds are
intended to be long-term investment vehicles and are not designed to provide
investors with a means of speculating on short-term stock market movements.
The Funds should not be considered a complete investment program. In view of
the specialized nature of their investment activities, investment in the
Funds' shares may be suitable only for those investors who can invest without
concern for

12
<PAGE>

current income and are financially able to assume risk in search of long-term
capital gains.

Securities of companies discussed in this section may be more volatile than
the overall market.

PORTFOLIO INSTRUMENTS AND OTHER
INVESTMENT INFORMATION

MONEY MARKET INSTRUMENTS

All Funds may invest in "money market instruments," which include, among
other things, bank obligations, commercial paper and corporate bonds with re-
maining maturities of 13 months or less.

Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"),
or by a savings and loan association or savings bank which is insured by the
Savings Association Insurance Fund of the FDIC. Bank obligations also include
U.S. dollar-denominated obligations of foreign branches of U.S. banks and ob-
ligations of domestic branches of foreign banks. Investments in bank obliga-
tions of foreign branches of domestic financial institutions or of domestic
branches of foreign banks are limited so that no more than 5% of the value of
a Fund's total assets may be invested in any one branch, and no more than 20%
of a particular Fund's total assets at the time of purchase may be invested in
the aggregate in such obligations. Investments in time deposits are limited to
no more than 5% of the value of a Fund's total assets at the time of purchase.

Investments by the Funds in commercial paper will consist of issues that are
rated "A-2" or better by Standard & Poor's Ratings Group ("S&P") or "Prime-2"
or better by Moody's Investors Service, Inc. ("Moody's"). In addition, each
Fund may acquire unrated commercial paper that is determined by the Investment
Adviser at the time of purchase to be of comparable quality to rated instru-
ments that may be acquired by the particular Fund.

GOVERNMENT OBLIGATIONS

All Funds may invest in U.S. Government obligations, including U.S. Treasury
Bills and the obligations of Federal Home Loan Banks, Federal Farm Credit
Banks, Federal Land Banks, the Federal Housing Administration, the Farmers
Home Administration, the Export-Import Bank of the United States, the Small
Business Administration, the Government National Mortgage Association, the
Federal National Mortgage Association, the General Services Administration,
the Student Loan Marketing Association, the Central Bank for Cooperatives, the
Federal Home Loan Mortgage Corporation, the Federal Intermediate Credit Banks
and the Maritime Administration.

REPURCHASE AGREEMENTS

13
<PAGE>

worthy by the Investment Adviser, pursuant to guidelines established by Excel-
sior Fund's Board of Directors. No Fund will enter into repurchase agreements
with the Investment Adviser or any of its affiliates. Repurchase agreements
with remaining maturities in excess of seven days will be considered illiquid
securities and will be subject to the 10% limit described below under "Illiq-
uid Securities."

SECURITIES LENDING

To increase return on its portfolio securities, each Fund may lend its port-
folio securities to broker/ dealers pursuant to agreements requiring the loans
to be continuously secured by collateral equal at all times in value to at
least the market value of the securities loaned. Collateral for such loans may
include cash, securities of the U.S. Government, its agencies or instrumental-
ities, or an irrevocable letter of credit issued by a bank, or any combination
thereof. Such loans will not be made if, as a result, the aggregate of all
outstanding loans of a Fund exceeds 30% of the value of its total assets.
There may be risks of delay in receiving additional collateral or in recover-
ing the securities loaned or even a loss of rights in the collateral should
the borrower of the securities fail financially. However, loans are made only
to borrowers deemed by the Investment Adviser to be of good standing and when,
in the Investment Adviser's judgment, the income to be earned from the loan
justifies the attendant risks.

OPTIONS

To further increase return on their portfolio securities in accordance with
their respective investment objectives and policies, the Funds may enter into
option transactions as described below.

The Funds may purchase put and call options listed on a national securities
exchange and issued by the Options Clearing Corporation in an amount not ex-
ceeding 5% of a Fund's net assets, as described further in the Statement of
Additional Information. Such options may relate to particular securities or to
various stock or bond indices. Purchasing options is a specialized investment
technique which entails a substantial risk of a complete loss of the amounts
paid as premiums to the writer of the options.

In addition, each Fund may engage in writing covered call options (options on
securities owned by the particular Fund) and enter into closing purchase
transactions with respect to such options. Such options must be listed on a
national securities exchange and issued by the Options Clearing Corporation.
The aggregate value of the securities subject to options written by each Fund
may not exceed 25% of the value of its net assets. By writing a covered call
option, a Fund forgoes the opportunity to profit from an increase in the mar-
ket price of the underlying security above the exercise price except insofar
as the premium represents such a profit, and it will not be able to sell the
underlying security until the option expires or is exercised or the Fund ef-
fects a closing purchase transaction by purchasing an option of the same se-
ries. The use of covered call options is not a primary investment technique of
the Funds and such options will normally be written on underlying securities
as to which the Investment Adviser does not anticipate significant short-term
capital appreciation. Additional information on option practices, including
particular risks thereof, is provided in the Funds' Statement of Additional
Information.

