EXCELSIOR FUNDS INC, 497, 1997-08-15

EXCELSIOR FUNDS INC
497, 1997-08-15

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EXCELSIOR FUNDS, INC.

Blended Equity Fund
Income and Growth Fund
Value and Restructuring Fund
Small Cap Fund

STATEMENT OF ADDITIONAL INFORMATION

August 1, 1997

This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectus for the Blended Equity, Income and
Growth, Value and Restructuring and Small Cap Funds (individually, a "Fund" and
collectively, the "Funds") of Excelsior Funds, Inc. ("Excelsior Fund") dated
August 1, 1997 (the "Prospectus"). Much of the information contained in this
Statement of Additional Information expands upon the subjects discussed in the
Prospectus. No investment in shares of the Funds described herein
(collectively, the "Shares") should be made without reading the Prospectus. A
copy of the Prospectus may be obtained by writing Excelsior Fund c/o Chase
Global Funds Services Company, 73 Tremont Street, Boston, MA 02108-3913 or by
calling (800) 446-1012.
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TABLE OF CONTENTS
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Page
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INVESTMENT OBJECTIVES AND POLICIES................... 1

Other Investment Considerations -
Blended Equity, Value and Restructuring and
Small Cap Funds.................................. 1
Other Investment Considerations -
Income and Growth Fund........................... 3
Additional Information on Portfolio Instruments.... 4
Additional Investment Limitations.................. 12

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION....... 15

INVESTOR PROGRAMS.................................... 16

Systematic Withdrawal Plan......................... 16
Exchange Privilege................................. 17
Other Investor Programs............................ 18

DESCRIPTION OF CAPITAL STOCK......................... 18

MANAGEMENT OF THE FUNDS.............................. 20

Directors and Officers............................. 20
Investment Advisory and Administration Agreements.. 25
Shareholder Organizations.......................... 27
Expenses........................................... 28
Custodian and Transfer Agent....................... 28

PORTFOLIO TRANSACTIONS............................... 30

INDEPENDENT AUDITORS................................. 32

COUNSEL.............................................. 32

ADDITIONAL INFORMATION CONCERNING TAXES.............. 32

PERFORMANCE INFORMATION.............................. 35

MISCELLANEOUS........................................ 37

FINANCIAL STATEMENTS................................. 38

APPENDIX A-1

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INVESTMENT OBJECTIVES AND POLICIES
----------------------------------

The investment objective of the Blended Equity (prior to August 1,
1997, the "Equity"), Value and Restructuring (prior to August 1, 1997, the
"Business and Industrial Restructuring") and Small Cap (prior to August 1, 1997,
the "Early Life Cycle") Funds is to seek long-term capital appreciation. The
investment objective of the Income and Growth Fund is to seek to provide
moderate current income and to attempt to achieve capital appreciation. Under
normal market and economic conditions, each Fund invests a significant portion
of its assets in common stock, preferred stock and debt securities convertible
into common stock. The following policies supplement the Funds' investment
objectives and policies as set forth in the Prospectus.

Other Investment Considerations - Blended Equity, Value and Restructuring and
- -----------------------------------------------------------------------------
Small Cap Funds
- ---------------

The Blended Equity, Value and Restructuring and Small Cap Funds invest
primarily in common stocks, but each Fund may also purchase both preferred
stocks and securities convertible into common stock at the discretion of 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, the "Investment Adviser" or "U.S. Trust"). While current income is
secondary to the objective of long-term capital appreciation, Excelsior Fund
expects that the broad and diversified strategies utilized by the Investment
Adviser will result in somewhat more current income than would be generated if
the Investment Adviser utilized a single strategy more narrowly focused on rapid
growth of principal and involving exposure to higher levels of risk.

The Investment Adviser's investment philosophy is to identify
investment values available in the market at attractive prices. Investment
value arises from the ability to generate earnings or from the ownership of
assets or resources. Underlying earnings potential and asset values are
frequently demonstrable but not recognized in the market prices of the
securities representing their ownership. The Investment Adviser employs the
following three different but closely interrelated portfolio strategies to focus
and organize its search for investment values.

1. Problem/Opportunity Companies. Important investment
-----------------------------
opportunities often occur where companies develop solutions to large, complex,
fundamental problems, such as declining industrial productivity; rising costs
and declining sources of energy; the economic imbalances and value erosion
caused by years of high inflation and interest rates; the soaring
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costs and competing priorities of providing health care; and the accelerating
interdependence and "shrinking size" of the world.

Solutions or parts of solutions to large problems may be generated by
established companies or comparatively new companies of all sizes through the
development of new products, technologies or services, or through new
applications of older ones.

Investment in such companies represents a very wide range of
investment potential, current income return rates, and exposure to fundamental
and market risks. Income generated by each Fund's investments in these
companies would be expected to be moderate, characterized by lesser rates than
those of a fund whose sole objective is current income, and somewhat higher
rates than those of a higher-risk growth fund.

2. Transaction Value Companies. In the opinion of the Investment
---------------------------
Adviser, the stock market frequently values the aggregate ownership of a company
at a substantially lower figure than its component assets would be worth if they
were sold off separately over time. Such assets may include intangible assets
such as product and market franchises, operating know-how, or distribution
systems, as well as such tangible properties as oil reserves, timber, real
estate, or production facilities. Investment opportunities in these companies
are determined by the magnitude of difference between economic worth and current
market price.

Market undervaluations are very often corrected by purchase and sale,
restructuring of the company, or market appreciation to recognize the actual
worth. The recognition process may well occur over time, however, incurring a
form of time-exposure risk. Success from investing in these companies is often
great, but may well be achieved only after a waiting period of inactivity.

Income derived from investing in undervalued companies is expected to
be moderately greater than that derived from investments in either the
Problem/Opportunity or Early Life Cycle companies.

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primarily in younger, small- to medium- sized companies in the early stages of
their development. Such companies are usually more flexible in trying new
approaches to problem-solving and in making new or different employment of
assets. Because of the high risk level involved, the ratio of success among
such companies is lower than the average, but for those companies which succeed,
the magnitude of investment reward is potentially higher.

Other Investment Considerations - Income and Growth Fund
- --------------------------------------------------------

The Income and Growth Fund is expected to have a greater portion of
its assets invested in debt obligations under normal market conditions than the
Blended Equity, Value and Restructuring and Small Cap Funds. Further, although
the Investment Adviser will generally use the three strategies described above
for the Blended Equity, Value and Restructuring and Small Cap Funds, the Income
and Growth Fund will generally invest in those companies which are expected to
generate the greater income. As a result, the Income and Growth Fund is likely
to have a relatively small portion of its assets invested in Early Life Cycle
companies.

As stated in the Prospectus, the Income and Growth Fund may invest up
to 10% of its assets in instruments such as liquidating trust receipts;
certificates of beneficial ownership; limited partnership interests; creditor
claims; loan participations; and warrants, options and other rights to purchase
securities. Liquidating trust receipts, as well as certificates of beneficial
interest, acquired by the Income and Growth Fund represent interests in trusts
holding specific assets. In the case of a liquidating trust, such assets may
include airplanes, ships and trucks that have been leased to third parties.
Limited partnership interests acquired by the Fund may represent equitable
interests in enterprises engaged in activities related to leasing of electronic,
computer and other types of equipment. Normally, the profits and losses
attributable to the foregoing types of instruments pass directly to the holders
of the instruments and are not taxed at the trust or partnership level.

Creditor claims (which may be in the form of notes or debentures)
acquired by the Income and Growth Fund comprise debt obligations of companies
being reorganized under bankruptcy or insolvency laws. Creditor claims normally
sell at a substantial discount from their face value, may be convertible into
stock of the reorganized company, and have a high degree of potential risk and
reward. Loan participations acquired by the Income and Growth Fund represent
interests in either separate, privately negotiated loans that have been made by
lending institutions to third parties or pools of privately negotiated loans
maintained in the loan portfolios of lending institutions. Lending

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institutions may sell loan participations to the Income and Growth Fund and
other institutional investors in order to achieve additional revenues and to
reduce their exposure on the loans involved, as well as for other reasons. Loan
participations are considered to be illiquid securities subject to the 10%
limitation on investments in illiquid securities described in the Prospectus.

The instruments described above may provide a higher than normal rate
of return but may also entail greater risks. These risks include the absence of
any secondary or other organized market for certain instruments that the Income
and Growth Fund may acquire; the likelihood that the transfer of certain
instruments will otherwise be restricted because they have not been registered
under Federal or state securities laws; the probability that certain instruments
will represent interests in a single asset or project and will be entirely
dependent upon market and economic factors affecting such asset or project and
upon the skill of project managers to produce value; the possibility of volatile
changes in the value of an instrument because of changes in the value of the
asset underlying the instrument; the possibility that certain instruments will
be subject to heavy cash flow dependency, defaults by borrowers, self-
liquidation and the risk that the underlying portfolio company will fail to
qualify for favorable tax treatment under the Internal Revenue Code of 1986, as
amended (the "Code"); the possibility that the Fund's loss with respect to an
instrument may exceed the amount of its investment; and, with respect to
creditor claims and other debt instruments, the quality of the credit extended.
In addition, as discussed in the Prospectus, income from some of the instruments
described above may be non-qualifying income for purposes of the Code and must
be monitored by the Investment Adviser so that the amount of any such non-
qualifying income does not exceed the amount permitted by the Code. The
Investment Adviser will purchase such instruments only when it determines that
the expected return justifies the attendant risks.

Additional Information on Portfolio Instruments
- -----------------------------------------------

Options
-------

As stated in the Prospectus, the Income and Growth, Value and
Restructuring and Small Cap Funds may purchase put and call options listed on a
national securities exchange and issued by the Options Clearing Corporation.
Such purchases would be in an amount not exceeding 5% of each such Fund's net
assets. Purchase of options is a highly specialized activity which entails
greater than ordinary investment risks. Regardless of how much the market price
of the underlying security increases or decreases, the option buyer's risk is
limited to the amount of the original investment for the purchase of the option.
However,

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options may be more volatile than the underlying securities, and therefore, on a
percentage basis, an investment in options may be subject to greater fluctuation
than an investment in the underlying securities. A listed call option gives the
purchaser of the option the right to buy from a clearing corporation, and the
writer has the obligation to sell to the clearing corporation, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is in consideration for undertaking the obligations under the option
contract. A listed put option gives the purchaser the right to sell to a
clearing corporation the underlying security at the stated exercise price at any
time prior to the expiration date of the option, regardless of the market price
of the security. Put and call options purchased by the Income and Growth, Value
and Restructuring and Small Cap Funds will be valued at the last sale price or,
in the absence of such a price, at the mean between bid and asked prices.

Also as stated in the Prospectus, each Fund may engage in writing
covered call options and enter into closing purchase transactions with respect
to such options. When any of the Funds writes a covered call option, it may
terminate its obligation to sell the underlying security prior to the expiration
date of the option by executing a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e., same
underlying security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to permit the
writing of a new call option containing different terms on such underlying
security. The cost of such a liquidation purchase plus transaction costs may be
greater than the premium received upon the original option, in which event the
writer will have incurred a loss on the transaction. An option position may be
closed out only on an exchange which provides a secondary market for an option
of the same series. There is no assurance that a liquid secondary market on an
exchange will exist for any particular option. A covered option writer, unable
to effect a closing purchase transaction, will not be able to sell the
underlying security until the option expires or the underlying security is
delivered upon exercise, with the result that the writer in such circumstances
will be subject to the risk of market decline in the underlying security during
such period. The Funds will write an option on a particular security only if
the Investment Adviser believes that a liquid secondary market will exist on an
exchange for options of the same series, which will permit the Funds to make a
closing purchase transaction in order to close out its position.

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When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by that Fund is included in the liability
section of that Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked to market to
reflect the current value of the option written. The current value of the
traded option is the last sale price or, in the absence of a sale, the average
of the closing bid and asked prices. If an option expires on the stipulated
expiration date, or if the Fund involved enters into a closing purchase
transaction, the Fund will realize a gain (or loss if the cost of a closing
purchase transaction exceeds the net premium received when the option is sold),
and the deferred credit related to such option will be eliminated. If an option
is exercised, the Fund involved may deliver the underlying security from its
portfolio or purchase the underlying security in the open market. In either
event, the proceeds of the sale will be increased by the net premium originally
received, and the Fund involved will realize a gain or loss. Premiums from
expired call options written by the Funds and net gains from closing purchase
transactions are treated as short-term capital gains for Federal income tax
purposes, and losses on closing purchase transactions are short-term capital
losses.

Repurchase Agreements
---------------------

The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement). Securities subject to
repurchase agreements are held by the Funds' custodian (or sub-custodian) or in
the Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered loans by a Fund under the Investment Company Act of 1940, as amended
(the "1940 Act").

Futures Contracts and Related Options
-------------------------------------

The Value and Restructuring and Small Cap Funds may invest in futures
contracts and options thereon. They may enter into interest rate futures
contracts and other types of financial futures contracts, including foreign
currency futures contracts, as well as any index or foreign market futures which
are available on recognized exchanges or in other established financial markets.
A futures contract on foreign currency creates a binding obligation on one party
to deliver, and a corresponding obligation on another party to accept delivery
of, a stated quantity of a foreign currency for an amount fixed in U.S. dollars.
Foreign currency futures, which operate in a manner similar to interest rate
futures contracts, may be used by the Value and Restructuring and Small Cap
Funds to hedge against exposure to fluctuations in exchange rates between the
U.S.

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dollar and other currencies arising from multinational transactions.

Futures contracts will not be entered into for speculative purposes,
but to hedge risks associated with a Fund's securities investments. Positions
in futures contracts may be closed out only on an exchange which provides a
secondary market for such futures. However, there can be no assurance that a
liquid secondary market will exist for any particular futures contract at any
specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, a Fund would continue to be required to
make daily cash payments to maintain its required margin. In such situations,
if the Fund has insufficient cash, it may have to sell portfolio securities to
meet daily margin requirements at a time when it may be disadvantageous to do
so. In addition, the Fund may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the Fund's ability to
effectively hedge.

Successful use of futures by the Value and Restructuring and Small Cap
Funds is also subject to the Investment Adviser's ability to correctly predict
movements in the direction of the market. For example, if a Fund has hedged
against the possibility of a decline in the market adversely affecting
securities held by it and securities prices increase instead, the Fund will lose
part or all of the benefit to the increased value of its securities which it has
hedged because it will have approximately equal offsetting losses in its futures
positions. In addition, in some situations, if a Fund has insufficient cash, it
may have to sell securities to meet daily variation margin requirements. Such
sales of securities may be, but will not necessarily be, at increased prices
which reflect the rising market. The Fund may have to sell securities at a time
when it may be disadvantageous to do so.

The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may

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result in losses in excess of the amount invested in the contract.

Utilization of futures transactions by the Value and Restructuring and
Small Cap Funds involves the risk of loss by a Fund of margin deposits in the
event of bankruptcy of a broker with whom such Fund has an open position in a
futures contract or related option.

Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.

The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.

Options on Futures Contracts
----------------------------

The Value and Restructuring and Small Cap Funds may purchase options
on the futures contracts described above. A futures option gives the holder, in
return for the premium paid, the right to buy (call) from or sell (put) to the
writer of the option a futures contract at a specified price at any time during
the period of the option. Upon exercise, the writer of the option is obligated
to pay the difference between the cash value of the futures contract and the
exercise price. Like the buyer or seller of a futures contract, the holder, or
writer, of an option has the right to terminate its position prior to the
scheduled expiration of the option by selling, or purchasing, an option of the
same series, at which time the person entering into the closing transaction will
realize a gain or loss.

Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid

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secondary market). In addition, the purchase of an option also entails the risk
that changes in the value of the underlying futures contract will not be fully
reflected in the value of the option purchased. Depending on the pricing of the
option compared to either the futures contract upon which it is based, or upon
the price of the instruments being hedged, an option may or may not be less
risky than ownership of the futures contract or such instruments. In general,
the market prices of options can be expected to be more volatile than the market
prices on the underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to a Fund because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). Although permitted by their fundamental investment policies, the Funds
do not currently intend to write futures options, and will not do so in the
future absent any necessary regulatory approvals.

When-Issued and Forward Transactions
------------------------------------

When a Fund agrees to purchase securities on a "when-issued" or
forward commitment basis, the custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment and, in such case, the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. Because a Fund will set aside cash or liquid assets to
satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be affected in the event its forward
commitments or commitments to purchase "when-issued" securities ever exceed 25%
of the value of its assets.

A Fund will purchase securities on a "when-issued" or forward
commitment basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, a Fund may dispose
of or renegotiate a commitment after it is entered into, and may sell securities
it has committed to purchase before those securities are delivered to the Fund
on the settlement date. In these cases, the Fund may realize a taxable capital
gain or loss.

When a Fund engages in "when-issued" or forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such other party to do so may result in the Fund incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.

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The market value of the securities underlying a "when-issued" purchase
or a forward commitment to purchase securities and any subsequent fluctuations
in their market value are taken into account when determining the market value
of a Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.

Forward Currency Transactions
-----------------------------

Each Fund will conduct its currency exchange transactions either on a
spot (i.e., cash) basis at the rate prevailing in the currency exchange markets,
or by entering into forward currency contracts. A forward foreign currency
contract involves an obligation to purchase or sell a specific currency for a
set price at a future date. In this respect, forward currency contracts are
similar to foreign currency futures contracts; however, unlike futures contracts
which are traded on recognized commodities exchange, forward currency contracts
are traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. Also, forward currency
contracts usually involve delivery of the currency involved instead of cash
payment as in the case of futures contracts.

A Fund's participation in forward currency contracts will be limited
to hedging involving either specific transactions or portfolio positions.
Transaction hedging involves the purchase or sale of foreign currency with
respect to specific receivables or payables of the Fund generally arising in
connection with the purchase or sale of its portfolio securities. The purpose
of transaction hedging is to "lock in" the U.S. dollar equivalent price of such
specific securities. Position hedging is the sale of foreign currency with
respect to portfolio security positions denominated or quoted in that currency.
The Fund will not speculate in foreign currency exchange transactions.
Transaction and position hedging will not be limited to an overall percentage of
a Fund's assets, but will be employed as necessary to correspond to particular
transactions or positions. A Fund may not hedge its currency positions to an
extent greater than the aggregate market value (at the time of entering into the
forward contract) of the securities held in its portfolio denominated, quoted
in, or currently convertible into that particular currency. When the Funds
engage in forward currency transactions, certain asset segregation requirements
must be satisfied to ensure that the use of foreign currency transactions is
unleveraged. When a Fund takes a long position in a forward currency 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 forward currency contract, the Fund must

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maintain a segregated account containing liquid assets in an amount equal to the
market value of the currency 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" a forward currency position generally by
entering into an offsetting position.

The transaction costs to the Funds of engaging in forward currency
transactions vary with factors such as the currency involved, the length of the
contract period and prevailing currency market conditions. Because currency
transactions are usually conducted on a principal basis, no fees or commissions
are involved. The use of forward currency contracts does not eliminate
fluctuations in the underlying prices of the securities being hedged, but it
does establish a rate of exchange that can be achieved in the future. Thus,
although forward currency contracts used for transaction or position hedging
purposes may limit the risk of loss due to an increase in the value of the
hedged currency, at the same time they limit potential gain that might result
were the contracts not entered into. Further, the Investment Adviser may be
incorrect in its expectations as to currency fluctuations, and a Fund may incur
losses in connection with its currency transactions that it would not otherwise
incur. If a price movement in a particular currency is generally anticipated, a
Fund may not be able to contract to sell or purchase that currency at an
advantageous price.

At or before the maturity of a forward sale contract, a Fund may sell
a portfolio security and make delivery of the currency, or retain the security
and offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which the Fund will obtain, on the same maturity
date, the same amount of the currency which it is obligated to deliver. If the
Fund retains the portfolio security and engages in an offsetting transaction,
the Fund, at the time of execution of the offsetting transaction, will incur a
gain or a loss to the extent that movement has occurred in forward contract
prices. Should forward prices decline during the period between a Fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to sell is less than the price of the currency it has
agreed to purchase in the offsetting contract. The foregoing principles
generally apply also to forward purchase contracts.

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Real Estate Investment Trusts
-----------------------------

Each Fund may invest in equity real estate investment trusts
("REITs"). REITs pool investors' funds for investment primarily in commercial
real estate properties. Investments in REITs may subject a Fund to certain
risks. REITs may be affected by changes in the value of the underlying property
owned by the trust. REITs are dependent upon specialized management skill, may
not be diversified and are subject to the risks of financing projects. REITs
are also subject to heavy cash flow dependency, defaults by borrowers, self
liquidation and the possibility of failing to qualify for the beneficial tax
treatment available to REITs under the Code, and to maintain exemption from the
1940 Act. As a shareholder in a REIT, a Fund would bear, along with other
shareholders, its pro rata portion of the REIT's operating expenses. These
expenses would be in addition to the advisory and other expenses a Fund bears
directly in connection with its own operations.

Securities Lending
------------------

When a Fund lends its securities, it continues to receive interest or
dividends on the securities lent and may simultaneously earn interest on the
investment of the cash loan collateral, which will be invested in readily
marketable, high-quality, short-term obligations. Although voting rights, or
rights to consent, attendant to lent securities pass to the borrower, such loans
may be called at any time and will be called so that the securities may be voted
by a Fund if a material event affecting the investment is to occur.

Additional Investment Limitations
- ---------------------------------

In addition to the investment limitations disclosed in the Prospectus,
the Funds are subject to the investment limitations enumerated below.
Fundamental investment limitations may be changed with respect to a Fund only by
a vote of a majority of the holders of such Fund's outstanding Shares (as
defined under "Miscellaneous" in the Prospectus). However, investment
limitations which are "operating policies" with respect to a Fund may be changed
by Excelsior Fund's Board of Directors upon reasonable notice to investors.

The following investment limitations are fundamental with respect to
each Fund. Each Fund may not:

1. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired within the
limitation on purchases of restricted securities;

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2. Purchase or sell real estate, except that each Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate; and

3. Issue any senior securities, except insofar as any borrowing in
accordance with a Fund's investment limitation contained in the Prospectus might
be considered to be the issuance of a senior security.

The following investment limitations are fundamental with respect to
the Blended Equity and Income and Growth Funds, but are operating policies with
respect to the Value and Restructuring and Small Cap Funds. No Fund may:

4. Purchase securities on margin, make short sales of securities, or
maintain a short position;

5. Invest in companies for the purpose of exercising management or
control; and

6. Acquire any other investment company or investment company
security, except in connection with a merger, consolidation, reorganization, or
acquisition of assets or where otherwise permitted by the 1940 Act.

The following investment limitations are fundamental with respect to
the Blended Equity and Income and Growth Funds. Neither the Blended Equity nor
the Income and Growth Funds may:

7. Invest in or sell put options, call options, straddles, spreads,
or any combination thereof; provided, however, that each Fund may write covered
call options with respect to its portfolio securities that are traded on a
national securities exchange, and may enter into closing purchase transactions
with respect to such options if, at the time of the writing of such option, the
aggregate value of the securities subject to the options written by the Fund
involved does not exceed 25% of the value of its total assets; and provided that
the Income and Growth Fund may purchase options and other rights in accordance
with its investment objective and policies;

8. Invest more than 5% of its total assets in securities issued by
companies which, together with any predecessor, have been in continuous
operation for fewer than three years; and

9. Purchase or sell commodities futures contracts or invest in oil,
gas, or other mineral exploration or development programs; provided, however,
that this shall not prohibit either Fund from purchasing publicly traded
securities of companies engaging in whole or in part in such activities or the
Income and

-13-
<PAGE>

Growth Fund from investing in liquidating trust receipts, certificates of
beneficial ownership or other instruments in accordance with its investment
objectives and policies.

The following investment limitation is fundamental with respect to the
Value and Restructuring and Small Cap Funds. The Value and Restructuring and
Small Cap Funds may not:

10. Purchase or sell commodities or commodities futures contracts or
invest in oil, gas, or other mineral exploration or development programs;
provided, however, that (i) this shall not prohibit either Fund from purchasing
publicly traded securities of companies engaging in whole or in part in such
activities or from investing in liquidating trust receipts, certificates of
beneficial ownership or other instruments in accordance with their investment
objectives and policies, and (ii) each Fund may enter into futures contracts and
futures options.

* * *

For the purpose of Investment Limitation No. 2, the prohibition of
purchases of real estate includes acquisition of limited partnership interests
in partnerships formed with a view toward investing in real estate, but does not
prohibit purchases of shares in real estate investment trusts.

In addition to the above investment limitations, Excelsior Fund
currently intends to limit the Funds' investments in warrants so that, valued at
the lower of cost or market value, they do not exceed 5% of the net assets of
the Fund involved. Included within that amount, but not to exceed 2% of the
value of a Fund's net assets, may be warrants which are not listed on the New
York or American Stock Exchanges. For the purpose of this limitation, warrants
acquired by a Fund in units or attached to securities will be deemed to be
without value. The Funds also intend to refrain from entering into arbitrage
transactions.

Each of the Blended Equity and Income and Growth Funds may not
purchase or sell commodities except as provided in Investment Limitation No. 9
above.

If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
of a Fund's securities will not constitute a violation of such limitation.

-14-
<PAGE>

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------

Shares are continuously offered for sale by Edgewood Services, Inc.
(the "Distributor"), a wholly-owned subsidiary of Federated Investors, and the
Distributor has agreed to use appropriate efforts to solicit all purchase
orders. As described in the Prospectus, Shares may be sold to customers
("Customers") of financial institutions ("Shareholder Organizations"). Shares
are also offered for sale directly to institutional investors and to members of
the general public. Different types of Customer accounts at the Shareholder
Organizations may be used to purchase Shares, including eligible agency and
trust accounts. In addition, Shareholder Organizations may automatically
"sweep" a Customer's account not less frequently than weekly and invest amounts
in excess of a minimum balance agreed to by the Shareholder Organization and its
Customer in Shares selected by the Customer. Investors purchasing Shares may
include officers, directors, or employees of the particular Shareholder
Organization.

Shares of the Funds are offered for sale at their net asset value per
Share next computed after a purchase order is received by Excelsior Fund's sub-
transfer agent.

Prior to February 14, 1997, Shares of the Funds were offered for sale
with a maximum sales charge of 4.50%. For the fiscal years ended March 31,
1997, 1996 and 1995, total sales charges paid by shareholders of the Blended
Equity, Income and Growth, Value and Restructuring and Small Cap Funds were
$3,806, $2,725 and $7,492; $1,241, $1,223 and $1,713; $8,716, $3,970 and $779;
and $698, $961 and $1,107, respectively. The Distributor retained none of the
foregoing sales charges with respect to the Funds for the fiscal year ended
March 31, 1997 and for the period August 1, 1995 through March 31, 1996. UST
Distributors, Inc., Excelsior Fund's former distributor, retained $473 and
$7,092 with respect to the Blended Equity Fund; $298 and $1,703 with respect to
the Income and Growth Fund; $42 and $779 with respect to the Value and
Restructuring Fund; and $0 and $1,107 with respect to the Small Cap Fund for the
period April 1, 1995 through July 31, 1995 and for the fiscal year ended March
31, 1995, respectively. The balance was paid to selling dealers.

Excelsior Fund may suspend the right of redemption or postpone the
date of payment for Shares for more than 7 days during any period when (a)
trading on the New York Stock Exchange (the "Exchange") is restricted by
applicable rules and regulations of the Securities and Exchange Commission (the
"SEC"); (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC.