FUTURES CONTRACTS

The Funds may also enter into interest rate futures contracts, other types of
financial futures contracts and related futures options, as well as any index
or foreign

14
<PAGE>

market futures which are available on recognized exchanges or in other estab-
lished financial markets.

The Funds will not engage in futures transactions for speculation, but only
as a hedge against changes in market values of securities which a Fund holds
or intends to purchase. The Funds will engage in futures transactions only to
the extent permitted by the Commodity Futures Trading Commission ("CFTC") and
the Securities and Exchange Commission ("SEC"). When investing in futures con-
tracts, the Funds must satisfy certain asset segregation requirements to en-
sure that the use of futures is unleveraged. When a Fund takes a long position
in a futures contract, it must maintain a segregated account containing liquid
assets equal to the purchase price of the contract, less any margin or depos-
it. When a Fund takes a short position in a futures contract, the Fund must
maintain a segregated account containing liquid assets in an amount equal to
the market value of the securities underlying such contract (less any margin
or deposit), which amount must be at least equal to the market price at which
the short position was established. Asset segregation requirements are not ap-
plicable when a Fund "covers" an options or futures position generally by en-
tering into an offsetting position. Each Fund will limit its hedging transac-
tions in futures contracts and related options so that, immediately after any
such transaction, the aggregate initial margin that is required to be posted
by the Fund under the rules of the exchange on which the futures contract (or
futures option) is traded, plus any premiums paid by the Fund on its open
futures options positions, does not exceed 5% of the Fund's total assets, af-
ter taking into account any unrealized profits and unrealized losses on the
Fund's open contracts (and excluding the amount that a futures option is "in-
the-money" at the time of purchase). An option to buy a futures contract is
"in-the-money" if the then-current purchase price of the underlying futures
contract exceeds the exercise or strike price; an option to sell a futures
contract is "in-the-money" if the exercise or strike price exceeds the then-
current purchase price of the contract that is the subject of the option. In
addition, the use of futures contracts is further restricted to the extent
that no more than 10% of a Fund's total assets may be hedged.

Transactions in futures as a hedging device may subject a Fund to a number of
risks. Successful use of futures by a Fund is subject to the ability of the
Investment Adviser to correctly anticipate movements in the direction of the
market. There may be an imperfect correlation, or no correlation at all, be-
tween movements in the price of the futures contracts (or options) and move-
ments in the price of the instruments being hedged. In addition, investments
in futures may subject a Fund to losses due to unanticipated market movements
which are potentially unlimited. Further, there is no assurance that a liquid
market will exist for any particular futures contract (or option) at any par-
ticular time. Consequently, a Fund may realize a loss on a futures transaction
that is not offset by a favorable movement in the price of securities which it
holds or intends to purchase or may be unable to close a futures position in
the event of adverse price movements.

INVESTMENT COMPANY SECURITIES

In connection with the management of its daily cash positions, each Fund may
invest in securities issued by other investment companies which invest in
high-quality, short-term debt securities and which determine their net asset
value per share based on the amortized cost or penny-rounding method. In addi-
tion to the advisory fees and other expenses a Fund bears directly in connec-
tion 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 advi-
sory fees and other expenses. As such, the Fund's shareholders would indi-
rectly bear the expenses of the Fund and the other investment company, some or
all of which would be duplicative. Such securities will be acquired by each
Fund within the limits prescribed by the Investment Company Act of 1940, as
amended (the "1940 Act") which include, subject to certain exceptions, a pro-
hibition against a Fund investing more than 10% of the value of its total as-
sets in such securities.

15
<PAGE>

WHEN-ISSUED AND FORWARD TRANSACTIONS

BORROWING AND REVERSE REPURCHASE AGREEMENTS

ILLIQUID SECURITIES

PORTFOLIO TURNOVER

Each Fund may sell a portfolio investment immediately after its acquisition
if the Investment Adviser believes that such a disposition is consistent with
the investment objective of the particular Fund. Portfolio investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover may involve correspondingly
greater brokerage commission expenses and other transaction costs, which must
be borne directly by a Fund and ultimately by its shareholders. High portfolio
turnover may result in the realization of substantial net capital gains. To
the extent net short-term capital gains are realized, any distributions re-
sulting from such gains are considered ordinary income for Federal income tax
purposes. (See "Financial Highlights" and "Taxes--Federal.")

INVESTMENT LIMITATIONS

A Fund may not:

1. Purchase securities of any one issuer, other than U.S. Government obliga-
tions, if immediately after such purchase more than 5% of the value of its

16
<PAGE>

total assets would be invested in the securities of such issuer, except that
up to 25% of the value of its total assets may be invested without regard to
this 5% limitation;

4. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to secu-
rities issued or guaranteed by the U.S. Government, and (b) neither all fi-
nance companies, as a group, nor all utility companies, as a group, are con-
sidered a single industry for purposes of this policy.