-15-
<PAGE>

In the event that Shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such Shares an amount that is
more or less than his original investment due to changes in the market prices of
that Fund's portfolio securities.

Excelsior Fund reserves the right to honor any request for redemption
or repurchase of a Fund's Shares by making payment in whole or in part in
securities chosen by Excelsior Fund and valued in the same way as they would be
valued for purposes of computing a Fund's net asset value. If payment is made
in securities, a shareholder may incur transaction costs in converting these
securities into cash. Such redemptions in kind will be governed by Rule 18f-1
under the 1940 Act so that a Fund is obligated to redeem its Shares solely in
cash up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder of a Fund.

Under limited circumstances, Excelsior Fund may accept securities as
payment for Shares. Securities acquired in this manner will be limited to
securities issued in transactions involving a bona fide reorganization or
---------
statutory merger, or will be limited to other securities (except for municipal
debt securities issued by state political subdivisions or their agencies or
instrumentalities) that: (a) meet the investment objective and policies of any
Fund acquiring such securities; (b) are acquired for investment and not for
resale; (c) are liquid securities that are not restricted as to transfer either
by law or liquidity of market; and (d) have a value that is readily
ascertainable (and not established only by evaluation procedures) as evidenced
by a listing on the American Stock Exchange, New York Stock Exchange or NASDAQ,
or as evidenced by their status as U.S. Government securities, bank certificates
of deposit, banker's acceptances, corporate and other debt securities that are
actively traded, money market securities and other similar securities with a
readily ascertainable value.

INVESTOR PROGRAMS
-----------------

Systematic Withdrawal Plan
- --------------------------

An investor who owns Shares with a value of $10,000 or more may begin
a Systematic Withdrawal Plan. The withdrawal can be on a monthly, quarterly,
semiannual or annual basis. There are four options for such systematic
withdrawals. The investor may request:

(1) A fixed-dollar withdrawal;

(2) A fixed-share withdrawal;

-16-
<PAGE>

(3) A fixed-percentage withdrawal (based on the current value of the
account); or

(4) A declining-balance withdrawal.

Prior to participating in a Systematic Withdrawal Plan, the investor must
deposit any outstanding certificates for Shares with Chase Global Funds Services
Company, the Funds' sub-transfer agent. Under this Plan, dividends and
distributions are automatically reinvested in additional Shares of a Fund.
Amounts paid to investors under this Plan should not be considered as income.
Withdrawal payments represent proceeds from the sale of Shares, and there will
be a reduction of the shareholder's equity in the Fund involved if the amount of
the withdrawal payments exceeds the dividends and distributions paid on the
Shares and the appreciation of the investor's investment in the Fund. This in
turn may result in a complete depletion of the shareholder's investment. An
investor may not participate in a program of systematic investing in a Fund
while at the same time participating in the Systematic Withdrawal Plan with
respect to an account in the same Fund. Customers of Shareholder Organizations
may obtain information on the availability of, and the procedures and fees
relating to, the Systematic Withdrawal Plan directly from their Shareholder
Organizations.

Exchange Privilege
- ------------------

Investors and Customers of Shareholder Organizations may exchange
Shares having a value of at least $500 for shares of any other portfolio of
Excelsior Fund or Excelsior Tax-Exempt Funds, Inc. ("Excelsior Tax-Exempt Fund"
and, collectively with Excelsior Fund, the "Companies") or for Trust Shares of
Excelsior Institutional Trust. Shares may be exchanged by wire, telephone or
mail and must be made to accounts of identical registration. There is no
exchange fee imposed by the Companies or Excelsior Institutional Trust. In
order to prevent abuse of this privilege to the disadvantage of other
shareholders, the Companies and Excelsior Institutional Trust reserve the right
to limit the number of exchange requests of investors to no more than six per
year. The Companies and Excelsior Institutional Trust may modify or terminate
the exchange program at any time upon 60 days' written notice to shareholders,
and may reject any exchange request. Customers of Shareholder Organizations may
obtain information on the availability of, and the procedures and fees relating
to, such program directly from their Shareholder Organizations.

-17-
<PAGE>

loads incurred upon the purchase of Shares in his or her tax basis for such
Shares for the purpose of determining gain or loss on a redemption, transfer or
exchange of such Shares. However, if the shareholder effected an exchange of
Shares for shares of another portfolio of the Companies within 90 days of the
purchase and was able to reduce the sales load previously applicable to the new
shares (by virtue of the Companies' exchange privilege), the amount equal to
such reduction may not be included in the tax basis of the shareholder's
exchanged Shares but may be included (subject to the limitation) in the tax
basis of the new shares.

Other Investor Programs
- -----------------------

As described in the Prospectus, Shares of the Funds may be purchased
in connection with the Automatic Investment Program and certain Retirement
Programs. Customers of Shareholder Organizations may obtain information on the
availability of, and the procedures and fees relating to, such programs directly
from their Shareholder Organizations.

DESCRIPTION OF CAPITAL STOCK
----------------------------

Excelsior Fund's Charter authorizes its Board of Directors to issue up
to thirty-five billion full and fractional shares of capital stock, and to
classify or reclassify any unissued shares of Excelsior Fund into one or more
classes or series by setting or changing in any one or more respects their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. The Prospectus describes the classes of shares into which Excelsior
Fund's authorized capital is currently classified.

Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Directors may grant in its discretion. When issued for
payment as described in the Prospectus, Shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of a Fund,
shareholders of any series of that Fund are entitled to receive the assets
available for distribution belonging to that Fund and allocable to such series
and a proportionate distribution, based upon the relative asset values of
Excelsior Fund's portfolios, of any general assets of Excelsior Fund not
belonging to any particular portfolio of Excelsior Fund which are available for
distribution. In the event of a liquidation or dissolution of Excelsior Fund,
its shareholders will be entitled to the same distribution process.

Shareholders of Excelsior Fund are entitled to one vote for each full
share held, and fractional votes for fractional shares held, and will vote in
the aggregate and not by class,

-18-
<PAGE>

except as otherwise required by the 1940 Act or other applicable law or when the
matter to be voted upon affects only the interests of the shareholders of a
particular class. Voting rights are not cumulative and, accordingly, the
holders of more than 50% of the aggregate of Excelsior Fund's shares may elect
all of Excelsior Fund's directors, regardless of votes of other shareholders.

Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as Excelsior Fund shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of each portfolio affected by the matter. A portfolio is affected by a
matter unless it is clear that the interests of each portfolio in the matter are
substantially identical or that the matter does not affect any interest of the
portfolio. Under the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a portfolio only if approved by a majority of the outstanding
shares of such portfolio. However, the Rule also provides that the ratification
of the appointment of independent public accountants, the approval of principal
underwriting contracts, and the election of directors may be effectively acted
upon by shareholders of Excelsior Fund voting without regard to class.

Excelsior Fund's Charter authorizes its Board of Directors, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding Shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding Shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another portfolio of Excelsior
Fund, if the Board of Directors reasonably determines that such combination will
not have a material adverse effect on shareholders of any portfolio
participating in such combination, and, in connection therewith, to cause all
outstanding Shares of the Fund involved to be redeemed at their net asset value
or converted into shares of another class of Excelsior Fund's capital stock at
net asset value. The exercise of such authority by the Board of Directors will
be subject to the provisions of the 1940 Act, and the Board of Directors will
not take any action described in this paragraph unless the proposed action has
been disclosed in writing to the particular Fund's shareholders at least 30 days
prior thereto.

-19-
<PAGE>

Notwithstanding any provision of Maryland law requiring a greater vote
of Excelsior Fund's Common Stock (or of the Shares of a Fund voting separately
as a class) in connection with any corporate action, unless otherwise provided
by law (for example, by Rule 18f-2, discussed above) or by Excelsior Fund's
Charter, Excelsior Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of the outstanding Common Stock of
Excelsior Fund voting without regard to class.

MANAGEMENT OF THE FUNDS
-----------------------

Directors and Officers
- ----------------------

The directors and executive officers of Excelsior Fund, their
addresses, ages, principal occupations during the past five years, and other
affiliations are as follows:
<TABLE>
<CAPTION>

Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ------------------------ -------------------------- -----------------------------
<S> <C> <C>
Frederick S. Wonham/1/ Chairman of the Retired; Director of
238 June Road Board, President Excelsior Fund and Excelsior
Stamford, CT 06903 and Treasurer Tax-Exempt Fund (since 1995);
Age: 66 Trustee of Excelsior Funds
and Excelsior Institutional Trust
(since 1995); Vice Chairman of U.S.
Trust Corporation and U.S. Trust New
York (from February 1990 until
September 1995); and Chairman, U.S.
Trust Connecticut (from March 1993 to
May 1997).

Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior Fund and Excelsior Apt. 10-H
Tax-Exempt Fund (since Director of UST Master
1984); Variable Series, Inc.
New York, NY 10021 (from 1994 to June 1997); Trustee of
Age: 71 Excelsior Institutional Trust (since
1995); and Director, Royal Life
Insurance Co. of New York (since 1991).

-20-
<PAGE>

<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ----------------- --------------- -----------------------------
<S> <C> <C>
(since 1994); Director, Parsons
Brinkerhoff Energy Services Inc. (since
1996); Director, Parsons Brinkerhoff,
Inc. (engineering firm) (since 1995);
President, Mandrake Group (investment
and consulting firm) (since 1994);
Director, Hyperion Total Return Fund,
Inc. and four other funds for which
Hyperion Capital Management, Inc.
serves as investment adviser (since
1991); Co-Chairman, KMR Power
Corporation (power plants) (from 1993
to 1996); Director, The Latin American
Growth Fund (since 1993); Member of
Advisory Board, Argentina Private
Equity Fund L.P. (from 1992 to 1996)
and Garantia L.P. (Brazil) (from 1993
to 1996); and Director, Mueller
Industries, Inc. (from 1992 to 1994).

Joseph H. Dugan Director Retired; Director of
913 Franklin Lakes Road Excelsior Fund and
Franklin Lakes, NJ 07417 Excelsior
(since 1984); Tax-Exempt Fund
Age: 72 Director of UST Master
Variable Series, Inc.
(from 1994 to June 1997); and Trustee
of Excelsior Institutional Trust (since
1995).

Wolfe J. Frankl Director Retired; Director of
2320 Cumberland Road Excelsior Fund and Excelsior
Charlottesville, VA 22901 Tax-Exempt Fund
(since 1986); Director of UST Master
Age: 76 Variable Series, Inc. (from 1994 to
June 1997); Trustee of Excelsior
Institutional Trust (since 1995);
Director, Deutsche Bank Financial, Inc.
(since 1989); Director, The Harbus
Corporation (since 1951); and Trustee,
HSBC Funds Trust and HSBC Mutual Funds
Trust (since 1988).

W. Wallace McDowell, Jr. Director Director, Excelsior
Fund and Excelsior Tax-Exempt
c/o Prospect Capital Fund (since 1996); Trustee,
Corp. Excelsior Institutional Trust
43 Arch Street and Excelsior Funds
Greenwich, CT 06830 (since 1994); Private Investor
Age: 60 (since 1994); Managing Director,
Morgan Lewis Githens & Ahn (from 1991
to 1994); and Director, U.S.
</TABLE>

-21-
<PAGE>
<TABLE>
<CAPTION>

Homecare Corporation (since 1992),
Grossmans, Inc. (from 1993 to 1996),
Children's Discovery Centers (since
1984), ITI Technologies, Inc. (since
1992) and Jack Morton Productions
(since 1987).

Vice President and Editor, Scientific
American, Inc. (from 1986 to 1994);
Director, Group for The South Fork,
Bridgehampton, New York (since 1993);
and Member, Advisory Committee, Knight
Journalism Fellowships, Massachusetts
Institute of Technology (since 1984).

Robert A. Robinson Director Director of Excelsior Fund
Church Pension Fund and Excelsior Tax-Exempt Fund
800 Second Avenue (since 1987); Director of UST
New York, NY 10017 Master Variable Series, Inc.
Age: 71 (from 1994 to June 1997); Trustee of
Excelsior Institutional Trust
(since 1995); President Emeritus, The
Church Pension Fund and its affiliated
companies (since 1966); Trustee, H.B.
and F.H. Bugher Foundation and Director
of its wholly owned subsidiaries --
Rosiclear Lead and Flourspar Mining Co.
and The Pigmy Corporation (since 1984);
Director, Morehouse Publishing Co.
(since 1974); Trustee, HSBC Funds Trust
and HSBC Mutual Funds Trust (since
1982); and Director, Infinity Funds,
Inc. (since 1995).

Alfred C. Tannachion/1/ Director Retired; Director of
6549 Pine Meadows Drive Excelsior Fund and
Spring Hill, FL 34606 Excelsior Tax-Exempt Fund
Age: 71 (since 1985); Chairman
of the Board, President and Treasurer
of UST Master Variable Series, Inc.
(from 1994 to June 1997); and Trustee
of Excelsior Institutional Trust (since
1995).
</TABLE>

- ----------------------
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.

-22-
<PAGE>

W. Bruce McConnel, III Secretary Partner of the law firm of Drinker
Philadelphia National Biddle & Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 54

Gregory Sackos Assistant Second Vice President, Senior
Chase Global Funds Secretary Manager of Blue Sky Compliance
Services Company and Financial Reporting, Chase
73 Tremont Street Global Funds Services Company
Boston, MA 02108-3913 (March 1997 to present); Second
Age: 32 Vice President, Senior Manager of Financial
Reporting, Chase Global
Funds Services Company (September 1996
to March 1997); and Assistant Vice
President, Assistant Manager of
Financial Reporting, Scudder, Stevens &
Clark Inc. (October 1992 to September
1996).

John M. Corcoran Assistant Vice President, Director of
Chase Global Funds Treasurer Administration Client Group,
Services Company Chase Global Funds Services
73 Tremont Street Company (since July 1996);
Boston, MA 02108-3913 Second Vice President, Manager
Age: 32 of Administration, Chase Global Funds Services
Company (from October
1993 to July 1996); and Audit Manager,
Ernst & Young LLP (from August 1987 to
September 1993).
</TABLE>

Each director of Excelsior Fund receives an annual fee of $9,000 plus
a meeting fee of $1,500 for each meeting attended and is reimbursed for expenses
incurred in attending meetings. The Chairman of the Board is entitled to
receive an additional $5,000 per annum for services in such capacity. Drinker
Biddle & Reath LLP, of which Mr. McConnel is a partner, receives legal fees as
counsel to Excelsior Fund. The employees of Chase Global Funds Services Company
do not receive any compensation from Excelsior Fund for acting as officers of
Excelsior Fund. No person who is currently an officer, director or employee of
the Investment Adviser serves as an officer, director or employee of Excelsior
Fund. As of July 14, 1997, the directors and officers of Excelsior Fund as a
group owned beneficially less than 1% of the outstanding shares of each fund of
Excelsior Fund, and less than 1% of the outstanding shares of all funds of
Excelsior Fund in the aggregate.

The following chart provides certain information about the fees
received by Excelsior Fund's directors in the most recently completed fiscal
year.

-23-
<PAGE>

Pension or
Retirement Total
Benefits Compensation
Accrued as from Excelsior Fund
Aggregate Part of and Fund
Name of Compensation from Fund Complex* Paid
Person/Position Excelsior Fund Expenses to Directors
- ----------------------------- ----------------- -------- -------------------
Donald L. Campbell $13,500 None $31,750(4)**
Director

Rodman L. Drake*** $ 3,750 None $12,250(4)**
Director

Joseph H. Dugan $15,000 None $35,000(4)**
Director

Wolfe J. Frankl $15,000 None $35,000(4)**
Director

W. Wallace McDowell, Jr.*** $ 2,250 None $ 9,250(4)**
Director

Jonathan Piel*** $ 3,750 None $12,500(4)**
Director

Robert A. Robinson $15,000 None $35,000(4)**
Director

Alfred C. Tannachion**** $20,000 None $45,000(4)**
Director

Frederick S. Wonham**** $15,000 None $35,000(4)**
Chairman of the Board,
President and Treasurer

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

/*/ The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt
Fund, UST Master Variable Series, Inc., Excelsior Funds and Excelsior
Institutional Trust.

/**/ Number of investment companies in the Fund Complex for which director
served as director or trustee.

/***/ Messrs. Drake, McDowell and Piel were elected to the Board of
Excelsior Fund and Excelsior Tax-Exempt Fund on December 9, 1996.

/****/ Mr. Tannachion served as Excelsior Fund's Chairman of the Board,
President and Treasurer until February 13, 1997. On that date, Mr.
Wonham was elected to serve as Excelsior Fund's Chairman of the Board,
President and Treasurer.

-24-
<PAGE>

Investment Advisory and Administration Agreements
- -------------------------------------------------

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
Investment Adviser to the Funds. In the Investment Advisory Agreement, the
Investment Adviser has agreed to provide the services described in the
Prospectus. The Investment Adviser has also agreed to pay all expenses incurred
by it in connection with its activities under the respective agreements other
than the cost of securities, including brokerage commissions, purchased for the
Funds.

Prior to May 16, 1997, U.S. Trust New York served as investment
adviser to the Funds pursuant to an advisory agreement substantially similar to
the Investment Advisory Agreement currently in effect for the Funds.

For the fiscal year ended March 31, 1995, Excelsior Fund paid U.S.
Trust New York advisory fees of $880,638, $726,295, $120,783 and $194,501 with
respect to 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 totalling $26,987, $24,620, $18,380 and $26,625 with respect to
the Blended Equity, Income and Growth, Value and Restructuring and Small Cap
Funds, respectively.

For the fiscal year ended March 31, 1996, Excelsior Fund paid U.S.
Trust New York advisory fees of $1,111,127, $785,037, $273,025, and $336,194
with respect to the Blended Equity, Income and Growth, Value and Restructuring
and Small Cap Funds, respectively. For the same period, U.S. Trust New York
waived fees totalling $106,377, $69,637, $21,119 and $57,942 with respect to the
Blended Equity, Income and Growth, Value and Restructuring and Small Cap Funds,
respectively.

For the fiscal year ended March 31, 1997, Excelsior Fund paid U.S.
Trust New York advisory fees of $1,954,607, $876,995, $552,746 and $408,027 with
respect to 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 totalling $132,737, $105,756, $41,509 and $61,885 with respect to
the Blended Equity, Income and Growth, Value and Restructuring and Small Cap
Funds, respectively.

-25-
<PAGE>

respect to the receipt of compensation for advisory services or a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Investment Adviser in the performance of its duties or from reckless disregard
by it of its duties and obligations thereunder. In addition, the Investment
Adviser has undertaken in the Investment Advisory Agreement to maintain its
policy and practice of conducting its Asset Management Group independently of
its Banking Group.

Chase Global Funds Services Company ("CGFSC"), Federated
Administrative Services, an affiliate of the Distributor, and U.S. Trust
Connecticut (the "Administrators") serve as the Funds' administrators. Under
the Administration Agreement, the Administrators have agreed to maintain office
facilities for the Funds, furnish the Funds with statistical and research data,
clerical, accounting and bookkeeping services, and certain other services
required by the Funds, and to compute the net asset value, net income and
realized capital gains or losses, if any, of the respective Funds. The
Administrators prepare semiannual reports to the SEC, prepare Federal and state
tax returns, prepare filings with state securities commissions, arrange for and
bear the cost of processing Share purchase and redemption orders, maintain the
Funds' financial accounts and records, and generally assist in the Funds'
operations.

Prior to May 16, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York served as the Funds' administrators pursuant to an
administration agreement substantially similar to the Administration Agreement
currently in effect for the Funds. Prior to August 1, 1995, administrative
services were provided to the Funds by CGFSC and Concord Holding Corporation
(collectively, the "former administrators") under an administration agreement
having substantially the same terms as the Administration Agreement currently in
effect.

For the fiscal year ended March 31, 1995, Excelsior Fund paid the
former administrators $186,366, $154,582, $35,765 and $56,809 in the aggregate
with respect to the Blended Equity, Income and Growth, Value and Restructuring
and Small Cap Funds, respectively. For the same period, the former
administrators waived administration fees totalling $5,985 with respect to the
Value and Restructuring Fund.

For the period April 1, 1995 through July 31, 1995, Excelsior Fund
paid the former administrators $72,709, $53,296, $18,319 and $27,350 in the
aggregate with respect to the Blended Equity, Income and Growth, Value and
Restructuring and Small Cap Funds, respectively. For the same period, the
former administrators waived administration fees totalling $1,640, $575, $34 and
$75 with respect to the Blended Equity, Income and Growth, Value and
Restructuring and Small Cap Funds, respectively.

-26-
<PAGE>

For the period August 1, 1995 through March 31, 1996, Excelsior Fund
paid CGFSC, Federated Administrative Services and U.S. Trust New York $171,595,
$120,732, $57,370 and $74,016 in the aggregate with respect to the Blended
Equity, Income and Growth, Value and Restructuring and Small Cap Funds,
respectively. For the same period, CGFSC, Federated Administrative Services and
U.S. Trust New York waived administration fees totalling $4,809, $1,416, $19 and
$40 with respect to the Blended Equity, Income and Growth, Value and
Restructuring and Small Cap Funds, respectively.

For the fiscal year ended March 31, 1997, Excelsior Fund paid CGFSC,
Federated Administrative Services and U.S. Trust New York $422,505, $200,249,
$152,248 and $120,363 in the aggregate with respect to the Blended Equity,
Income and Growth, Value and Restructuring and Small Cap Funds, respectively.
For the same period, CGFSC, Federated Administration Services and U.S. Trust New
York waived administration fees totalling $5,344, $1,132, $108 and $87 with
respect to the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap Funds, respectively.

Shareholder Organizations
- -------------------------

As stated in the Prospectus, Excelsior Fund has entered into
agreements with certain Shareholder Organizations. Such agreements require the
Shareholder Organizations to provide shareholder administrative services to
their Customers who beneficially own Shares in consideration for a Fund's
payment of not more than the annual rate of .40% of the average daily net assets
of the Fund's Shares beneficially owned by Customers of the Shareholder
Organization. Such services may include: (a) acting as recordholder of Shares;
(b) assisting in processing purchase, exchange and redemption transactions; (c)
providing periodic statements showing a Customer's account balances and
confirmations of transactions by the Customer; (d) providing tax and dividend
information to shareholders as appropriate; (e) transmitting proxy statements,
annual reports, updated prospectuses and other communications from Excelsior
Fund to Customers; and (f) providing or arranging for the provision of other
related services.

Excelsior Fund's agreements with Shareholder Organizations are
governed by an Administrative Services Plan (the "Plan") adopted by Excelsior
Fund. Pursuant to the Plan, Excelsior Fund's Board of Directors will review, at
least quarterly, a written report of the amounts expended under Excelsior Fund's
agreements with Shareholder Organizations and the purposes for which the
expenditures were made. In addition, the arrangements with Shareholder
Organizations will be approved annually by a majority of Excelsior Fund's
directors, including a majority of the directors who are not "interested
persons" of

-27-
<PAGE>

Excelsior Fund as defined in the 1940 Act and have no direct or indirect
financial interest in such arrangements (the "Disinterested Directors").

Any material amendment to Excelsior Fund's arrangements with
Shareholder Organizations must be approved by a majority of Excelsior Fund's
Board of Directors (including a majority of the Disinterested Directors). So
long as Excelsior Fund's arrangements with Shareholder Organizations are in
effect, the selection and nomination of the members of Excelsior Fund's Board of
Directors who are not "interested persons" (as defined in the 1940 Act) of
Excelsior Fund will be committed to the discretion of such Disinterested
Directors.

For the fiscal years ended March 31, 1997, 1996 and 1995, payments to
Shareholder Organizations totalled $132,737, $112,827 and $26,987; $106,888,
$71,628 and $24,620; $41,617, $21,172 and $5,189; and $61,972, $58,058 and
$17,091 with respect to the Blended Equity, Income and Growth, Value and
Restructuring and Small Cap Funds, respectively. Of these amounts, $118,778,
$97,209 and $18,606; $103,262, $66,022 and $22,697; $41,514, $21,149 and $4,851;
and $61,952, $58,039 and $16,428 were paid to affiliates of U.S. Trust with
respect to the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap Funds, respectively.

Expenses
- --------

Except as otherwise noted, the Investment Adviser and the
Administrators bear all expenses in connection with the performance of their
services. The Funds bear the expenses incurred in their operations. Expenses
of the Funds include taxes; interest; fees (including fees paid to Excelsior
Fund's directors and officers who are not affiliated with the Distributor or the
Administrators); SEC fees; state securities qualifications fees; costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to shareholders; advisory, administration and administrative servicing fees;
charges of the custodian, transfer agent, and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; cost of independent
pricing services; costs of shareholder reports and shareholder meetings; and any
extraordinary expenses. The Funds also pay for brokerage fees and commissions
in connection with the purchase of portfolio securities.

Custodian and Transfer Agent
- ----------------------------

The Chase Manhattan Bank ("Chase") serves as custodian of the Funds'
assets. Under the Custodian Agreement, Chase has agreed to (i) maintain a
separate account or accounts in the name

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<PAGE>

of the Funds; (ii) make receipts and disbursements of money on behalf of the
Funds; (iii) collect and receive all income and other payments and distributions
on account of the Funds' portfolio securities; (iv) respond to correspondence
from securities brokers and others relating to its duties; (v) maintain certain
financial accounts and records; and (vi) make periodic reports to Excelsior
Fund's Board of Directors concerning the Funds' operations. Chase may, at its
own expense, open and maintain custody accounts with respect to the Funds with
other banks or trust companies, provided that Chase shall remain liable for the
performance of all its custodial duties under the Custodian Agreement,
notwithstanding any delegation.

U.S. Trust New York serves as the Funds' transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust New York has agreed to (i) issue
and redeem Shares; (ii) address and mail all communications by the Funds to
their shareholders, including reports to shareholders, dividend and distribution
notices, and proxy materials for its meetings of shareholders; (iii) respond to
correspondence by shareholders and others relating to its duties; (iv) maintain
shareholder accounts; and (v) make periodic reports to Excelsior Fund's Board of
Directors concerning the Funds' operations. For its transfer agency, dividend
disbursing, and subaccounting services, U.S. Trust New York is entitled to
receive $15.00 per annum per account and subaccount. In addition, U.S. Trust
New York is entitled to be reimbursed for its out-of-pocket expenses for the
cost of forms, postage, processing purchase and redemption orders, handling of
proxies, and other similar expenses in connection with the above services.

U.S. Trust New York may, at its own expense, delegate its transfer
agency obligations to another transfer agent registered or qualified under
applicable law, provided that U.S. Trust New York shall remain liable for the
performance of all of its transfer agency duties under the Transfer Agency
Agreement, notwithstanding any delegation. Pursuant to this provision in the
agreement, U.S. Trust New York has entered into a sub-transfer agency
arrangement with CGFSC, an affiliate of Chase, with respect to accounts of
shareholders who are not Customers of U.S. Trust New York. For the services
provided by CGFSC, U.S. Trust New York has agreed to pay CGFSC $15.00 per annum
per account or subaccount plus out-of-pocket expenses. CGFSC receives no fee
directly from Excelsior Fund for any of its sub-transfer agency services. U.S.
Trust New York may, from time to time, enter into sub-transfer agency
arrangements with third party providers of transfer agency services.