* * *

The Funds may not invest in obligations of foreign branches of financial in-
stitutions or in domestic branches of foreign banks if immediately after such
purchase (i) more than 5% of the value of their respective total assets would
be invested in obligations of any one foreign branch of the financial institu-
tion or domestic branch of a foreign bank; or (ii) more than 20% of their re-
spective total assets would be invested in foreign branches of financial insti-
tutions or in domestic branches of foreign banks. The Funds may not knowingly
invest more than 10% of the value of their respective net assets in illiquid
securities, including repurchase agreements with remaining maturities in excess
of seven days, restricted securities and other securities for which market quo-
tations are not readily available. These investment policies may be changed by
Excelsior Fund's Board of Directors without shareholder approval.

With respect to all investment policies, if a percentage limitation is satis-
fied at the time of investment, a later increase or decrease in such percentage
resulting from a change in value of a Fund's portfolio securities will not con-
stitute a violation of such limitation.

PRICING OF SHARES

17
<PAGE>

Assets in the Funds which are traded on a recognized domestic stock exchange
are valued at the last sale price on the securities exchange on which such se-
curities are primarily traded or at the last sale price on the national secu-
rities market. Securities traded only on over-the-counter markets are valued
on the basis of closing over-the-counter bid prices. Securities for which
there were no transactions are valued at the average of the most recent bid
and asked prices. An option or futures contract is valued at the last sales
price quoted on the principal exchange or board of trade on which such option
or contract is traded, or in the absence of a sale, the mean between the last
bid and asked prices. Restricted securities, securities for which market quo-
tations are not readily available, and other assets are valued at fair value,
pursuant to guidelines adopted by Excelsior Fund's Board of Directors.

Portfolio securities which are primarily traded on foreign securities ex-
changes are generally valued at the preceding closing values of such securi-
ties on their respective exchanges, except that when an event subsequent to
the time where value was so established is likely to have changed such value,
then the fair value of those securities will be determined by consideration of
other factors under the direction of the Board of Directors. A security which
is listed or traded on more than one exchange is valued at the quotation on
the exchange determined to be the primary market for such security. Invest-
ments in debt securities having a maturity of 60 days or less are valued based
upon the amortized cost method. All other foreign securities are valued at the
last current bid quotation if market quotations are available, or at fair
value as determined in accordance with guidelines adopted by the Board of Di-
rectors. For valuation purposes, quotations of foreign securities in foreign
currency are converted to U.S. dollars equivalent at the prevailing market
rate on the day of conversion. Some of the securities acquired by the Funds
may be traded on foreign exchanges or over-the-counter markets on days which
are not Business Days. In such cases, the net asset value of the Shares may be
significantly affected on days when investors can neither purchase nor redeem
a Fund's Shares. Excelsior Fund's administrators have undertaken to price the
securities in the Funds' portfolios, and may use one or more independent pric-
ing services in connection with this service.

HOW TO PURCHASE AND REDEEM SHARES

DISTRIBUTOR

18
<PAGE>

predicated upon the amount of Shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished
by the financial institution.

PURCHASE OF SHARES

Shares may be purchased directly by individuals ("Direct Investors") or by
institutions ("Institutional Investors" and, collectively with Direct Invest-
ors, "Investors"). Shares may also be purchased by customers ("Customers") of
the Investment Adviser, its affiliates and correspondent banks, and other in-
stitutions ("Shareholder Organizations") that have entered into agreements
with Excelsior Fund. A Shareholder Organization may elect to hold of record
Shares for its Customers and to record beneficial ownership of Shares on the
account statements provided by it to its Customers. If it does so, it is the
Shareholder Organization's responsibility to transmit to the Distributor all
purchase orders for its Customers and to transmit, on a timely basis, payment
for such orders to Chase Global Funds Services Company ("CGFSC"), the Funds'
sub-transfer agent, in accordance with the procedures agreed to by the Share-
holder Organization and the Distributor. Confirmations of all such Customer
purchases and redemptions will be sent by CGFSC to the particular Shareholder
Organization. As an alternative, a Shareholder Organization may elect to es-
tablish its Customers' accounts of record with CGFSC. In this event, even if
the Shareholder Organization continues to place its Customers' purchase and
redemption orders with the Funds, CGFSC will send confirmations of such trans-
actions and periodic account statements directly to the shareholders of rec-
ord. Shares in the Funds bear the expense of fees payable to Shareholder Orga-
nizations for such services. See "Management of the Funds--Shareholder
Organizations."

Customers wishing to purchase Shares through their Shareholder Organization
should contact such entity directly for appropriate instructions. (For a list
of Shareholder Organizations in your area, call (800) 446-1012.) An investor
purchasing Shares through a registered investment adviser or certified
financial planner may incur transaction charges in connection with such pur-
chases. Such investors should contact their registered investment adviser or
certified financial planner for further information on transaction fees. In-
vestors may also purchase Shares directly from the Distributor in accordance
with procedures described below under "Purchase Procedures."