-29-
<PAGE>

PORTFOLIO TRANSACTIONS
----------------------

Subject to the general control of Excelsior Fund's Board of Directors,
the Investment Adviser is responsible for, makes decisions with respect to, and
places orders for all purchases and sales of all portfolio securities of the
Funds.

The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. The Funds' portfolio turnover rate may also be
affected by cash requirements for redemptions of Shares and by regulatory
provisions which enable the Funds to receive certain favorable tax treatment.
Portfolio turnover will not be a limiting factor in making portfolio decisions.
See "Financial Highlights" in the Funds' Prospectus for the Funds' portfolio
turnover rates.

Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. For the fiscal years
ended March 31, 1995, March 31, 1996 and March 31, 1997, the Blended Equity Fund
paid brokerage commissions aggregating $123,112, $174,492 and $271,411,
respectively, and the Income and Growth Fund paid brokerage commissions
aggregating $89,218, $89,512 and $74,499, respectively.

For the fiscal years ended March 31, 1995, March 31, 1996, and March
31, 1997, the Value and Restructuring and Small Cap Funds paid brokerage
commissions aggregating $121,755, $152,269 and $271,334; and $73,534, $95,108
and $122,184, respectively.

Transactions in domestic over-the-counter markets are generally
principal transactions with dealers, and the costs of such transactions involve
dealer spreads rather than brokerage commissions. With respect to over-the-
counter transactions, the Funds, where possible, will deal directly with the
dealers who make a market in the securities involved, except in those
circumstances where better prices and execution are available elsewhere.

The Investment Advisory Agreement between Excelsior Fund and the
Investment Adviser provides that, in executing portfolio transactions and
selecting brokers or dealers, the Investment Adviser will seek to obtain the
best net price and the most favorable execution. The Investment Adviser shall
consider factors it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and whether such broker or dealer is selling
shares of Excelsior Fund, and the

-30-
<PAGE>

reasonableness of the commission, if any, for the specific transaction and on a
continuing basis.

In addition, the Investment Advisory Agreement authorizes the
Investment Adviser, to the extent permitted by law and subject to the review of
Excelsior Fund's Board of Directors from time to time with respect to the extent
and continuation of the policy, to cause the Funds to pay a broker which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker for effecting the same transaction, provided
that the Investment Adviser determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker, viewed in terms of either that particular transaction
or the overall responsibilities of the Investment Adviser to the accounts as to
which it exercises investment discretion. Such brokerage and research services
might consist of reports and statistics on specific companies or industries,
general summaries of groups of stocks and their comparative earnings, or broad
overviews of the stock market and the economy.

Supplementary research information so received is in addition to and
not in lieu of services required to be performed by the Investment Adviser and
does not reduce the investment advisory fees payable by the Funds. Such
information may be useful to the Investment Adviser in serving the Funds and
other clients and, conversely, supplemental information obtained by the
placement of business of other clients may be useful to the Investment Adviser
in carrying out its obligations to the Funds.

Portfolio securities will not be purchased from or sold to the
Investment Adviser, Distributor, or any affiliated person of either of them (as
such term is defined in the 1940 Act) acting as principal, except to the extent
permitted by the SEC.

Investment decisions for the Funds are made independently from those
for other investment companies, common trust funds and other types of funds
managed by the Investment Adviser. Such other investment companies and funds
may also invest in the same securities as the Funds. When a purchase or sale of
the same security is made at substantially the same time on behalf of a Fund and
another investment company or common trust fund, the transaction will be
averaged as to price, and available investments allocated as to amount, in a
manner which the Investment Adviser believes to be equitable to the Fund and
such other investment company or common trust fund. In some instances, this
investment procedure may adversely affect the price paid or received by the
Funds or the size of the position obtained by the Funds. To the extent
permitted by law, the Investment Adviser may aggregate the securities to be sold
or purchased for the Funds with those to be sold or purchased for

-31-
<PAGE>

other investment companies or common trust funds in order to obtain best
execution.

To the extent that a Fund effects brokerage transactions with any
broker-dealer affiliated directly or indirectly with U.S. Trust, such
transactions, including the frequency thereof, the receipt of any commissions
payable in connection therewith, and the selection of the affiliated broker-
dealer effecting such transactions, will be fair and reasonable to the
shareholders of the Fund.

Excelsior Fund is required to identify any securities of its regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their
parents held by the Funds as of the close of the most recent fiscal year. As of
March 31, 1997, the following Funds held the following securities of Excelsior
Fund's regular brokers or dealers or their parents: (a) the Income & Growth
Fund held the following security: 40,000 shares of common stock of Morgan
Stanley Group, Inc.; (b) the Value and Restructuring Fund held the following
security: 42,000 shares of common stock of Donaldson, Lufkin & Jenrette, Inc.;
and (c) the Blended Equity Fund held the following security: 122,360 shares of
Morgan Stanley Group, Inc.

INDEPENDENT AUDITORS
--------------------

Ernst & Young LLP, independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of Excelsior Fund. The Funds' Financial Highlights
included in the Prospectus and the financial statements for the period ended
March 31, 1997 incorporated by reference in this Statement of Additional
Information have been audited by Ernst & Young LLP for the periods included in
their reports thereon which appear therein.

COUNSEL
-------

Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of
Excelsior Fund, is a partner), Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107, is counsel to Excelsior Fund
and will pass upon the legality of the Shares offered by the Prospectus.

ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------

The following supplements the tax information contained in the
Prospectus.

Each Fund is treated as a separate corporate entity under the Code,
and intends to qualify as a regulated investment

-32-
<PAGE>

company. If, for any reason, a Fund does not qualify for a taxable year for the
special Federal tax treatment afforded regulated investment companies, such Fund
would be subject to Federal tax on all of its taxable income at regular
corporate rates, without any deduction for distributions to shareholders. In
such event, dividend distributions (whether or not derived from interest on
Municipal Securities) would be taxable as ordinary income to shareholders to the
extent of the Fund's current and accumulated earnings and profits and would be
eligible for the dividends received deduction in the case of corporate
shareholders.

A Fund will designate any distribution of the excess of net long-term
capital gain over net short-term capital loss as a capital gain dividend in a
written notice mailed to shareholders within 60 days after the close of the
Fund's taxable year. Upon the sale or exchange of Shares, if the shareholder
has not held such Shares for more than six months, any loss on the sale or
exchange of those Shares will be treated as long-term capital loss to the extent
of the capital gain dividends received with respect to the Shares.

A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). The Funds intend to make sufficient
distributions or deemed distributions of their ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.

-33-
<PAGE>

constitute the proceeds of sale, and the difference between the proceeds and the
cost of the securities subject to the call is capital gain or loss. Premiums
from expired call options written by a Fund and net gains from closing purchase
transactions are treated as short-term capital gains for Federal income tax
purposes, and losses on closing purchase transactions are short-term capital
losses. With respect to forward contracts, futures contracts, options on
futures contracts, and other financial instruments subject to the "mark-to-
market" rules, the Internal Revenue Service has ruled in private letter rulings
that a gain realized from such a contract, option or financial instrument will
be treated as being derived from a security held for three months or more
(regardless of the actual period for which the contract, option or instrument is
held) if the gain arises as a result of a constructive sale under the mark-to-
market rules, and will be treated as being derived from a security held for less
than three months only if the contract, option or instrument is terminated (or
transferred) during the taxable year (other than by reason of mark-to-market)
and less than three months has elapsed between the date the contract, option or
instrument was acquired and the termination date. Increases and decreases in
the value of the forward contracts, futures contracts, options on futures
contracts and other investments that qualify as part of a "designated hedge," as
defined in Section 851(g) of the Code, may be netted for purposes of determining
whether the Short-Short Test is met.

Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, who are subject to withholding by the Internal
Revenue Service for failure properly to include on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund when
required to do so either that they are not subject to backup withholding or that
they are "exempt recipients."

As of the date of this Statement of Additional Information, new
Federal tax legislation--the Taxpayer Relief Act of 1997 (the "TRA")--has been
passed by the House of Representatives and the Senate, and is expected to be
signed by the President. The TRA, if enacted as expected, will repeal the
Short-Short Test (effective for each Fund's next fiscal year) and will change
applicable rates and holding period rules for capital gains.

The foregoing discussion is based on Federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action. Shareholders are advised to consult their tax advisers concerning their
specific

-34-
<PAGE>

situations, the application of state and local taxes and changes in Federal tax
rules under the TRA.

PERFORMANCE INFORMATION
-----------------------

The Funds may advertise the "average annual total return" for their
Shares. Such return is computed by determining the average annual compounded
rate of return during specified periods that equates the initial amount invested
to the ending redeemable value of such investment according to the following
formula:

ERV /1/to the nth power
T = [(-----) - 1]
P

Where: T = average annual total return.

ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
(or other) periods at the end of the applicable period
(or a fractional portion thereof).

P = hypothetical initial payment of $1,000.

n = period covered by the computation, expressed in years.

Each Fund may also advertise the "aggregate total return" for its Shares
which is computed by determining the aggregate compounded rates of return during
specified periods that likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating aggregate
total return is as follows:

ERV
Aggregate Total Return = [(------)] - 1
P

The above calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per Share existing on the reinvestment date, (2) all recurring fees charged to
all shareholder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size in a Fund during
the periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is

-35-
<PAGE>

determined by assuming complete redemption of the hypothetical investment after
deduction of all nonrecurring charges at the end of the measuring period.

Based on the foregoing calculations, the total returns for the Shares
of the Blended Equity, Income and Growth, Value and Restructuring and Small Cap
Funds for the one year period ended March 31, 1997 were 11.09%, 12.61%, 18.09%
and -14.33%, respectively. The average annual total returns for the Shares of
the Blended Equity and Income and Growth Funds for the five year period ended
March 31, 1997 were 15.38% and 15.81%, respectively. The average annual total
returns for the Shares of the Blended Equity and Income and Growth Funds for the
ten year period ended March 31, 1997 were 11.45% and 10.63%, respectively. The
average annual total returns for the Shares of the Value and Restructuring and
Small Cap Funds for the period from December 31, 1992 (commencement of
operations) to March 31, 1997 were 24.07% and 9.29%, respectively.

The Funds may also from time to time include in advertisements, sales
literature and communications to shareholders a total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately a Fund's performance with other measures of investment return. For
example, in comparing a Fund's total return with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of an index, a Fund may
calculate its aggregate total return for the period of time specified in the
advertisement or communication by assuming the investment of $10,000 in Shares
and assuming the reinvestment of each dividend or other distribution at net
asset value on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value.

The total return of Shares of a Fund may be compared to that of other
mutual funds with similar investment objectives and to other relevant indices or
to ratings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
total return of a Fund may be compared to data prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc. and Weisenberger Investment
Company Service. Total return and yield data as reported in national financial
publications such as 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 a Fund. Advertisements, sales
literature or reports to shareholders may from time to time also include a
discussion and analysis of each Fund's performance, including, without
limitation, those factors,

-36-
<PAGE>

strategies and techniques that, together with market conditions and events,
materially affected each Fund's performance.

The Funds may also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Fund
investment are reinvested by being paid in additional Fund Shares, any future
income or capital appreciation of a Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund Shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash. The Funds may also include discussions or illustrations of the potential
investment goals of a prospective investor, investment management techniques,
policies or investment suitability of a Fund, economic conditions, the effects
of inflation and historical performance of various asset classes, including but
not limited to, stocks, bonds and Treasury bills. From time to time
advertisements, sales literature or communications to shareholders may summarize
the substance of information contained in shareholder reports (including the
investment composition of a Fund), as well as the views of the Investment
Adviser as to current market, economy, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to a Fund. The Funds may also
include in advertisements charts, graphs or drawings which illustrate the
potential risks and rewards of investment in various investment vehicles,
including but not limited to, stocks, bonds, Treasury bills and Shares of a
Fund. In addition, advertisements, sales literature or shareholder
communications may include a discussion of certain attributes or benefits to be
derived by an investment in a Fund. Such advertisements or communicators may
include symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein.

MISCELLANEOUS
-------------

As used in the Prospectus, "assets belonging to a Fund" means the
consideration received upon the issuance of Shares in the Fund, together with
all income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of Excelsior Fund not belonging to a particular portfolio of Excelsior
Fund. In determining a Fund's net asset value, assets belonging to the Fund are
charged with the direct liabilities in respect of the Fund and with a share of
the general liabilities of Excelsior Fund which are normally allocated in
proportion to the relative asset values of Excelsior

-37-
<PAGE>

Fund's portfolios at the time of allocation. Subject to the provisions of
Excelsior Fund's Charter, determinations by the Board of Directors as to the
direct and allocable liabilities, and the allocable portion of any general
assets with respect to a particular Fund, are conclusive.

As of July 14, 1997, U.S. Trust and its affiliates held of record
substantially 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.

As of July 14, 1997, the name, address and percentage ownership of
each person that beneficially owned 5% or more of the outstanding Shares of a
Fund were as follows: (i) Blended Equity Fund: U.S. Trust Retirement Fund, c/o
-------------------
United States Trust Company of New York, 114 West 47th Street, New York, New
York 10036, 17.41%; and (ii) Small Cap Fund: U.S. Trust Retirement Fund, c/o
--------------
United States Trust Company of New York, 114 West 47th Street, New York, New
York, 10036, 16.98%.

FINANCIAL STATEMENTS
--------------------

The audited financial statements and notes thereto in Excelsior Fund's
Annual Report to Shareholders for the fiscal year ended March 31, 1997 (the
"1997 Annual Report") for the Funds are incorporated in this Statement of
Additional Information by reference. No other parts of the 1997 Annual Report
are incorporated by reference herein. The financial statements included in the
1997 Annual Report for the Funds have been audited by Excelsior Fund's
independent auditors, Ernst & Young LLP, whose reports thereon also appear in
the 1997 Annual Report and are incorporated herein by reference. Such financial
statements have been incorporated herein in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
Additional copies of the 1997 Annual Report may be obtained at no charge by
telephoning CGFSC at the telephone number appearing on the front page of this
Statement of Additional Information.