PURCHASE PROCEDURES

General

Direct Investors may purchase Shares by completing the Application for pur-
chase of Shares accompanying this Prospectus and mailing it, together with a
check payable to Excelsior Funds, to:

Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

19
<PAGE>

Purchases by Wire

Investors may also purchase Shares by wiring Federal funds to CGFSC. Prior to
making an initial investment by wire, an Investor must telephone CGFSC at
(800) 446-1012 (from overseas, call (617) 557-8280) for instructions. Federal
funds and registration instructions should be wired through the Federal Reserve
System to:

The Chase Manhattan Bank
ABA #021000021
Excelsior Funds, Account No. 9102732915
For further credit to:
Excelsior Funds
Wire Control Number
Account Registration (including account number)

OTHER PURCHASE INFORMATION

Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500 per Fund. The minimum subse-
quent investment for both types of investors is $50 per Fund. Customers may
agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may charge a Customer's account fees for auto-
matic investment and other cash management services provided. Excelsior Fund
reserves the right to reject any purchase order, in whole or in part, or to
waive any minimum investment requirements.

REDEMPTION PROCEDURES

REDEMPTION BY MAIL

Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:

Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

20
<PAGE>

demption 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 eligi-
ble guarantor institution approved by CGFSC in accordance with its Standards,
Procedures and Guidelines for the Acceptance of Signature Guarantees ("Signa-
ture Guarantee Guidelines"). Eligible guarantor institutions generally include
banks, broker/dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations. All eligi-
ble guarantor institutions must participate in the Securities Transfer Agents
Medallion Program ("STAMP") in order to be approved by CGFSC pursuant to the
Signature Guarantee Guidelines. Copies of the Signature Guarantee Guidelines
and information on STAMP can be obtained from CGFSC at (800) 446-1012 or at the
address given above. CGFSC may require additional supporting documents for re-
demptions made by corporations, executors, administrators, trustees and guardi-
ans. A redemption request will not be deemed to be properly received until
CGFSC receives all required documents in proper form. Payment for Shares re-
deemed will ordinarily be made by mail within five Business Days after receipt
by CGFSC of the redemption request in good order. Questions with respect to the
proper form for redemption requests should be directed to CGFSC at (800) 446-
1012 (from overseas, call (617) 557-8280).

REDEMPTION BY WIRE OR TELEPHONE

Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do so, may redeem Shares by instructing CGFSC by
wire or telephone to wire the redemption proceeds directly to the Direct In-
vestor'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 share-
holder 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 In-
vestor'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 in-
structions subsequently received by CGFSC.

In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, a Direct Investor must send a written request to Excelsior Fund, c/o
CGFSC, at the address listed above under "Redemption by Mail." Such requests
must be signed by the Direct Investor, with signatures guaranteed (see "Redemp-
tion by Mail" above, for details regarding signature guarantees). Further docu-
mentation may be requested.

CGFSC and the Distributor reserve the right to re- fuse 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 Excel-
sior Fund, CGFSC or the Distributor. EXCELSIOR FUND, CGFSC, AND THE DISTRIBUTOR
WILL NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING UPON
TELEPHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPT-
ING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCELSIOR FUND WILL USE
SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE IN-
STRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.

If any portion of the Shares to be redeemed represents an investment made by
personal check, Excelsior Fund and CGFSC reserve the right not to honor the re-
demption 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. A Direct Investor who anticipates the need for more immediate access to
his or her investment should purchase Shares by Federal funds or bank wire or
by certified or cashier's check. Banks normally impose a charge in connection
with the use of bank wires, as well as certified checks, cashier's checks and
Federal funds. If a Direct Investor's pur-

21
<PAGE>

chase check is not collected, the purchase will be cancelled and CGFSC will
charge a fee of $25.00 to the Direct Investor's 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 re-
mains below $500. If a Customer has agreed with a particular Shareholder Or-
ganization to maintain a minimum balance in his or her account at the institu-
tion with respect to Shares of a Fund, and the balance in such account falls
below that minimum, the Customer may be obliged by the Shareholder Organiza-
tion to redeem all or part of his or her Shares to the extent necessary to
maintain the required minimum balance.

GENERAL

INVESTOR PROGRAMS

EXCHANGE PRIVILEGE

Investors and Customers of Shareholder Organizations may, after appropriate
prior authorization and without an exchange fee imposed by Excelsior Fund, ex-
change Shares in a Fund having a value of at least $500 for shares of any
other portfolio offered by Excelsior Fund or Excelsior Tax-Exempt Funds, Inc.
("Excelsior Tax-Exempt Fund"), or for Trust Shares of Excelsior Institutional
Trust, provided that such other shares may legally be sold in the state of the
Investor's residence.

Excelsior Fund currently offers 15 additional portfolios as follows:

Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities and repurchase agreements collateral-
ized by such obligations;

22
<PAGE>

Managed Income Fund, a fund seeking higher current income primarily through
investments in investment grade debt obligations, U.S. Government obligations
and money market instruments;

Blended Equity Fund, a fund seeking long-term capital appreciation through
investments in a diversified portfolio of primarily equity securities;

Small Cap Fund, a fund seeking long-term capital appreciation by investing
primarily in companies with capitalization of $1 billion or less;

International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;

Latin America Fund, a fund seeking long-term capital appreciation through
investments in companies and securities of governments based in Central and
South America;

Pacific/Asia Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Asia and on the
Asian side of the Pacific Ocean; and

Pan European Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Europe.