-38-
<PAGE>

APPENDIX A
----------

COMMERCIAL PAPER RATINGS
- ------------------------

A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:

"A-1" - The highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.

"A-2" - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."

"A-3" - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.

"B" - Issues are regarded as having only a speculative capacity for
timely payment.

"C" - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.

"D" - Issues are in payment default.

Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:

"Prime-1" - Issuers or related supporting institutions have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well established access to a
range of financial markets and assured sources of alternate liquidity.

A-1
<PAGE>

"Prime-2" - Issuers or related supporting institutions have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.

"Prime-3" - Issuers or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.

"Not Prime" - Issuers do not fall within any of the Prime rating
categories.

The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:

"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.

"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.

"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.

"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.

"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issue as investment grade. Risk

A-2
<PAGE>

factors are larger and subject to more variation. Nevertheless, timely payment
is expected.

"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.

"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.

Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:

"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.

"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."

"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" ratings.

"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.

"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.

"D" - Securities are in actual or imminent payment default.

Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.

Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one

A-3
<PAGE>

year or less which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:

"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.

"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."

"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.

"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.

IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:

"A1+" - Obligations which posses a particularly strong credit feature
are supported by the highest capacity for timely repayment.

"A1" - Obligations are supported by the highest capacity for timely
repayment.

"A2" - Obligations are supported by a good capacity for timely
repayment.

"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.

"B" - Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.

"C" - Obligations for which there is a high risk of default or which
are currently in default.

A-4
<PAGE>

CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------

The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:

"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.

"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.

"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.

"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.

"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" 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.

"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.

"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.

A-5
<PAGE>

"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.

"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.

"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.

"CI" - This rating is reserved for income bonds on which no interest
is being paid.

"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.

PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.

"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.

The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:

"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are

A-6
<PAGE>

likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.

"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.

Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.

(P)... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be revised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.

A-7
<PAGE>

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.

The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:

"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.

"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.

"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.

"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.

To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.

The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:

"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.

"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong

A-8
<PAGE>

as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are
not significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated "F-1+."

"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.

"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.

To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "BBB" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.

IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:

"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.

"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.

"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.

"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of

A-9
<PAGE>

principal and interest is adequate, although adverse changes in business,
economic or financial conditions are more likely to lead to increased investment
risk than for obligations in other categories.

"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.

IBCA may append a rating of plus (+) or minus (-) to a rating below
"AAA" to denote relative status within major rating categories.

Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:

"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.

"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.

"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.

"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.

"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of

A-10
<PAGE>

principal and interest. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation.

"D" - This designation indicates that the long-term debt is in
default.

PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.

MUNICIPAL NOTE RATINGS
- ----------------------

A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:

"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.

"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.

"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.

Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:

"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.

"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.

"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.

A-11
<PAGE>

"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.

"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.

Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.

A-12
<PAGE>

EXCELSIOR FUNDS, INC.

Productivity Enhancers Fund
Environmentally-Related Products and Services Fund
Aging of America Fund
Communication and Entertainment Fund
Global Competitors Fund

STATEMENT OF ADDITIONAL INFORMATION

August 1, 1997

This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectus for the Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment and Global Competitors Funds (individually, a "Fund" and
collectively, the "Funds") of Excelsior Funds, Inc. ("Excelsior Fund") dated
August 1, 1997 (the "Prospectus"). Much of the information contained in this
Statement of Additional Information expands upon the subjects discussed in the
Prospectus. No investment in Shares of the Funds described herein
(collectively, the "Shares") should be made without reading the Prospectus. A
copy of the Prospectus may be obtained by writing Excelsior Fund c/o Chase
Global Funds Services Company, 73 Tremont Street, Boston, MA 02108-3913 or by
calling (800) 446-1012.
<PAGE>

TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>

Page
----
<S> <C>

INVESTMENT OBJECTIVES AND POLICIES...................... 1
Other Investment Considerations.................... 1
Additional Information on Portfolio Instruments.... 3
Additional Investment Limitations.................. 11

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.......... 12

INVESTOR PROGRAMS....................................... 14
Systematic Withdrawal Plan......................... 14
Exchange Privilege................................. 15
Other Investor Programs............................ 16

DESCRIPTION OF CAPITAL STOCK............................ 16

MANAGEMENT OF THE FUNDS................................. 18
Directors and Officers............................. 18
Investment Advisory and Administration Agreements.. 23
Shareholder Organizations.......................... 25
Expenses 26
Custodian and Transfer Agent....................... 27

PORTFOLIO TRANSACTIONS.................................. 28

INDEPENDENT AUDITORS.................................... 30

COUNSEL................................................. 31

ADDITIONAL INFORMATION CONCERNING TAXES................. 31

PERFORMANCE INFORMATION................................. 33

MISCELLANEOUS........................................... 36

FINANCIAL STATEMENTS.................................... 36

APPENDIX A.............................................. A-1
</TABLE>

-i-
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES
----------------------------------

The investment objective of each Fund is to seek long-term capital
appreciation. Under normal market and economic conditions, each Fund invests a
significant portion of its assets in common stock, preferred stock and debt
securities convertible into common stock. The following policies supplement the
Funds' investment objectives and policies as set forth in the Prospectus.

Other Investment Considerations
- -------------------------------

The Funds invest primarily in common stocks, but they may also
purchase both preferred stocks and securities convertible into common stock at
the discretion of 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, the "Investment Adviser" or "U.S.
Trust"). While current income is secondary to the objective of long-term
capital appreciation, Excelsior Fund expects that the broad and diversified
strategies utilized by the Investment Adviser will result in somewhat more
current income than would be generated if the Investment Adviser utilized a
single strategy more narrowly focused on rapid growth of principal and involving
exposure to higher levels of risk.

Investment in such companies represents a very wide range of
investment potential, current income return rates, and exposure to fundamental
and market risks. Income generated by the Funds' investments in these companies
would be expected to be moderate, characterized by lesser rates than those of a
fund whose sole objective is current income, and somewhat higher rates than
those of a higher-risk growth fund.

Income derived from investing in undervalued companies is expected to
be moderately greater than that derived from investments in either the
Problem/Opportunity or Early Life Cycle companies.

3. Early Life Cycle Companies. Investments in Early Life Cycle
--------------------------
companies tend to be narrowly focused on an objective of higher rates of capital
appreciation. They correspondingly will involve a significantly greater degree
of risk and the reduction of current income to a negligible level. Such
investments will not be limited to new, small companies engaged only in frontier
technology, but will seek opportunities for maximum appreciation through the
full spectrum of business operations, products, services, and asset values.
Consequently, the Funds' investments in Early Life Cycle companies are primarily
in younger, small- to medium- sized companies in the early stages of their
development. Such companies are usually more flexible in trying new approaches
to problem-solving and in making new or different employment of assets. Because
of the high risk level involved, the ratio of success among such companies is
lower than the average, but for those companies which succeed, the magnitude of
investment reward is potentially higher.

-2-
<PAGE>

Additional Information on Portfolio Instruments
- -----------------------------------------------

Options
-------

As stated in the Prospectus, the Funds may purchase put and call
options listed on a national securities exchange and issued by the Options
Clearing Corporation. Such purchases would be in an amount not exceeding 5% of
each such Fund's net assets. Purchase of options is a highly specialized
activity which entails greater than ordinary investment risks. Regardless of
how much the market price of the underlying security increases or decreases, the
option buyer's risk is limited to the amount of the original investment for the
purchase of the option. However, options may be more volatile than the
underlying securities, and therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying securities. A listed call option gives the purchaser of the option
the right to buy from a clearing corporation, and the writer has the obligation
to sell to the clearing corporation, the underlying security at the stated
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security. The premium paid to the writer is in
consideration for undertaking the obligations under the option contract. A
listed put option gives the purchaser the right to sell to a clearing
corporation the underlying security at the stated exercise price at any time
prior to the expiration date of the option, regardless of the market price of
the security. Put and call options purchased by the Funds will be valued at the
last sale price or, in the absence of such a price, at the mean between bid and
asked prices.

-3-
<PAGE>

market on an exchange will exist for any particular option. A covered option
writer, unable to effect a closing purchase transaction, will not be able to
sell the underlying security until the option expires or the underlying security
is delivered upon exercise, with the result that the writer in such
circumstances will be subject to the risk of market decline in the underlying
security during such period. The Funds will write an option on a particular
security only if the Investment Adviser believes that a liquid secondary market
will exist on an exchange for options of the same series, which will permit the
Funds to make a closing purchase transaction in order to close out its position.

Repurchase Agreements
---------------------

-4-
<PAGE>

Futures Contracts and Related Options
-------------------------------------

The Funds may invest in futures contracts and options thereon. The
Funds may enter into interest rate futures contracts and other types of
financial futures contracts, including foreign currency futures contracts, as
well as any index or foreign market futures which are available on recognized
exchanges or in other established financial markets. A futures contract on
foreign currency creates a binding obligation on one party to deliver, and a
corresponding obligation on another party to accept delivery of, a stated
quantity of a foreign currency for an amount fixed in U.S. dollars. Foreign
currency futures, which operate in a manner similar to interest rate futures
contracts, may be used by the Funds to hedge against exposure to fluctuations in
exchange rates between the U.S. dollar and other currencies arising from
multinational transactions.

Successful use of futures by the Funds is also subject to the
Investment Adviser's ability to correctly predict movements in the direction of
the market. For example, if a Fund has hedged against the possibility of a
decline in the market adversely affecting securities held by it and securities
prices increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
approximately equal offsetting losses in its futures positions. In addition, in
some situations, if a Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. Such sales of securities may be,
but will not necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.

The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin

-5-
<PAGE>

deposits required, and the extremely high degree of leverage involved in futures
pricing. As a result, a relatively small price movement in a futures contract
may result in immediate and substantial loss (as well as gain) to the investor.
For example, if at the time of purchase, 10% of the value of the futures
contract is deposited as margin, a subsequent 10% decrease in the value of the
futures contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original margin deposit,
before any deduction for the transaction costs, if the contract were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess of
the amount invested in the contract.

Utilization of futures transactions by the Funds involves the risk of
loss by a Fund of margin deposits in the event of bankruptcy of a broker with
whom such Fund has an open position in a futures contract or related option.

Options on Futures Contracts
----------------------------

The Funds may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon

-6-
<PAGE>

exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer
or seller of a futures contract, the holder, or writer, of an option has the
right to terminate its position prior to the scheduled expiration of the option
by selling, or purchasing, an option of the same series, at which time the
person entering into the closing transaction will realize a gain or loss.

Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the instruments
being hedged, an option may or may not be less risky than ownership of the
futures contract or such instruments. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to a Fund because the maximum amount at risk is the
premium paid for the options (plus transaction costs). Although permitted by
their fundamental investment policies, the Funds do not currently intend to
write futures options, and will not do so in the future absent any necessary
regulatory approvals.

When-Issued and Forward Transactions
------------------------------------

A Fund will purchase securities on a "when-issued" or forward
commitment basis only with the intention of completing

-7-
<PAGE>

the transaction. If deemed advisable as a matter of investment strategy,
however, a Fund may dispose of or renegotiate a commitment after it is entered
into, and may sell securities it has committed to purchase before those
securities are delivered to the Fund on the settlement date. In these cases,
the Fund may realize a taxable capital gain or loss.

Forward Currency Transactions
-----------------------------

-8-
<PAGE>

employed as necessary to correspond to particular transactions or positions. A
Fund may not hedge its currency positions to an extent greater than the
aggregate market value (at the time of entering into the forward contract) of
the securities held in its portfolio denominated, quoted in, or currently
convertible into that particular currency. When the Funds engage in forward
currency transactions, certain asset segregation requirements must be satisfied
to ensure that the use of foreign currency transactions is unleveraged. When a
Fund takes a long position in a forward currency 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
forward currency contract, the Fund must maintain a segregated account
containing liquid assets in an amount equal to the market value of the currency
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" a forward
currency position generally by entering into an offsetting position.

-9-
<PAGE>

contract prices. Should forward prices decline during the period between a
Fund's entering into a forward contract for the sale of a currency and the date
it enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to sell is less than the price of the currency it has
agreed to purchase in the offsetting contract. The foregoing principles
generally apply also to forward purchase contracts.

Real Estate Investment Trusts
-----------------------------

Each Fund may invest in equity real estate investment trusts
("REITs"). REITs pool investors' funds for investment primarily in commercial
real estate properties. Investments in REITs may subject a Fund to certain
risks. REITs may be affected by changes in the value of the underlying property
owned by the trust. REITs are dependent upon specialized management skill, may
not be diversified and are subject to the risks of financing projects. REITs
are also subject to heavy cash flow dependency, defaults by borrowers, self
liquidation and the possibility of failing to qualify for the beneficial tax
treatment available to REITs under the Internal Revenue Code of 1986, as
amended, and to maintain exemption from the 1940 Act. As a shareholder in a
REIT, a Fund would bear, along with other shareholders, its pro rata portion of
the REIT's operating expenses. These expenses would be in addition to the
advisory and other expenses a Fund bears directly in connection with its own
operations.

Securities Lending
------------------

Restricted Securities
---------------------

The Productivity Enhancers Fund may invest in restricted securities
(privately placed securities) and other securities without readily available
market quotations. The Fund's investments in securities without readily
available market quotations will not exceed 5% of its total assets at the time
of purchase. Restricted securities may be sold only in private transactions or
in a public offering with respect to which a

-10-
<PAGE>

registration statement is in effect under the Securities Act of 1933, as amended
(the "1933 Act"). Where registration may be required, the Fund may be obligated
to pay all or part of the registration expenses and a considerable period may
elapse between the time of the decision to sell and the time the Fund may be
permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, the Fund might
obtain a less favorable price than prevailed when it decided to sell. Certain
transactions in restricted securities may qualify for the registration exemption
provided in Rule 144A under the 1933 Act.