Excelsior Tax-Exempt Fund currently offers 6 portfolios as follows:

New York Intermediate-Term Tax-Exempt Fund, a non- diversified fund designed
to provide New York investors with a high level of current interest income
exempt from Federal and, to the extent possible, New York state and New York
City income taxes; this fund invests primarily in New York municipal obliga-
tions and has a dollar-weighted average portfolio maturity of 3 to 10 years;
and

California Tax-Exempt Income Fund, a non-diversified fund designed to pro-
vide California investors with as high a level of current interest income ex-

23
<PAGE>

empt from Federal and, to the extent possible, California state personal in-
come taxes as is consistent with relative stability of principal; this fund
invests primarily in California municipal obligations and has a dollar-
weighted average portfolio maturity of 3 to 10 years.

Excelsior Institutional Trust currently offers Trust Shares in the following
investment portfolios:

Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in a Fund. For further
information regarding exchange privileges, shareholders should call (800) 446-
1012 (from overseas, call (617) 557-8280). Investors exercising the exchange
privilege with the other portfolios of Excelsior Fund, Excelsior Tax-Exempt
Fund or Excelsior Institutional Trust should request and review the prospec-
tuses of such funds. Such prospectuses may be obtained by calling the numbers
listed above. In order to prevent abuse of this privilege to the disadvantage
of other shareholders, Excelsior Fund, Excelsior Tax-Exempt Fund and Excelsior
Institutional Trust reserve the right to limit the number of exchange requests
of Investors and Customers of Shareholder Organizations to no more than six
per year. Excelsior Fund may modify or terminate the exchange program at any
time upon 60 days' written notice to shareholders, and may reject any exchange
request.

SYSTEMATIC WITHDRAWAL PLAN

24
<PAGE>

plete the Supplemental Application contained in this Prospectus and mail it to
CGFSC at the address given above. Further information on establishing a Sys-
tematic Withdrawal Plan may be obtained by calling (800) 446-1012 (from over-
seas, call (617) 557-8280.)

RETIREMENT PLANS

Shares are available for purchase by Investors in connection with the follow-
ing tax-deferred prototype retirement plans offered by United States Trust
Company of New York:

IRAs (including "rollovers" from existing retirement plans) for individuals
and their spouses;

Profit Sharing and Money-Purchase Plans for corporations and self-employed
individuals and their partners to benefit themselves and their employees; and

Keogh Plans for self-employed individuals.

AUTOMATIC INVESTMENT PROGRAM

25
<PAGE>

An Investor may also implement the Dollar Cost Averaging method on his own
initiative or through other entities.

DIVIDENDS AND DISTRIBUTIONS

TAXES

FEDERAL

Each of the Funds qualified for its last taxable year as a "regulated invest-
ment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Each Fund expects to so qualify in future years. Such qualification
generally relieves a Fund of liability for Federal income taxes to the extent
its earnings are distributed in accordance with the Code.

Distribution by a Fund of the excess of its net long- term capital gain over
its net short-term capital loss is taxable to shareholders as long-term capi-
tal gain, regardless of how long the shareholders have held their Shares and
whether such gains are received in cash or reinvested in additional Shares.
Such distributions are not eligible for the dividends received deduction.

A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Shares depending upon the tax basis of such Shares

26
<PAGE>

and their price at the time of redemption, transfer or exchange. If a share-
holder holds Shares for six months or less and during that time receives a
capital gain dividend on those Shares, any loss recognized on the sale or ex-
change of those Shares will be treated as a long-term capital loss to the ex-
tent of the capital gain dividend. Generally, a shareholder may include sales
charges incurred upon the purchase of Shares in his tax basis for such Shares
for the purpose of determining gain or loss on a redemption, transfer or ex-
change of such Shares. However, if the shareholder effected an exchange of
such Shares for Shares of another Fund within 90 days of the purchase and was
able to reduce the sales charges previously applicable to the new Shares (by
virtue of the exchange privilege), the amount equal to such reduction may not
be included in the tax basis of the shareholder's exchanged Shares for the
purpose of determining gain or loss, but may be included (subject to the same
limitation) in the tax basis of the new Shares.

Qualification as a regulated investment company under the Code also requires
that each Fund satisfy certain requirements with respect to the source of its
income for a taxable year. At least 90% of the gross income of each Fund must
be derived from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or for-
eign currencies, and other income (including, but not limited to, gains from
options, futures, or forward contracts) derived with respect to the Fund's
business of investing in such stock, securities or currencies. The Treasury
Department may by regulation exclude from qualifying income foreign currency
gains which are not directly related to a Fund's principal business of invest-
ing in stock or securities, or options and futures with respect to stock or
securities. Any in-come derived by a Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of in-
vesting in stock, securities or currencies only to the extent that such income
is attributable to items of income which would have been qualifying income if
realized by the Fund in the same manner as by the partnership or trust.