Additional Investment Limitations
- ---------------------------------

The following investment limitations are fundamental with respect to
each Fund. Each Fund may not:

2. Purchase or sell real estate, except that each Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate; and

4. Purchase or sell commodities or commodities futures contracts or
invest in oil, gas, or other mineral exploration or development programs;
provided, however, that (i) this shall not prohibit any Fund from purchasing
publicly traded securities of companies engaging in whole or in part in such
activities or from investing in liquidating trust receipts, certificates of
beneficial ownership or other instruments in accordance with its investment
objectives and policies, and (ii) each Fund may enter into futures contracts and
futures options.

-11-
<PAGE>

The following investment limitations are non-fundamental operating
policies with respect to the Funds. No Fund may:

5. Purchase securities on margin, make short sales of securities, or
maintain a short position;

6. Invest in companies for the purpose of exercising management or
control; and

7. Acquire any other investment company or investment company
security, except in connection with a merger, consolidation, reorganization, or
acquisition of assets or where otherwise permitted by the 1940 Act.

* * *

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------

-12-
<PAGE>

addition, Shareholder Organizations may automatically "sweep" a Customer's
account not less frequently than weekly and invest amounts in excess of a
minimum balance agreed to by the Shareholder Organization and its Customer in
Shares selected by the Customer. Investors purchasing Shares may include
officers, directors, or employees of the particular Shareholder Organization.

Shares of the Funds are offered for sale at their net asset value per
Share next computed after a purchase order is received by Excelsior Fund's sub-
transfer agent.

Prior to February 14, 1997, Shares of the Funds were offered for sale
with a maximum sales charge of 4.50%. For the fiscal years ended March 31,
1997, 1996 and 1995, total sales charges paid by shareholders of the
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment and Global Competitors Funds were $495,
$347 and $143; $71, $325 and $0; $715, $1,662 and $357; $587, $1,728 and $438;
and $735, $405 and $353, respectively. The Distributor retained none of the
foregoing sales charges with respect to the Funds for the fiscal year ended
March 31, 1997 and for the period August 1, 1995 through March 31, 1996. UST
Distributors, Inc., Excelsior Fund's former distributor, retained $0 and $143
with respect to the Productivity Enhancers Fund; $0 and $37 with respect to the
Aging of America Fund; $74 and $438 with respect to the Communication and
Entertainment Fund; and $0 and $353 with respect to the Global Competitors Fund
for the period April 1, 1995 through July 31, 1995 and for the fiscal year ended
March 31, 1995, respectively. The balance was paid to selling dealers.

Excelsior Fund may suspend the right of redemption or postpone the
date of payment for Shares for more than 7 days during any period when (a)
trading on the New York Stock Exchange (the "Exchange") is restricted by
applicable rules and regulations of the Securities and Exchange Commission (the
"SEC") (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC.

-13-
<PAGE>

securities, a shareholder may incur transaction costs in converting these
securities into cash. Such redemptions in kind will be governed by Rule 18f-1
under the 1940 Act so that a Fund is obligated to redeem its Shares solely in
cash up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder of a Fund.

INVESTOR PROGRAMS
-----------------

Systematic Withdrawal Plan
- --------------------------

(1) A fixed-dollar withdrawal;

(2) A fixed-share withdrawal;

(3) A fixed-percentage withdrawal (based on the current value of the
account); or

(4) A declining-balance withdrawal.

-14-
<PAGE>

income. Withdrawal payments represent proceeds from the sale of Shares, and
there will be a reduction of the shareholder's equity in the Fund involved if
the amount of the withdrawal payments exceeds the dividends and distributions
paid on the Shares and the appreciation of the investor's investment in the
Fund. This in turn may result in a complete depletion of the shareholder's
investment. An investor may not participate in a program of systematic
investing in a Fund while at the same time participating in the Systematic
Withdrawal Plan with respect to an account in the same Fund. Customers of
Shareholder Organizations may obtain information on the availability of, and the
procedures and fees relating to, the Systematic Withdrawal Plan directly from
their Shareholder Organizations.

Exchange Privilege
- ------------------

For Federal income tax purposes, exchanges are treated as sales on
which the shareholder will realize a gain or loss, depending upon whether the
value of the Shares to be given up in exchange is more or less than the basis in
such Shares at the time of the exchange. Generally, a shareholder may include
sales loads incurred upon the purchase of Shares in his or her tax basis for
such Shares for the purpose of determining gain or loss on a redemption,
transfer or exchange of such Shares. However, if the shareholder effected an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and was able to reduce the sales load previously applicable
to the new shares (by virtue of the Companies' exchange privilege), the amount
equal to such reduction may not be included in the tax basis of the
shareholder's exchanged Shares but may be included (subject to the limitation)
in the tax basis of the new shares.

-15-
<PAGE>

Other Investor Programs
- -----------------------

DESCRIPTION OF CAPITAL STOCK
----------------------------

Excelsior Fund's Charter authorizes its Board of Directors to issue up
to thirty-five billion full and fractional shares of capital stock, and to
classify or reclassify any unissued shares of Excelsior Fund into one or more
classes or series by setting or changing in any one or more respects their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. The Prospectus describe the classes of shares into which Excelsior
Fund's authorized capital is currently classified.

Shareholders of Excelsior Fund are entitled to one vote for each full
share held, and fractional votes for fractional shares held, and will vote in
the aggregate and not by class, except as otherwise required by the 1940 Act or
other applicable law or when the matter to be voted upon affects only the
interests of the shareholders of a particular class. Voting rights are not
cumulative and, accordingly, the holders of more than 50% of the aggregate of
Excelsior Fund's shares may elect all of Excelsior Fund's directors, regardless
of votes of other shareholders.

Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as Excelsior Fund shall

-16-
<PAGE>

not be deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding shares of each portfolio affected by the
matter. A portfolio is affected by a matter unless it is clear that the
interests of each portfolio in the matter are substantially identical or that
the matter does not affect any interest of the portfolio. Under the Rule, the
approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a portfolio
only if approved by a majority of the outstanding shares of such portfolio.
However, the Rule also provides that the ratification of the appointment of
independent public accountants, the approval of principal underwriting
contracts, and the election of directors may be effectively acted upon by
shareholders of Excelsior Fund voting without regard to class.

-17-
<PAGE>

MANAGEMENT OF THE FUNDS
-----------------------

Directors and Officers
- ----------------------

The directors and executive officers of Excelsior Fund, their
addresses, ages, principal occupations during the past five years, and other
affiliations are as follows:

<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- -------------- -----------------------
<S> <C> <C>

Frederick S. Wonham/1/ Chairman of the Retired; Director of
238 June Road Board, President Excelsior Fund and Excelsior
Stamford, CT 06903 and Treasurer Tax-Exempt Fund (since 1995);
Age: 66 Trustee of Excelsior Funds
and Excelsior Institutional Trust
(since 1995); Vice Chairman of U.S.
Trust Corporation and U.S. Trust New
York (from February 1990 until
September 1995); and Chairman, U.S.
Trust Connecticut (from March 1993 to
May 1997).

Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior Fund and Excelsior Apt. 10-H
New York, NY 10021 Tax-Exempt Fund (since 1984);
Age: 71 Director of UST Master
Variable Series, Inc.
(from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995); and Director, Royal Life
Insurance Co. of New York (since 1991).

Rodman L. Drake Director Director, Excelsior Fund
485 Park Avenue and Excelsior Tax-Exempt
New York, NY 10022 Fund (since 1996); Trustee,
Age: 54 Excelsior Institutional Trust
and Excelsior Funds (since
1994); Director, Parsons
Brinkerhoff Energy Services
Inc. (since 1996); Director,
Parsons Brinkerhoff, Inc.
(engineering firm) (since
1996); President, Mandrake
Group (investment and
consulting firm) (since 1994);
Director, Hyperion Total
Return Fund, Inc. and four
other funds for which Hyperion
Capital Management, Inc.
</TABLE>
- ----------
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.

-18-
<PAGE>

<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- -------------- -----------------------
<S> <C> <C>
serves as investment adviser
(since 1991); Co-Chairman, KMR
Power Corporation (power
plants) (from 1993 to 1996);
Director, The Latin American
Growth Fund (since 1993);
Member of Advisory Board,
Argentina Private Equity Fund
L.P. (from 1992 to 1996) and
Garantia L.P. (Brazil) (from
1993 to 1996); and Director,
Mueller Industries, Inc. (from
1992 to 1994).

Joseph H. Dugan Director Retired; Director of
913 Franklin Lakes Road Excelsior Fund and Excelsior
Franklin Lakes, NJ 07417 Tax-Exempt Fund (since 1984);
Age: 72 Director of UST Master
Variable Series, Inc.
(from 1994 to June 1997); and Trustee
of Excelsior Institutional Trust (since
1995).

Wolfe J. Frankl Director Retired; Director of
2320 Cumberland Road Excelsior Fund and Excelsior
Charlottesville, VA 22901 Tax-Exempt Fund (since 1986);
Age: 76 Director of UST Master
Variable Series, Inc. (from 1994 to
June 1997); Trustee of Excelsior
Institutional Trust (since 1995);
Director, Deutsche Bank Financial, Inc.
(since 1989); Director, The Harbus
Corporation (since 1951); and Trustee,
HSBC Funds Trust and HSBC Mutual Funds
Trust (since 1988).

W. Wallace McDowell, Jr. Director Director, Excelsior Fund
c/o Prospect Capital and Excelsior Tax-Exempt
Corp. Fund (since 1996); Trustee,
43 Arch Street Excelsior Institutional Trust
Greenwich, CT 06830 and Excelsior Funds
Age: 60 (since 1994); Private Investor
(since 1994); Managing Director,
Morgan Lewis Githens & Ahn (from 1991
to 1994); and Director, U.S. Homecare
Corporation (since 1992), Grossmans,
Inc. (from 1993 to 1996), Children's
Discovery Centers (since 1984), ITI
Technologies, Inc. (since 1992) and
Jack Morton Productions (since 1987).
</TABLE>

-19-
<PAGE>

<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- -------------- -----------------------
<S> <C> <C>

Jonathan Piel Director Director, Excelsior Fund and
558 E. 87th Street Excelsior Tax-Exempt Fund
New York, NY 10128 (since 1996); Trustee, Excelsior
Age: 58 Institutional Trust and
Excelsior Funds (since 1994);
Vice President and Editor, Scientific
American, Inc. (from 1986 to 1994);
Director, Group for The South Fork,
Bridgehampton, New York (since 1993);
and Member, Advisory Committee, Knight
Journalism Fellowships, Massachusetts
Institute of Technology (since 1984).

Robert A. Robinson Director Director of Excelsior Fund
Church Pension Fund and Excelsior Tax-Exempt Fund
800 Second Avenue (since 1987); Director of UST
New York, NY 10017 Master Variable Series, Inc.
Age: 71 (from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995); President Emeritus, The Church
Pension Fund and its affiliated
companies (since 1966); Trustee, H.B.
and F.H. Bugher Foundation and Director
of its wholly owned subsidiaries --
Rosiclear Lead and Flourspar Mining Co.
and The Pigmy Corporation (since 1984);
Director, Morehouse Publishing Co.
(since 1974); Trustee, HSBC Funds Trust
and HSBC Mutual Funds Trust (since
1982); and Director, Infinity Funds,
Inc. (since 1995).

-20-
<PAGE>

<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- -------------- -----------------------
<S> <C> <C>
W. Bruce McConnel, III Secretary Partner of the law firm of Drinker
Philadelphia National Biddle & Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 54

Gregory Sackos Assistant Second Vice President, Senior
Chase Global Funds Secretary Manager of Blue Sky Compliance
Services Company and Financial Reporting, Chase
73 Tremont Street Global Funds Reporting, Chase
Boston, MA 02108-3913 Global Funds Services Company
Age: 32 Company (March 1997 to present);
Second Vice President, Senior
Manager of Financial Reporting, Chase
Global Funds Services Company
(September 1996 to March 1997); and
Assistant Vice President, Assistant
Manager of Financial Reporting,
Scudder, Stevens & Clark Inc. (October
1992 to September 1996).

John M. Corcoran Assistant Vice President, Director of
Chase Global Funds Treasurer Administration Client Group,
Services Company Chase Global Funds Services
73 Tremont Street Company (since July 1996);
Boston, MA 02108-3913 Second Vice President, Manager
Age: 32 of Administration, Chase Global Funds
Services Company (from October
1993 to July 1996); and Audit Manager,
Ernst & Young LLP (from August 1987 to
September 1993).
</TABLE>

The following chart provides certain information about the fees
received by Excelsior Fund's directors in the most recently completed fiscal
year.

-21-
<PAGE>

<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued as from Excelsior Fund
Aggregate Part of and Fund
Name of Compensation from Fund Complex* Paid
Person/Position Excelsior Fund Expenses to Directors
--------------- ----------------- -------- -----------------------
<S> <C> <C> <C>

Donald L. Campbell $13,500 None $31,750(4)**
Director

Rodman L. Drake*** $ 3,750 None $12,250(4)**
Director

Joseph H. Dugan $15,000 None $35,000(4)**
Director

Wolfe J. Frankl $15,000 None $35,000(4)**
Director

W. Wallace McDowell, Jr.*** $ 2,250 None $ 9,250(4)**
Director

Jonathan Piel*** $ 3,750 None $12,500(4)**
Director

Robert A. Robinson $15,000 None $35,000(4)**
Director

Alfred C. Tannachion**** $20,000 None $45,000(4)**
Director

Frederick S. Wonham**** $15,000 None $35,000(4)**
Chairman of the Board,
President and Treasurer
</TABLE>

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

/*/ The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt
Fund, UST Master Variable Series, Inc., Excelsior Funds and Excelsior
Institutional Trust.

/**/ Number of investment companies in the Fund Complex for which director
served as director or trustee.

/***/ Messrs. Drake, McDowell and Piel were elected to the Board of
Excelsior Fund and Excelsior Tax-Exempt Fund on December 9, 1996.

-22-
<PAGE>

Investment Advisory and Administration Agreements
- -------------------------------------------------

For the fiscal year ended March 31, 1995, Excelsior Fund paid U.S.
Trust New York advisory fees of $79,570, $0, $68,122, $136,328, and $79,924 with
respect to the Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment and Global
Competitors Funds, respectively. For the same period, U.S. Trust New York
waived advisory fees totalling $22,983, $26,278, $24,503, $17,130 and $15,637
with respect to the Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment and Global
Competitors Funds, respectively.

For the fiscal year ended March 31, 1996, Excelsior Fund paid U.S.
Trust New York advisory fees of $147,036, $0, $185,180, $222,009 and $253,937
with respect to the Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment and Global
Competitors Funds, respectively. For the same period, U.S. Trust New York
waived advisory fees totalling $11,813, $25,855, $15,937, $18,360 and $16,714
with respect to the Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment and Global
Competitors Funds, respectively.

For the fiscal year ended March 31, 1997, Excelsior Fund paid U.S.
Trust New York advisory fees of $129,207, $17,407, $260,468, $265,750 and
$467,445 with respect to the Productivity Enhancers, Environmentally-Related
Products and Services, Aging of America, Communication and Entertainment and
Global Competitors Funds, respectively. For the same period, U.S. Trust New
York waived advisory fees totalling $24,184, $23,451, $21,988, $24,461 and
$36,378 with respect to the Productivity Enhancers, Environmentally-Related
Products and Services, Aging

-23-
<PAGE>

of America, Communication and Entertainment and Global Competitors Funds,
respectively.

The Investment Advisory Agreement provides that the Investment Adviser
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Funds in connection with the performance of such agreements,
except that the Investment Adviser shall be jointly, but not severally, liable
for a loss resulting from a breach of fiduciary duty with respect to the receipt
of compensation for advisory services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment Adviser
in the performance of its duties or from reckless disregard by it of its duties
and obligations thereunder. In addition, the Investment Adviser has undertaken
in the Investment Advisory Agreement to maintain its policy and practice of
conducting its Asset Manage ment Group independently of its Banking Group.

Prior to May 16, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York served as the Funds' administrators pursuant to an
administrative agreement substantially similar to the Administration Agreement
currently in effect for the Funds. Prior to August 1, 1995, administrative
services were provided to the Funds by CGFSC and Concord Holding Corporation
(collectively, the "former administrators") under an administration agreement
having substantially the same terms as the Administration Agreement currently in
effect.

For the fiscal year ended March 31, 1995, Excelsior Fund paid the
former administrators $26,357, $5,451, $24,003, $39,403, and $24,816 in the
aggregate with respect to the Productivity Enhancers, Environmentally-Related
Products and Services, Aging of America, Communication and Entertainment, and
Global Competitors Funds, respectively. For the same period, the former
administrators waived administration fees totalling $15,393, $36,299, $17,747,
$2,347 and $16,934 with respect to the

-24-
<PAGE>

Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment and Global Competitors Funds,
respectively.

For the period April 1, 1995 through July 31, 1995, Excelsior Fund
paid the former administrators $11,203, $6,000, $13,476, $16,964, and $16,756 in
the aggregate with respect to the Productivity Enhancers, Environmentally-
Related Products and Services, Aging of America, Communication and Entertainment
and Global Competitors Funds, respectively. For the same period, the former
administrators waived administration fees totalling $10, $0, $13, $37, and $16
with respect to the Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment and Global
Competitors Funds, respectively.

For the period August 1, 1995 through March 31, 1996, Excelsior Fund
paid CGFSC, Federated Administrative Services and U.S. Trust New York $29,686,
$6,494, $38,285, $44,871 and $52,911 in the aggregate with respect to the
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment and Global Competitors Funds,
respectively. For the same period, the Administrators waived administration
fees totalling $9,101, $37,506, $13, $16 and $7 with respect to the Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment and Global Competitors Funds, respectively.

For the fiscal year ended March 31, 1997, Excelsior Fund paid CGFSC,
Federated Administrative Services and U.S. Trust New York $39,258, $12,255,
$72,337, $74,244 and $129,073 in the aggregate with respect to the Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment and Global Competitors Funds, respectively. For
the same period CGFSC, Federated Administrative Services and U.S. Trust New York
waived administration fees totalling $7, $2, $43, $43 and $14 with respect to
the Productivity Enhancers, Environmentally-Related Products and Services, Aging
of America, Communication and Entertainment and Global Competitors Funds,
respectively.

Shareholder Organizations
- -------------------------

-25-
<PAGE>

purchase, exchange and redemption transactions; (c) providing periodic
statements showing a Customer's account balances and confirmations of
transactions by the Customer; (d) providing tax and dividend information to
shareholders as appropriate; (e) transmitting proxy statements, annual reports,
updated prospectuses and other communications from Excelsior Fund to customers;
and (f) providing or arranging for the provision of other related services.

For the fiscal years ended March 31, 1997, 1996 and 1995, payments to
Shareholder Organizations totalled $13,268, $11,169 and $4,525; $3,484, $4,404
and $1,660; $21,988, $15,685 and $4,051; $24,461, $18,414 and $7,168; and
$36,378, $16,737 and $3,243 with respect to the Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment and Global Competitors Funds, respectively. Of these amounts,
$13,268, $11,169 and $4,446; $3,484, $4,403 and $1,626; $21,968, $15,685 and
$3,902; $24,409, $18,385 and $6,707; and $36,376, $16,737 and $3,163 were paid
to affiliates of U.S. Trust with respect to the Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment and Global Competitors Funds, respectively.

Expenses
- --------

Except as otherwise noted, the Investment Adviser and the
Administrators bear all expenses in connection with the

-26-
<PAGE>

performance of their services. The Funds bear the expenses incurred in their
operations. Expenses of the Funds include taxes; interest; fees (including fees
paid to Excelsior Fund's directors and officers who are not affiliated with the
distributor or the Administrators); SEC fees; state securities qualifications
fees; costs of preparing and printing prospectuses for regulatory purposes and
for distribution to shareholders; advisory, administration and administrative
servicing fees; charges of the custodian, transfer agent, and dividend
disbursing agent; certain insurance premiums; outside auditing and legal
expenses; cost of independent pricing services; costs of shareholder reports and
shareholder meetings; and any extraordinary expenses. The Funds also pay for
brokerage fees and commissions in connection with the purchase of portfolio
securities.

Custodian and Transfer Agent
- ----------------------------

The Chase Manhattan Bank ("Chase") serves as custodian of the Funds'
assets. Under the Custodian Agreement, Chase has agreed to (i) maintain a
separate account or accounts in the name of the Funds; (ii) make receipts and
disbursements of money on behalf of the Funds; (iii) collect and receive all
income and other payments and distributions on account of the Funds' portfolio
securities; (iv) respond to correspondence from securities brokers and others
relating to its duties; (v) maintain certain financial accounts and records; and
(vi) make periodic reports to Excelsior Fund's Board of Directors concerning the
Funds' operations. Chase may, at its own expense, open and maintain custody
accounts with respect to the Funds with other banks or trust companies, provided
that Chase shall remain liable for the performance of all its custodial duties
under the Custodian Agreement, notwithstanding any delegation.

-27-
<PAGE>

PORTFOLIO TRANSACTIONS
----------------------

For the fiscal years ended March 31, 1995, March 31, 1996, and March
31, 1997, the Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment and Global
Competitors Funds paid brokerage commissions aggregating $141,290, $353,788 and
$218,388; $16,669, $18,680 and $24,709; $28,296, $67,494 and $148,591; $50,724,
$68,004 and $47,519; and $41,638, $79,458 and $64,033, respectively.

Transactions in domestic over-the-counter markets are generally
principal transactions with dealers, and the costs of such transactions involve
dealer spreads rather than brokerage

-28-
<PAGE>

commissions. With respect to over-the-counter transactions, the Funds, where
possible, will deal directly with the dealers who make a market in the
securities involved, except in those circumstances where better prices and
execution are available elsewhere.

Investment decisions for the Funds are made independently from those
for other investment companies, common

-29-
<PAGE>

trust funds and other types of funds managed by the Investment Adviser. Such
other investment companies and funds may also invest in the same securities as
the Funds. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund and another investment company
or common trust fund, the transaction will be averaged as to price, and
available investments allocated as to amount, in a manner which the Investment
Adviser believes to be equitable to the Fund and such other investment company
or common trust fund. In some instances, this investment procedure may
adversely affect the price paid or received by the Funds or the size of the
position obtained by the Funds. To the extent permitted by law, the Investment
Adviser may aggregate the securities to be sold or purchased for the Funds with
those to be sold or purchased for other investment companies or common trust
funds in order to obtain best execution.

Excelsior Fund is required to identify any securities of its regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their
parents held by The Funds as of the close of the most recent fiscal year. As of
March 31, 1997, the following Funds held the following securities of Excelsior
Fund's regular brokers or dealers or their parents: (a) the Aging of America
Fund held the following security: 15,000 shares of common stock of Dean Witter
Discover & Co.; and (b) the Global Competitors Fund held the following security:
45,600 shares of common stock of Morgan Stanley Group, Inc.

INDEPENDENT AUDITORS
--------------------

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COUNSEL
-------

ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------

The following supplements the tax information contained in the
Prospectus.

Each Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to qualify as a
regulated investment company. If, for any reason, a Fund does not qualify for a
taxable year for the special Federal tax treatment afforded regulated investment
companies, such Fund would be subject to Federal tax on all of its taxable
income at regular corporate rates, without any deduction for distributions to
shareholders. In such event, dividend distributions (whether or not derived
from interest on Municipal Securities) would be taxable as ordinary income to
shareholders to the extent of the Fund's current and accumulated earnings and
profits and would be eligible for the dividends received deduction in the case
of corporate shareholders.

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<PAGE>

(as defined in section 2(a)(36) of the 1940 Act); (2) options, futures and
forward contracts other than those on foreign currencies; and (3) foreign
currencies (and options, futures and forward contracts on foreign currencies)
that are not directly related to the Fund's principal business of investing in
stock and securities (and options and futures with respect to stocks and
securities). Interest (including original issue discount and accrued market
discount) received by a Fund upon maturity or disposition of a security held for
less than three months will not be treated as gross income derived from the sale
or other disposition of such security within the meaning of this requirement.
However, any other income which is attributable to realized market appreciation
will be treated as gross income from the sale or other disposition of securities
for this purpose. With respect to covered call options, if the call is
exercised by the holder, the premium and the price received on exercise
constitute the proceeds of sale, and the difference between the proceeds and the
cost of the securities subject to the call is capital gain or loss. Premiums
from expired call options written by a Fund and net gains from closing purchase
transactions are treated as short-term capital gains for Federal income tax
purposes, and losses on closing purchase transactions are short-term capital
losses. With respect to forward contracts, futures contracts, options on
futures contracts, and other financial instruments subject to the "mark-to-
market" rules, the Internal Revenue Service has ruled in private letter rulings
that a gain realized from such a contract, option or financial instrument will
be treated as being derived from a security held for three months or more
(regardless of the actual period for which the contract, option or instrument is
held) if the gain arises as a result of a constructive sale under the mark-to-
market rules, and will be treated as being derived from a security held for less
than three months only if the contract, option or instrument is terminated (or
transferred) during the taxable year (other than by reason of mark-to-market)
and less than three months has elapsed between the date the contract, option or
instrument was acquired and the termination date. Increases and decreases in
the value of the forward contracts, futures contracts, options on futures
contracts and other investments that qualify as part of a "designated hedge," as
defined in Section 851(g) of the Code, may be netted for purposes of determining
whether the Short-Short Test is met.

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<PAGE>

subject to backup withholding or that they are "exempt recipients."

PERFORMANCE INFORMATION
-----------------------

The Funds may advertise the "average annual total return" for its
Shares. Such return is computed by determining the average annual compounded
rate of return during specified periods that equates the initial amount invested
to the ending redeemable value of such investment according to the following
formula:

ERV
T = [(-----) to the first power divided by n - 1]
P

Where: T = average annual total return.

ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
(or other) periods at the end of the applicable period
(or a fractional portion thereof).

P = hypothetical initial payment of $1,000.

n = period covered by the computation, expressed in years.

Each Fund may also advertise the "aggregate total return" for its Shares
which is computed by determining the aggregate compounded rates of return during
specified periods that likewise

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<PAGE>

equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:

ERV
Aggregate Total Return = [(------)] - 1
P

Based on the foregoing calculations, the total returns for the Shares
of the Productivity Enhancers, Environmentally-Related Products and Services,
Aging of America, Communication and Entertainment and Global Competitors Funds
for the one year period ended March 31, 1997 were 1.02%, 21.22%, 8.18%, 0.34%
and 6.64%, respectively. The average annual total returns for the Shares of the
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment and Global Competitors Funds for the
period from December 31, 1992 (commencement of operations) to March 31, 1997
were 10.21%, 7.17%, 10.68%, 12.94% and 13.18%, respectively.

The total return of Shares of a Fund may be compared to that of other
mutual funds with similar investment objectives and

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<PAGE>

to other relevant indices or to ratings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the total return of a Fund may be compared to data prepared
by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc. and
Weisenberger Investment Company Service. Total return and yield data as reported
in national financial publications such as 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 a Fund.
Advertisements, sales literature or reports to shareholders may from time to
time also include a discussion and analysis of each Fund's performance,
including, without limitation, those factors, strategies and techniques that,
together with market conditions and events, materially affected each Fund's
performance.

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MISCELLANEOUS
-------------

As of July 14, 1997, no person beneficially owned 5% or more of the
outstanding Shares of a Fund.