STATE AND LOCAL

MANAGEMENT OF THE FUNDS

INVESTMENT ADVISER

27
<PAGE>

nancial planning, corporate trust and agency banking, and personal and corpo-
rate banking. On December 31, 1996, the Asset Management Groups of U.S. Trust
New York and U.S. Trust Connecticut had approximately $53 billion in aggregate
assets under management. U.S. Trust New York has its principal offices at 114
W. 47th Street, New York, New York 10036. U.S. Trust Connecticut has its prin-
cipal offices at 225 High Ridge Road, East Building, Stamford, Connecticut
06905.

The Productivity Enhancers Fund's portfolio co-manager, John J. Knox, III, a
Vice President of the Personal Investment Division of U.S. Trust, has been
with U.S. Trust since June 1995 and has been the Fund's co-manager since Janu-
ary 1997. Prior to his association with U.S. Trust, Mr. Knox was an investment
manager with Smith Barney and its predecessor firms from 1985 to 1995.

The Productivity Enhancers Fund's portfolio co-manager, Ronald A. Fisher, a
Vice President and Senior Analyst of the Personal Investment Division of U.S.
Trust, has been with U.S. Trust since December 1994 and has been the Fund's
co-manager since January 1997. Prior to his association with U.S. Trust, Mr.
Fisher was an analyst at Nippon Credit Trust Company from 1991 to 1994.

The Environmentally-Related Products and Services Fund's portfolio manager,
Maria L. Brisbane, is the person primarily responsible for the day-to-day man-
agement of the Fund's investment portfolio. Ms. Brisbane, a Vice President of
the Personal Investment Division of U.S. Trust, has been with U.S. Trust since
1994 and has been the Fund's portfolio manager since December 1995. Prior to
her association with U.S. Trust, Ms. Brisbane was an Institutional Portfolio
Manager at Brown Brothers Harriman & Company.

The Aging of America Fund's portfolio manager, Jonathan L. Stanley, is the
person primarily responsible for the day-to-day management of the Fund's in-
vestment portfolio. Mr. Stanley, a Managing Director and Senior Portfolio Man-
ager of the Personal Investment Division of U.S. Trust, has been with U.S.
Trust since 1993 and has been the Fund's portfolio manager since December
1995. Prior to his association with U.S. Trust, Mr. Stanley was Investment
Manager with Deutsche Bank Capital Corporation.

The Communication and Entertainment Fund's portfolio manager, Michael E. Hoo-
ver, is the person primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Hoover, a Vice
President and Senior Analyst of the Personal Investment Division of U.S.
Trust, has been associated with U.S. Trust since 1989 and has been the Fund's
portfolio manager since January 1997.

The Global Competitors Fund's portfolio manager, Wendy S. Popowich, is the
person primarily responsible for the day-to-day management of the Fund's in-
vestment portfolio. Ms. Popowich, a Managing Director and Senior Portfolio
Manager of the Personal Investment Division of U.S. Trust, has been with U.S.
Trust since 1983 and has been the Fund's portfolio manager since its incep-
tion.

Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the Funds pursuant to advisory agreements substantially similar to the Invest-
ment Advisory Agreements currently in effect for the Funds. For the fiscal
year ended March 31, 1997, U.S. Trust New York received an advisory fee at the
effective annual rates of .50%, .26%, .55%, .55% and .55% of the average daily
net assets of the Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment and Global Compet-
itors Funds, respectively. For the same period, U.S. Trust New York waived ad-
visory fees at the effective annual rates of .10%, .34%, .05%, .05% and

28
<PAGE>

.05% of the average daily net assets of the Productivity Enhancers, Environ-
mentally-Related Products and Services, Aging of America, Communication and
Entertainment and Global Competitors Funds, respectively.

ADMINISTRATORS

CGFSC, Federated Administrative Services and U.S. Trust Connecticut serve as
the Funds' administrators (the "Administrators") and provide them with general
administrative and operational assistance. The Administrators also serve as
administrators of the other portfolios of Excelsior Fund and of all the port-
folios of Excelsior Tax-Exempt Fund and Excelsior Institutional Trust, which
are also advised by the Investment Adviser and its affiliates and distributed
by the Distributor. For the services provided to all portfolios of Excelsior
Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust (except the
international portfolios of Excelsior Fund and Excelsior Institutional Trust),
the Administrators are entitled jointly to annual fees, computed daily and
paid monthly, based on the combined aggregate average daily net assets of the
three companies (excluding the international portfolios of Excelsior Fund and
Excelsior Institutional Trust) as follows:

Prior to May 16, 1997, CGFSC, Federated Administrative Services and U.S.
Trust New York served as the Funds' administrators pursuant to an administra-
tion agreement substantially similar to the administration agreement currently
in effect for the Funds. For the fiscal year ended March 31, 1997, CGFSC, Fed-
erated Administrative Services and U.S. Trust New York received an aggregate
administration fee at the effective annual rates of .153%, .179%, .154%, .153%
and .154% of the average daily net assets of the Productivity Enhancers, Envi-
ronmentally-Related Products and Services, Aging of America, Communication and
Entertainment and Global Competitors Funds, respectively.

SHAREHOLDER ORGANIZATIONS

29
<PAGE>

periodic statements. It is the responsibility of Shareholder Organizations to
advise Customers of any fees that they may charge in connection with a Custom-
er's investment. Until further notice, the Investment Adviser and Administra-
tors have voluntarily agreed to waive fees payable by a Fund in an aggregate
amount equal to administrative service fees payable by that Fund.

BANKING LAWS

Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and prohibit banks generally from issuing, underwriting, selling or distribut-
ing securities such as Shares of the Funds, but such banking laws and regula-
tions do not prohibit such a holding company or affiliate or banks generally
from acting as investment adviser, transfer agent, or custodian to such an in-
vestment company, or from purchasing shares of such company for and upon the
order of customers. The Investment Adviser, CGFSC and certain Shareholder Orga-
nizations may be subject to such banking laws and regulations. State securities
laws may differ from the interpretations of Federal law discussed in this para-
graph and banks and financial institutions may be required to register as deal-
ers pursuant to state law.

Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Investment Adviser and such
Shareholder Organizations might be required to alter materially or discontinue
the investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Funds' method of operations would af-
fect their net asset values per Share or result in financial loss to any share-
holder.

DESCRIPTION OF CAPITAL STOCK

Excelsior Funds, Inc. (formerly UST Master Funds, Inc.) was organized as a
Maryland corporation on August 2, 1984. Currently, Excelsior Fund has autho-
rized capital of 35 billion shares of Common Stock, $.001 par value per share,
classified into 40 series of shares representing interests in 20 investment
portfolios. This Prospectus describes the Productivity Enhancers, Environmen-
tally-Related Products and Services, Aging of America, Communication and Enter-
tainment and Global Competitors Funds.

Each Share in a Fund represents an equal proportionate interest in the partic-
ular Fund with other shares of the same class, and is entitled to such divi-
dends and distributions out of the income earned on the assets belonging to
such Fund as are declared in the discretion of Excelsior Fund's Board of Direc-
tors. Excelsior Fund's Charter authorizes the Board of Directors to classify or
reclassify any class of shares into one or more additional classes or series.

Certificates for Shares will not be issued unless expressly requested in writ-
ing to CGFSC and will not be issued for fractional Shares.

A Special Meeting of the Funds' shareholders (the "Meeting") has been called
for August 18, 1997 to vote on a Plan of Reorganization and the transactions
contemplated thereby (the "Reorganization"), including the transfer of all of
the assets and liabilities of the Funds to the Blended Equity Fund of Excelsior
Fund in exchange for shares of the Blended Equity Fund, and a liquidating dis-
tribution of such shares to the holders of Shares in the Funds. If approved by
the Funds' shareholders at the Meeting, it is expected that the Reorganization
will be consummated on or about

30
<PAGE>

September 15, 1997. In the event that shareholders of each Fund do not approve
the Reorganization, Excelsior Fund's Board of Directors will abandon the Reor-
ganization.

CUSTODIAN AND TRANSFER AGENT

The Chase Manhattan Bank ("Chase"), a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Funds' assets. Communica-
tions to the custodian should be directed to Chase, Mutual Funds Service Divi-
sion, 3 Chase MetroTech Center, 8th Floor, Brooklyn, NY 11245.

U.S. Trust New York serves as the Funds' transfer and dividend disbursing
agent. U.S. Trust New York has also entered into a sub-transfer agency arrange-
ment with CGFSC, 73 Tremont Street, Boston, Massachusetts 02108-3913, pursuant
to which CGFSC provides certain transfer agent, dividend disbursement and reg-
istrar services to the Funds.

PERFORMANCE INFORMATION

From time to time, in advertisements or in reports to shareholders, the per-
formance of the Funds may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant indices or to
rankings prepared by independent services or other financial or industry publi-
cations that monitor the performance of mutual funds. For example, the perfor-
mance of a Fund may be compared to data prepared by Lipper Analytical Services,
Inc., a widely recognized independent service which monitors the performance of
mutual funds. The performance of the Funds may be also compared to the Standard
& Poor's 500 Stock Index ("S&P 500"), an unmanaged index of common stocks of
500 companies, most of which are listed on the Exchange, the Consumer Price In-
dex, or the Dow Jones Industrial Average, a recognized unmanaged index of com-
mon stocks of 30 industrial companies listed on the Exchange.

Performance data as reported in national financial publications, including but
not limited to Money Magazine, Forbes, Barron's, The Wall Street Journal and
The New York Times, or in publications of a local or regional nature, may also
be used in comparing the performance of the Funds.

From time to time, each Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure re-
flects the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring pe-
riod. Average total return figures will be given for the most recent one-year
period, and may be given for other periods as well (such as from the commence-
ment of a Fund's operations, or on a year-by-year basis). Each Fund may also
use aggregate total return figures for various periods, representing the cumu-
lative change in the value of an investment in the Fund for the specific peri-
od. Both methods of calculating total return assume that dividends and capital
gain distributions made by a Fund during the period are reinvested in Fund
Shares.

Performance will fluctuate and any quotation of performance should not be con-
sidered as representative of a Fund's future performance. Shareholders should
remember that performance is generally a function of the kind and quality of
the instruments held in a portfolio, operating expenses, and market conditions.
Any fees charged by Shareholder Organizations with respect to accounts of Cus-
tomers that have invested in Shares will not be included in calculations of
performance.

31
<PAGE>

MISCELLANEOUS

Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds'
independent auditors.

Inquiries regarding any of the Funds may be directed to the Distributor at
the address listed under "Distributor."

32
<PAGE>

INSTRUCTIONS FOR NEW ACCOUNT APPLICATION

OPENING YOUR ACCOUNT:

Complete the Application(s) and mail to: FOR OVERNIGHT DELIVERY: send to:

Excelsior Funds Excelsior Funds
c/o Chase Global Funds Services c/o Chase Global Funds Services
Company Company
P.O. Box 2798 73 Tremont Street
Boston, MA 02208-2798 Boston, MA 02108-3913

Please enclose with the Application(s) your check made payable to the "Ex-
celsior Funds" in the amount of your investment.

For direct wire purchases please refer to the section of the Prospectus en-
titled "How to Purchase and Redeem Shares--Purchase Procedures."

MINIMUM INVESTMENTS:

REDEMPTIONS:

SIGNATURES: Please be sure to sign the Application(s).

QUESTIONS:

If you have any questions regarding the Application or redemption require-
ments, please contact the sub-transfer agent at (800) 446-1012 between 9:00
a.m. and 5:00 p.m. (Eastern Time).

33
<PAGE>

------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
------------------------------ Identification #
Name ( )
------------------------------ -----------------------------
Address Telephone #

------------------------------ [_] U.S. Citizen [_] Other (specify) _____
City/State/Zip Code

<TABLE>
<S> <C> <C> <C>
FUND INITIAL INVESTMENT FUND INITIAL INVESTMENT
[_] Productivity Enhancers Fund $ ____________ 814 [_] Communication & Entertainment Fund $ ____________ 817
[_] Environmental Fund $ ____________ 815 [_] Global Competitors Fund $ ____________ 819
[_] Aging of America Fund $ ____________ 816 [_] Other $ ____________
Total Initial Investment: $ ____________
</TABLE>

NOTE: If investing A. BY MAIL: Enclosed is a check in the
by wire, you must amount of $ _____ payable to "Excelsior
obtain a Bank Wire Funds."
Control Number. To B. BY WIRE: A bank wire in the amount
do so, please call of $ has been sent to the Fund
(800) 446-1012 and from
ask for the Wire ------------------ ---------------------
Desk. Name of Bank Wire Control Number

CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and
dividend distributions will be reinvested in additional
shares unless appropriate boxes below are checked:

All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash

-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------

TELEPHONE EXCHANGE AND AUTHORITY TO TRANSMIT
REDEMPTION REDEMPTION PROCEEDS TO PRE-
DESIGNATED ACCOUNT.

[_] I/We appoint CGFSC as I/We hereby authorize CGFSC to
my/our agent to act upon act upon instructions received
instructions received by by telephone to withdraw $500
telephone in order to effect or more from my/our account in
the telephone exchange and the Excelsior Funds and to
redemption privileges. I/We wire the amount withdrawn to
hereby ratify any the following commercial bank
instructions given pursuant account. I/We understand that
to this authorization and CGFSC charges an $8.00 fee for
agree that Excelsior Fund, each wire redemption, which
Excelsior Tax-Exempt Fund, will be deducted from the
Excelsior Institutional proceeds of the redemption.
Trust, CGFSC and their
directors, trustees, Title on Bank Account*_________
officers and employees will
not be liable for any loss, Name of Bank __________________
liability, cost or expense
for acting upon instructions Bank A.B.A. Number ____________
believed to be genuine and Account Number ________________
in accordance with the
procedures described in the Bank Address __________________
then current Prospectus. To
the extent that Excelsior City/State/Zip Code ___________
Fund, Excelsior Tax-Exempt (attach voided check here)
Fund and Excelsior
Institutional Trust fail to A corporation, trust or
use reasonable procedures as partnership must also submit a
a basis for their belief, "Corporate Resolution" (or
they or their service "Certificate of Partnership")
contractors may be liable indicating the names and
for instructions that prove titles of officers authorized
to be fraudulent or to act on its behalf.
unauthorized. * TITLE ON BANK AND FUND
ACCOUNT MUST BE IDENTICAL.
I/We further acknowledge
that it is my/our
responsibility to read the
Prospectus of any Fund into
which I/We exchange.

[_] I/We do not wish to have
the ability to exercise
telephone redemption and
exchange privileges. I/We
further understand that all
exchange and redemption
requests must be in writing.

SPECIAL PURCHASE AND
REDEMPTION PLANS
I/We have completed and attached the Supplemental Application for:
[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan