EXCELSIOR FUNDS INC, 485BPOS, 1998-07-29

EXCELSIOR FUNDS INC
485BPOS, 1998-07-29

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<PAGE>

As filed with the Securities and Exchange Commission on July 29, 1998
Registration Nos. 2-92665; 811-4088
_________________________________________________________________________

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Excelsior Funds, Inc.: Post-Effective Amendment No. 32 [X]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]

Excelsior Funds, Inc.: Amendment No. 34 [X]

(Exact Name of Registrant as Specified in Charter)

73 Tremont Street
Boston, Massachusetts 02108-3913
(Address of Principal Executive Offices)

Registrant's Telephone Number: (800) 446-1012

W. Bruce McConnel, III
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)

It is proposed that this post-effective amendment will become effective (check
appropriate box)

[X] Immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

__________________________

Title of Securities Being Registered................Shares of Common Stock
<PAGE>

CROSS-REFERENCE SHEET
---------------------

EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
(Money, Government Money, Tax-Exempt Money
Treasury Money and New York
Tax-Exempt Money Funds)

Form N-1A, Part A, Item Prospectus Caption
- ----------------------- ------------------

1. Cover Page Cover Page

2. Synopsis Prospectus Summary; Expense
Summary

3. Condensed Financial Information Financial Highlights;
Performance and Yield
Information

4. General Description of Registrant Prospectus Summary; Investment
Objectives and Policies; Portfolio
Instruments and Other Investment
Information; Investment
Limitations

5. Management of the Fund Management of the Funds; Custodian
and Transfer Agent; Expenses

5A. Management's Discussion of Fund
Performance Not Applicable

6. Capital Stock and
Other Securities How to Purchase and Redeem
Shares; Dividends and
Distributions; Taxes; Description
of Capital Stock; Miscellaneous

7. Purchase of Securities
Being Offered Pricing of Shares; How to
Purchase and Redeem Shares;
Investor Programs

8. Redemption or Repurchase How to Purchase and Redeem Shares

9. Pending Legal Proceedings Not Applicable
<PAGE>

LOGO
Funds, Inc.
Tax-Exempt Funds, Inc.

Excelsior Money Market Funds
- -------------------------------------------------------------------------------

73 Tremont Street
For initial purchase information, current prices,
yield and performance information and existing
account information, call (800) 446-1012. (From
overseas, call (617) 557-8280.)
Boston, Massachusetts 02108-3913
- -------------------------------------------------------------------------------

This Prospectus describes the Money Fund, Government Fund and Treasury Money
Fund, three separate diversified portfolios offered to investors by Excelsior
Funds, Inc. ("Excelsior Fund"), the Tax-Exempt Money Fund, a diversified port-
folio offered by Excelsior Tax-Exempt Funds, Inc. ("Excelsior Tax-Exempt
Fund"), and the New York Tax-Exempt Money Fund, a non-diversified portfolio
offered by Excelsior Tax-Exempt Fund. Excelsior Fund and Excelsior Tax-Exempt
Fund (collectively, the "Companies") are open-end, management investment com-
panies. Each portfolio (individually, a "Fund" and collectively, the "Funds")
has its own investment objective and policies as follows:

MONEY FUND'S investment objective is to seek as high a level of current in-
come as is consistent with liquidity and stability of principal. The Fund will
generally invest in money market instruments, including bank obligations, com-
mercial paper and U.S. Government obligations.

GOVERNMENT MONEY FUND'S investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund will generally invest in short-term obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agree-
ments collateralized by such obligations.

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

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

NEW YORK TAX-EXEMPT MONEY FUND'S investment objective is to seek a moderate
level of current interest income that is exempt from Federal income tax and,
to the extent possible, from New York State and New York City personal income
taxes, as is consistent with liquidity and stability of principal. The Fund
will invest primarily in New York Municipal Securities (as defined below),
which generally have remaining maturities of 13 months or less and which meet
certain ratings criteria and present minimal credit risks. The Fund may invest
a significant percentage of its assets in a single issuer. Therefore, invest-
ment in the Fund may be riskier than an investment in other types of money
market funds.

This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1998 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to the address shown above or by calling (800) 446-1012. The
Statement of Additional Information, as it may be supplemented from time to
time, is incorporated by reference in its entirety into this Prospectus. The
Securities and Exchange Commission maintains a World Wide Web site
(http://www.sec.gov) that contains the Statement of Additional Information and
other information regarding the Companies.

AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOV-
ERNMENT. THE FUNDS SEEK TO MAINTAIN THEIR NET ASSET VALUE PER SHARE AT $1.00
FOR PURPOSES OF PURCHASES AND REDEMPTIONS, ALTHOUGH THERE CAN BE NO ASSURANCE
THAT THEY WILL DO SO ON A CONTINUOUS BASIS.

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

August 1, 1998
<PAGE>

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

SHARES IN THE FUNDS ("SHARES") ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, U.S. TRUST, ITS PARENT OR AFFILIATES AND THE SHARES ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY OR OBLIGATIONS OF OR OTHERWISE SUP-
PORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THE
FUNDS INVOLVES INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.

2
<PAGE>

PROSPECTUS SUMMARY

EXCELSIOR FUNDS, INC. AND EXCELSIOR TAX-EXEMPT FUNDS, INC. are investment
companies offering various investment portfolios with differing objectives and
policies. Founded in 1984, the Companies currently offer 25 Funds with com-
bined assets of approximately $6.1 billion. See "Description of Capital
Stock."

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

INVESTMENT OBJECTIVES AND POLICIES: Generally, the Money, Government Money
and Treasury Money Funds are money market funds which seek current income with
liquidity and stability of principal. The Tax-Exempt Money Fund is a money
market fund which seeks current income that is exempt from Federal income
taxes consistent with stability of principal. The New York Tax-Exempt Money
Fund is a money market fund which seeks current income that is exempt from
Federal income tax and, to the extent possible, from New York State and New
York City personal income taxes, as is consistent with liquidity and stability
of principal. The Funds' investment objectives and policies are summarized on
the cover and explained in greater detail later in this Prospectus. See "In-
vestment Objectives and Policies," "Portfolio Instruments and Other Investment
Information" and "Investment Limitations."

HOW TO INVEST: The Funds' Shares are offered at their net asset value. The
Companies do not impose a sales load on purchases of Shares. See "How to Pur-
chase and Redeem Shares."

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

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

INVESTMENT RISKS AND CHARACTERISTICS: Since the Funds are money market
funds, they seek to maintain their net asset value per share at $1.00 for pur-
poses of purchases and redemptions. However, there can be no assurance that
they will do so on a continuous basis. In addition, the New York Tax-Exempt
Money Fund may invest a significant percentage of its assets in a single issu-
er. Therefore, investment in the Fund may be riskier than an investment in
other types of money market funds. Investment in the Funds should not be con-
sidered a complete investment program. See "Investment Objectives and Poli-
cies" and "Portfolio Instruments and Other Investment Information."

3
<PAGE>

EXPENSE SUMMARY

<TABLE>
<CAPTION>
TREASURY NEW YORK
MONEY GOVERNMENT MONEY TAX-EXEMPT TAX-EXEMPT
FUND MONEY FUND FUND MONEY FUND MONEY FUND
----- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales Load.......... None None None None None
Sales Load on Reinvested
Dividends.................... None None None None None
Deferred Sales Load........... None None None None None
Redemption Fees............... None None None None None
Exchange Fees................. None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory Fees (after fee
waivers)/1/.................. 0.21% 0.22% 0.28% 0.19% 0.34%
12b-1 Fees.................... None None None None None
Other Operating Expenses
Administrative Servicing
Fee/1/..................... 0.04% 0.03% 0.02% 0.06% 0.01%
Other Expenses.............. 0.23% 0.22% 0.22% 0.22% 0.25%
----- ----- ----- ----- -----
Total Operating Expenses
(after fee waivers)/1/....... 0.48% 0.47% 0.52% 0.47% 0.60%
===== ===== ===== ===== =====
</TABLE>
- --------

1. The Investment Adviser and administrators may from time to time voluntarily
waive part of their respective fees, which waivers may be terminated at any
time. Until further notice, the Investment Adviser and/or administrators
intend to voluntarily waive fees in an amount equal to the Administrative
Servicing Fee, and to further waive fees and reimburse expenses to the ex-
tent necessary for Shares of the New York Tax-Exempt Money Fund to maintain
an annual expense ratio of not more than 0.60%. Without such fee waivers,
"Advisory Fees" would be 0.25%, 0.25%, 0.30%, 0.25% and 0.50%; and "Total
Operating Expenses" would be 0.52%, 0.50%, 0.54%, 0.53% and 0.76% for the
Money, Government Money, Treasury Money, Tax-Exempt Money and New York Tax-
Exempt Money Funds, respectively.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Fund...................................... $ 5 $15 $27 $60
Government Money Fund........................... 5 15 26 59
Treasury Money Fund............................. 5 17 29 65
Tax-Exempt Money Fund........................... 5 15 26 59
New York Tax-Exempt Money Fund.................. 6 19 33 75
</TABLE>

The foregoing expense summary and example are intended to assist the in-
vestor in understanding the costs and expenses that an investor in Shares of
the Funds will bear directly or indirectly. The expense summary sets forth ad-
visory and other expenses payable with respect to Shares of the Money, Govern-
ment Money, Treasury Money and Tax-Exempt Money Funds for the fiscal year
ended March 31, 1998, and the estimated advisory and other expenses payable
with respect to Shares of the New York Tax-Exempt Money Fund for the current
fiscal year. For more complete descriptions of the Funds' operating expenses,
see "Management of the Funds" in this Prospectus and the financial statements
and notes incorporated by reference in the Statement of Additional Informa-
tion.

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

4
<PAGE>

FINANCIAL HIGHLIGHTS

The following tables include selected data for a Share outstanding throughout
each period and other performance information derived from the financial state-
ments included in Excelsior Fund's and Excelsior Tax-Exempt Fund's Annual Re-
ports to Shareholders for the fiscal year ended March 31, 1998 (the "Financial
Statements"). The information contained in the Financial Highlights for each
period has been audited by Ernst & Young LLP, Excelsior Fund's and Excelsior
Tax-Exempt Fund's independent auditors. The following tables should be read in
conjunction with the Financial Statements and notes thereto. More information
about the performance of the Money, Government Money, Treasury Money and Tax-
Exempt Money Funds is also contained in the Annual Reports to Shareholders,
which may be obtained from Excelsior Fund and Excelsior Tax-Exempt Fund without
charge by calling the number on the front cover of this Prospectus.

MONEY FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Year............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net Investment
Income.......... 0.05139 0.04888 0.05336 0.04494 0.02780 0.03234 0.05165 0.07589 0.08454 0.07698
Net Gains or
(Losses) on
Securities (both
realized and
unrealized)..... 0.00000 0.00000 0.00000 0.00002 0.00000 0.00000 0.00017 0.00001 0.00000 0.00000
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total From
Investment
Operations....... 0.05139 0.04888 0.05336 0.04496 0.02780 0.03234 0.05182 0.07590 0.08454 0.07698
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends From
Net Investment
Income.......... (0.05139) (0.04888) (0.05336) (0.04496) (0.02780) (0.03234) (0.05165) (0.07589) (0.08454) (0.07698)
Distributions
From Net
Realized Gain on
Investments..... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 (0.00019) 0.00000 0.00000 0.00000
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
Distributions.... (0.05139) (0.04888) (0.05336) (0.04496) (0.02780) (0.03234) (0.05184) (0.07589) (0.08454) (0.07698)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value,
End of Year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total Return...... 5.26% 5.00% 5.47% 4.59% 2.82% 3.25% 5.19% 7.64% 8.71% 7.76%
Ratios/Supplemental
Data
Net Assets, End
of Period (in
millions)....... $ 658.87 $ 498.07 $ 394.29 $ 824.58 $ 736.08 $ 784.02 $ 574.27 $ 471.32 $ 432.37 $ 369.69
Ratio of Net
Operating
Expenses to
Average Net
Assets.......... 0.48% 0.47% 0.50% 0.49% 0.51% 0.51% 0.51% 0.52% 0.55% 0.56%
Ratio of Gross
Operating
Expenses to
Average Net
Assets/1/....... 0.52% 0.53% 0.53% 0.52% 0.51% 0.51% 0.51% 0.52% 0.55% 0.56%
Ratio of Net
Income to
Average Net
Assets.......... 5.14% 4.89% 5.40% 4.49% 2.78% 3.21% 5.11% 7.56% 8.42% 7.71%
</TABLE>
- --------
NOTES:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

5
<PAGE>

GOVERNMENT MONEY FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Year............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net Investment
Income.......... 0.05082 0.04862 0.05296 0.04397 0.02736 0.03205 0.05069 0.07379 0.08379 0.07498
Net Gains or
(Losses) on
Securities (both
realized and
unrealized)..... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00002 0.00008 0.00000 0.00000
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Total From
Investment
Operations....... 0.05082 0.04862 0.05296 0.04397 0.02736 0.03205 0.05071 0.07387 0.08379 0.07498
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Less Distributions
Dividends From
Net Investment
Income.......... (0.05082) (0.04862) (0.05296) (0.04397) (0.02736) (0.03205) (0.05069) (0.07379) (0.08379) (0.07498)
Distributions
From Net
Realized Gain on
Investments..... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 (0.00005) (0.00005) (0.00001) 0.00000
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Total
Distributions.... (0.05082) (0.04862) (0.05296) (0.04397) (0.02736) (0.03205) (0.05074) (0.07384) (0.08380) (0.07498)
-------- -------- -------- -------- --------- -------- -------- -------- -------- --------
Net Asset Value,
End of Year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========= ======== ======== ======== ======== ========
Total Return...... 5.20% 4.97% 5.43% 4.49% 2.77% 3.20% 5.09% 7.31% 8.30% 7.49%
Ratios/Supplemental
Data
Net Assets, End
of Period (in
millions)....... $ 600.12 $ 533.83 $ 461.47 $ 725.77 $1,034.91 $ 710.49 $ 740.69 $ 700.22 $ 392.02 $ 241.13
Ratio of Net
Operating
Expenses to
Average Net
Assets.......... 0.47% 0.47% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.57% 0.57%
Ratio of Gross
Operating
Expenses to
Average Net
Assets/1/....... 0.50% 0.51% 0.53% 0.53% 0.50% 0.50% 0.50% 0.50% 0.57% 0.57%
Ratio of Net
Income to
Average Net
Assets.......... 5.09% 4.86% 5.36% 4.38% 2.74% 3.20% 5.09% 7.31% 8.30% 7.49%
</TABLE>
- --------
NOTES:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

6
<PAGE>

TAX-EXEMPT MONEY FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
--------- --------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Year............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- -------- -------- -------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net Investment
Income.......... 0.03216 0.03050 0.03362 0.02825 0.01938 0.02395 0.03849 0.05292 0.05808 0.05348
Net Gains or
(Losses) on
Securities (both
realized and
unrealized)..... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 (0.00001) 0.00000 0.00000
--------- --------- -------- -------- -------- -------- -------- -------- -------- --------
Total From
Investment
Operations....... 0.03216 0.03050 0.03362 0.02825 0.01938 0.02395 0.03849 0.05291 0.05808 0.05348
--------- --------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends From
Net Investment
Income.......... (0.03216) (0.03050) (0.03362) (0.02825) (0.01938) (0.02395) (0.03849) (0.05292) (0.05808) (0.05348)
Distributions
From Net
Realized Gain on
Investments..... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
--------- --------- -------- -------- -------- -------- -------- -------- -------- --------
Total
Distributions.... (0.03216) (0.03050) (0.03362) (0.02825) (0.01938) (0.02395) (0.03849) (0.05292) (0.05808) (0.05348)
--------- --------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value,
End of Year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ======== ======== ======== ======== ======== ======== ======== ========
Total Return...... 3.26% 3.09% 3.41% 2.86% 1.96% 2.42% 3.92% 5.42% 5.97% 5.48%
Ratios/Supplemental
Data
Net Assets, End
of Period (in
millions)....... $1,396.53 $1,069.69 $ 966.71 $ 814.89 $ 694.58 $ 659.33 $ 666.35 $ 662.34 $ 600.06 $ 525.30
Ratio of Net
Operating
Expenses to
Average Net
Assets.......... 0.47% 0.47% 0.49% 0.49% 0.52% 0.52% 0.52% 0.53% 0.55% 0.53%
Ratio of Gross
Operating
Expenses to
Average Net
Assets/1/....... 0.53% 0.52% 0.53% 0.52% 0.52% 0.52% 0.52% 0.53% 0.55% 0.53%
Ratio of Net
Income to
Average Net
Assets.......... 3.21% 3.05% 3.35% 2.85% 1.94% 2.39% 3.84% 5.28% 5.79% 5.33%
</TABLE>
- --------
NOTES:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

7
<PAGE>

TREASURY MONEY FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991/1/
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.. 0.04853 0.04676 0.05043 0.04165 0.02590 0.02987 0.04731 0.00782
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00036 0.00001
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations............. 0.04853 0.04676 0.05043 0.04165 0.02590 0.02987 0.04767 0.00783
-------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends From Net
Investment Income..... (0.04853) (0.04676) (0.05043) (0.04165) (0.02590) (0.02987) (0.04731) (0.00782)
Dividends in Excess of
Net Investment Income. 0.00000/4/ 0.00000/4/ 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
Distributions From Net
Realized Gain on
Investments........... 0.00000 0.00000 0.00000 0.00000 0.00000 (0.00030) (0.00011) 0.00000
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions..... (0.04853) (0.04676) (0.05043) (0.04165) (0.02590) (0.03017) (0.04742) (0.00782)
-------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ========
Total Return............ 4.96% 4.78% 5.16% 4.25% 2.62% 3.06% 4.85% 0.78%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $ 469.64 $ 349.09 $ 258.17 $ 196.93 $ 254.68 $ 227.79 $ 172.29 $ 110.37
Ratio of Net Operating
Expenses to Average
Net Assets............ 0.52% 0.52% 0.55% 0.55% 0.58% 0.58% 0.52% 0.09%/2/
Ratio of Gross
Operating Expenses to
Average Net Assets/3/. 0.54% 0.54% 0.57% 0.57% 0.58% 0.58% 0.57% 0.60%/2/
Ratio of Net Income to
Average Net Assets.... 4.86% 4.68% 5.03% 4.09% 2.59% 2.97% 4.60% 5.98%/2/
</TABLE>
- --------
NOTES:
1. Inception date of the Fund was February 13, 1991.
2. Annualized.

3. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

4.Amount represents less than $0.01 per share.

8
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The Investment Adviser uses its best efforts to achieve the investment ob-
jective of each Fund, although its achievement cannot be assured. The invest-
ment objective of each of the Money, Government Money, Treasury Money and Tax-
Exempt Money Funds is "fundamental," meaning that it may not be changed with-
out a vote of the holders of a majority of the particular Fund's outstanding
Shares (as defined under "Miscellaneous"). The investment objective of the New
York Tax-Exempt Money Fund may be changed by Excelsior Tax-Exempt Fund's Board
of Directors without shareholder approval. Except as noted below in "Invest-
ment Limitations," the investment policies of each Fund may be changed without
a vote of the holders of a majority of the outstanding Shares of such Fund.

Each Fund uses the amortized cost method to value securities in its portfo-
lio and has a dollar-weighted average portfolio maturity not exceeding 90
days. Each Fund is required to comply with Rule 2a-7 under the Investment Com-
pany Act of 1940, as amended (the "1940 Act"), because each Fund uses the am-
ortized cost method to value its securities. Under Rule 2a-7, with respect to
100% of each of the Money, Government Money, Treasury Money and Tax-Exempt
Money Funds' total assets, and 75% of the New York Tax-Exempt Money Fund's to-
tal assets, a Fund may not invest more than 5% of its assets, measured at the
time of purchase, in the securities of any one issuer other than U.S. Govern-
ment securities, repurchase agreements collateralized by such securities and
securities subject to certain guarantees. The New York Tax-Exempt Money Fund's
compliance with the diversification provisions of Rule 2a-7 is deemed to be
compliance with the diversification standards of the 1940 Act.

MONEY FUND

The Money Fund's investment objective is to seek as high a level of current
income as is consistent with liquidity and stability of principal. The Fund
will generally invest in money market instruments, such as bank certificates
of deposit, bankers' acceptances, commercial paper (including variable and
floating rate instruments) and corporate bonds with remaining maturities of 13
months or less, as well as obligations issued or guaranteed by the U.S. Gov-
ernment, its agencies or instrumentalities and repurchase agreements collater-
alized by such obligations. Additional information about the Fund's policies
and portfolio instruments is set forth below under "Portfolio Instruments and
Other Investment Information."

GOVERNMENT MONEY FUND

The Government Money Fund's investment objective is to seek as high a level
of current income as is consistent with liquidity and stability of principal.
The Fund will invest in obligations with remaining maturities of 13 months or
less issued or guaranteed by the U.S. Government, its agencies or instrumen-
talities and repurchase agreements collateralized by such obligations. See
"Portfolio Instruments and Other Investment Information" for information on
other portfolio instruments in which the Fund may invest.

TREASURY MONEY FUND

The Treasury Money Fund's investment objective is to seek current income
with liquidity and stability of principal. The Fund invests primarily in di-
rect obligations of the U.S. Treasury with remaining maturities of 13 months
or less, such as Treasury bills and notes. Under normal market conditions, the
Fund will invest at least 65% of its total assets in direct U.S. Treasury ob-
ligations. The Fund may also from time to time invest in obligations with re-
maining maturities of 13 months or less issued or guaranteed as to principal
and interest by certain agencies or instrumentalities of the U.S. Government,
such as the Farm Credit System Financial Assistance Corporation, Federal Fi-
nancing Bank, General Services Administration, Federal Home Loan Banks, Farm
Credit System and the Tennessee Valley Authority. Income on direct investments
in U.S. Treasury securities and obligations of the aforementioned agen -

9
<PAGE>

cies and instrumentalities is generally not subject to state and local income
taxes by reason of Federal law. In addition, the Fund's dividends from income
that is attributable to such investments will also be exempt in most states
from state and local income taxes. Shareholders in a particular state should
determine through consultation with their own tax advisors whether and to what
extent dividends payable by the Treasury Money Fund from its investments will
be considered by the state to have retained exempt status, and whether the
Fund's capital gain and other income, if any, when distributed will be subject
to the state's income tax. See "Taxes--State and Local." The Treasury Money
Fund will not enter into repurchase agreements.

TAX-EXEMPT MONEY FUND

The Tax-Exempt Money Fund's investment objective is to seek a moderate level
of current interest income exempt from Federal income taxes consistent with
stability of principal. The Fund will invest substantially all of its assets in
high-quality debt obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia and their respective
authorities, agencies, instrumentalities and political subdivisions, the inter-
est on which is, in the opinion of bond counsel to the issuer, exempt from Fed-
eral income tax ("Municipal Securities"). Portfolio securities in the Fund will
generally have remaining maturities of not more than 13 months. (See "Portfolio
Instruments and Other Investment Information.")

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

The Tax-Exempt Money Fund invests in Municipal Securities which are deter-
mined by the Investment Adviser to present minimal credit risks. As a matter of
fundamental policy, except during temporary defensive periods, the Fund will
maintain at least 80% of its assets in tax-exempt obligations. (This policy may
not be changed with respect to the Fund without the vote of the holders of a
majority of its outstanding Shares.)

NEW YORK TAX-EXEMPT MONEY FUND

The New York Tax-Exempt Money Fund is a non-diversified investment portfolio
whose investment objective is to seek a moderate level of current interest in-
come that is exempt from Federal income tax and, to the extent possible, from
New York State and New York City personal income taxes, as is consistent with
liquidity and stability of principal.

Under normal market conditions, at least 80% of the Fund's net assets will be
invested in Municipal Securities which are determined by the Investment Adviser
to present minimal credit risks. The Fund may also invest in tax-exempt deriva-
tive securities such as tender option bonds, participations, beneficial inter-
ests in trusts and partnership interests. Dividends paid by the Fund that are
derived from interest on obligations that is exempt from taxation under the
Constitution or statutes of New York ("New York Municipal Securities") are ex-
empt from regular Federal, New York State and New York City personal income
tax. New York Municipal Securities include municipal securities issued by the
State of New York and its political sub-divisions, as well as certain other
governmental issuers such as the Commonwealth of Puerto Rico. Dividends derived
from interest on Municipal Securities other than New York Municipal Securities
are exempt from Federal income tax but may be subject to New York State and New
York City personal income tax (see "Taxes" below). The Fund expects that under
normal market conditions, at least 65% of its total assets will be invested in
New York Municipal Securities. Portfolio securities held by the Fund generally
will have remaining maturities of not more than 13 months.

The Fund is concentrated in securities issued by New York State or entities
within New York State and therefore investment in the Fund may be riskier than
an investment in other types of money market

10
<PAGE>

funds. The Fund's ability to achieve its investment objective is dependent
upon the ability of the issuers of New York Municipal Securities to meet their
continuing obligations for the payment of principal and interest. New York
State and New York City face long-term economic problems that could seriously
affect their ability and that of other issuers of New York Municipal Securi-
ties to meet their financial obligations.

Certain substantial issuers of New York Municipal Securities (including is-
suers whose obligations may be acquired by the Fund) have experienced serious
financial difficulties in recent years. These difficulties have at times jeop-
ardized the credit standing and impaired the borrowing abilities of all New
York issuers and have generally contributed to higher interest costs for their
borrowings and fewer markets for their outstanding debt obligations. Although
several different issues of municipal securities of New York State and its
agencies and instrumentalities and of New York City have been downgraded by
Standard & Poor's Ratings Services ("S&P") and Moody's Investors Service, Inc.
("Moody's"), the most recent actions of S&P and Moody's have been to place the
debt obligations of New York State on CreditWatch with positive implications
and to upgrade the debt obligations of New York City, respectively. Strong de-
mand for New York Municipal Securities has also at times had the effect of
permitting New York Municipal Securities to be issued with yields relatively
lower, and after issuance, to trade in the market at prices relatively higher,
than comparably rated municipal obligations issued by other jurisdictions. A
recurrence of the financial difficulties previously experienced by certain is-
suers of New York Municipal Securities could result in defaults or declines in
the market values of those issuers' existing obligations and, possibly, in the
obligations of other issuers of New York Municipal Securities. Although as of
the date of this Prospectus, no issuers of New York Municipal Securities are
in default with respect to the payment of their municipal obligations, the oc-
currence of any such default could affect adversely the market values and mar-
ketability of all New York Municipal Securities and, consequently, the net as-
set value of the Fund's portfolio.

Other considerations affecting the Fund's investments in New York Municipal
Securities are summarized in the Statement of Additional Information.

From time to time, a substantial portion of the Fund's assets may be in-
vested in Municipal Securities supported by credit and liquidity enhancements
from banks or other financial institutions. Therefore, changes in the credit
quality of these institutions could cause losses to the Fund and affect its
share price.

INVESTMENT POLICIES COMMON TO THE TAX-EXEMPT MONEY AND NEW YORK TAX-EXEMPT
MONEY FUNDS

From time to time on a temporary defensive basis due to market conditions,
the Tax-Exempt Money and New York Tax-Exempt Money Funds (collectively, the
"Tax-Exempt Funds") may hold uninvested cash reserves or invest in taxable ob-
ligations in such proportions as, in the opinion of the Investment Adviser,
prevailing market or economic conditions may warrant. Uninvested cash reserves
will not earn income. Taxable obligations in which the Tax-Exempt Funds may
invest include: (i) obligations of the U.S. Treasury; (ii) obligations of
agencies and instrumentalities of the U.S. Government; (iii) money market in-
struments such as certificates of deposit, commercial paper, and bankers' ac-
ceptances; (iv) repurchase agreements collateralized by U.S. Government obli-
gations or other money market instruments; and (v) securities issued by other
investment companies that invest in high-quality, short-term securities. (See
"Portfolio Instruments and Other Investment Information.")

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

11
<PAGE>

Each Tax-Exempt Fund may invest more than 25% of its assets in Municipal Se-
curities the interest on which is paid solely from revenues on similar projects
if such investment is deemed necessary or appropriate by the Investment Advis-
er. To the extent that a Fund's assets are concentrated in Municipal Securities
payable from revenues on similar projects, the Fund will be subject to the pe-
culiar risks presented by such projects to a greater extent than it would be if
its assets were not so concentrated.

Opinions relating to the validity of Municipal Securities and to the exemp-
tion of interest thereon from Federal income tax (and, with respect to New York
Municipal Securities, to the exemption of interest thereon from New York State
and New York City personal income taxes) are rendered by bond counsel to the
respective issuers at the time of issuance, and opinions relating to the valid-
ity of and the tax-exempt status of payments received by the New York Tax-Ex-
empt Money Fund from tax-exempt derivatives are rendered by counsel to the re-
spective sponsors of such derivatives. The Funds and the Investment Adviser
will rely on such opinions and will not review independently the underlying
proceedings relating to the issuance of Municipal Securities, the creation of
any tax-exempt derivative securities, or the bases for such opinions.

PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION

GOVERNMENT OBLIGATIONS

Government obligations acquired by the Funds include obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities. Such in-
vestments may include obligations issued by the Farm Credit System Financial
Assistance Corporation, the Federal Financing Bank, the General Services Admin-
istration, Federal Home Loan Banks and the Tennessee Valley Authority. Obliga-
tions of certain agencies and instrumentalities of the U.S. Government are sup-
ported by the full faith and credit of the U.S. Treasury; others are supported
by the right of the issuer to borrow from the Treasury; others are supported by
the discretionary authority of the U.S. Government to purchase the agency's ob-
ligations; still others are supported only by the credit of the instrumentali-
ty. No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored instrumentalities if it is not obligated
to do so by law. Obligations of such instrumentalities will be purchased only
when the Investment Adviser believes that the credit risk with respect to the
instrumentality is minimal.

Securities issued or guaranteed by the U.S. Government have historically in-
volved little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns Shares of a Fund.

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

MONEY MARKET INSTRUMENTS

"Money market instruments" that may be purchased by the Money, Government
Money, Tax-Exempt Money and New York Tax-Exempt Money Funds in accordance with
their investment objectives and policies stated above include, among other
things, bank obligations, commercial paper and corporate bonds with remaining
maturities of 13 months or less.

12
<PAGE>

branches of foreign banks. Investments in bank obligations are limited to the
obligations of financial institutions having more than $2 billion in total as-
sets at the time of purchase. Investments in bank obligations of foreign
branches of domestic financial institutions or of domestic branches of foreign
banks are limited so that no more than 5% of the value of the Fund's total as-
sets may be invested in any one branch, and that no more than 20% of the
Fund's total assets at the time of purchase may be invested in the aggregate
in such obligations. Investments in non-negotiable time deposits are limited
to no more than 5% of the value of a Fund's total assets at time of purchase,
and are further subject to the overall 10% limit on illiquid securities de-
scribed below under "Illiquid Securities."

Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject the Money Fund to additional investment
risks, including future political and economic developments, the possible im-
position of withholding taxes on interest income, possible seizure or nation-
alization of foreign deposits, the possible establishment of exchange con-
trols, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign branches of U.S. banks and U.S. branches of foreign banks
may be subject to less stringent reserve requirements and to different ac-
counting, auditing, reporting, and recordkeeping standards than those applica-
ble to domestic branches of U.S. banks. Investments in the obligations of U.S.
branches of foreign banks or foreign branches of U.S. banks will be made only
when the Investment Adviser believes that the credit risk with respect to the
instrument is minimal.

VARIABLE AND FLOATING RATE INSTRUMENTS

Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instru-
ment purchased by a Fund, the Fund may, from time to time as specified in the
instrument, demand payment of the principal of the instrument or may resell
the instrument to a third party. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if
the issuer defaulted on its payment obligation or during periods that the Fund
is not entitled to exercise its demand rights, and the Fund could, for this or
other reasons, suffer a loss with respect to such instrument. While the Funds
will in general invest only in securities that mature within 13 months of the
date of purchase, they may invest in variable and floating rate instruments
which have nominal maturities in excess of 13 months if such instruments have
demand features that comply with conditions established by the Securities and
Exchange Commission ("SEC") (see "Additional Information on Portfolio Instru-
ments--Variable and Floating Rate Instruments" in the Statement of Additional
Information).

Some of the instruments purchased by the Government Money and Treasury Money
Funds may also be issued as variable and floating rate instruments. However,
since they are issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, they may have a more active secondary market.

QUALITY OF INVESTMENTS

The Funds may only invest in: (i) securities in the two highest short-term
rating categories of a nationally recognized statistical rating organization
("NRSRO"), provided that if a security is rated by more than one NRSRO, at
least two NRSROs must rate the security in one of the two highest short-term
rating categories; (ii) unrated securities determined to be of comparable
quality at the time of purchase; (iii) certain money market fund shares; and
(iv) U.S. Government securities (collectively, "Eligible Securities"). The
rating symbols of the NRSROs which the Funds may use are described in the Ap-
pendix to the Statement of Additional Information.

REPURCHASE AGREEMENTS

The Money, Government Money, Tax-Exempt Money and New York Tax-Exempt Money
Funds may agree to purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually

13
<PAGE>

agreed upon date and price ("repurchase agreements"). A Fund will enter into
repurchase agreements only with financial institutions that are deemed to be
creditworthy by the Investment Adviser, pursuant to guidelines established by
the Boards of Directors. The Funds will not enter into repurchase agreements
with the Investment Adviser or any of its affiliates. Repurchase agreements
with remaining maturities in excess of seven days will be considered illiquid
securities and will be subject to the 10% limit described below under "Illiq-
uid Securities."

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

SECURITIES LENDING

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

INVESTMENT COMPANY SECURITIES

The Funds may invest in securities issued by other investment companies
which invest in high-quality, short-term securities and which determine their
net asset value per share based on the amortized cost or penny-rounding meth-
od. The Tax-Exempt Funds normally will invest in securities of investment com-
panies only if such companies invest primarily in high-quality, short-term Mu-
nicipal Securities. The Government Money and Treasury Money Funds intend to
limit their acquisition of shares of other investment companies to those com-
panies which are themselves permitted to invest only in securities which may
be acquired by the respective Funds. Securities of other investment companies
will be acquired by a Fund within the limits prescribed by the 1940 Act. Ex-
cept as otherwise permitted under the 1940 Act, each Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will
be invested in the securities of any one investment company; (b) not more than
10% of the value of its total assets will be invested in the aggregate in se-
curities of investment companies as a group; and (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund. In addition to the advisory fees and other expenses a Fund bears di-
rectly in connection with its own operations, as a shareholder of another in-
vestment company, a Fund would bear its pro rata portion of the other invest-
ment company's advisory fees and other expenses. As such, the Fund's share-
holders would indirectly bear the expenses of the Fund and the other invest-
ment company, some or all of which would be duplicative. Any change by the
Funds in the future with respect to their policies concerning investments in
securities issued by other investment companies will be made only in accor-
dance with the requirements of the 1940 Act.

14
<PAGE>

TYPES OF MUNICIPAL SECURITIES

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

Each Tax-Exempt Fund's portfolio may also include "moral obligation" securi-
ties, which are usually issued by public authorities. If the issuer of moral
obligation securities is unable to meet its debt service obligations from cur-
rent revenues, it may draw on a reserve fund--the restoration of which is a
moral commitment, but not a legal obligation of the state or municipality
which created the issuer. There is no limitation on the amount of moral obli-
gation securities that may be held by a Tax-Exempt Fund.

The Tax-Exempt Funds may purchase custodial receipts evidencing the right to
receive either the principal amount or the periodic interest payments or both
with respect to specific underlying Municipal Securities. In general, such
"stripped" Municipal Securities are offered at a substantial discount in rela-
tion to the principal and/or interest payments which the holders of the re-
ceipt will receive. To the extent that such discount does not produce a yield
to maturity for the investor that exceeds the original tax-exempt yield on the
underlying Municipal Security, such yield will be exempt from Federal income
tax for such investor to the same extent as interest on the underlying Munici-
pal Security. The Tax-Exempt Funds intend to purchase custodial receipts and
"stripped" Municipal Securities only when the yield thereon will be, as de-
scribed above, exempt from Federal income tax to the same extent as interest
on the underlying Municipal Securities.

The New York Tax-Exempt Money Fund may also invest in tax-exempt derivative
securities such as tender option bonds, participations, beneficial interests
in trusts and partnership interests. A typical tax-exempt derivative security
involves the purchase of an interest in a Municipal Security or a pool of Mu-
nicipal Securities which interest can include a tender option, demand or other
feature, allowing the Fund to tender the underlying Municipal Security to a
third party at periodic intervals and to receive the principal amount thereof.

WHEN-ISSUED AND FORWARD TRANSACTIONS AND STAND-BY COMMITMENTS

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

In addition, each Tax-Exempt Fund may acquire "stand-by commitments" with
respect to Municipal Securities held by it. Under a "stand-by commitment," a
dealer agrees to purchase at the Fund's option specified Municipal Securities
at a specified price. The Tax-Exempt Funds will acquire "stand-by commitments"
solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes. "Stand-by commitments" acquired by a
Tax-Exempt Fund would be valued at zero in determining the Fund's net asset
value. Further information concerning "stand-by commit -

15
<PAGE>

ments" is contained in the Statement of Additional Information under "Addi-
tional Information on Portfolio Instruments."

BORROWING AND REVERSE REPURCHASE AGREEMENTS

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

ILLIQUID SECURITIES

Each Fund will not knowingly invest more than 10% of the value of its net
assets in securities that are illiquid. A security will be considered illiquid
if it may not be disposed of within seven days at approximately the value at
which the particular Fund has valued the security. Each Fund may purchase se-
curities which are not registered under the Securities Act of 1933, as amended
(the "Act"), but which can be sold to "qualified institutional buyers" in ac-
cordance with Rule 144A under the Act. Any such security will not be consid-
ered illiquid so long as it is determined by the Investment Adviser, acting
under guidelines approved and monitored by the Board, that an adequate trading
market exists for that security. This investment practice could have the ef-
fect of increasing the level of illiquidity in a Fund during any period that
qualified institutional buyers are no longer interested in purchasing these
restricted securities.

YEAR 2000

Like other investment companies, financial and business organizations and
individuals around the world, the Funds could be affected adversely if the
computer systems used by the Investment Adviser and the Funds' other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Investment Adviser and the Funds' other service providers have
informed the Companies that they are taking steps to address the Year 2000
Problem with respect to the computer systems that they use. At this time, how-
ever, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Funds as a result of the Year 2000 Problem.

INVESTMENT LIMITATIONS

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

Each of the Money, Government Money, Treasury Money and Tax-Exempt Money
Funds may not:

1. Purchase securities of any one issuer if immediately after such pur-
chase more than 5% of the value of its total assets would be invested in
the securities of such issuer, provided that up to 25% of the value of each
Fund's total assets may be invested without regard to this 5% limitation;
notwithstanding the foregoing restriction, each Fund may invest without re-
gard to the 5% limitation in Government Securities (as defined in the 1940
Act) and as otherwise permitted in accordance with Rule 2a-7 under the 1940
Act or any successor rule; and

16
<PAGE>

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

The Treasury Money Fund may not:

3. Purchase securities other than obligations issued or guaranteed by the
U.S. Treasury or an agency or instrumentality of the U.S. Government and
securities issued by investment companies that invest in such obligations.

The New York Tax-Exempt Money Fund may not:

4. Invest less than 80% of its net assets in securities the interest on
which is exempt from Federal income tax, except during defensive periods or
periods of unusual market conditions;

5. Borrow money or mortgage, pledge, or hypothecate its assets except to
the extent permitted under the 1940 Act; and

6. Purchase any securities which would cause more than 25% of the value
of its total assets at the time of purchase to be invested in the securi-
ties of one or more issuers conducting their principal business activities
in the same industry, provided that there is no limitation with respect to
domestic bank obligations or securities issued or guaranteed by the U.S.
Government, any state, territory or possession of the United States, the
District of Columbia or any of their authorities, agencies, instrumentali-
ties or political subdivisions, and repurchase agreements secured by such
securities.

* * *

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

In Investment Limitation No. 1 above: (a) a security is considered to be is-
sued by the governmental entity or entities whose assets and revenues back the
security, or, with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, such non-governmental user;
(b) in certain circumstances, the guarantor of a guaranteed security may also
be considered to be an issuer in connection with such guarantee; and (c) secu-
rities issued or guaranteed as to principal or interest by the United States,
or by a person controlled or supervised by and acting as an instrumentality of
the Government of the United States, or any certificate of deposit for any of
the foregoing, are deemed to be Government Securities.

The Funds are subject to additional investment limitations which are deemed
matters of their fundamental policies and, as such, may not be changed without
a requisite shareholder vote. For a full description of the Funds' additional
fundamental investment limitations, see the Statement of Additional Informa-
tion.

PRICING OF SHARES

The net asset value of each of the Money, Government Money and Treasury Money
Funds is determined and the Shares of each such Fund are priced for purchases
and redemptions as of 1:00 p.m.

17
<PAGE>

(Eastern Time) and the close of regular trading hours on the New York Stock
Exchange (the "Exchange"), currently 4:00 p.m. (Eastern Time). The net asset
value of each of the Tax-Exempt Money and New York Tax-Exempt Money Funds is
determined and the Shares of each such Fund are priced for purchases and re-
demptions as of 12:00 p.m. (Eastern Time) and the close of regular trading
hours on the Exchange. Net asset value and pricing for each Fund are deter-
mined on each day the Exchange and the Investment Adviser are open for trading
("Business Day"). Currently, the holidays which the Funds observe are New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memo-
rial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiv-
ing Day and Christmas. Net asset value per Share for purposes of pricing sales
and redemptions is calculated by dividing the value of all securities and
other assets belonging to a Fund, less the liabilities charged to the Fund, by
the number of its outstanding Shares. The assets in each Fund are valued by
the Funds' administrators based upon the amortized cost method.

HOW TO PURCHASE AND REDEEM SHARES

DISTRIBUTOR

Shares in each Fund are continuously offered for sale by the Companies'
sponsor and distributor, Edgewood Services, Inc. (the "Distributor"), a wholly
owned subsidiary of Federated Investors, Inc. The Distributor is a registered
broker/dealer. Its principal business address is 5800 Corporate Drive, Pitts-
burgh, PA 15237-5829.

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

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

PURCHASE OF SHARES

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

18
<PAGE>

tomers and to transmit, on a timely basis, payment for such orders to Chase
Global Funds Services Company ("CGFSC"), the Funds' sub-transfer agent, in ac-
cordance with the procedures agreed to by the Shareholder Organization and the
Distributor. Confirmations of all such Customer purchases and redemptions will
be sent by CGFSC to the particular Shareholder Organization. As an alternative,
a Shareholder Organization may elect to establish its Customers' accounts of
record with CGFSC. In this event, even if the Shareholder Organization contin-
ues to place its Customers' purchase and redemption orders with the Funds,
CGFSC will send confirmations of such transactions and periodic account state-
ments directly to the shareholders of record. Shares in the Funds bear the ex-
pense of fees payable to Shareholder Organizations for such services. See "Man-
agement of the Funds--Shareholder Organizations."

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

PURCHASE PROCEDURES

General

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

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

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

Purchases by Wire

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

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

19
<PAGE>

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

Other Purchase Information

Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500 per Fund. The minimum subse-
quent investment for both types of investors is $50 per Fund. Customers may
agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may charge a Customer's account fees for auto-
matic investment and other cash management services provided. The Companies re-
serve the right to reject any purchase order, in whole or in part, or to waive
any minimum investment requirements. Third party checks will not be accepted as
payment for Fund Shares.

REDEMPTION PROCEDURES

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

Redemption by Mail

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

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

20
<PAGE>

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

Redemption by Wire or Telephone

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

Investors may request that Shares be redeemed and redemption proceeds wired
on the same day if telephone redemption instructions are received by 1:00 p.m.
(Eastern Time) (12:00 p.m. with respect to the Tax-Exempt Funds) on the day of
redemption. Shares redeemed and wired on the same day will not receive the
dividend declared on the day of redemption. Redemption requests made after
1:00 p.m. (Eastern Time) (12:00 p.m. with respect to the Tax-Exempt Funds)
will receive the dividend declared on the day of redemption, and redemption
proceeds will be wired the following Business Day. To request redemption of
Shares by wire, Direct Investors should call CGFSC at (800) 446-1012 (from
overseas, call (617) 557-8280).

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

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

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

21
<PAGE>

Redemption by Check

Except as described in "Investor Programs" below, Direct Investors in the
Funds may redeem Shares, without charge, by check drawn on the Direct Invest-
or's particular Fund account. Checks may be made payable to the order of any
person or organization designated by the Direct Investor and must be for
amounts of $500 or more. Direct Investors will continue to earn dividends on
the Shares to be redeemed until the check clears at The Chase Manhattan Bank.

Checks are supplied free of charge, and additional checks are sent to Direct
Investors upon request. Checks will be sent only to the registered owner at
the address of record. Direct Investors who want the option of redeeming
Shares by check must indicate this in the Application for purchase of Shares
and must submit a signature card with signatures guaranteed with such Applica-
tion. The signature card is included in the Application for the purchase of
Shares contained in this Prospectus. In order to arrange for redemption by
check after an account has been opened, a written request must be sent to the
Companies, c/o CGFSC, at the address listed above under "Redemption by Mail"
and must be accompanied by a signature card with signatures guaranteed (see
"Redemption by Mail" above, for details regarding signature guarantees).

Stop payment instructions with respect to checks may be given to the Compa-
nies by calling (800) 446-1012 (from overseas, call (617) 557-8280). If there
are insufficient Shares in the Direct Investor's account with the Fund to
cover the amount of the redemption check, the check will be returned marked
"insufficient funds," and CGFSC will charge a fee of $25.00 to the account.
Checks may not be used to close an account.

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

Other Redemption Information

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

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

EFFECTIVE TIME OF PURCHASES AND REDEMPTIONS

Purchase orders for Shares of the Money, Government Money and Treasury Money
Funds which are received in good order no later than 1:00 p.m. (Eastern Time)
on any Business Day will be effective as of 1:00 p.m. and will receive the
dividend declared on the day of purchase as long as CGFSC receives payment in
Federal funds prior to the close of regular trading hours on the Exchange
(currently 4:00 p.m., Eastern Time). Purchase orders for Shares of such Funds
received in good order after 1:00 p.m. (Eastern Time) and prior to 4:00 p.m.
(Eastern Time), on any Business Day for which payment in Federal funds has
been received by 4:00 p.m. (Eastern Time), will be effective as of 4:00 p.m.,
and will

22
<PAGE>

begin receiving dividends the following day. Purchase orders for Shares of the
Tax-Exempt Money and New York Tax-Exempt Money Funds which are received in
good order no later than 12:00 p.m. (Eastern Time) on any Business Day will be
effective as of 12:00 p.m. and will receive the dividend declared on the day
of purchase as long as CGFSC receives payment in Federal funds prior to the
close of regular trading hours on the Exchange. Purchase orders for Shares of
such Funds received in good order after 12:00 p.m. (Eastern Time) and prior to
4:00 p.m. (Eastern Time), on any Business Day for which payment in Federal
funds has been received by 4:00 p.m. (Eastern Time), will be effective as of
4:00 p.m., and will begin receiving dividends the following day.

Purchase orders for Shares made by Direct Investors are not effective until
the amount to be invested has been converted to Federal funds. In those cases
in which a Direct Investor pays for Shares by check, Federal funds will gener-
ally become available two Business Days after a purchase order is received. In
certain circumstances, the Companies may not require that amounts invested by
Shareholder Organizations on behalf of their Customers or by Institutional In-
vestors be converted into Federal funds. Redemption orders are executed at the
net asset value per Share next determined after receipt of the order.

INVESTOR PROGRAMS

EXCHANGE PRIVILEGE

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

Excelsior Fund currently offers 15 additional portfolios as follows:

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

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

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

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

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

Energy and Natural Resources Fund, a non-diversified fund seeking long-
term capital appreciation by investing in companies that are in the energy
and other natural resources groups of industries;

Value and Restructuring Fund, a fund seeking long-term capital apprecia-
tion by investing in companies benefiting from their restructuring or rede-
ployment of assets and operations in order to become more competitive or
profitable;

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

23
<PAGE>

Large Cap Growth Fund, a fund seeking superior, risk-adjusted total re-
turn by investing in larger companies whose growth prospects, in the opin-
ion of its investment adviser, appear to exceed that of the overall market;

Real Estate Fund, a non-diversified fund seeking current income and long-
term capital appreciation by investing in real estate investment trusts and
other companies principally engaged in the real estate business;

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

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

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

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

Emerging Markets Fund, a fund seeking long-term capital appreciation
through investments primarily in equity securities of emerging country is-
suers.

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

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

Intermediate-Term Tax-Exempt Fund, a diversified fund seeking a high
level of current income exempt from Federal income taxes through invest-
ments in municipal obligations and having a dollar-weighted average portfo-
lio maturity of 3 to 10 years;

Long-Term Tax-Exempt Fund, a diversified fund attempting to maximize cur-
rent interest income exempt from Federal income taxes through investments
in municipal obligations and having a dollar-weighted average portfolio ma-
turity of 10 to 30 years;

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

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

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

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

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

An exchange involves a redemption of all or a portion of the Shares in a Fund
and the investment of the redemption proceeds in shares of another portfolio of
the Companies or Excelsior Institutional Trust. The redemption will be made at
the per Share net asset value of the Shares being redeemed next

24
<PAGE>

determined after the exchange request is received in good order. The shares of
the portfolio to be acquired will be purchased at the per share net asset value
of those shares next determined after receipt of the exchange request in good
order.

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

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

SYSTEMATIC WITHDRAWAL PLAN

An Investor who owns Shares of a Fund with a value of $10,000 or more may es-
tablish a Systematic Withdrawal Plan. The Investor may request a declining-bal-
ance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an Investor must complete Section 9 of the New Ac-
count Application contained in this Prospectus and mail it to CGFSC at the ad-
dress given above. Further information on establishing a Systematic Withdrawal
Plan may be obtained by calling (800) 446-1012 (from overseas, call (617) 557-
8280).

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

RETIREMENT PLANS

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

IRAs (including "rollovers" from existing retirement plans) for individu-
als and their spouses;

Profit Sharing and Money-Purchase Plans for corporations and self-em-
ployed individuals and their partners to benefit themselves and their em-
ployees; and

Keogh Plans for self-employed individuals.

25
<PAGE>

plans can be obtained by calling (800) 446-1012 (from overseas, call (617)
557-8280). Customers of Shareholder Organizations may purchase Shares of the
Funds pursuant to retirement plans if such plans are offered by their Share-
holder Organizations.

AUTOMATIC INVESTMENT PROGRAM

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

To establish an Automatic Investment account, an Investor must complete Sec-
tion 8 of the New Account Application contained in this Prospectus and mail it
to CGFSC. An Investor may cancel his participation in this Program or change
the amount of purchase at any time by mailing written notification to CGFSC,
P.O. Box 2798, Boston, MA 02208-2798 and notification will be effective three
Business Days following receipt. The Companies may modify or terminate this
privilege at any time or charge a service fee, although no such fee currently
is contemplated.

DIVIDENDS AND DISTRIBUTIONS

The net investment income of the Funds is declared daily as a dividend to
the persons who are shareholders of the respective Funds immediately after the
1:00 p.m. (12:00 p.m. with respect to the Tax-Exempt Funds) pricing of Shares
on the day of declaration. All such dividends are paid within ten days after
the end of each month or within seven days after the redemption of all of a
shareholder's Shares of a Fund. For dividend purposes, a Fund's investment in-
come is reduced by accrued expenses directly attributable to that Fund and the
general expenses of the particular Company prorated to that Fund on the basis
of its relative net assets. Net realized capital gains, if any, are distrib-
uted at least annually.

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

TAXES

FEDERAL

Each of the Money, Government Money, Treasury Money and Tax-Exempt Money
Funds qualified for its last taxable year as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). Each Fund
expects to so qualify in future years. Such qualification generally relieves a
Fund of liability for Federal income taxes to the extent its earnings are dis-
tributed in accordance with the Code.

Qualification as a regulated investment company under the Code requires,
among other things, that a Fund distribute to its shareholders an amount equal
to at least the sum of 90% of its investment company taxable income and 90% of
its exempt-interest income (if any) net of certain deductions for

26
<PAGE>

each taxable year. In general, a Fund's investment company taxable income will
be its taxable income (including interest) subject to certain adjustments and
excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year. The taxable Funds
intend to distribute substantially all of their investment company taxable in-
come each year. Such dividends will be taxable as ordinary income to Fund
shareholders who are not currently exempt from Federal income taxes, whether
such income is received in cash or reinvested in additional Shares. (Federal
income taxes for distributions to IRAs and qualifying pension plans are de-
ferred under the Code.) Because all of each Fund's net investment income is ex-
pected to be derived from earned interest, it is anticipated that no part of
any distributions will be eligible for the dividends received deduction for
corporations.

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

Tax-Exempt Funds. Each Tax-Exempt Fund's policy is to pay dividends each year
equal to at least the sum of 90% of its net exempt-interest income and 90% of
its investment company taxable income, if any. Dividends derived from exempt-
interest income ("exempt-interest dividends") may be treated by a Fund's share-
holders as items of interest excludable from their gross income under Section
103(a) of the Code, unless, under the circumstances applicable to the particu-
lar shareholder, exclusion would be disallowed. (See Statement of Additional
Information under "Additional Information Concerning Taxes.")

If a Tax-Exempt Fund should hold certain "private activity bonds" issued af-
ter August 7, 1986, the portion of dividends paid by the Fund which is attrib-
utable to interest on such bonds must be included in a shareholder's Federal
alternative minimum taxable income, as an item of tax preference, for the pur-
pose of determining liability (if any) for the 26% to 28% alternative minimum
tax for individuals and the 20% alternative minimum tax applicable to corpora-
tions. Corporate shareholders must also take all exempt-interest dividends into
account in determining certain adjustments for Federal alternative minimum tax
purposes. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the tax-
ability of such benefits.

Dividends payable by a Tax-Exempt Fund which are derived from taxable income
or from long-term or short-term capital gains, if any, will be subject to Fed-
eral income tax, whether such dividends are paid in the form of cash or addi-
tional Shares.

If a shareholder holds Shares of a Tax-Exempt Fund for six months or less and
during that time receives an exempt-interest dividend on those Shares, any loss
recognized on the sale or exchange of those Shares will be disallowed to the
extent of the exempt-interest dividend.

STATE AND LOCAL

The Treasury Money Fund is structured to provide shareholders, to the extent
permissible by Federal and state law, with income that is exempt or excluded
from taxation at the state and local level. Most states--by statute, judicial
decision or administrative action--have taken the position that dividends of a
regulated investment company such as the Treasury Money Fund that are attribut-
able to interest on obligations of the U.S. Treasury and certain U.S. Govern-
ment agencies and instrumentalities (including those authorized for purchase by
the Fund) are the functional equivalent of interest from such obligations and
are, therefore, exempt from state and local income taxes. As a result, substan-
tially all dividends paid by the Treasury Money Fund to shareholders residing
in those states will be exempt or excluded from state income tax.

27
<PAGE>

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

NEW YORK

Exempt-interest dividends (as defined for Federal income tax purposes) de-
rived from interest on New York Municipal Securities (as defined above) will
be exempt from New York State and New York City personal income taxes (but not
corporate franchise taxes), provided the interest on such obligations is and
continues to be exempt from applicable Federal, New York State and New York
City income taxes. To the extent that Investors are subject to state and local
taxes outside of New York State and New York City, distributions by the New
York Tax-Exempt Money Fund may be taxable income for purposes thereof. Divi-
dends and distributions derived from income (including capital gains on all
New York Municipal Securities) other than interest on the New York Municipal
Securities described above are not exempt from New York State and New York
City taxes.

Interest on indebtedness incurred or continued by a shareholder to purchase
or carry Shares of the New York Tax-Exempt Money Fund generally is not deduct-
ible for Federal, New York State or New York City personal income tax purpos-
es.

MISCELLANEOUS

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

MANAGEMENT OF THE FUNDS

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

INVESTMENT ADVISER

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

The Investment Adviser provides trust and banking services to individuals,
corporations, and institutions both nationally and internationally, including
investment management, estate and trust administration, financial planning,
corporate trust and agency banking, and personal and corporate banking. On De-
cember 31, 1997, the Asset Management Groups of U.S. Trust New York and U.S.
Trust Connecticut had approximately $61.2 billion in aggregate assets under
management. U.S. Trust New York has its principal offices at 114 W. 47th
Street, New York, New York 10036. U.S. Trust Connecticut has its principal of-
fices at 225 High Ridge Road, East Building, Stamford, Connecticut 06905.

28
<PAGE>

The Investment Adviser manages each Fund, makes decisions with respect to
and places orders for all purchases and sales of its portfolio securities, and
maintains records relating to such purchases and sales. For the services pro-
vided and expenses assumed pursuant to its Investment Advisory Agreements, the
Investment Adviser is entitled to a fee, computed daily and paid monthly, at
the annual rate of: 0.25% of the average daily net assets of each of the Mon-
ey, Government Money and Tax-Exempt Money Funds; 0.30% of the Treasury Money
Fund's average daily net assets; and 0.50% of the New York Tax-Exempt Money
Fund's average daily net assets.

Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the Money, Government Money, Treasury Money and Tax-Exempt Money Funds pursu-
ant to advisory agreements substantially similar to the Investment Advisory
Agreements currently in effect for the Funds. For the fiscal year ended March
31, 1998, U.S. Trust received an advisory fee at the effective annual rates of
0.21%, 0.22%, 0.28% and 0.19% of the average daily net assets of the Money,
Government Money, Treasury Money and Tax-Exempt Money Funds, respectively. For
the same period, U.S. Trust waived advisory fees at the effective annual rates
of 0.04%, 0.03%, 0.02% and 0.06% of the average daily net assets of the Money,
Government Money, Treasury Money and Tax-Exempt Money Funds, respectively.

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

ADMINISTRATORS

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

<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY NET
ASSETS OF BOTH COMPANIES AND EXCELSIOR
INSTITUTIONAL TRUST (EXCLUDING THE
INTERNATIONAL PORTFOLIOS OF EXCELSIOR
FUND AND EXCELSIOR INSTITUTIONAL TRUST) ANNUAL FEE
--------------------------------------- ----------
<S> <C>
first $200 million..................... 0.200%
next $200 million...................... 0.175%
over $400 million...................... 0.150%
</TABLE>

Administration fees payable to the Administrators by each portfolio of the
Companies and of Excelsior Institutional Trust are allocated in proportion to
their relative average daily net assets at the time of determination. From
time to time, the Administrators may voluntarily waive all or a portion of the
administration fee payable to them by a Fund, which waivers may be terminated
at any time. See "Management of the Funds--Shareholder Organizations" for ad-
ditional information on fee waivers.

Prior to May 16, 1997, CGFSC, Federated Administrative Services and U.S.
Trust New York served as the Companies' administrators pursuant to administra-
tion agreements substantially similar to the administration agreements cur-
rently in effect for the Companies. For the fiscal year ended March 31, 1998,
CGFSC, Federated Administrative Services and U.S. Trust received an aggregate
administration fee at the effective annual rate of 0.153% of the average daily
net assets of each of the Money, Government Money, Treasury Money and Tax-Ex-
empt Money Funds.

29
<PAGE>

SHAREHOLDER ORGANIZATIONS

As described above under "Purchase of Shares," each Company has agreements
with certain Shareholder Organizations--firms that provide services, which may
include acting as record shareholder, to their Customers who beneficially own
Shares. As a consideration for these services, a Fund will pay the Shareholder
Organization an administrative service fee up to the annual rate of 0.40% of
the average daily net asset value of its Shares held by the Shareholder Orga-
nization's Customers. Such services, which are described more fully in the
Statement of Additional Information under "Management of the Funds--Share-
holder Organizations," may include assisting in processing purchase, exchange
and redemption requests; transmitting and receiving funds in connection with
Customer orders to purchase, exchange or redeem Shares; and providing periodic
statements. It is the responsibility of Shareholder Organizations to advise
Customers of any fees that they may charge in connection with a Customer's in-
vestment. Until further notice, the Investment Adviser and Administrators have
voluntarily agreed to waive fees payable by a Fund in an aggregate amount
equal to administrative service fees payable by that Fund.

BANKING LAWS

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

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

DESCRIPTION OF CAPITAL STOCK

Excelsior Fund was organized as a Maryland corporation on August 2, 1984.
Currently, Excelsior Fund has authorized capital of 35 billion shares of Com-
mon Stock, $0.001 par value per share, classified into 43 series of shares
representing interests in 18 investment portfolios. Excelsior Fund's Charter
authorizes the Board of Directors to classify or reclassify any class of
shares of Excelsior Fund into one or more classes or series. Shares of Class
A, Class B and Class G Common Stock represent interests in the Money, Govern-
ment Money and Treasury Money Funds, respectively.

Excelsior Tax-Exempt Fund was organized as a Maryland corporation on August
8, 1984. Currently, Excelsior Tax-Exempt Fund has authorized capital of 14
billion shares of Common Stock, $0.001 par value per share, classified into 7
classes of shares representing 7 investment portfolios currently being of-
fered. Excelsior Tax-Exempt Fund's Charter authorizes the Board of Directors
to classify or reclassify any class of shares of Excelsior Tax-Exempt Fund
into one or more classes or series. Shares of Class A and Class G Common Stock
represent interests in the Tax-Exempt Money and New York Tax-Exempt Money
Funds, respectively.

30
<PAGE>

Each Share represents an equal proportionate interest in the particular Fund
with other shares of the same class, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to such Fund as
are declared in the discretion of the particular Company's Board of Directors.

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

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

As of July 8, 1998, U.S. Trust and its affiliates held of record substan-
tially all of the Companies' outstanding shares as agent or custodian for
their customers, but did not own such shares beneficially because they did not
have voting or investment discretion with respect to such shares.

CUSTODIAN AND TRANSFER AGENT

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

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

YIELD INFORMATION

From time to time, in advertisements or in reports to shareholders, the
yields of the Funds may be quoted and compared to those of other mutual funds
with similar investment objectives and to other relevant indexes or to
rankings prepared by independent services or other financial or industry pub-
lications that monitor the performance of mutual funds. For example, the
yields of the Funds may be compared to the applicable averages compiled by
Donoghue's Money Fund Report, a widely recognized independent publication that
monitors the performance of money market funds. The yields of the taxable
Funds may also be compared to the average yields reported by the Bank Rate
Monitor for money market deposit accounts offered by the 50 leading banks and
thrift institutions in the top five standard metropolitan statistical areas.

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

Each Fund may advertise its Shares' seven-day yield which refers to the in-
come generated over a particular seven-day period identified in the advertise-
ment by an investment in the Fund. This income is annualized, i.e., the income
during a particular week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The Funds may also ad-
vertise the "effective yields" of Shares which are calculated similarly but,
when annualized, income is assumed to be reinvested, thereby making the effec-
tive yields slightly higher because of the compounding effect of the assumed
reinvestment.

31
<PAGE>

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

Yields will fluctuate and any quotation of yield should not be considered as
representative of a Fund's future performance. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Funds with
bank deposits, savings accounts and similar investment alternatives which of-
ten provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that yield is generally a function of the kind
and quality of the instruments held in a portfolio, portfolio maturity, oper-
ating expenses, and market conditions. Any fees charged by Shareholder Organi-
zations with respect to accounts of Customers that have invested in Shares
will not be included in calculations of yield.

MISCELLANEOUS

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

The staff of the SEC has expressed the view that the use of this combined
Prospectus for the Funds may subject the Funds to liability for losses arising
out of any statement or omission regarding a particular Fund.

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

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

32
<PAGE>

INSTRUCTIONS FOR NEW ACCOUNT APPLICATION

OPENING YOUR ACCOUNT:

FOR OVERNIGHT DELIVERY: send to:
Complete the Application and mail to:

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

Please enclose with the Application your check made payable to the "Excel-
sior Funds" in the amount of your investment.

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

MINIMUM INVESTMENTS:

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

REDEMPTIONS:

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

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

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

If the shares are registered in the name of:

- an individual, the individual should sign.
- joint tenants, both tenants should sign.
- a custodian for a minor, the custodian should sign.
- a corporation or other organization, an authorized officer should
sign (please indicate corporate office or title).*
- a trustee or other fiduciary, the fiduciary or fiduciaries should
sign (please indicate capacity).*

* A corporate resolution or appropriate certificate may be required.

QUESTIONS:

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

33
<PAGE>

PROSPECTUS AUGUST 1, 1998

LOGO EXCELSIOR
Funds, Inc.

Tax-Exempt Funds, Inc.

MONEY FUND

GOVERNMENT MONEY FUND

TREASURY MONEY FUND

TAX-EXEMPT MONEY FUND

NEW YORK TAX-EXEMPT MONEY FUND

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................................................... 3
EXPENSE SUMMARY....................................................... 4
FINANCIAL HIGHLIGHTS.................................................. 5
INVESTMENT OBJECTIVES AND POLICIES.................................... 9
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION................ 12
INVESTMENT LIMITATIONS................................................ 16
PRICING OF SHARES..................................................... 17
HOW TO PURCHASE AND REDEEM SHARES..................................... 18
INVESTOR PROGRAMS..................................................... 23
DIVIDENDS AND DISTRIBUTIONS........................................... 26
TAXES................................................................. 26
MANAGEMENT OF THE FUNDS............................................... 28
DESCRIPTION OF CAPITAL STOCK.......................................... 30
CUSTODIAN AND TRANSFER AGENT.......................................... 31
YIELD INFORMATION..................................................... 31
MISCELLANEOUS......................................................... 32
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION.............................. 33
</TABLE>

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

USTMMP898
<PAGE>

EXCELSIOR FUNDS, INC.

Money Fund
Government Money Fund
Treasury Money Fund

EXCELSIOR TAX-EXEMPT FUNDS, INC.

Tax-Exempt Money Fund

STATEMENT OF ADDITIONAL INFORMATION

August 1, 1998

This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectus for the Money Fund, Government Money
Fund and Treasury Money Fund of Excelsior Funds, Inc. ("Excelsior Fund") and the
Tax-Exempt Money Fund of Excelsior Tax-Exempt Funds, Inc. ("Excelsior Tax-Exempt
Fund") dated August 1, 1998 (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 portfolios
described herein ("Shares") should be made without reading the Prospectus. A
copy of the Prospectus may be obtained by writing Excelsior Funds c/o Chase
Global Funds Services Company, 73 Tremont Street, Boston, MA 02108-3913 or by
calling (800) 446-1012.
<PAGE>

TABLE OF CONTENTS

Page

INVESTMENT OBJECTIVES AND POLICIES...................... 1

Additional Information on Portfolio Instruments.... 1
Additional Investment Limitations.................. 5

NET ASSET VALUE AND NET INCOME.......................... 7

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.......... 8

INVESTOR PROGRAMS....................................... 10

Systematic Withdrawal Plan......................... 10
Exchange Privilege................................. 10
Other Investor Programs............................ 11

DESCRIPTION OF CAPITAL STOCK............................ 11

MANAGEMENT OF THE FUNDS................................. 13

Directors and Officers............................. 13
Investment Advisory and Administration Agreements.. 18
Shareholder Organizations.......................... 20
Expenses........................................... 21
Custodian and Transfer Agent....................... 21

PORTFOLIO TRANSACTIONS.................................. 22

INDEPENDENT AUDITORS.................................... 23

COUNSEL................................................. 23

ADDITIONAL INFORMATION CONCERNING TAXES................. 24

Generally.......................................... 24
Tax-Exempt Money Fund.............................. 24

YIELD INFORMATION....................................... 25

MISCELLANEOUS........................................... 27

FINANCIAL STATEMENTS.................................... 27

APPENDIX A.............................................. A-1

<PAGE>

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

This Statement of Additional Information contains additional
information with respect to the Money Fund, Government Money Fund and Treasury
Money Fund of Excelsior Fund (collectively, the "Taxable Funds") and the Tax-
Exempt Money Fund of Excelsior Tax-Exempt Fund (the portfolios are referred to
individually as a "Fund" and collectively as the "Funds"; Excelsior Fund and
Excelsior Tax-Exempt Fund are referred to individually as a "Company" and
collectively as the "Companies").

The investment objectives and policies of the Funds are described in
the Prospectus. The following information supplements the description of the
investment objectives and policies as set forth in the Prospectus.

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

Variable and Floating Rate Instruments
--------------------------------------

With respect to variable and floating rate instruments described in
the Prospectus, 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")
will consider the earning power, cash flows and other liquidity ratios of the
issuers of such instruments and will continuously monitor their financial
ability to meet payment on demand. In determining dollar-weighted average
portfolio maturity and whether a variable or floating rate instrument has a
remaining maturity of 13 months or less, the maturity of each instrument will be
computed in accordance with guidelines established by the Securities and
Exchange Commission (the "SEC").

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 Money book-entry system. Repurchase agreements are
considered loans by a Fund under the Investment Company Act of 1940, as amended
(the "1940 Act").

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

When the Money Fund or Government Money Fund lends its portfolio
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
securities lent pass to the borrower, such loans may be called at any time and
will be
<PAGE>

called so that the securities may be voted by a Fund if a material event
affecting the investment is to occur.

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, the Fund's 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 Funds incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.

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

Stand-By Commitments
--------------------

The Tax-Exempt Money Fund may acquire "stand-by commitments" with
respect to Municipal Securities held by it. Under a "stand-by commitment," a
dealer or bank agrees to purchase from the Tax-Exempt Money Fund, at the Fund's
option, specified Municipal Securities at a specified price. The amount payable
to the Fund upon its exercise of a "stand-by commitment" is normally (i) the
Fund's acquisition cost of the Municipal Securities (excluding any accrued
interest which the Fund paid on their acquisition), less any amortized market
premium or plus any amortized market or original issue discount during the
period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment

-2-
<PAGE>

date during that period. "Stand-by commitments" are exercisable by the Tax-
Exempt Money Fund at any time before the maturity of the underlying Municipal
Securities, and may be sold, transferred or assigned by the Fund only with the
underlying instruments.

The Tax-Exempt Money Fund expects that "stand-by commitments" will
generally be available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Fund may pay for a
"stand-by commitment" either separately in cash or by paying a higher price for
securities which are acquired subject to the commitment (thus reducing the yield
to maturity otherwise available for the same securities). Where the Tax-Exempt
Money Fund has paid any consideration directly or indirectly for a "stand-by
commitment," its cost will be reflected as unrealized depreciation for the
period during which the commitment was held by the Fund.

The Tax-Exempt Money Fund intends to enter into "stand-by commitments"
only with banks and broker/dealers which, in the Investment Adviser's opinion,
present minimal credit risks. In evaluating the creditworthiness of the issuer
of a "stand-by commitment," the Investment Adviser will review periodically the
issuer's assets, liabilities, contingent claims and other relevant financial
information.

Municipal Securities
--------------------

The Tax-Exempt Money Fund invests primarily in Municipal Securities as
defined in the Prospectus. Municipal Securities include debt obligations issued
by governmental entities to obtain funds for various public purposes, including
the construction of a wide range of public facilities, the refunding of
outstanding obligations, the payment of general operating expenses, and the
extension of loans to public institutions and facilities. Private activity
bonds that are issued by or on behalf of public authorities to finance various
privately operated facilities are included within the term "Municipal
Securities" only if the interest paid thereon is exempt from regular Federal
income tax and not treated as a specific tax preference item under the Federal
alternative minimum tax.

The two principal classifications of Municipal Securities are "general
obligations" and "revenue" issues, but the Tax-Exempt Money Fund's portfolio may
also include "moral obligation" issues. There are, of course, variations in the
quality of Municipal Securities, both within a particular classification and
between classifications, and the yields on Municipal Securities depend upon a
variety of factors, including general money market conditions, the financial
condition of the issuer, general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation, and the rating of
the issue. The ratings of nationally recognized statistical rating
organizations ("NRSROs") such as Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Ratings Services ("S&P") described in the Prospectus and
Appendix hereto represent their opinion as to the quality of Municipal
Securities. It should be emphasized that these ratings are general and are not
absolute standards of quality, and Municipal Securities with the same maturity,
interest rate, and rating may have different yields while Municipal Securities
of the same maturity and interest rate with different ratings may have the same
yield. Subsequent to its purchase by the Fund, an issue of Municipal Securities
may cease to be rated, or its rating may be reduced below the minimum rating
required

-3-
<PAGE>

for purchase by the Fund. The Investment Adviser will consider such an event in
determining whether the Tax-Exempt Money Fund should continue to hold the
obligation.

The payment of principal and interest on most securities purchased by
the Tax-Exempt Money Fund will depend upon the ability of the issuers to meet
their obligations. Each state, the District of Columbia, each of their
political subdivisions, agencies, instrumentalities and authorities, and each
multistate agency of which a state is a member, is a separate "issuer" as that
term is used in this Statement of Additional Information and the Prospectus. An
issuer's obligations under its Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by Federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Municipal Securities may be
materially adversely affected by litigation or other conditions.

Private activity bonds are or have been issued to obtain funds to
provide, among other things, privately operated housing facilities, pollution
control facilities, convention or trade show facilities, mass transit, airport,
port or parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.

Among other instruments, the Tax-Exempt Money Fund may purchase short-
term General Obligation Notes, Tax Anticipation Notes, Bond Anticipation Notes,
Revenue Anticipation Notes, Tax-Exempt Commercial Paper, Construction Loan Notes
and other forms of short-term loans. Such instruments are issued with a short-
term maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, the Fund may invest in long-term
tax-exempt instruments, such as municipal bonds and private activity bonds, to
the extent consistent with the maturity restrictions applicable to it.

Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither Excelsior
Tax-Exempt Fund nor the Investment Adviser will review the proceedings relating
to the issuance of Municipal Securities or the bases for such opinions.

Miscellaneous
-------------

The Funds may not invest in oil, gas, or mineral leases.

-4-
<PAGE>

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

In addition to the investment limitations set forth in the Prospectus,
the Funds are subject to the investment limitations enumerated below, which may
be changed with respect to a particular Fund only by a vote of the holders of a
majority of such Fund's outstanding Shares (as defined under "Miscellaneous" in
the Prospectus).

No Fund may:

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

2. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except insofar as the Taxable Funds might be deemed to
be underwriters upon disposition of certain portfolio securities acquired within
the limitation on purchases of restricted securities; and except to the extent
that purchase by the Tax-Exempt Money Fund of Municipal Securities or other
securities directly from the issuer thereof in accordance with the Fund's
investment objective, policies and limitations may be deemed to be underwriting;

3. Purchase or sell real estate, except that each Taxable Fund may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate; and except that the
Tax-Exempt Money Fund may invest in Municipal Securities secured by real estate
or interests therein;

4. Purchase or sell commodities or commodity contracts, or invest in
oil, gas, or other mineral exploration or development programs;

5. Invest in or sell puts, calls, straddles, spreads, or any
combination thereof; and

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

In addition, the Money, Government Money and Treasury Money Funds may
not:

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

8. Invest in bank obligations having remaining maturities in excess
of one year, except that securities subject to repurchase agreements may bear
longer maturities;

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

-5-
<PAGE>

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

11. Purchase foreign securities; except the Money Fund may purchase
certificates of deposit, bankers' acceptances, or other similar obligations
issued by domestic branches of foreign banks and foreign branches of U.S. banks
in an amount not to exceed 20% of its total net assets;

12. 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 Investment Company Act
of 1940;

13. Invest in obligations of foreign branches of financial
institutions or in domestic branches of foreign banks, if immediately after such
purchase (i) more than 5% of the value of a Fund's total assets would be
invested in obligations of any one foreign branch of the financial institution
or domestic branch of a foreign bank; or (ii) more than 20% of its total assets
would be invested in foreign branches of financial institutions or in domestic
branches of foreign banks;

14. Purchase any securities which would cause more than 25% of the
value of a Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
securities issued or guaranteed by the U.S. Government or domestic bank
obligations, and (b) neither all finance companies, as a group, nor all utility
companies, as a group, are considered a single industry for purposes of this
policy; and

15. Knowingly invest more than 10% of the value of a Fund's total
assets in illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, restricted securities, and other securities
for which market quotations are not readily available.

In addition, the Tax-Exempt Money Fund may not:

16. Make loans, except that the Fund may purchase or hold debt
obligations in accordance with its investment objective, policies, and
limitations;

17. Invest in industrial revenue bonds where the payment of principal
and interest are the responsibility of a company (including its predecessors)
with less than three years of continuous operation;

18. Knowingly invest more than 10% of the value of its total assets
in securities which may be illiquid in light of legal or contractual
restrictions on resale or the absence of readily available market quotations;

-6-
<PAGE>

19. Purchase any securities which would cause more than 25% of the
value of its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that there is no limitation with respect to
domestic bank obligations or securities issued or guaranteed by the United
States; any state or territory; any possession of the U.S. Government; the
District of Columbia; or any of their authorities, agencies, instrumentalities,
or political subdivisions; and

20. Purchase securities of other investment companies (except as part
of a merger, consolidation or reorganization or purchase of assets approved by
the Fund's shareholders), provided that the Fund may purchase shares of any
registered, open-end investment company, if immediately after any such purchase,
the Fund does not (a) own more than 3% of the outstanding voting stock of any
one investment company, (b) invest more than 5% of the value of its total assets
in the securities of any one investment company, or (c) invest more than 10% of
the value of its total assets in the aggregate in securities of investment
companies.

* * *

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

For the purpose of Investment Limitation No. 3, the prohibition of
purchases of real estate includes acquisition of limited partnership interests
in partnerships formed with a view toward investing in real estate, but does not
prohibit purchases of shares in real estate investment trusts.

Notwithstanding Investment Limitations Nos. 15 and 18 above, the
Companies intend to limit the Funds' investments in illiquid securities to 10%
of each Fund's net (rather than total) assets.

Notwithstanding the proviso in Investment Limitation No. 19, to the
extent that the Tax-Exempt Money Fund has invested more than 20% of the value of
its assets in taxable securities on a temporary defensive basis, the industry
diversification limitation in Investment Limitation No. 19 shall apply to
taxable securities issued or guaranteed by any state, territory, or possession
of the U.S. Government; the District of Columbia; or any of their authorities,
agencies, instrumentalities, or political subdivisions.

NET ASSET VALUE AND NET INCOME
------------------------------

The Companies use the amortized cost method of valuation to value
Shares in the Funds. Pursuant to this method, a security is valued at its cost
initially, and thereafter a constant amortization to maturity of any discount or
premium is assumed, regardless of the impact of fluctuating interest rates on
the market value of the security. This method may result in periods during
which value, as determined by amortized cost, is higher or lower than the price
the Fund

-7-
<PAGE>

involved would receive if it sold the security. The market value of portfolio
securities held by the Funds can be expected to vary inversely with changes in
prevailing interest rates.

The Funds invest only in high-quality instruments and maintain a
dollar-weighted average portfolio maturity appropriate to their objective of
maintaining a constant net asset value per Share. The Funds will not purchase
any security deemed to have a remaining maturity of more than 13 months within
the meaning of the 1940 Act or maintain a dollar-weighted average portfolio
maturity which exceeds 90 days. The Companies' Boards of Directors have
established procedures that are intended to stabilize the net asset value per
Share of each Fund for purposes of sales and redemptions at $1.00. These
procedures include the determination, at such intervals as the Boards deem
appropriate, of the extent, if any, to which the net asset value per Share of a
Fund calculated by using available market quotations deviates from $1.00 per
Share. In the event such deviation exceeds one half of one percent, the Boards
of Directors will promptly consider what action, if any, should be initiated.
If the Boards of Directors believe that the extent of any deviation from a
Fund's $1.00 amortized cost price per Share may result in material dilution or
other unfair results to new or existing investors, they will take appropriate
steps to eliminate or reduce, to the extent reasonably practicable, any such
dilution or unfair results. These steps may include selling portfolio
instruments prior to maturity; shortening the average portfolio maturity;
withholding or reducing dividends; redeeming Shares in kind; reducing the number
of the Fund's outstanding Shares without monetary consideration; or utilizing a
net asset value per Share determined by using available market quotations.

Net income of each of the Funds for dividend purposes consists of (i)
interest accrued and discount earned on a Fund's assets, less (ii) amortization
of market premium on such assets, accrued expenses directly attributable to the
Fund, and the general expenses or the expenses common to more than one portfolio
of a Company (e.g., administrative, legal, accounting, and directors' fees)
prorated to each portfolio of the Company on the basis of their relative net
assets.

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

Shares are continuously offered for sale by Edgewood Services, Inc.
(the "Distributor"), a wholly-owned subsidiary of Federated Investors, Inc., 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.

The Companies have authorized certain brokers to accept on their
behalf purchase, exchange and redemption orders. Such brokers are authorized to
designate

-8-
<PAGE>

other intermediaries to accept purchase, exchange and redemption orders on
behalf of the Companies. A Company will be deemed to have received a purchase,
exchange or redemption order when such an authorized broker or designated
intermediary accepts the order.

Shares of the Funds are offered for sale at their net asset value per
Share next computed after a purchase order is received in good order by the
Companies' sub-transfer agent or after a purchase order is accepted by an
authorized broker or designated intermediary. Similarly, an order for the
exchange or redemption of Shares will receive the net asset value per Share next
computed after the order is received in good order by the Companies' sub-
transfer agent or after the order is accepted by an authorized broker or
designated intermediary.

As stated in the Prospectus, no sales charge is imposed by the
Companies on purchases of Shares. In addition, no sales load is charged on the
reinvestment of dividends or distributions or in connection with certain Share
exchanges as described in the Prospectus under "Investor Programs - - Exchange
Privilege."

As described in the Prospectus, Direct Investors may redeem Shares by
writing a check. Checks to redeem Shares are drawn on the Companies' accounts
at The Chase Manhattan Bank ("Chase"). Direct Investors will be subject to the
same rules and regulations that Chase applies to checking accounts and will have
the same rights and duties with respect to stop-payment orders, "stale" checks,
unauthorized signatures, collection of deposits, alterations and unauthorized
endorsements as bank checking account customers do under the New York Uniform
Commercial Code. When a check is presented to Chase for payment, Chase, as the
shareholder's agent, will cause the Fund from which the redemption is requested
to redeem sufficient Shares in the shareholder's account to cover the amount of
the check.

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

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.

Each Company 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 the Company 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.

-9-
<PAGE>

Under certain circumstances, each Company may, in its discretion,
accept securities as payment for Shares. Securities acquired in this manner
will be limited to securities issued in transactions involving a bona fide
---------
reorganization or statutory merger, or other transactions involving securities
that meet the investment objective and policies of any Fund acquiring such
securities.

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

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

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

(1) A fixed-dollar withdrawal;

(2) A fixed-share withdrawal;

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

(4) A declining-balance withdrawal.

Prior to participating in a Systematic Withdrawal Plan, the investor
must deposit any outstanding certificates for 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
- ------------------

-10-
<PAGE>

disadvantage of other shareholders, the Companies and Excelsior Institutional
Trust reserve the right to limit the number of exchange requests of investors to
no more than six per year. The Companies and Excelsior Institutional Trust may
modify or terminate the exchange program at any time upon 60 days' written
notice to shareholders, and may reject any exchange request. Customers of
Shareholder Organizations may obtain information on the availability of, and the
procedures and fees relating to, such program directly from their Shareholder
Organizations.

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

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

As described in the Prospectus, Shares of the Funds may be purchased
in connection with the Automatic Investment Program. Shares of the Money,
Government Money and Treasury Money Funds may also be purchased in connection
with 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 35 billion full and fractional shares of capital stock; and Excelsior Tax-
Exempt Fund's Charter authorizes its Board of Directors to issue up to 14
billion full and fractional shares of capital stock. Both Charters authorize
the respective Boards of Directors to classify or reclassify any unissued shares
of the respective Companies into one or more additional classes or series by
setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. The
Prospectus describes the classes of shares into which the Companies' authorized
capital is currently classified. Prior to December 28, 1995, Excelsior Fund and
Excelsior Tax-Exempt Fund were known as "UST Master Funds, Inc." and "UST Master
Tax-Exempt Funds, Inc.," respectively.

-11-
<PAGE>

dissolution of a Fund, shareholders of that Fund are entitled to receive the
assets available for distribution belonging to that Fund and a proportionate
distribution, based upon the relative asset values of the portfolios of the
Company involved, of any general assets of that Company not belonging to any
particular portfolio of that Company which are available for distribution. In
the event of a liquidation or dissolution of either Company, shareholders of
such Company will be entitled to the same distribution process.

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

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

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

-12-
<PAGE>

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

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

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

The directors and executive officers of the Companies, 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 the Companies 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: 67 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 1984);
New York, NY 10021 Director of UST Master
Age: 72 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
Continuation Investments and Excelsior Tax-Exempt
Group, Inc. Fund (since 1996); Trustee,
1251 Avenue of the
Americas, 9th Floor Excelsior Institutional
New York, NY 10020 Trust and Excelsior Funds
Age: 55 (since 1994); Director,
Parsons Brinkerhoff Energy Services
Inc. (since 1996); Director, Parsons
Brinkerhoff,
</TABLE>

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

-13-
<PAGE>

<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address the Companies Other Affiliations
- ---------------- ------------- ------------------
<S> <C> <C>
Inc. (engineering firm)
(since 1995); President, Continuation
Investments Group, Inc. (since 1997);
President, Mandrake Group (investment
and consulting firm) (1994-1997);
Director, Hyperion Total Return Fund,
Inc. and four other funds for which
Hyperion Capital Management, Inc.
serves as investment adviser (since
1991); Co-Chairman, KMR Power
Corporation (power plants) (from 1993
to 1996); Director, The Latin America
Smaller Companies Fund, Inc. (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 Lake Road Excelsior Fund and Excelsior
Franklin Lakes, NJ 07417 Tax-Exempt Fund (since 1984);
Age: 73 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: 77 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: 61 (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).

Jonathan Piel Director Director, Excelsior Fund and
</TABLE>

-14-
<PAGE>

<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address the Companies Other Affiliations
- ---------------- ------------- ------------------
<S> <C> <C>
558 E. 87th Street Excelsior Tax-Exempt Fund
New York, NY 10128 (since 1996); Trustee, Excelsior
Age: 59 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: 72 (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.
(1974-1995); 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 Excelsior Fund and
6549 Pine Meadows Drive Excelsior Tax-Exempt Fund (since 1985);
Spring Hill, FL 34606 Chairman of the Board of Excelsior Fund
Age: 72 and Excelsior Tax-Exempt Fund (1991-
1997) and Excelsior Institutional Trust
(1996-1997); President and Treasurer of
Excelsior Fund and Excelsior Tax-Exempt
Fund (1994-1997) and Excelsior
Institutional Trust (1996-1997);
Chairman of the Board, President and
Treasurer of UST Master Variable Series,
Inc. (1994-1997); and Trustee of Excelsior
Institutional Trust (since 1995).

W. Bruce McConnel, III Secretary Partner of the law firm of Drinker
</TABLE>

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

-15-
<PAGE>

Michael P. Malloy Assistant Partner of the law firm of
Philadelphia National Secretary Drinker Biddle & Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 39

Edward Wang Assistant Manager of Blue Sky Compliance,
Chase Global Funds Secretary Chase Global Funds Services
Services Company Company (November 1996 to present);
73 Tremont Street and Officer and Manager of Financial
Boston, MA 02108-3913 Reporting, Investors Bank & Trust
Age: 37 Company (January 1991 to
November 1996).

John M. Corcoran Assistant Vice President, Director of Fund
Chase Global Funds Treasurer Administration, Chase Global Funds
Services Company Services Company (since April 1998);
73 Tremont Street Vice President, Senior Manager of Fund
Boston, MA 02108-3913 Administration, Chase Global Funds
Age: 33 Services Company (from July 1996
to April 1998); Second Vice President,
Manager of Fund Administration, Chase
Global Funds Services Company (from
October 1993 to July 1996); and Audit
Manager, Ernst & Young LLP (from August
1987 to September 1993).
</TABLE>

Each director receives an annual fee of $9,000 with respect to each
Company plus a per-Company meeting fee of $1,500 for each meeting attended and
is reimbursed for expenses incurred in attending meetings. The Chairman of the
Board is entitled to receive an additional $5,000 per annum with respect to each
Company for services in such capacity. Drinker Biddle & Reath LLP, of which
Messrs. McConnel and Malloy are partners, receives legal fees as counsel to the
Companies. The employees of Chase Global Funds Services Company do not receive
any compensation from the Companies for acting as officers of the Companies. No
person who is currently an officer, director or employee of the Investment
Adviser serves as an officer, director or employee of the Companies. As of July
8, 1998, the directors and officers of each Company as a group owned
beneficially less than 1% of the outstanding shares of each fund of each
Company, and less than 1% of the outstanding shares of all funds of each Company
in the aggregate.

-16-
<PAGE>

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

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

Donald L. Campbell $33,000 None $38,000 (3)**
Director

Rodman L. Drake $30,000 None $39,500 (4)**
Director

Joseph H. Dugan $33,000 None $38,000 (3)**
Director

Wolfe J. Frankl $31,500 None $36,500 (3)**
Director

W. Wallace McDowell, Jr. $28,500 None $38,000 (4)**
Director

Jonathan Piel $33,000 None $43,000 (4)**
Director

Robert A. Robinson $33,000 None $38,000 (3)**
Director

Alfred C. Tannachion $33,000 None $38,000 (3)**
Director

Frederick S. Wonham $43,000 None $53,000 (4)**
Chairman of the Board,
President and Treasurer
</TABLE>

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

* The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt
Fund, Excelsior Funds and Excelsior Institutional Trust.

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

-17-
<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 Agreements, U.S.
Trust 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, if any, purchased for the
Funds.

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

For the fiscal year ended March 31, 1998, Excelsior Fund paid U.S.
Trust $1,036,066, $1,216,265 and $1,108,480 with respect to the Money,
Government Money and Treasury Money Funds, respectively. For the same period,
Excelsior Tax-Exempt Fund paid U.S. Trust $2,325,765 with respect to the Tax-
Exempt Money Fund. For the fiscal year ended March 31, 1998, U.S. Trust waived
fees totaling $231,368, $168,737, $82,614 and $627,413 with respect to the
Money, Government Money, Treasury Money and Tax-Exempt Money Funds,
respectively.

For the fiscal year ended March 31, 1997, Excelsior Fund paid U.S.
Trust New York $810,101, $1,136,936 and $828,277 with respect to the Money,
Government Money and Treasury Money Funds, respectively. For the same period,
Excelsior Tax-Exempt Fund paid U.S. Trust New York $1,891,333 with respect to
the Tax-Exempt Money Fund. For the fiscal year ended March 31, 1997, U.S. Trust
New York waived fees totaling $215,132, $183,979, $79,008 and $502,764 with
respect to the Money, Government Money, Treasury Money and Tax-Exempt Money
Funds, respectively.

For the fiscal year ended March 31, 1996, Excelsior Fund paid U.S.
Trust New York $1,291,496, $1,224,338 and $621,988 with respect to the Money,
Government Money and Treasury Money Funds, respectively. For the same period,
Excelsior Tax-Exempt Fund paid U.S. Trust New York $1,745,649 with respect to
the Tax-Exempt Money Fund. For the fiscal year ended March 31, 1996, U.S. Trust
New York waived fees totaling $227,463, $172,140, $46,887 and $353,419 with
respect to the Money, Government Money, Treasury Money and Tax-Exempt Money
Funds, respectively.

The Investment Advisory Agreements provide 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 Agreements to maintain its

-18-
<PAGE>

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 Agreements, the Administrators have agreed to maintain office
facilities for the Funds, furnish the Funds with statistical and research data,
clerical, accounting and bookkeeping services, and certain other services
required by the Funds, and to compute the net asset value, net income, "exempt-
interest dividends," and realized capital gains or losses, if any, of the
respective Funds. The Administrators prepare semiannual reports to the SEC,
prepare Federal and state tax returns, prepare filings with state securities
commissions, arrange for and bear the cost of processing Share purchase and
redemption orders, maintain the Funds' financial accounts and records, and
generally assist in the Funds' operations.

Prior to May 16, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York served as the Funds' administrators pursuant to
administration agreements substantially similar to the Administration Agreements
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 administration agreements
having substantially the same terms as the Administration Agreements currently
in effect.

For the fiscal year ended March 31, 1998, Excelsior Funds paid CGFSC,
Federated Administrative Services and U.S. Trust $775,667, $847,526 and $607,458
in the aggregate with respect to the Money, Government Money and Treasury Money
Funds, respectively. For the same period, Excelsior Tax-Exempt Fund paid CGFSC,
Federated Administrative Services and U.S. Trust $1,807,345 in the aggregate
with respect to the Tax-Exempt Money Fund. For the fiscal year ended March 31,
1998, CGFSC, Federated Administrative Services and U.S. Trust waived fees
totaling $3 and $96 with respect to the Money and Government Money Funds,
respectively.

For the fiscal year ended March 31, 1997, Excelsior Fund paid CGFSC,
Federated Administrative Services and U.S. Trust New York $630,623, $811,988 and
$464,931 in the aggregate with respect to the Money, Government Money and
Treasury Money Funds, respectively. For the same period, Excelsior Tax-Exempt
Fund paid CGFSC, Federated Administrative Services and U.S. Trust New York
$1,472,582 in the aggregate with respect to the Tax-Exempt Money Fund. For the
fiscal year ended March 31, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York waived fees totaling $8 and $256 with respect to the Money
and Government Money Funds, respectively.

For the period August 1, 1995 through March 31, 1996, Excelsior Fund
paid CGFSC, Federated Administrative Services and U.S. Trust New York $487,151,
$457,681, and $236,672 in the aggregate with respect to the Money, Government
Money and Treasury Money Funds, respectively. For the same period, Excelsior
Tax-Exempt Fund paid CGFSC, Federated Administrative Services and U.S. Trust New
York $889,555 in the aggregate with respect to the Tax-Exempt Money Fund. For
the period August 1, 1995 through March 31, 1996, CGFSC, Federated
Administrative Services and U.S. Trust New York waived fees totaling $705 with
respect to the Government Money Fund.

-19-
<PAGE>

For the period April 1, 1995 through July 31, 1995, Excelsior Fund
paid the former administrators $450,305, $403,443 and $107,685 in the aggregate
with respect to the Money Fund, Government Money Fund and Treasury Money Fund,
respectively. For the same period, Excelsior Tax-Exempt Fund paid the former
administrators $407,281 in the aggregate with respect to the Tax-Exempt Money
Fund. For the period April 1, 1995 through July 31, 1995, the former
administrators waived fees totaling $135 with respect to the Government Money
Fund.

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

As stated in the Prospectus, each Company has entered into agreements
with 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 0.40% of the average daily net assets of the Fund's
Shares beneficially owned by Customers of the Shareholder Organization. Such
services may include: (a) acting as recordholder of Shares; (b) assisting in
processing purchase, exchange and redemption transactions; (c) providing
periodic statements showing a Customer's account balances and confirmations of
transactions by the Customer; (d) providing tax and dividend information to
shareholders as appropriate; (e) transmitting proxy statements, annual reports,
updated prospectuses and other communications from the Companies to Customers;
and (f) providing or arranging for the provision of other related services.

The Companies' agreements with Shareholder Organizations are governed
by Administrative Services Plans (the "Plans") adopted by the Companies.
Pursuant to the Plans, each Company's Board of Directors will review, at least
quarterly, a written report of the amounts expended under the Company's
agreements with Shareholder Organizations and the purposes for which the
expenditures were made. In addition, the arrangements with Shareholder
Organizations will be approved annually by a majority of each Company's
directors, including a majority of the directors who are not "interested
persons" of the Company as defined in the 1940 Act and have no direct or
indirect financial interest in such arrangements (the "Disinterested
Directors").

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

For the fiscal years ended March 31, 1998, 1997 and 1996, payments to
Shareholder Organizations totaled $231,371, $215,140 and $227,463; $168,833,
$184,235 and $172,980; $82,614, $79,008 and $46,887; and $627,413, $502,764 and
$353,419 with respect to the Money, Government Money, Treasury Money and Tax-
Exempt Money Funds, respectively. Of these respective amounts, $231,347,
$215,090 and $227,463; $168,139, $182,579 and $168,064; $82,614, $79,008 and
$46,887; and $627,412, $502,764 and $353,419 were paid to affiliates of U.S.
Trust with respect to the Money, Government Money, Treasury Money and Tax-Exempt
Money Funds, respectively.

-20-
<PAGE>

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 the
Companies' directors and officers who are not affiliated with the Distributor or
the Administrators); SEC fees; state securities qualifications fees; costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to shareholders; advisory, administration and administrative servicing fees;
charges of the custodian, transfer agent, and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; cost of independent
pricing services; costs of shareholder reports and shareholder meetings; and any
extraordinary expenses. The Funds also pay for brokerage fees and commissions
in connection with the purchase of portfolio securities.

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

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

U.S. Trust New York serves as the Funds' transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust New York has agreed to: (i)
issue and redeem Shares; (ii) address and mail all communications by the Funds
to their shareholders, including reports to shareholders, dividend and
distribution notices, and proxy materials for its meetings of shareholders;
(iii) respond to correspondence by shareholders and others relating to its
duties; (iv) maintain shareholder accounts; and (v) make periodic reports to
each Company's Board of Directors concerning the Funds' operations. For its
transfer agency, dividend disbursing, and 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
Agreements, notwithstanding any delegation. Pursuant to this provision in the
agreement, U.S. Trust New York has entered into a sub-transfer agency
arrangement with CGFSC, an affiliate of Chase, with respect to accounts of
shareholders who are not Customers of U.S. Trust New York. For the services
provided by CGFSC, U.S. Trust New York has agreed to pay CGFSC $15.00 per annum
per account or subaccount plus out-of-pocket expenses. CGFSC receives no fee
directly from the Companies for any of its sub-transfer agency

-21-
<PAGE>

services. U.S. Trust New York may, from time to time, enter into sub-transfer
agency arrangements with third party providers of transfer agency services.

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

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

The Funds do not intend to seek profits from short-term trading.
Their annual portfolio turnover will be relatively high, but brokerage
commissions are not normally paid on money market instruments, and portfolio
turnover is not expected to have a material effect on the net income of the
Funds.

Securities purchased and sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
With respect to over-the-counter transactions, the Funds, where possible, will
deal directly with the dealers who make a market in the securities involved,
except in those circumstances where better prices and execution are available
elsewhere.

The Investment Advisory Agreements between the Companies and the
Investment Adviser provide 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 the Companies, and the reasonableness of the commission, if any, for
the specific transaction and on a continuing basis.

In addition, the Investment Advisory Agreements authorize the
Investment Adviser, to the extent permitted by law and subject to the review of
the Companies' Boards of Directors from time to time with respect to the extent
and continuation of the policy, to cause the Funds to pay a broker which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker for effecting the same transaction, provided
that the 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.

-22-
<PAGE>

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, the 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 the Funds
and another investment company or common trust fund, the transaction will be
averaged as to price, and available investments allocated as to amount, in a
manner which the Investment Adviser believes to be equitable to the Funds and
such other investment company or common trust fund. In some instances, this
investment procedure may adversely affect the price paid or received by the
Funds or the size of the position obtained by the Funds. To the extent
permitted by law, the 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.

The Companies are required to identify any securities of their regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their
parents held by the Funds as of the close of the most recent fiscal year. As of
March 31, 1998, none of the Funds held any securities of Excelsior Fund's or
Excelsior Tax-Exempt Fund's regular brokers or dealers or their parents.

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

Ernst & Young LLP, independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of the Companies. The Funds' Financial Highlights
included in the Prospectus and the financial statements for the period ended
March 31, 1998 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 the
Companies, and Mr. Malloy, Assistant Secretary of the Companies, are partners),
Philadelphia National Bank Building, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107, is counsel to the Companies, and will pass upon the legality
of the Shares offered by the Prospectus.

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

-23-
<PAGE>

Generally
- ---------

The following supplements the tax information contained in the
Prospectus.

Each of the Funds 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.

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.

Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends 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."

Tax-Exempt Money Fund
- ---------------------

The Tax-Exempt Money Fund is not intended to constitute a balanced
investment program and is not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Tax-Exempt Money Fund would not be suitable for tax-
exempt institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and individual retirement accounts
because such plans and accounts are generally tax-exempt and, therefore, not
only would not gain any additional benefit from the Tax-Exempt Money Fund
dividends being tax-exempt, but such dividends would be ultimately taxable to
the beneficiaries when distributed to them. In addition, the Tax-Exempt Money
Fund may not be an appropriate investment for entities which are "substantial
users" of facilities financed by private activity bonds or "related persons"
thereof. "Substantial user" is defined under the Treasury Regulations to
include a non-exempt person who regularly uses a part of such facilities in his
trade or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, who occupies more than 5% of
the usable area of such facilities or for whom such facilities or a part thereof
were specifically constructed, reconstructed or acquired. "Related persons"
include certain related natural persons, affiliated corporations, a partnership
and its partners and an S Corporation and its shareholders.

-24-
<PAGE>

In order for the Tax-Exempt Money Fund to pay exempt-interest
dividends for any taxable year, at least 50% of the aggregate value of the
Fund's portfolio must consist of exempt-interest obligations at the close of
each quarter of its taxable year. Within 60 days after the close of the taxable
year, the Tax-Exempt Money Fund will notify its shareholders of the portion of
the dividends paid by the Fund which constitutes an exempt-interest dividend
with respect to such taxable year. However, the aggregate amount of dividends
so designated by the Tax-Exempt Money Fund cannot exceed the excess of the
amount of interest exempt from tax under Section 103 of the Code received by the
Tax-Exempt Money Fund during the taxable year over any amounts disallowed as
deductions under Sections 265 and 171(a)(2) of the Code. The percentage of
total dividends paid by the Tax-Exempt Money Fund with respect to any taxable
year which qualifies as exempt-interest dividends will be the same for all
shareholders receiving dividends from the Tax-Exempt Money Fund for such year.

Interest on indebtedness incurred by a shareholder to purchase or
carry the Tax-Exempt Money Fund's Shares generally is not deductible for Federal
income tax purposes.

Excelsior Tax-Exempt Fund intends to distribute to shareholders of the
Tax-Exempt Money Fund any investment company taxable income earned by the Tax-
Exempt Money Fund for each taxable year. In general, the Tax-Exempt Money
Fund's investment company taxable income will be its taxable income (including
taxable interest and short-term capital gains) subject to certain adjustments
and excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year. Such distributions
will be taxable to the shareholders as ordinary income (whether paid in cash or
additional Shares).

* * *

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

YIELD INFORMATION
-----------------

The standardized annualized seven-day yields for the Shares of the
Funds are computed separately by determining the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account in the Fund
involved, having a balance of one Share at the beginning of the period, dividing
the net change in account value by the value of the account at the beginning of
the period to obtain the base period return, and multiplying the base period
return by (365/7). The net change in the value of an account in each of the
Funds includes the value of additional Shares purchased with dividends from the
original Share and dividends declared on both the original Share and any such
additional Shares, net of all fees that are charged to all shareholder accounts
and to the particular series of Shares in proportion to the length of the base
period, other than nonrecurring account or any sales charges. For any account
fees that vary with the size of the account, the amount of fees charged is
computed with respect to the Fund's mean (or median) account size. The capital
changes to be excluded from the

-25-
<PAGE>

calculation of the net change in account value are realized gains and losses
from the sale of securities and unrealized appreciation and depreciation. In
addition, each Fund may use effective compound yield quotations for its Shares
computed by adding 1 to the unannualized base period return (calculated as
described above), raising the sums to a power equal to 365 divided by 7, and
subtracting 1 from the results.

From time to time, in advertisements, sales literature or in reports
to shareholders, the yields of each Money Market Fund's Shares may be quoted and
compared to those of other mutual funds with similar investment objectives and
to stock or other relevant indices. For example, the yield of such a Fund's
Shares may be compared to the Donoghue's Money Fund average, which is an average
compiled by Donoghue's MONEY FUND REPORT of Holliston, MA 01746, a widely
recognized independent publication that monitors the performance of money market
funds, or to the data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service that monitors the performance of mutual funds.
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.

The current yields for the Funds' Shares may be obtained by calling
(800) 446-1012. For the seven-day period ended March 31, 1998, the annualized
yields for Shares of the Money Fund, Government Money Fund, Treasury Money Fund
and Tax-Exempt Money Fund were 5.08%, 5.07%, 4.79% and 3.09%, respectively, and
the effective yields for Shares of such respective Funds were 5.21%, 5.19%,
4.90% and 3.14%.

The "tax-equivalent" yield of the Tax-Exempt Money Fund is computed
by: (a) dividing the portion of the yield (calculated as above) that is exempt
from Federal income tax by one minus a stated Federal income tax rate and (b)
adding that figure to that portion, if any of the yield that is not exempt from
Federal income tax. Tax-equivalent yields assume the payment of Federal income
taxes at a rate of 31%.

Based on the foregoing calculation, the annualized tax-equivalent
yield of the Tax-Exempt Money Fund for the seven-day period ended March 31, 1998
was 4.48%.

-26-
<PAGE>

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 the Company involved not belonging to a particular portfolio of that
Company. In determining the net asset value of a Fund's Shares, assets
belonging to the Fund are charged with the direct liabilities in respect of that
Fund and with a share of the general liabilities of the Company involved which
are normally allocated in proportion to the relative asset values of the
Company's portfolios at the time of allocation. Subject to the provisions of
the Companies' Charters, determinations by the Boards of Directors as to the
direct and allocable liabilities, and the allocable portion of any general
assets with respect to a particular Fund, are conclusive.

As of July 8, 1998, U.S. Trust and its affiliates held of record
substantially all of the Companies' outstanding shares as agent or custodian for
their customers, but did not own such shares beneficially because they did not
have voting or investment discretion with respect to such shares.

As of July 8, 1998, 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: Government Money Fund: Siemans Sinking Fund, c/o United
States Trust Company of New York, 114 West 47th Street, New York, New York
10036, 12.11%; and TBS Shipping International LTD, c/o United States Trust
Company of New York, 114 West 47th Street, New York, New York 10036, 6.24%; and
Treasury Money Fund: AT&T Sinking Fund, c/o United States Trust Company of New
York, 114 West 47th Street, New York, New York 10036, 8.07%.

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

The audited financial statements and notes thereto in the Companies'
Annual Reports to Shareholders for the fiscal year ended March 31, 1998 (the
"1998 Annual Reports") for the Funds are incorporated in this Statement of
Additional Information by reference. No other parts of the 1998 Annual Reports
are incorporated by reference herein. The financial statements included in the
1998 Annual Reports for the Money, Government Money, Treasury Money and Tax-
Exempt Money Funds have been audited by the Companies' independent auditors,
Ernst & Young LLP, whose reports thereon also appear in the 1998 Annual Reports
and are incorporated herein by reference. Such financial statements have been
incorporated herein in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing. Additional copies of the 1998
Annual Reports may be obtained at no charge by telephoning CGFSC at the
telephone number appearing on the front page of this Statement of Additional
Information.

-27-
<PAGE>

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

Commercial Paper Ratings
- ------------------------

A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:

"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment is strong. Within this
category, certain obligations are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.

"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
rated "A-1". However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.

"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.

"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.

"C" - Obligations are currently vulnerable to nonpayment and are
dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.

"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes such payments will
be made during such grace period. The "D" rating will also be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.

Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually debt obligations not having an original maturity in
excess of one year, unless explicitly noted. The following summarizes the
rating categories used by Moody's for commercial paper:

A-1
<PAGE>

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

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

"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.

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

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

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

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

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

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

"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.

A-2
<PAGE>

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

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

Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:

"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.

"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of securities rated
"F1".

"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to non-
investment grade.

"B" - Securities possess speculative credit quality. this designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.

"C" - Securities possess high default risk. This designation
indicates that the capacity for meeting financial commitments is solely reliant
upon a sustained, favorable business and economic environment.

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

Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:

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

A-3
<PAGE>

"TBW-2" - This designation represents Thomson BankWatch's second-
highest category and indicates that while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1."

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

"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.

Corporate and Municipal Long-Term Debt Ratings
- ----------------------------------------------

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

"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.

"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.

"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.

"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

"BB" - Debt is less vulnerable to non-payment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or

A-4
<PAGE>

economic conditions which could lead to the obligor's inadequate capacity to
meet its financial commitment on the obligation.

"B" - Debt is more vulnerable to non-payment than obligations rated
"BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.

"CCC" - Debt is currently vulnerable to non-payment, and is dependent
upon favorable business, financial and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.

"CC" - An obligation rated "CC" is currently highly vulnerable to non-
payment.

"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.

"D" - An obligation rated "D" is in payment default. This rating is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition or the taking of similar action if payments
on an obligation are jeopardized.

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

"r" - This 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:

A-5
<PAGE>

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

"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower 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 are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

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

Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in 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.

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.

A-6
<PAGE>

"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 ratings used by Fitch IBCA for corporate
and municipal bonds:

"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of investment risk
and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is very unlikely to be
adversely affected by foreseeable events.

"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of investment risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.

"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of investment risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to adverse changes in circumstances or in
economic conditions than bonds with higher ratings.

"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
investment risk. The capacity for timely payment of financial commitments is
adequate, but adverse changes in circumstances and in economic conditions are
more likely to impair this category.

A-7
<PAGE>

"BB" - Bonds considered to be speculative. These ratings indicate
that there is a possibility of credit risk developing, particularly as the
result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.

"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.

"CCC", "CC", "C" - Bonds have high default risk. Capacity for meeting
financial commitments is reliant upon sustained, favorable business or economic
developments. "CC" ratings indicate that default of some kind appears probable,
and "C" ratings signal imminent default.

"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery on these securities, and "D" represents the lowest
potential for recovery.

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

A-8
<PAGE>

"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 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 a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.

"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.

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

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

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

A-9
<PAGE>

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

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

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

"SG" - This designation denotes speculative quality and lack of
margins of protection.

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

A-10
<PAGE>

CROSS-REFERENCE SHEET
---------------------

EXCELSIOR FUNDS, INC.
(Short-Term Government Securities,
Intermediate-Term Managed Income and Managed Income Funds)

Form N-1A, Part A, Item Prospectus Caption
- ----------------------- ------------------

1. Cover Page........................... Cover Page

2. Synopsis............................. Prospectus Summary; Expense
Summary

3. Condensed Financial Information...... Financial Highlights;
Performance and Yield
Information

4. General Description of Registrant.... Prospectus Summary;
Investment Objectives and
Policies; Portfolio Instruments
and Other Investment
Information; Investment
Limitations

5. Management of the Fund............... Management of the Funds;
Custodian and Transfer Agent;
Expenses

5A. Management's Discussion of Fund
Performance.......................... Not Applicable

6. Capital Stock and
Other Securities.................... How to Purchase and Redeem
Shares; Dividends and
Distributions; Taxes; Description
of Capital Stock; Miscellaneous

7. Purchase of Securities
Being Offered....................... Pricing of Shares; How to
Purchase and Redeem Shares;
Investor Programs

8. Redemption or Repurchase............. How to Purchase and Redeem
Shares

9. Pending Legal Proceedings............ Not Applicable

<PAGE>

LOGO EXCELSIOR
FUNDS INC.

Excelsior Fixed-Income Funds
- -------------------------------------------------------------------------------

73 Tremont Street For initial purchase information, current
Boston, Massachusetts 02108-3913 prices, yield and performance information
and existing account information, call (800)
446-1012. (From overseas, call (617) 557-
8280.)
- -------------------------------------------------------------------------------

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

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

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

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

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

This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1998 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to Excelsior Fund at its address shown above or by calling
(800) 446-1012. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus. The Securities and Exchange Commission maintains a World Wide
Web site (http://www.sec.gov) that contains the Statement of Additional Infor-
mation and other information regarding Excelsior Fund.

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

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

August 1, 1998
<PAGE>

PROSPECTUS SUMMARY

EXCELSIOR FUNDS, INC. is an investment company offering various investment
portfolios with differing objectives and policies. Founded in 1984, Excelsior
Fund currently offers 18 Funds with combined assets of approximately $4 bil-
lion. See "Description of Capital Stock."

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

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

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

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

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

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

2
<PAGE>

EXPENSE SUMMARY

<TABLE>
<CAPTION>
SHORT-TERM INTERMEDIATE- MANAGED
GOVERNMENT TERM MANAGED INCOME
SECURITIES FUND INCOME FUND FUND
--------------- ------------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load .................... None None None
Sales Load on Reinvested Dividends....... None None None
Deferred Sales Load...................... None None None
Redemption Fee........................... None None None
Exchange Fees............................ None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (after fee waivers)/1/..... .23% .30% .63%
12b-1 Fees............................... None None None
Other Operating Expenses
Administrative Servicing Fee/1/........ .06% .05% .03%
Other Expenses......................... .33% .26% .24%
---- ---- ----
Total Operating Expenses (after fee
waivers)/1/............................. .62% .61% .90%
==== ==== ====
</TABLE>
- --------

1. The Investment Adviser and administrators may from time to time voluntarily
waive part of their respective fees, which waivers may be terminated at any
time. Until further notice, the Investment Adviser and/or administrators
intend to voluntarily waive fees in an amount equal to the Administrative
Servicing Fee; and to further waive fees and reimburse expenses to the ex-
tent necessary for the Short-Term Government Securities and Intermediate-
Term Managed Income Funds to maintain annual expense ratios of not more
than .62% and .72%, respectively. Without such fee waivers, "Advisory Fees"
would be .30%, .35% and .75%, and "Total Operating Expenses" would be .69%,
.66% and 1.02% for the Short-Term Government Securities, Intermediate-Term
Managed Income and Managed Income Funds, respectively.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Short-Term Government Securities Fund........... $ 6 $20 $35 $ 77
Intermediate-Term Managed Income Fund........... 6 20 34 76
Managed Income Fund............................. 9 29 50 111
</TABLE>

The foregoing expense summary and example are intended to assist the in-
vestor in understanding the costs and expenses that an investor in Shares of
the Funds will bear directly or indirectly. The expense summary sets forth ad-
visory and other expenses payable with respect to Shares of the Funds for the
fiscal year ended March 31, 1998. For more complete descriptions of the Funds'
operating expenses, see "Management of the Funds" in this Prospectus and the
financial statements and notes incorporated by reference in the Statement of
Additional Information.

3
<PAGE>

FINANCIAL HIGHLIGHTS

The following tables include selected data for a Share outstanding throughout
each period and other performance information derived from the financial state-
ments included in Excelsior Fund's Annual Report to Shareholders for the year
ended March 31, 1998 (the "Financial Statements"). The information contained in
the Financial Highlights for each period has been audited by Ernst & Young LLP,
Excelsior Fund's independent auditors. The following tables should be read in
conjunction with the Financial Statements and notes thereto. More information
about the performance of each Fund is also contained in the Annual Report to
Shareholders, which may be obtained from Excelsior Fund without charge by call-
ing the number on the front cover of this Prospectus.

SHORT-TERM GOVERNMENT SECURITIES FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------- PERIOD ENDED
1998 1997 1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 6.93 $ 6.98 $ 6.89 $ 6.93 $ 7.06 $ 7.00
------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income.. 0.37 0.38 0.40 0.33 0.24 0.06
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 0.07 (0.06) 0.09 (0.04) (0.09) 0.06
------ ------ ------ ------ ------ ------
Total From Investment
Operations............. 0.44 0.32 0.49 0.29 0.15 0.12
------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income..... (0.37) (0.37) (0.40) (0.33) (0.24) (0.06)
Dividends From Net
Realized Gain on
Investments........... 0.00 0.00 0.00 0.00 (0.02) 0.00
Distributions in Excess
of Net Realized Gain
on Investments........ 0.00 0.00 0.00 0.00 (0.02) 0.00
------ ------ ------ ------ ------ ------
Total Distributions..... (0.37) (0.37) (0.40) (0.33) (0.28) (0.06)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $ 7.00 $ 6.93 $ 6.98 $ 6.89 $ 6.93 $ 7.06
====== ====== ====== ====== ====== ======
Total Return............ 6.47% 4.77% 7.27% 4.30% 2.12% 1.70%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $32.55 $30.80 $25.07 $25.22 $25.23 $13.37
Ratio of Net Operating
Expenses to Average
Net Assets............ 0.62% 0.61% 0.61% 0.61% 0.62% 0.62%/2/
Ratio of Gross
Operating Expenses to
Average Net Assets/3/. 0.69% 0.70% 0.80% 0.67% 0.65% 0.82%/2/
Ratio of Net Income to
Average Net Assets.... 5.28% 5.42% 5.72% 4.80% 3.42% 3.62%/2/
Portfolio Turnover
Rate.................. 35.0% 82.0% 77.0% 198.0% 267.0% 93.0%/2/
</TABLE>
- --------
NOTES:
1. Inception date of the Fund was December 31, 1992.

2. Annualized.

3. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

4
<PAGE>

INTERMEDIATE-TERM MANAGED INCOME FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
PERIOD ENDED
1998 1997 1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 6.87 $ 7.06 $ 6.75 $ 6.83 $ 7.19 $ 7.00
------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income.. 0.41 0.41 0.43 0.39 0.31 0.08
Net Gains or (Losses)
on Securities (both
realized
and unrealized)....... 0.36 (0.19) 0.31 (0.07) (0.27) 0.19
------ ------ ------ ------ ------ ------
Total From Investment
Operations............. 0.77 0.22 0.74 0.32 0.04 0.27
------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income..... (0.41) (0.41) (0.43) (0.39) (0.31) (0.08)
Dividends From Net
Realized Gain on
Investments........... 0.00 0.00 0.00 0.00 0.00 0.00
Distributions in Excess
of Net Realized Gain
on Investments........ 0.00 0.00 0.00 (0.01) (0.09) 0.00
------ ------ ------ ------ ------ ------
Total Distributions..... (0.41) (0.41) (0.43) (0.40) (0.40) (0.08)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $ 7.23 $ 6.87 $ 7.06 $ 6.75 $ 6.83 $ 7.19
====== ====== ====== ====== ====== ======
Total Return............ 11.37% 3.25% 11.13% 4.95% 0.45% 3.86%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $94.94 $78.44 $68.64 $47.93 $42.56 $19.48
Ratio of Net Operating
Expenses to Average
Net Assets............ 0.61% 0.63% 0.64% 0.66% 0.69% 0.72%/2/
Ratio of Gross
Operating Expenses to
Average Net Assets/3/. 0.66% 0.68% 0.68% 0.68% 0.69% 0.98%/2/
Ratio of Net Income to
Average Net Assets.... 5.68% 5.91% 6.06% 5.91% 4.31% 4.69%/2/
Portfolio Turnover
Rate.................. 86.0% 129.0% 129.0% 682.0% 385.0% 66.0%/2/
</TABLE>
- --------
NOTES:
1.Inception date of the Fund was December 31, 1992.

2.Annualized.

3. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

5
<PAGE>

MANAGED INCOME FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------ ------ ------- ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year...... $ 8.60 $ 8.84 $ 8.39 $ 8.57 $ 9.64 $ 9.15 $ 9.12 $ 8.77 $ 8.51 $ 8.61
------- ------- ------ ------ ------- ------- ------ ------ ------ -------
Income From Investment
Operations
Net Investment Income.. 0.49 0.51 0.55 0.51 0.47 0.58 0.65 0.67 0.69 0.66
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 0.58 (0.24) 0.44 (0.18) (0.26) 0.79 0.27 0.44 0.32 (0.06)
------- ------- ------ ------ ------- ------- ------ ------ ------ -------
Total From Investment
Operations............. 1.07 0.27 0.99 0.33 0.21 1.37 0.92 1.11 1.01 0.60
------- ------- ------ ------ ------- ------- ------ ------ ------ -------
Less Distributions
Dividends From Net
Investment Income..... (0.49) (0.51) (0.54) (0.51) (0.47) (0.58) (0.65) (0.67) (0.69) (0.66)
Dividends From Net
Realized Gain on
Investments........... (0.01) 0.00 0.00 0.00 (0.31) (0.30) (0.24) (0.09) (0.06) (0.04)
Distributions in Excess
of Net Realized Gain
on Investments........ 0.00 0.00 0.00 0.00 (0.50) 0.00 0.00 0.00 0.00 0.00
------- ------- ------ ------ ------- ------- ------ ------ ------ -------
Total Distributions..... (0.50) (0.51) (0.54) (0.51) (1.28) (0.88) (0.89) (0.76) (0.75) (0.70)
------- ------- ------ ------ ------- ------- ------ ------ ------ -------
Net Asset Value, End of
Year................... $ 9.17 $ 8.60 $ 8.84 $ 8.39 $ 8.57 $ 9.64 $ 9.15 $ 9.12 $ 8.77 $ 8.51
======= ======= ====== ====== ======= ======= ====== ====== ====== =======
Total Return............ 12.79% 3.17% 11.86% 4.06% 1.73% 15.74% 10.36% 13.37% 12.03% 7.18%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $196.10 $185.90 $88.90 $86.02 $110.90 $110.62 $96.32 $52.74 $38.75 $ 19.53
Ratio of Net Operating
Expenses to Average
Net Assets............ 0.90% 0.90% 0.96% 1.00% 0.90% 0.89% 1.05% 1.11% 1.13% 1.07%
Ratio of Gross
Operating Expenses to
Average Net Assets/1/. 1.02% 1.04% 1.12% 1.12% 1.06% 1.04% 1.05% 1.11% 1.14% 1.24%
Ratio of Net Income to
Average Net Assets.... 5.51% 5.90% 6.09% 6.09% 4.89% 6.19% 6.97% 7.57% 7.73% 7.69%
Portfolio Turnover
Rate.................. 538.0% 238.0% 165.0% 492.0% 459.0% 455.0% 369.0% 342.0% 350.0% 1226.0%
</TABLE>
- --------
NOTES:

1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

6
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

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

SHORT-TERM GOVERNMENT SECURITIES FUND

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

INTERMEDIATE-TERM MANAGED INCOME FUND

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

MANAGED INCOME FUND

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

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

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

7
<PAGE>

Under normal market conditions, at least 75% of the Intermediate-Term Man-
aged Income and Managed Income Fund's total assets will be invested in invest-
ment-grade debt obligations rated within the three highest ratings of Standard
& Poor's Ratings Services ("S&P") or Moody's Investor Service, Inc.
("Moody's") (or in unrated obligations considered to be of comparable credit
quality by the Investment Adviser) and in U.S. Government obligations and
money market instruments of the types listed below under "Money Market Instru-
ments." When, in the opinion of the Investment Adviser, a defensive investment
posture is warranted, the Funds may invest temporarily and without limitation
in high quality, short-term money market instruments.

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

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

RISK FACTORS

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

The Intermediate-Term Managed Income and Managed Income Funds' investments
in obligations rated below the four highest ratings of S&P and Moody's have
different risks than investments in securi-

8
<PAGE>

ties that are rated "investment grade." Risk of loss upon default by the bor-
rower is significantly greater because lower-rated securities are generally
unsecured and are often subordinated to other creditors of the issuer, and be-
cause the issuers frequently have high levels of indebtedness and are more
sensitive to adverse economic conditions, such as recessions, individual cor-
porate developments and increasing interest rates than are investment grade
issuers. As a result, the market price of such securities, and the net asset
value of the Funds' Shares, may be particularly volatile.

Additional risks associated with lower-rated fixed-income securities are (a)
the relative youth and growth of the market for such securities, (b) the rela-
tively low trading market liquidity for the securities, (c) the impact that
legislation may have on the high-yield bond market (and, in turn, on the
Funds' net asset value and investment practices), (d) the operation of manda-
tory sinking fund or call/redemption provisions during periods of declining
interest rates whereby the Funds may be required to reinvest premature redemp-
tion proceeds in lower yielding portfolio securities, and (e) the creditwor-
thiness of the issuers of such securities. During an economic downturn or sub-
stantial period of rising interest rates, highly-leveraged issuers may experi-
ence financial stress which would adversely affect their ability to service
their principal and interest payment obligations, to meet projected business
goals and to obtain additional financing. An economic downturn could also dis-
rupt the market for lower-rated bonds generally and adversely affect the value
of outstanding bonds and the ability of the issuers to repay principal and in-
terest. If the issuer of a lower-rated security held by the Intermediate-Term
Managed Income or Managed Income Funds defaulted, the Fund could incur addi-
tional expenses to seek recovery. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may also decrease the values and
liquidity of lower-rated securities held by the Fund, especially in a thinly
traded market. Finally, the Funds' trading in fixed-income securities to
achieve capital appreciation entails risks that capital losses rather than
gains will result. As a result, investment in the Intermediate-Term Managed
Income and Managed Income Funds should not be considered a complete investment
program.

Debt obligations rated "BB," "B" or "CCC" by S&P are regarded, on balance,
as predominately speculative with respect to capacity to pay interest and re-
pay principal in accordance with the terms of the obligation. "BB" represents
the lowest degree of speculation and "CCC" the highest degree of speculation.
While such debt will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major risk exposures to ad-
verse conditions. The rating "CC" is typically applied to a debt obligation
that is highly vulnerable to non-payment. The rating "C" is typically used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued. Debt obligations rated "D" are in default, and pay-
ments of interest and/or repayment of principal is in arrears. The ratings
from "AA" through "CCC" are sometimes modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Moody's has a similar classification scheme for non-investment grade debt ob-
ligations. Debt obligations rated "Ba," "B," "Caa," "Ca" and "C" provide ques-
tionable protection of interest and principal. The rating "Ba" indicates that
a debt obligation has some speculative characteristics. The rating "B" indi-
cates a general lack of characteristics of desirable investment. Debt obliga-
tions rated "Caa" are of poor quality, while debt obligations rated "Ca" are
considered highly speculative. "C" represents the lowest rated class of debt
obligations. Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier "1"
indicates that a security ranks in the higher end of its rating category; the
modifier "2" reflects a mid-range ranking; and the modifier "3" indicates that
the security ranks at the lower end of its generic rating category.

Year 2000. Like other investment companies, financial and business organiza-
tions and individuals around the world, the Funds could be affected adversely
if the computer systems used by the Investment Adviser and the Funds' other
service providers do not properly process and calculate date-related informa-
tion and data from and after January 1, 2000. This is commonly known as the
"Year 2000 Problem." The Investment Adviser and the Funds' other service prov-
iders have informed Excelsior Fund that they are taking steps to address the
Year 2000 Problem with respect to the computer systems that they use. At

9
<PAGE>

this time, however, there can be no assurance that these steps will be suffi-
cient to avoid any adverse impact on the Funds as a result of the Year 2000
Problem.

PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION

MONEY MARKET INSTRUMENTS

Money market instruments that may be purchased by the Intermediate-Term Man-
aged Income and Managed Income Funds in accordance with their investment ob-
jectives and policies stated above include, among other things, bank obliga-
tions, commercial paper and corporate bonds with remaining maturities of 13
months or less.

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

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

GOVERNMENT OBLIGATIONS

Government obligations acquired by the Funds include obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities. Such
investments may include obligations issued by the Farm Credit System Financial
Assistance Corporation, the Federal Financing Bank, the General Services Ad-
ministration, Federal Home Loan Banks and the Tennessee Valley Authority. Ob-
ligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury; others are sup-
ported by the right of the issuer to borrow from the Treasury; others are sup-
ported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others are supported only by the credit of the in-
strumentality. No assurance can be given that the U.S. Government would pro-
vide financial support to U.S. Government-sponsored instrumentalities if it is
not obligated to do so by law. Obligations of such instrumentalities will be
purchased only when the Investment Adviser believes that the credit risk with
respect to the instrumentality is minimal. The Statement of Additional Infor-
mation contains further information on the various types of U.S. Government
obligations.

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<PAGE>

REPURCHASE AGREEMENTS

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

The seller under a repurchase agreement will be required to maintain the
value of the obligations subject to the agreement at not less than the repur-
chase price. Default or bankruptcy of the seller would, however, expose a Fund
to possible delay in connection with the disposition of the underlying securi-
ties or loss to the extent that proceeds from a sale of the underlying securi-
ties were less than the repurchase price under the agreement. Income on the
repurchase agreements will be taxable.

INVESTMENT COMPANY SECURITIES

The Funds may also invest in securities issued by other investment companies
which invest in high-quality, short-term securities and which determine their
net asset value per share based on the amortized cost or penny-rounding meth-
od. In addition to the advisory fees and other expenses a Fund bears directly
in connection with its own operations, as a shareholder of another investment
company, a Fund would bear its pro rata portion of the other investment
company's advisory fees and other expenses. As such, the Fund's shareholders
would indirectly bear the expenses of the Fund and the other investment compa-
ny, some or all of which would be duplicative. Such securities will be ac-
quired by the Funds within the limits prescribed by the Investment Company Act
of 1940, as amended (the "1940 Act"), which include, subject to certain excep-
tions, a prohibition against a Fund investing more than 10% of the value of
its total assets in such securities.

WHEN-ISSUED AND FORWARD TRANSACTIONS AND STAND-BY COMMITMENTS

Each of the Funds may purchase eligible securities on a "when-issued" basis
and may purchase or sell securities on a "forward commitment" basis. These
transactions involve a commitment by a Fund to purchase or sell particular se-
curities with payment and delivery taking place in the future, beyond the nor-
mal settlement date, at a stated price and yield. Securities purchased on a
"forward commitment" or "when-issued" basis are recorded as an asset and are
subject to changes in value based upon changes in the general level of inter-
est rates. It is expected that forward commitments and "when-issued" purchases
will not exceed 25% of the value of a Fund's total assets absent unusual mar-
ket conditions, and that the length of such commitments will not exceed 45
days. The Funds do not intend to engage in "when-issued" purchases and forward
commitments for speculative purposes, but only in furtherance of their invest-
ment objectives.

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

11
<PAGE>

TYPES OF MUNICIPAL BONDS

The two principal classifications of Municipal Bonds which may be held by
the Intermediate-Term Managed Income and Managed Income Funds are "general ob-
ligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit, and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise tax or other specific
revenue source such as user fees of the facility being financed. Private ac-
tivity bonds held by the Funds are in most cases revenue securities and are
not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity revenue bonds is usually directly related
to the credit standing of the corporate user of the facility involved.

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

FUTURES CONTRACTS

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

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

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

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

12
<PAGE>

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

SECURITIES LENDING

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

BORROWING AND REVERSE REPURCHASE AGREEMENTS

ILLIQUID SECURITIES

No Fund will knowingly invest more than 10% of the value of its net assets
in securities that are illiquid. A security will be considered illiquid if it
may not be disposed of within seven days at approximately the value at which
the particular Fund has valued the security. Each Fund may purchase securities
which are not registered under the Securities Act of 1933, as amended (the
"Act"), but which can be sold to "qualified institutional buyers" in accor-
dance with Rule 144A under the Act. Any such security will not be considered
illiquid so long as it is determined by the Investment Adviser, acting under
guidelines approved and monitored by the Board, that an adequate trading mar-
ket exists for that security. This investment practice could have the effect
of increasing the level of illiquidity in a Fund during any period that quali-
fied institutional buyers are no longer interested in purchasing these re-
stricted securities.

PORTFOLIO TURNOVER

Although each Fund generally seeks to invest for the long term, each Fund
may sell a portfolio investment immediately after its acquisition if the In-
vestment Adviser believes that such a disposition is consistent with a Fund's
investment objective. Portfolio investments may be sold for a variety of rea-
sons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold the investments. A high rate
of portfolio turnover may involve correspondingly greater transaction costs,
which must be borne directly by a Fund and ultimately by its shareholders.
Portfolio turnover will not be a limiting factor in making portfolio deci-
sions. High portfolio turnover

13
<PAGE>

may result in the realization of substantial net capital gains. To the extent
that net short-term capital gains are realized, any distributions resulting
from such gains are considered ordinary income for Federal income tax purposes.
(See "Financial Highlights" and "Taxes--Federal.")

INVESTMENT LIMITATIONS

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

A Fund may not:

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

2. Borrow money except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time
of such borrowing; or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed and 10% of the value of its total as-
sets at the time of such borrowing, provided that each Fund may enter into
futures contracts and futures options. (This borrowing provision is in-
cluded solely to facilitate the orderly sale of portfolio securities to ac-
commodate abnormally heavy redemption requests and is not for leverage pur-
poses.) A Fund will not purchase portfolio securities while borrowings in
excess of 5% of its total assets are outstanding;

3. Purchase any securities which would cause more than 25% of the value
of its total assets at the time of purchase to be invested in the securi-
ties of one or more issuers conducting their principal business activities
in the same industry, provided that (a) with respect to the Managed Income
Fund, there is no limitation with respect to securities issued or guaran-
teed by the U.S. Government or domestic bank obligations, (b) with respect
to the Short-Term Government Securities and Intermediate-Term Managed In-
come Funds, there is no limitation with respect to securities issued or
guaranteed by the U.S. Government and (c) neither all finance companies, as
a group, nor all utility companies, as a group, are considered a single in-
dustry for purposes of this policy; and

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

In addition, the Managed Income Fund may not:

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

6. Invest in obligations of foreign branches of financial institutions or
in domestic branches of foreign banks if immediately after such purchase
(i) more than 5% of the value of its total assets would be invested in ob-
ligations of any one foreign branch of the financial institution or domes-
tic branch of a foreign bank; or (ii) more than 20% of its total assets
would be invested in foreign branches of financial institutions or in do-
mestic branches of foreign banks.

* * *

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<PAGE>

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

In Investment Limitation No. 1 above: (a) a security is considered to be is-
sued by the governmental entity or entities whose assets and revenues back the
security, or, with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, such non-governmental us-
er; (b) in certain circumstances, the guarantor of a guaranteed security may
also be considered to be an issuer in connection with such guarantee; and (c)
securities issued or guaranteed by the United States Government, its agencies
or instrumentalities (including securities backed by the full faith and credit
of the United States) are deemed to be U.S. Government obligations.

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

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

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

PRICING OF SHARES

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

Assets in the Funds which are traded on a recognized stock exchange are val-
ued at the last sale price on the securities exchange on which such securities
are primarily traded or at the last sale price on the national securities mar-
ket. Securities traded on only over-the-counter markets are valued on the ba-
sis of closing over-the-counter bid prices. Securities for which there were no
transactions are valued at the average of the most recent bid and asked pric-
es. A futures contract is valued at the last sales price quoted on the princi-
pal exchange or board of trade on which such contract is traded, or in the ab-
sence of a sale, the mean between the last bid and asked prices. Restricted
securities and securities or other assets for which market quotations are not
readily available are valued at fair value pursuant to guidelines adopted by
the Board of Directors. Absent unusual circumstances, portfolio securities ma-
turing in 60 days or less are normally valued at amortized cost. The net asset
value of Shares in the Funds will fluctuate as the market value of their port-
folio securities changes in response to changing market rates of interest and
other factors.

15
<PAGE>

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

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

HOW TO PURCHASE AND REDEEM SHARES

DISTRIBUTOR

Shares in each Fund are continuously offered for sale by Excelsior Fund's
sponsor and distributor, Edgewood Services, Inc. (the "Distributor"), a whol-
ly-owned subsidiary of Federated Investors, Inc. The Distributor is a regis-
tered broker/dealer. Its principal business address is 5800 Corporate Drive,
Pittsburgh, PA 15237-5829.

PURCHASE OF SHARES

16
<PAGE>

The Distributor has established several procedures for purchasing Shares in
order to accommodate different types of investors.

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

PURCHASE PROCEDURES

General

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

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

Purchases by Wire

Investors may also purchase Shares by wiring Federal funds to CGFSC. Prior
to making an initial investment by wire, an Investor must telephone CGFSC at
(800) 446-1012 (from overseas, call

17
<PAGE>

(617) 557-8280) for instructions. Federal funds and registration instructions
should be wired through the Federal Reserve System to:

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

Other Purchase Information

Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500 per Fund. The minimum subse-
quent investment for both types of Investors is $50 per Fund. Customers may
agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may charge a Customer's account fees for auto-
matic investment and other cash management services provided. Excelsior Fund
reserves the right to reject any purchase order, in whole or in part, or to
waive any minimum investment requirements. Third party checks will not be ac-
cepted as payment for Fund Shares.

REDEMPTION PROCEDURES

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

Redemption by Mail

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

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

18
<PAGE>

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

Redemption by Wire or Telephone

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

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

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

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

19
<PAGE>

as well as certified checks, cashier's checks and Federal funds. If a Direct
Investor's purchase check is not collected, the purchase will be cancelled and
CGFSC will charge a fee of $25.00 to the Direct Investor's account.

Other Redemption Information

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

GENERAL

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

INVESTOR PROGRAMS

EXCHANGE PRIVILEGE

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

Excelsior Fund currently offers 15 additional portfolios as follows:

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

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

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

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

20
<PAGE>

Energy and Natural Resources Fund, a non-diversified fund seeking long-
term capital appreciation by investing in companies that are in the energy
and other natural resources groups of industries;

Value and Restructuring Fund, a fund seeking long-term capital apprecia-
tion by investing in companies benefitting from their restructuring or re-
deployment of assets and operations in order to become more competitive or
profitable;

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

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

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

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

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

Emerging Markets Fund, a fund seeking long-term capital appreciation
through investments primarily in equity securities of emerging country is-
suers.

Excelsior Tax-Exempt Fund currently offers 7 portfolios as follows:

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

New York Tax-Exempt Money Fund, a non-diversified tax-exempt money market
fund seeking a moderate level of current interest income exempt from Fed-
eral and, to the extent possible, New York State and New York City income
taxes through investments primarily in New York municipal obligations ma-
turing within 13 months;

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

California Tax-Exempt Income Fund, a non-diversified fund designed to
provide California investors with as high a level of current interest in-
come exempt from Federal and, to the extent possible,

21
<PAGE>

California state personal income taxes as is consistent with relative sta-
bility of principal; this fund invests primarily in California municipal
obligations and has a dollar-weighted average portfolio maturity of 3 to 10
years.

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

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

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

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

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

SYSTEMATIC WITHDRAWAL PLAN

22
<PAGE>

Shareholder Organizations may, at their discretion, establish similar sys-
tematic withdrawal plans with respect to the Shares held by their Customers.
Information about such plans and the applicable procedures may be obtained by
Customers directly from their institutions.

RETIREMENT PLANS

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

IRAs (including "rollovers" from existing retirement plans) for individu-
als and their spouses;

Profit Sharing and Money-Purchase Plans for corporations and self-em-
ployed individuals and their partners to benefit themselves and their em-
ployees; and

Keogh Plans for self-employed individuals.

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

AUTOMATIC INVESTMENT PROGRAM

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

To establish an Automatic Investment account permitting Investors to use the
Dollar Cost Averaging investment method described above, an Investor must com-
plete Section 8 of the New Account Application contained in this Prospectus
and mail it to CGFSC. An Investor may cancel his participation in this Program
or change the amount of purchase at any time by mailing written notification
to CGFSC, P.O. Box 2798, Boston, MA 02208-2798 and notification will be effec-
tive three Business Days following receipt. Excelsior Fund may modify or ter-
minate this privilege at any time or charge a service fee, although no such
fee currently is contemplated. An Investor may also implement the Dollar Cost
Averaging method on his own initiative or through other entities.

23
<PAGE>

DIVIDENDS AND DISTRIBUTIONS

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

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

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

TAXES

FEDERAL

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

Qualification as a regulated investment company requires, among other
things, that a Fund distribute to its shareholders an amount equal to at least
the sum of 90% of its investment company taxable income and 90% of its exempt-
interest income (if any), net of certain deductions for each taxable year. In
general, a Fund's investment company taxable income will be its income (in-
cluding interest) subject to certain adjustments and excluding the excess of
any net long-term capital gain for the taxable year over the net short-term
capital loss, if any, for such year. Each Fund intends to distribute substan-
tially all of its investment company taxable income each year. Such dividends
will be taxable as ordinary income to a Fund's shareholders who are not cur-
rently exempt from Federal income taxes, whether such income is received in
cash or reinvested in additional Shares. (Federal income taxes for distribu-
tions to IRAs and qualified pension plans are deferred under the Code.) The
dividends received deduction for corporations will apply to such distributions
to the extent of the total qualifying dividends received by a Fund from domes-
tic corporations for the taxable year. It is anticipated that only a small
part (if any) of the dividends paid by a Fund will be eligible for the divi-
dends received deduction.

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

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

24
<PAGE>

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

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

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

STATE AND LOCAL

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

MANAGEMENT OF THE FUNDS

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

INVESTMENT ADVISER

25
<PAGE>

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

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

The Intermediate-Term Managed Income Fund's portfolio manager, Frank A. Sa-
lem, is the person primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Salem, a Senior Vice President in U.S.
Trust's Fixed-Income Division, has been with U.S. Trust since April 1998 and
has managed the Fund since August 1998. Prior to joining U.S. Trust, Mr. Salem
was a Director and Portfolio Manager in the Fixed-Income Department of Mackay
Shields in New York from 1993 through 1998.

The Managed Income Fund's portfolio manager, Alexander R. Powers, is the
person primarily responsible for the day-to-day management of the Fund's in-
vestment portfolio. Mr. Powers, Managing Director of Taxable Fixed Income In-
vestments, has been with U.S. Trust since 1996 and has managed the Fund since
August 1997. Prior to joining U.S. Trust, Mr. Powers was a Manager of Fixed
Income Investments with Chase Asset Management.

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

Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the Funds pursuant to advisory agreements substantially similar to the Invest-
ment Advisory Agreements currently in effect for the Funds. For the fiscal
year ended March 31, 1998, U.S. Trust received advisory fees at the effective
annual rates of .23%, .30% and .63% of the average daily net assets of the
Short-Term Government Securities, Intermediate-Term Managed Income and Managed
Income Funds, respectively. For that same period, U.S. Trust waived advisory
fees at the effective annual rates of .07%, .05% and .12% of the average daily
net assets of the Short-Term Government Securities, Intermediate-Term Managed
Income and Managed Income Funds, respectively.

ADMINISTRATORS

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

26
<PAGE>

average daily net assets of the three companies (excluding the international
portfolios of Excelsior Fund and Excelsior Institutional Trust) as follows:

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

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

Prior to May 16, 1997, CGFSC, Federated Administrative Services and U.S.
Trust New York served as the Funds' administrators pursuant to an administra-
tion agreement substantially similar to the administration agreement currently
in effect for the Funds. For the fiscal year ended March 31, 1998, CGFSC, Fed-
erated Administrative Services and U.S. Trust received an aggregate adminis-
tration fee at the effective annual rates of .153%, .153% and .153% of the av-
erage daily net assets of the Short-Term Government Securities, Intermediate-
Term Managed Income and Managed Income Funds, respectively.

SHAREHOLDER ORGANIZATIONS

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

BANKING LAWS

27
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Excelsior Fund was organized as a Maryland corporation on August 2, 1984.
Currently, Excelsior Fund has authorized capital of 35 billion shares of Com-
mon Stock, $.001 par value per share, classified into 43 series of shares rep-
resenting interests in 18 investment portfolios. Excelsior Fund's Charter au-
thorizes the Board of Directors to classify or reclassify any class of shares
of Excelsior Fund into one or more classes or series. Shares of Class D, Class
S and Class T Common Stock represent interests in the Managed Income, Short-
Term Government Securities and Intermediate-Term Managed Income Funds, respec-
tively.

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

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

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

As of July 8, 1998, U.S. Trust and its affiliates held of record substan-
tially all of Excelsior Fund's outstanding shares as agent or custodian for
their customers, but did not own such shares beneficially because they did not
have voting or investment discretion with respect to such shares.

CUSTODIAN AND TRANSFER AGENT

PERFORMANCE AND YIELD INFORMATION

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

28
<PAGE>

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

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

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

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

MISCELLANEOUS

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

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

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

29
<PAGE>

INSTRUCTIONS FOR NEW ACCOUNT APPLICATION

OPENING YOUR ACCOUNT:

FOR OVERNIGHT DELIVERY: send to:
Complete the Application and mail to:

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

Please enclose with the Application your check made payable to the "Excel-
sior Funds" in the amount of your investment.

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

MINIMUM INVESTMENTS:

REDEMPTIONS:

SIGNATURES: Please be sure to sign the Application.

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

* A corporate resolution or appropriate certificate may be required.

QUESTIONS:

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

30
<PAGE>

PROSPECTUS AUGUST 1, 1998

LOGO EXCELSIOR
Funds, Inc.

SHORT-TERM GOVERNMENT SECURITIES FUND

INTERMEDIATE-TERM MANAGED INCOME FUND

MANAGED INCOME FUND

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................................................... 2
EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 4
INVESTMENT OBJECTIVES AND POLICIES.................................... 7
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION................ 10
INVESTMENT LIMITATIONS................................................ 14
PRICING OF SHARES..................................................... 15
HOW TO PURCHASE AND REDEEM SHARES..................................... 16
INVESTOR PROGRAMS..................................................... 20
DIVIDENDS AND DISTRIBUTIONS........................................... 24
TAXES................................................................. 24
MANAGEMENT OF THE FUNDS............................................... 25
DESCRIPTION OF CAPITAL STOCK.......................................... 28
CUSTODIAN AND TRANSFER AGENT.......................................... 28
PERFORMANCE AND YIELD INFORMATION..................................... 28
MISCELLANEOUS......................................................... 29
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION.............................. 30
</TABLE>

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

USTFXIP898

<PAGE>

EXCELSIOR FUNDS, INC.

Short-Term Government Securities Fund
Intermediate-Term Managed Income Fund
Managed Income Fund

EXCELSIOR TAX-EXEMPT FUNDS, INC.

Short-Term Tax-Exempt Securities Fund
Intermediate-Term Tax-Exempt Fund
Long-Term Tax-Exempt Fund

STATEMENT OF ADDITIONAL INFORMATION

August 1, 1998

This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectuses for the Short-Term Government
Securities Fund, Intermediate-Term Managed Income Fund and Managed Income Fund
of Excelsior Funds, Inc. ("Excelsior Fund") and the Short-Term Tax-Exempt
Securities Fund, Intermediate-Term Tax-Exempt Fund and Long-Term Tax-Exempt Fund
of Excelsior Tax-Exempt Funds, Inc. ("Excelsior Tax-Exempt Fund") dated August
1, 1998, respectively (the "Fixed-Income Funds Prospectus" and the "Tax-Exempt
Funds Prospectus," respectively; together, the "Prospectuses"). Much of the
information contained in this Statement of Additional Information expands upon
the subjects discussed in the Prospectuses. No investment in shares of the
portfolios described herein ("Shares") should be made without reading the
Prospectuses. A copy of each Prospectus may be obtained by writing Excelsior
Funds c/o Chase Global Funds Services Company, 73 Tremont Street, Boston, MA
02108-3913 or by calling (800) 446-1012.
<PAGE>

TABLE OF CONTENTS
-----------------

INVESTMENT OBJECTIVES AND POLICIES........................................... 1

Additional Information on Portfolio Instruments......................... 1
Additional Investment Limitations....................................... 9

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................13

INVESTOR PROGRAMS............................................................15

Systematic Withdrawal Plan..............................................15
Exchange Privilege......................................................15
Other Investor Programs.................................................16

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

MANAGEMENT OF THE FUNDS......................................................18

Directors and Officers..................................................18
Shareholder Organizations...............................................28
Expenses................................................................29
Custodian and Transfer Agent............................................29

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

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

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

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

Generally...............................................................32
Tax-Exempt Funds........................................................33

PERFORMANCE AND YIELD INFORMATION............................................37

Yields and Performance..................................................37

MISCELLANEOUS................................................................40

FINANCIAL STATEMENTS.........................................................41

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

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

This Statement of Additional Information contains additional
information with respect to the Short-Term Tax-Exempt Securities Fund,
Intermediate-Term Tax-Exempt Fund and Long-Term Tax-Exempt Fund (collectively,
the "Tax-Exempt Funds") of Excelsior Tax-Exempt Fund and the Short-Term
Government Securities Fund, Intermediate-Term Managed Income Fund and Managed
Income Fund of Excelsior Fund (collectively, the "Fixed-Income Funds"). The
portfolios are referred to individually as a "Fund" and collectively as the
"Funds;" Excelsior Tax-Exempt Fund and Excelsior Fund are referred to
individually as a "Company" and collectively as the "Companies."

For ease of reference, the various Funds are referred to as follows:
Short-Term Tax-Exempt Securities Fund as "Short-Term Tax-Exempt Fund;"
Intermediate-Term Tax-Exempt Fund as "IT Tax-Exempt Fund;" Long-Term Tax-Exempt
Fund as "LT Tax-Exempt Fund;" Short-Term Government Securities Fund as "ST
Government Fund;" and Intermediate-Term Managed Income Fund as "IT Income Fund."

The following information supplements the description of the Funds'
investment objectives and policies as set forth in the Prospectuses.

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

Municipal Obligations
---------------------

The Tax-Exempt Funds invest substantially all of their assets in
Municipal Obligations as defined in the Prospectus. Municipal Obligations
include debt obligations issued by governmental entities to obtain funds for
various public purposes, including the construction of a wide range of public
facilities, the refunding of outstanding obligations, the payment of general
operating expenses, and the extension of loans to public institutions and
facilities. Private activity bonds that are issued by or on behalf of public
authorities to finance various privately operated facilities are included within
the term "Municipal Obligations" only if the interest paid thereon is exempt
from regular Federal income tax and not treated as a specific tax preference
item under the Federal alternative minimum tax.

The two principal classifications of Municipal Obligations are
"general obligation" and "revenue" issues, but the Tax-Exempt Funds' portfolios
may include "moral obligation" issues. There are, of course, variations in the
quality of Municipal Obligations, both within a particular classification and
between classifications, and the yields on Municipal Obligations depend upon a
variety of factors, including general money market conditions, the financial
condition of the issuer, general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation, and the rating of
the issue. The ratings of nationally recognized statistical rating organizations
("NRSROs") such as Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Ratings Services ("S&P") described in the Prospectus and Appendix A
hereto represent their opinion as to the quality of Municipal Obligations. It
should be emphasized that these ratings are general and are not absolute
standards of quality, and Municipal Obligations
<PAGE>

with the same maturity, interest rate, and rating may have different yields
while Municipal Obligations of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to its purchase by a Fund,
an issue of Municipal Obligations may cease to be rated, or its rating may be
reduced below the minimum rating required for purchase by that Fund. 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") will consider such an event in
determining whether a Fund should continue to hold the obligation.

The payment of principal and interest on most securities purchased by
the Tax-Exempt Funds will depend upon the ability of the issuers to meet their
obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities, and each multistate
agency of which a state is a member, is a separate "issuer" as that term is used
in this Statement of Additional Information and the Prospectus. An issuer's
obligations under its Municipal Obligations are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by Federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or upon the ability of municipalities to levy taxes. The
power or ability of an issuer to meet its obligations for the payment of
interest on and principal of its Municipal Obligations may be materially
adversely affected by litigation or other conditions.

Among other instruments, the Tax-Exempt Funds may purchase short-term
General Obligation Notes, Tax Anticipation Notes, Bond Anticipation Notes,
Revenue Anticipation Notes, Tax-Exempt Commercial Paper, Construction Loan Notes
and other forms of short-term loans. Such instruments are issued with a short-
term maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, each Fund may invest in long-term
tax-exempt instruments, such as municipal bonds and private activity bonds, to
the extent consistent with the maturity restrictions applicable to it.

-2-
<PAGE>

Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither Excelsior
Tax-Exempt Fund nor the Investment Adviser will review the proceedings relating
to the issuance of Municipal Obligations or the bases for such opinions.

The IT Income and Managed Income Funds may, when deemed appropriate by
the Investment Adviser in light of the Funds' investment objective, also invest
in Municipal Obligations. Although yields on municipal obligations can generally
be expected under normal market conditions to be lower than yields on corporate
and U.S. Government obligations, from time to time municipal securities have
outperformed, on a total return basis, comparable corporate and Federal debt
obligations as a result of prevailing economic, regulatory or other
circumstances. Dividends paid by the IT Income and Managed Income Funds that are
derived from interest on municipal securities would be taxable to the Funds'
shareholders for Federal income tax purposes.

Insured Municipal Obligations
-----------------------------

The Tax-Exempt Funds may purchase Municipal Obligations which are
insured as to timely payment of principal and interest at the time of purchase.
The insurance policies will usually be obtained by the issuer of the bond at the
time of its original issuance. Bonds of this type will be acquired only if at
the time of purchase they satisfy quality requirements generally applicable to
Municipal Obligations as described in the Prospectus. Although insurance
coverage for the Municipal Obligations held by the Tax-Exempt Funds reduces
credit risk by insuring that the Funds will receive timely payment of principal
and interest, it does not protect against market fluctuations caused by changes
in interest rates and other factors. Each Tax-Exempt Fund may invest more than
25% of its net assets in Municipal Obligations covered by insurance policies.

-3-
<PAGE>

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

The repurchase price under the repurchase agreements described in the
Prospectuses 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").

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

When the ST Government Fund, IT Income Fund and Managed Income Fund
lend their portfolio securities, they continue 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 securities lent pass to the borrower, such loans may be called at
any time and will be called so that the securities may be voted by the pertinent
Fund if a material event affecting the investment is to occur.

Government Obligations
----------------------

Examples of the types of U.S. Government obligations that may be held
by the Funds include, in addition to U.S. Treasury Bills, the obligations of
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Government National
Mortgage Association, Federal National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks and Maritime Administration.

-4-
<PAGE>

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 exceeded
25% of the value of its assets.

When a Fund engages in "when-issued" or "forward commitment"
transactions, it 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.

-5-
<PAGE>

Stand-By Commitments
--------------------

The Managed Income and IT Income Funds and the Tax-Exempt Funds may
acquire "stand-by commitments" with respect to Municipal Obligations held by
them. Under a "stand-by commitment," a dealer or bank agrees to purchase from a
Fund, at the Fund's option, specified Municipal Obligations at a specified
price. The amount payable to a Fund upon its exercise of a "stand-by commitment"
is normally (i) the Fund's acquisition cost of the Municipal Obligations
(excluding any accrued interest which the Fund paid on their acquisition), less
any amortized market premium or plus any amortized market or original issue
discount during the period the Fund owned the securities, plus (ii) all interest
accrued on the securities since the last interest payment date during that
period. "Stand-by commitments" are exercisable by a Fund at any time before the
maturity of the underlying Municipal Obligations, and may be sold, transferred
or assigned by the Fund only with the underlying instruments.

The Managed Income and IT Income Funds and the Tax-Exempt Funds expect
that "stand-by commitments" will generally be available without the payment of
any direct or indirect consideration. However, if necessary or advisable, a Fund
may pay for a "stand-by commitment" either separately in cash or by paying a
higher price for securities which are acquired subject to the commitment (thus
reducing the yield to maturity otherwise available for the same securities).
Where a Fund has paid any consideration directly or indirectly for a "stand-by
commitment," its cost will be reflected as unrealized depreciation for the
period during which the commitment was held by the Fund.

The Managed Income and IT Income Funds and the Tax-Exempt Funds intend
to enter into "stand-by commitments" only with banks and broker/dealers which,
in the Investment Adviser's opinion, present minimal credit risks. In evaluating
the creditworthiness of the issuer of a "stand-by commitment," the Investment
Adviser will review periodically the issuer's assets, liabilities, contingent
claims and other relevant financial information.

Commercial Paper
----------------

Investments by the Funds in commercial paper will consist of issues
that are rated "A-2" or better by S&P or "Prime-2" or better by Moody's. In
addition, each Fund may acquire unrated commercial paper that is determined by
the Investment Adviser at the time of purchase to be of comparable quality to
rated instruments that may be acquired by the particular Fund. Each Fund will
generally limit its investments in such unrated commercial paper to 5% of its
total assets.

-6-
<PAGE>

Futures Contracts
-----------------

Each Fund may invest in futures contracts (interest rate futures
contracts or municipal bond index futures contracts, as applicable). 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 a 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, a 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 a Fund's ability to effectively hedge.

Successful use of futures by a Fund 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. A 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 result in losses in excess of the amount invested in the
contract.

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

-7-
<PAGE>

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.

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

The Managed Income and IT Income Funds will conduct their 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 Funds 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 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

-8-
<PAGE>

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.

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

In addition to the investment limitations disclosed in the
Prospectuses, 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 the holders of a majority of such Fund's outstanding Shares
(as defined under "Miscellaneous" in the Prospectuses). However, investment
limitations which are "operating policies" with respect to a Fund may be changed
by Excelsior Fund's or Excelsior Tax-Exempt Fund's Board of Directors without
shareholder approval.

The following investment limitations are fundamental with respect to
each Fund. No Fund may:

-9-
<PAGE>

1. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except to the extent that the purchase of Municipal
Obligations or other securities directly from the issuer thereof in accordance
with the Tax-Exempt Funds' investment objectives, policies, and limitations may
be deemed to be underwriting; and except insofar as the Managed Income Fund
might be deemed to be an underwriter upon disposition of certain portfolio
securities acquired within the limitation on purchases of restricted securities;

2. Purchase or sell real estate, except that each Tax-Exempt Fund may
invest in Municipal Obligations secured by real estate or interests therein, and
the Managed Income and Intermediate-Term Managed Income Funds 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 by
each Fund in accordance with its investment limitations might be considered to
be the issuance of a senior security; provided that each Fund may enter into
futures contracts and futures options.

The following investment limitation is fundamental with respect to the
IT Tax-Exempt, LT Tax-Exempt and Managed Income Funds, but is an operating
policy with respect to the Short-Term Tax-Exempt, ST Government and IT Income
Funds. The Funds may not:

4. Purchase securities on margin, make short sales of securities, or
maintain a short position; provided that each Fund may enter into futures
contracts and futures options.

The following investment limitation is fundamental with respect to each Tax-
Exempt Fund. A Tax-Exempt Fund may not:

5. Make loans, except that each Tax-Exempt Fund may purchase or hold
debt obligations in accordance with its investment objective, policies, and
limitations.

The following investment limitation is fundamental with respect to the
IT Tax-Exempt and LT Tax-Exempt Funds, but is an operating policy with respect
to the Short-Term Tax-Exempt Fund. A Tax-Exempt Fund may not:

6. Purchase securities of other investment companies (except as part
of a merger, consolidation or reorganization or purchase of assets approved by
the Fund's shareholders), provided that a Fund may purchase shares of any
registered, open-end investment company, if immediately after any such purchase,
the Fund does not (a) own more than 3% of the outstanding voting stock of any
one investment company, (b) invest more than 5% of the value of its total assets
in the securities of any one investment company, or (c) invest more than 10% of
the value of its total assets in the aggregate in securities of investment
companies.

The following investment limitations are fundamental with respect to
the Managed Income Fund, but are operating policies with respect to the IT
Income and ST Government Funds. A Fixed-Income Fund may not:

-10-
<PAGE>

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

8. Purchase foreign securities; provided that subject to the limit
described below, the IT Income and Managed Income Funds may purchase (a) dollar-
denominated debt obligations issued by foreign issuers, including foreign
corporations and governments, by U.S. corporations outside the United States in
an amount not to exceed 25% of its total assets at time of purchase; and (b)
certificates of deposit, bankers' acceptances, or other similar obligations
issued by domestic branches of foreign banks, or foreign branches of U.S. banks,
in an amount not to exceed 20% of its total net assets; and

9. 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 IT Tax-Exempt, LT Tax-Exempt and Managed Income Funds. The IT Tax-Exempt, LT
Tax-Exempt and Managed Income Funds may not:

10. Write or sell puts, calls, straddles, spreads, or combinations
thereof; provided that each Fund may enter into futures contracts and futures
options; and

11. Purchase or sell commodity futures contracts, or invest in oil,
gas, or mineral exploration or development programs; provided that the Funds may
enter into futures contracts and futures options.

The following investment limitation is fundamental with respect to the
Short-Term Tax-Exempt, ST Government and IT Income Funds. The Short-Term Tax-
Exempt, ST Government and IT Income Funds may not:

12. Purchase or sell commodities or commodity futures contracts, or
invest in oil, gas, or mineral exploration or development programs; provided
that the Funds may enter into futures contracts and futures options.

The following investment limitation is fundamental with respect to the
IT Tax-Exempt and LT Tax-Exempt Funds. The IT Tax-Exempt and LT Tax-Exempt Funds
may not:

13. Invest in industrial revenue bonds where the payment of principal
and interest are the responsibility of a company (including its predecessors)
with less than three years of continuous operation.

The following investment limitation is fundamental with respect to the
Managed Income Fund. The Managed Income Fund may not:

-11-
<PAGE>

14. 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.

* * *

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. The Funds do not
currently intend to invest in real estate investment trusts.

In addition to the above investment limitations, Excelsior Fund
currently intends to limit the IT Income and Managed Income Funds' investments
in warrants so that, valued at the lower of cost or market value, they do not
exceed 5% of a Fund's net assets. For the purpose of this limitation, warrants
acquired by the IT Income or Managed Income Fund in units or attached to
securities will be deemed to be without value.

The IT Tax-Exempt, LT Tax-Exempt and Managed Income Funds may not
purchase or sell commodities.

The Funds' transactions in futures contracts and futures options
(including the margin posted by the Funds in connection with such transactions)
are excluded from the Funds' prohibitions: against the purchase of securities on
margin, short sales of securities and the maintenance of a short position; the
issuance of senior securities; writing or selling puts, calls, straddles,
spreads, or combinations thereof; and the mortgage, pledge or hypothecation of
the Funds' assets.

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

-12-
<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, Inc., 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.

The Companies have authorized certain brokers to accept on their
behalf purchase, exchange and redemption orders. Such brokers are authorized to
designate other intermediaries to accept purchase, exchange and redemption
orders on behalf of the Companies. A Company will be deemed to have received a
purchase, exchange or redemption order when such an authorized broker or
designated intermediary accepts the order.

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
and 1996, total sales charges paid by shareholders with respect to the IT Tax-
Exempt Fund were $314 and $1,621, respectively; with respect to the LT Tax-
Exempt Fund were $8,085 and $15,633, respectively; and with respect to the
Managed Income Fund were $2,072 and $727, respectively. Of these respective
amounts, UST Distributors, Inc., the Funds' former distributor, retained $341
with respect to the IT Tax-Exempt Fund; $1,972 with respect to the LT Tax-Exempt
Fund; and $653 with respect to the Managed Income Fund for the period from April
1, 1995 through July 31, 1995. The Distributor retained none of the foregoing
sales charges with respect to the IT Tax-Exempt, LT Tax-Exempt and Managed
Income Funds for the fiscal year ended March 31, 1997, and for the period from
August 1, 1995 through March 31, 1996. The balance was paid to selling dealers.

-13-
<PAGE>

Total sales charges paid by shareholders of the Short-Term Tax-Exempt,
ST Government and IT Income Funds for the fiscal years ended March 31, 1997 and
1996 were $292 and $1,523; $0 and $0; and $0 and $299, respectively. Of these
respective amounts, UST Distributors, Inc., the Funds' former distributor,
retained $1,523 with respect to the Short-Term Tax-Exempt Fund; $0 with respect
to the ST Government Fund; and $20 with respect to the IT Income Fund for the
period from April 1, 1995 through July 31, 1995. The Distributor retained none
of the foregoing sales charges with respect to the Short-Term Tax-Exempt, ST
Government and IT Income Funds for the fiscal year ended March 31, 1997, and for
the period August 1, 1995 through March 31, 1996. The balance was paid to
selling dealers.

The Companies may suspend the right of redemption or postpone the date
of payment for Shares for more than 7 days during any period when (a) trading on
the 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.

Under certain circumstances, the Companies may, at their discretion,
accept securities as payment for Shares. Securities acquired in this manner will
be limited to securities issued in transactions involving a bona fide
---- ----
reorganization or statutory merger, or other transactions involving securities
that meet the investment objective and policies of any Fund acquiring such
securities.

-14-
<PAGE>

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.

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 that Fund. Customers of Shareholder Organizations may
obtain information on the availability of, and 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 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.

-15-
<PAGE>

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

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

As described in the Prospectuses, Shares of the Funds may be purchased
in connection with the Automatic Investment Program. Shares of the Managed
Income, IT Income and ST Government Funds may also be purchased in connection
with 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; Excelsior
Tax-Exempt Fund's Charter authorizes its Board of Directors to issue up to
fourteen billion full and fractional shares of capital stock. Both Charters
authorize the respective Boards of Directors to classify or reclassify any
unissued shares of the respective Companies into one or more additional classes
or series by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. The Prospectuses describe the classes of shares into which the
Companies' authorized capital is currently classified. Prior to December 28,
1995, Excelsior Fund and Excelsior Tax-Exempt Fund were known as "UST Master
Funds, Inc." and "UST Master Tax-Exempt Funds, Inc.," respectively.

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

-16-
<PAGE>

event of a liquidation or dissolution of either Company, shareholders of such
Company will be entitled to the same distribution process.

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

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

Notwithstanding any provision of Maryland law requiring a greater vote
of the Companies' 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

-17-
<PAGE>

18f-2, discussed above) or by the Companies' Charters, the Companies may take or
authorize such action upon the favorable vote of the holders of more than 50% of
the outstanding Common Stock of the particular Company voting without regard to
class.

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

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

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

-18-
<PAGE>

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

Frederick S. Wonham\1\ Chairman of the Board, Retired; Director of Excelsior Fund and
238 June Road President and Treasurer Excelsior Tax-Exempt Fund (since 1995); Trustee
Stamford, CT 06903 of Excelsior Funds and Excelsior Institutional
Age: 67 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 Excelsior Fund and
333 East 69th Street Excelsior Tax-Exempt Fund (since 1984);
Apt. 10-H Director of UST Master Variable Series, Inc.
New York, NY 10021 (from 1994 to June 1997); Trustee of Excelsior
Age: 72 Institutional Trust (since 1995); and Director,
Royal Life Insurance Co. of New York (since
1991).

Rodman L. Drake Director Director of Excelsior Fund and Excelsior
Continuation Investments Tax-Exempt Fund (since 1996); Trustee of
Group, Inc. Excelsior Institutional Trust and Excelsior
1251 Avenue of the Americas, Funds (since 1994); Director, Parsons
9th Floor Brinkerhoff Energy Services Inc. (since 1996);
New York, NY 10020 Director, Parsons Brinkerhoff, Inc.
Age: 55 (engineering firm) (since 1995); President,
Continuation Investments Group, Inc. (since
1997); President, Mandrake Group (investment
and consulting firm) (1994-1997); Director,
Hyperion Total Return Fund, Inc. and four other
funds for which Hyperion Capital Management,
Inc. serves as investment adviser (since 1991);
Co-Chairman, KMR Power Corporation (power
plants) (form 1993 to 1996); Director, The
Latin America Smaller Companies Fund, Inc.
(since 1993); Member of Advisory Board,
Argentina Private Equity Fund L.P. (from 1992
to 1996) and Garantia L.P. (Brazil) (from 1993
to 1996); and Director, Mueller Industries,
Inc. (from 1992 to 1994).

Joseph H. Dugan Director Retired; Director of Excelsior Fund and
</TABLE>

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

-19-
<PAGE>

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

913 Franklin Lake Road Excelsior Tax-Exempt Fund (since 1984);
Franklin Lakes, NJ 07417 Director of UST Master Variable Series, Inc.
Age: 73 (from 1994 to June 1997); and Trustee of
Excelsior Institutional Trust (since 1995).

Wolfe J. Frankl Director Retired; Director of Excelsior Fund and
2320 Cumberland Road Excelsior Tax-Exempt Fund (since 1986);
Charlottesville, VA 22901 Director of UST Master Variable Series, Inc.
Age: 77 (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 of Excelsior Fund and Excelsior
c/o Prospect Capital Corp. Tax-Exempt Fund (since 1996); Trustee of
43 Arch Street Excelsior Institutional Trust and Excelsior
Greenwich, CT 06830 Funds (since 1994); Private Investor (since
Age: 61 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).

Jonathan Piel Director Director of Excelsior Fund and Excelsior
558 E. 87th Street Tax-Exempt Fund (since 1996); Trustee of
New York, NY 10128 Excelsior Institutional Trust and Excelsior
Age: 59 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).
</TABLE>

-20-
<PAGE>

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

Robert A. Robinson Director Director of Excelsior Fund and Excelsior
Church Pension Fund Tax-Exempt Fund (since 1987); Director of UST
800 Second Avenue Master Variable Series, Inc. (from 1994 to June
New York, NY 10017 1997); Trustee of Excelsior Institutional Trust
Age: 72 (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.
(1974-1998); 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 Excelsior Fund and
6549 Pine Meadows Drive Excelsior Tax-Exempt Fund (since 1985);
Spring Hill, FL 34606 Chairman of the Board of Excelsior Fund and
Age: 72 Excelsior Tax-Exempt Fund (1991-1997) and
Excelsior Institutional Trust (1996-1997);
President and Treasurer of Excelsior Fund and
Excelsior Tax-Exempt Fund (1994-1997) and
Excelsior Institutional Trust (1996-1997);
Chairman of the Board, President and Treasurer
of UST Master Variable Series, Inc.
(1994-1997); and Trustee of Excelsior
Institutional Trust (since 1995).
</TABLE>

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

-21-
<PAGE>

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

W. Bruce McConnel, III Secretary Partner of the law firm of Drinker Biddle &
Philadelphia National Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 55

Michael P. Malloy Assistant Secretary Partner of the law firm of Drinker Biddle &
Philadelphia National Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 39

Edward Wang Assistant Manager of Blue Sky Compliance, Chase Global
Chase Global Funds Secretary Funds Services Company (November 1996 to
Services Company present); and Officer and Manager of Financial
73 Tremont Street Reporting, Investors Bank & Trust Company
Boston, MA 02108-3913 (January 1991 to November 1996).
Age: 37

John M. Corcoran Assistant Vice President, Director of Fund
Chase Global Funds Treasurer Administration, Chase Global Funds Services
Services Company Company (since April 1998); Vice President,
73 Tremont Street Senior Manager of Fund Administration, Chase
Boston, MA 02108-3913 Global Funds Services Company (from July 1996
Age: 33 to April 1998); Second Vice President, Manager
of Fund Administration, Chase Global Funds
Services Company (from October 1993 to July
1996); and Audit Manager, Ernst & Young LLP
(from August 1987 to September 1993).
</TABLE>

-22-
<PAGE>

Each director receives an annual fee of $9,000 with respect to each
Company plus a per-Company meeting fee of $1,500 for each meeting attended and
is reimbursed for expenses incurred in attending meetings. The Chairman of the
Board is entitled to receive an additional $5,000 per annum for services in such
capacity. Drinker Biddle & Reath LLP, of which Messrs. McConnel and Malloy are
partners, receives legal fees as counsel to the Companies. The employees of
Chase Global Funds Services Company do not receive any compensation from the
Companies for acting as officers of the Companies. No person who is currently
an officer, director or employee of the Investment Adviser serves as an officer,
director or employee of the Companies. As of July 8, 1998, the directors and
officers of each Company as a group owned beneficially less than 1% of the
outstanding shares of each fund of each Company, and less than 1% of the
outstanding shares of all funds of each Company in the aggregate.

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

-23-
<PAGE>

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

Donald L. Campbell $33,000 None $38,000(3)**
Director

Rodman L. Drake $30,000 None $39,500(4)**
Director

Joseph H. Dugan $33,000 None $38,000(3)**
Director

Wolfe J. Frankl $31,500 None $36,500(3)**
Director

W. Wallace McDowell, Jr. $28,500 None $38,000(4)**
Director

Jonathan Piel $33,000 None $43,000(4)**
Director

Robert A. Robinson $33,000 None $38,000(3)**
Director

Alfred C. Tannachion $33,000 None $38,000(3)**
Director

Frederick S. Wonham $43,000 None $53,000(4)**
Chairman of the Board,
President and Treasurer
</TABLE>

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

* The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt
Fund, Excelsior Funds and Excelsior Institutional Trust.

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

-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 Agreements, U.S.
Trust has agreed to provide the services described in the Prospectuses. 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, if any, 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, 1998, the particular Company paid
U.S. Trust advisory fees of $72,860, $260,708, $1,203,851, $99,010, $746,025 and
$545,298 with respect to the ST Government, IT Income, Managed Income, Short-
Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds, respectively. For the
same period, U.S. Trust waived advisory fees totaling $21,549, $42,260,
$243,873, $24,358, $133,635 and $89,459 with respect to the ST Government, IT
Income, Managed Income, Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt
Funds, respectively.

For the fiscal year ended March 31, 1997, the particular Company paid
U.S. Trust New York advisory fees of $63,713, $217,254, $1,185,427, $95,564,
$741,452 and $457,137 with respect to the ST Government, IT Income, Managed
Income, Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds,
respectively. For the same period, U.S. Trust New York waived advisory fees
totaling $21,478, $35,586, $77,751, $28,208, $140,769 and $69,305 with respect
to the ST Government, IT Income, Managed Income, Short-Term Tax-Exempt, IT Tax-
Exempt and LT Tax-Exempt Funds, respectively.

For the fiscal year ended March 31, 1996, the particular Company paid
U.S. Trust New York advisory fees of $46,513, $187,185, $602,962, $116,249,
$754,048 and $391,724 with respect to the ST Government, IT Income, Managed
Income, Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds,
respectively. For the same period, U.S. Trust New York waived advisory fees
totaling $20,410, $22,783, $46,807, $26,523, $117,024 and $47,791 with respect
to the ST Government, IT Income, Managed Income, Short-Term Tax-Exempt, IT Tax-
Exempt and LT Tax-Exempt Funds, respectively.

-25-
<PAGE>

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 Agreements, the Administrators have agreed to maintain office
facilities for the Funds, furnish the Funds with statistical and research data,
clerical, accounting and bookkeeping services, and certain other services
required by the Funds, and to compute the net asset value, net income, "exempt
interest dividends" and realized capital gains or losses, if any, of the
respective Funds. The Administrators prepare semiannual reports to the SEC,
prepare Federal and state tax returns, prepare filings with state securities
commissions, arrange for and bear the cost of processing Share purchase and
redemption orders, maintain the Funds' financial accounts and records, and
generally assist in the Funds' operations.

Prior to May 16, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York served as the 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 administration agreements
having substantially the same terms as the Administration Agreements currently
in effect.

For the fiscal year ended March 31, 1998, Excelsior Tax-Exempt Fund
paid CGFSC, Federated Administrative Services and U.S. Trust $62,813, $383,863
and $189,687 in the aggregate with respect to the Short-Term Tax-Exempt, IT Tax-
Exempt and LT Tax-Exempt Funds, respectively. For the same period, Excelsior
Fund paid CGFSC, Federated Administrative Services and U.S. Trust $48,138,

-26-
<PAGE>

$132,050 and $294,955 in the aggregate with respect to the ST Government, IT
Income and Managed Income Funds, respectively. For the same period, CGFSC,
Federated Administrative Services and U.S. Trust waived fees totaling $11, $390,
$381, $104, $674 and $4,549 with respect to the ST Government, IT Income,
Managed Income, Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds,
respectively.

For the fiscal year ended March 31, 1997, Excelsior Tax-Exempt Fund
paid CGFSC, Federated Administrative Services and U.S. Trust New York $63,343,
$387,111 and $160,259 in the aggregate with respect to the Short-Term Tax-
Exempt, IT Tax-Exempt and LT Tax-Exempt Funds, respectively. For the same
period, Excelsior Fund paid CGFSC, Federated Administrative Services and U.S.
Trust New York $43,657, $110,146 and $258,438 in the aggregate with respect to
the ST Government, IT Income and Managed Income Funds, respectively. For the
same period, CGFSC, Federated Administrative Services and U.S. Trust New York
waived fees totaling $1, $909, $468, $96, $489 and $1,651 with respect to the ST
Government, IT Income, Managed Income, Short-Term Tax-Exempt, IT Tax-Exempt and
LT Tax-Exempt Funds, respectively.

For the period August 1, 1995 through March 31, 1996, Excelsior Tax-
Exempt Fund paid CGFSC, Federated Administrative Services and U.S. Trust New
York $33,906, $258,662 and $91,594 in the aggregate with respect to the Short-
Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds, respectively. For the
same period, Excelsior Fund paid CGFSC, Federated Administrative Services and
U.S. Trust New York $38,330, $64,035 and $89,196 in the aggregate with respect
to the ST Government, IT Income and Managed Income Funds, respectively. For the
same period, CGFSC, Federated Administrative Services and U.S. Trust New York
waived administration fees totaling $30, $1,567, $412, $15,466, $494 and $1,782
with respect to the ST Government, IT Income, Managed Income, Short-Term Tax-
Exempt, IT Tax-Exempt and LT Tax-Exempt Funds, respectively.

For the period April 1, 1995 through July 31, 1995, Excelsior Tax-
Exempt Fund paid the former administrators $23,993, $124,638 and $41,586 in the
aggregate with respect to the Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-
Exempt Funds, respectively. For the same period, Excelsior Fund paid the former
administrators $11,576, $26,526 and $43,727 in the aggregate with respect to the
ST Government, IT Income and Managed Income Funds, respectively. For the same
period, the former administrators waived administration fees totaling $64, $543,
$474, $140, $820 and $160 with respect to the ST Government, IT Income, Managed
Income, Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds,
respectively.

-27-
<PAGE>

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

As stated in the Prospectus, each Company 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 0.40% of the average daily net assets of the Fund's
Shares beneficially owned by Customers of the Shareholder Organization. Such
services may include: (a) acting as recordholder of Shares; (b) assisting in
processing purchase, exchange and redemption transactions; (c) providing
periodic statements showing a Customer's account balances and confirmations of
transactions by the Customer; (d) providing tax and dividend information to
shareholders as appropriate; (e) transmitting proxy statements, annual reports,
updated prospectuses and other communications from the Companies to Customers;
and (f) providing or arranging for the provision of other related services.

For the fiscal years ended March 31, 1998, 1997 and 1996, payments to
Shareholder Organizations under the Plans totaled $24,462, $28,304 and $26,684;
$134,309, $141,258 and $118,114; $94,008, $70,956 and $22,586; $19,835, $21,479
and $20,504; $42,650, $36,495 and $24,893; and $51,215, $78,219 and $47,693 with
respect to the Short-Term Tax-Exempt, IT Tax-Exempt, LT Tax-Exempt, ST
Government, IT Income and Managed Income Funds, respectively. Of these
respective amounts, $24,157, $28,304 and $26,684; $131,684, $139,275 and
$115,826; $78,373, $68,722 and $22,586; $19,800, $21,479 and $20,504; $41,041,
$36,495 and $21,217; and $48,468, $77,550 and $46,426 were paid to affiliates of
U.S. Trust with respect to the Short-Term Tax-Exempt, IT Tax-Exempt, LT Tax-
Exempt, ST Government, IT Income and Managed Income Funds, respectively.

-28-
<PAGE>

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 the
Companies' directors and officers who are not affiliated with the Distributor or
the Administrators); SEC fees; state securities qualification 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 service; costs of shareholder reports and meetings; and any
extraordinary expenses. The Funds also pay for any 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 Agreements, Chase has agreed to: (i) maintain a
separate account or accounts in the name of the Funds; (ii) make receipts and
disbursements of money on behalf of the Funds; (iii) collect and receive income
and other payments and distributions on account of the Funds' portfolio
securities; (iv) respond to correspondence from securities brokers and others
relating to its duties; (v) maintain certain financial accounts and records; and
(vi) make periodic reports to each Company's Board of Directors concerning the
Funds' operations. Chase may, at its own expense, open and maintain custody
accounts with respect to the Funds with other banks or trust companies, provided
that Chase shall remain liable for the performance of all its custodial duties
under the Custodian Agreements, notwithstanding any delegation.

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 their meetings of shareholders;
(iii) respond to correspondence by shareholders and others relating to its
duties; (iv) maintain shareholder accounts; and (v) make periodic reports to
each Company'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.

-29-
<PAGE>

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 the
Companies for any of its sub-transfer agency services. U.S. Trust New York may,
from time to time, enter into sub-transfer agency arrangements with third party
providers of transfer agency services.

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

Subject to the general control of the Companies' Boards of Directors,
the Investment Adviser is responsible for, makes decisions with respect to and
places orders for all purchases and sales of portfolio securities of each of the
Funds. Purchases and sales of portfolio securities will usually be principal
transactions without brokerage commissions.

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. It is expected that the Funds' turnover rates may
remain higher than those of many other investment companies with similar
investment objectives and policies. However, since brokerage commissions are
not normally paid on instruments purchased by the Funds, portfolio turnover is
not expected to have a material effect on the net income of any of the Funds.
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 Prospectuses for the Funds' portfolio turnover rates.

The Managed Income Fund's portfolio was restructured during the fiscal
year ended March 31, 1998 following a change in such Fund's portfolio manager in
August 1997. As a result, the Fund's portfolio turnover rate for the year was
substantially higher than the turnover rates for prior fiscal years. The
Investment Adviser expects that the Fund's portfolio turnover rate for the
current fiscal year will be consistent with its historical average.

Securities purchased and sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or markdown. With
respect to over-the-counter transactions, the Funds, where possible, will deal
directly with dealers who make a market in the securities involved, except in
those situations where better prices and execution are available elsewhere.

-30-
<PAGE>

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

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 fee 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.

-31-
<PAGE>

Managed Income Fund held the following securities of Excelsior Fund's regular
brokers or dealers or their parents: a corporate bond issued by Morgan Stanley
Dean Witter & Co. with a principal amount of $5,000,000; a corporate bond issued
by Goldman Sachs Group with a principal amount of $5,000,000; and a corporate
bond issued by Lehman Brothers Holdings with a principal amount of $5,000,000.

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

Ernst & Young LLP, independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of the Companies. The Funds' Financial Highlights
included in the Prospectuses and the financial statements for the fiscal year
ended March 31, 1998 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 the
Companies, and Mr. Malloy, Assistant Secretary of the Companies, are partners),
Philadelphia National Bank Building, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107, is counsel to the Companies and will pass upon the legality
of the Shares offered by the Prospectuses.

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

Generally
- ---------

The following supplements the tax information contained in the
Prospectuses.

Each of the Funds 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.

Each Fund intends to 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. Shareholders should note that, upon the sale
or exchange of Shares, if the shareholder has not held such Shares

-32-
<PAGE>

for at least 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). Each Fund intends 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.

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."

Tax-Exempt Funds
- ----------------

As stated in their Prospectus, the Tax-Exempt Funds are not intended
to constitute a balanced investment program and are not designed for investors
seeking capital appreciation or maximum tax-exempt income irrespective of
fluctuations in principal. Shares of the Tax-Exempt Funds would not be suitable
for tax-exempt institutions and may not be suitable for retirement plans
qualified under Section 401 of the Code, H.R. 10 plans and individual retirement
accounts because such plans and accounts are generally tax-exempt and,
therefore, not only would not gain any additional benefit from the Tax-Exempt
Funds' dividends being tax-exempt, but such dividends would be ultimately
taxable to the beneficiaries when distributed to them. In addition, the Tax-
Exempt Funds may not be an appropriate investment for entities which are
"substantial users" of facilities financed by private activity bonds or "related
persons" thereof. "Substantial user" is defined under the Treasury Regulations
to include a non-exempt person who regularly uses a part of such facilities in
his trade or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, who occupies more than 5% of
the usable area of such facilities or for whom such facilities or a part thereof
were specifically constructed, reconstructed or acquired. "Related persons"
include certain related natural persons, affiliated corporations, a partnership
and its partners and an S corporation and its shareholders.

In order for a Tax-Exempt Fund to pay exempt-interest dividends for
any taxable year, at least 50% of the aggregate value of such Fund's portfolio
must consist of exempt-interest obligations at the close of each quarter of its
taxable year. Within 60 days after the close of the taxable year, each of the
Tax-Exempt Funds will notify its shareholders of the portion of the dividends
paid by that Fund which constitutes an exempt-interest dividend with respect to
such taxable year. However, the aggregate amount of dividends so designated by
that Fund cannot exceed the excess of the amount of interest exempt from tax
under Section 103 of the Code

-33-
<PAGE>

received by that Fund during the taxable year over any amounts disallowed as
deductions under Sections 265 and 171(a)(2) of the Code. The percentage of total
dividends paid by each of the Tax-Exempt Funds with respect to any taxable year
which qualifies as exempt-interest dividends will be the same for all
shareholders receiving dividends from that Tax-Exempt Fund for such year.

Interest on indebtedness incurred by a shareholder to purchase or
carry a Tax-Exempt Fund's Shares generally is not deductible for Federal income
tax purposes. In addition, if a shareholder holds Tax-Exempt Fund Shares for
six months or less, any loss on the sale or exchange of those Shares will be
disallowed to the extent of the amount of exempt-interest dividends received
with respect to the Shares. The Treasury Department, however, is authorized to
issue regulations reducing the six-month holding requirement to a period of not
less than the greater of 31 days or the period between regular dividend
distributions where the investment company regularly distributes at least 90% of
its net tax-exempt interest. No such regulations had been issued as of the date
of this Statement of Additional Information.

-34-
<PAGE>

-35-
<PAGE>

* * *

-36-
<PAGE>

PERFORMANCE AND YIELD INFORMATION
---------------------------------

Yields and Performance
- ----------------------

The Funds may advertise the standardized effective 30-day (or one
month) yields calculated in accordance with the method prescribed by the SEC for
mutual funds. Such yield will be calculated separately for each Fund according
to the following formula:

a-b
Yield = 2 [(-------- + 1)/6/ - 1]
cd

Where: a = dividends and interest earned during the period.

b = expenses accrued for the period (net of
reimbursements).

c = average daily number of Shares outstanding that
were entitled to receive dividends.

d = maximum offering price per Share on the last day
of the period.

For the purpose of determining interest earned during the period
(variable "a" in the formula), each of the Funds computes the yield to maturity
of any debt obligation held by it based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest). Such yield is then
divided by 360, and the quotient is multiplied by the market value of the
obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is in the portfolio. It is assumed in the above calculation that
each month contains 30 days. Also, the maturity of a debt obligation with a
call provision is deemed to be the next call date on which the obligation
reasonably may be expected to be called or, if none, the maturity date. Each of
the Funds calculates interest gained on tax-exempt obligations issued without
original issue discount and having a current market discount by using the coupon
rate of interest instead of the yield to maturity. In the case of tax-exempt
obligations with original issue discount, where the discount based on the
current market value exceeds the then-remaining portion of original issue
discount, the yield to maturity is the imputed rate based on the original issue
discount calculation. Conversely, where the discount based on the current
market value is less than the remaining portion of the original issue discount,
the yield to maturity is based on the market value.

Expenses accrued for the period (variable "b" in the formula) include
all recurring fees charged by each of the Funds to all shareholder accounts and
to the particular series of Shares in proportion to the length of the base
period and that Fund's mean (or median) account

-37-
<PAGE>

size. Undeclared earned income will be subtracted from the maximum offering
price per Share (variable "d" in the formula).

Based on the foregoing calculations, the effective yields for Shares
of the Short-Term Tax-Exempt, IT Tax-Exempt, LT Tax-Exempt, ST Government, IT
Income and Managed Income Funds for the 30-day period ended March 31, 1998 were
3.34%, 3.70%, 4.28%, 5.01%, 5.31% and 5.15%, respectively.

The "tax-equivalent" yield of the Short-Term Tax-Exempt, IT Tax-Exempt
and LT Tax-Exempt Funds is computed by: (a) dividing the portion of the yield
(calculated as above) that is exempt from Federal income tax by one minus a
stated Federal income tax rate and (b) adding that figure to that portion, if
any, of the yield that is not exempt from Federal income tax. Tax-equivalent
yields assume the payment of Federal income taxes at a rate of 31%. Based on
the foregoing calculations, the tax-equivalent yields of the Short-Term Tax-
Exempt, IT Tax-Exempt and LT Tax-Exempt Funds for the 30-day period ended March
31, 1998 were 4.84%, 5.36% and 6.20%, respectively.

Each Fund's "average annual total 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/n/
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:

-38-
<PAGE>

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 the Fund during
the periods is reflected. The ending redeemable value (variable "ERV', in the
formula) is 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 Shares of
the Short-Term Tax-Exempt, IT Tax-Exempt, LT Tax-Exempt, ST Government, IT
Income and Managed Income Funds for the one year period ended March 31, 1998
were 5.01%, 8.81%, 12.18%, 6.47%, 11.37% and 12.79%, respectively. The average
annual total returns for the Short-Term Tax-Exempt, IT Tax-Exempt, LT Tax-
Exempt, ST Government, IT Income and Managed Income Funds for the five year
period ended March 31, 1998 were 3.99%, 6.09%, 8.01%, 4.96%, 6.13% and 6.61%,
respectively. The average annual total returns for the IT Tax-Exempt, LT Tax-
Exempt and Managed Income Funds for the ten year period ended March 31, 1998
were 7.16%, 9.62% and 9.12%, 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, sales literature 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 and yield of a Fund may be compared to those 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 and/or yield of a Fund may be compared to data

-39-
<PAGE>

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 technologies 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 of a Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciations 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, advertisement, 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 Prospectuses, "assets belonging to a Fund" means the
consideration received upon the issuance of Shares in the Fund, together with
all income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of the Company involved not belonging to a particular portfolio of that
Company. In determining the net asset value of a Fund's Shares, assets
belonging to the Fund are charged with the direct liabilities in respect of that
Fund and with a share of the general liabilities of the Company involved which
are normally allocated in proportion to the relative asset values of the
Company's portfolios at the time of allocation. Subject to the provisions of
the Companies' Charters, determinations by the Boards of Directors

-40-
<PAGE>

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 8, 1998, the name, address and percentage ownership of each
person that owned beneficially or of record 5% or more of the outstanding shares
of a Fund were as follows: Short-Term Government Securities Fund:
-------------------------------------
International Planned Parenthood, c/o United States Trust Company of New York,
114 West 47th Street, New York, New York 10036, 6.65%; United States Trust
Company of New York Trustee, FBO U.S. Trust Plan, c/o U.S. Trust Company of The
Pacific Northwest, Attn: Jill Williams, 4380 S.W. Macadam Ave., Suite 450,
Portland, Oregon 97201, 9.28%; and President and Director of Gonzaga College,
Attn: Dan Lahart, 19 Eye Street, N.W., Washington, D.C. 20001, 7.45%; Managed
-------
Income Fund: U.S. Trust Retirement Fund, c/o United States Trust Company of New
- -----------
York, 114 West 47th Street, New York, New York 10036, 39.35%; and United States
Trust Company of New York Trustee, FBO U.S. Trust Plan, Attn: Jill Williams,
4380 S.W. Macadam Ave., Suite 450, Portland, Oregon 97201, 5.56%; and Long-Term
---------
Tax-Exempt Fund: Charles Schwab & Co., Inc., Special Custody A/C for Benefit of
- ---------------
Customers, Attn: Mutual Funds, 101 Montgomery Street, San Francisco, CA 94104,
7.44%.

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

The audited financial statements and notes thereto in the Companies'
Annual Reports to Shareholders for the fiscal year ended March 31, 1998 (the
"1998 Annual Reports") for the Funds are incorporated in this Statement of
Additional Information by reference. No other parts of the 1998 Annual Reports
are incorporated by reference herein. The financial statements included in the
1998 Annual Reports for the ST Government, IT Income, Managed Income, Short-Term
Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds have been audited by the
Companies' independent auditors, Ernst & Young LLP, whose reports thereon also
appear in the 1998 Annual Reports and are incorporated herein by reference.
Such financial statements have been incorporated herein in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing. Additional copies of the 1998 Annual Reports may be obtained at no
charge by telephoning CGFSC at the telephone number appearing on the front page
of this Statement of Additional Information.

-41-
<PAGE>

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

Commercial Paper Ratings
- ------------------------

"C" - Obligations are currently vulnerable to nonpayment and are
dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.

"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due, even if the
applicable grace

A-1
<PAGE>

period has not expired, unless S&P believes such payments will be made during
such grace period. The "D" rating will also be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.

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

A-2
<PAGE>

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

A-3
<PAGE>

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

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

"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.

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" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.

"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.

"BB" - Debt is less vulnerable to non-payment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to the obligor's
inadequate capacity to meet

A-5
<PAGE>

its financial commitment on the obligation.

"B" - Debt is more vulnerable to non-payment than obligations rated
"BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.

"CC" - An obligation rated "CC" is currently highly vulnerable to non-
payment.

"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.

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.

A-6
<PAGE>

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

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.

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

"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of investment risk and
indicate very strong

A-8
<PAGE>

capacity for timely payment of financial commitments. This capacity is not
significantly vulnerable to foreseeable events.

A-9
<PAGE>

"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-10
<PAGE>

"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
- ----------------------

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

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

A-11
<PAGE>

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

"SG" - This designation denotes speculative quality and lack of
margins of protection.

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

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-12
<PAGE>

CROSS-REFERENCE SHEET
---------------------

EXCELSIOR FUNDS, INC.
(Blended Equity, Income and Growth,
Value and Restructuring, Small Cap and
Large Cap Growth Funds)

Form N-1A, Part A, Item Prospectus Caption
- ----------------------- ------------------

1. Cover Page................................ Cover Page

2. Synopsis.................................. Prospectus Summary;
Expense Summary

3. Condensed Financial Information........... Financial Highlights;
Performance Information

4. General Description of Registrant......... Prospectus Summary;
Investment Objectives and
Policies; Portfolio
Instruments and Other
Investment Information;
Investment Limitations

5. Management of the Fund.................... Management of the Funds;
Custodian and Transfer
Agent; Expanses

5A. Management's Discussion of Fund
Performance.............................. Not Applicable

6. Capital Stock and
Other Securities........................ How to Purchase and
Redeem Shares; Dividends
and Distributions; Taxes;
Description of Capital
Stock; Miscellaneous

7. Purchase of Securities
Being Offered........................... Pricing of Shares; How to
Purchase and Redeem
Shares; Investor Programs

8. Redemption or Repurchase.................. How to Purchase and
Redeem Shares

9. Pending Legal Proceedings................. Not Applicable

<PAGE>

LOGO EXCELSIOR
FUNDS INC.
Excelsior Equity Funds

- -------------------------------------------------------------------------------
73 Tremont Street For initial purchase information, current
Boston, MA 02108-3913 prices, performance information and existing
account information, call (800) 446-1012.
(From overseas, call (617) 557-8280.)

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

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

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

INCOME AND GROWTH FUND seeks moderate current income with capital apprecia-
tion as a secondary goal by investing in common stock, preferred stock and se-
curities convertible into common stock.

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

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

LARGE CAP GROWTH FUND seeks superior, risk-adjusted total return by investing
in larger companies whose growth prospects, in the opinion of the Investment
Adviser, appear to exceed that of the overall market.

This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1998 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to Excelsior Fund at its address shown above or by calling
(800) 446-1012. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus. The Securities and Exchange Commission maintains a World Wide
Web site (http://www.sec.gov) that contains the Statement of Additional Infor-
mation and other information regarding Excelsior Fund.

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

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

August 1, 1998
<PAGE>

PROSPECTUS SUMMARY

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

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

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

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

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

2
<PAGE>

EXPENSE SUMMARY

<TABLE>
<CAPTION>
BLENDED VALUE AND LARGE CAP
EQUITY INCOME AND RESTRUCTURING SMALL CAP GROWTH
FUND GROWTH FUND FUND FUND FUND
------- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales Load..... None None None None None
Sales Load on Reinvested
Dividends............... None None None None None
Deferred Sales Load...... None None None None None
Redemption Fees.......... None None None None None
Exchange Fees............ None None None None None
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory Fees (after fee
waivers)/1/............. .68% .67% .56% .53% .68%
12b-1 Fees............... None None None None None
Other Operating Expenses
Administrative Servicing
Fee/1/................. .04% .08% .04% .07% .02%
Other Expenses.......... .27% .27% .29% .34% .35%
----- ----- ---- ---- -----
Total Operating Expenses
(after fee waivers)/1/ . .99% 1.02% .89% .94% 1.05%
===== ===== ==== ==== =====
</TABLE>

- --------

1. The Investment Adviser and administrators may, from time to time, voluntar-
ily waive part of their respective fees, which waivers may be terminated at
any time. Until further notice, the Investment Adviser and/or administra-
tors intend to voluntarily waive fees in an amount equal to the Administra-
tive Servicing Fee; and to further waive fees and reimburse expenses to the
extent necessary for Shares of the Value and Restructuring, Small Cap and
Large Cap Growth Funds to maintain an annual expense ratio of not more than
.99%, .99% and 1.05%, respectively. Without such fee waivers, "Advisory
Fees" would be .75%, .75%, .60%, .60% and .75%, and "Total Operating Ex-
penses" would be 1.06%, 1.10%, .93%, 1.01% and 1.12% for the Blended Equi-
ty, Income and Growth, Value and Restructuring, Small Cap and Large Cap
Growth Funds, respectively.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Blended Equity Fund............................. $10 $32 $55 $121
Income and Growth Fund.......................... 10 32 56 125
Value and Restructuring Fund.................... 9 28 49 110
Small Cap Fund.................................. 10 30 52 115
Large Cap Growth Fund........................... 11 33 58 128
</TABLE>

The foregoing expense summary and example are intended to assist investors
in understanding the costs and expenses that an investor in Shares of the
Funds will bear directly or indirectly. The expense summary sets forth advi-
sory and other expenses payable with respect to Shares of the Blended Equity,
Income and Growth, Value and Restructuring and Small Cap Funds for the fiscal
year ended March 31, 1998, and the estimated advisory and other expenses pay-
able with respect to Shares of the Large Cap Growth Fund for the current fis-
cal year. For more complete descriptions of the Funds' operating expenses, see
"Management of the Funds" and "Description of Capital Stock" in this Prospec-
tus and the financial statements and notes incorporated by reference in the
Statement of Additional Information.

3
<PAGE>

FINANCIAL HIGHLIGHTS

The following tables include selected data for a Share outstanding throughout
each period and other performance information derived from the financial
statements included in Excelsior Fund's Annual Report to Shareholders for
the year ended March 31, 1998 (the "Financial Statements"). The information
contained in the Financial Highlights for each period has been audited by Ernst
& Young LLP, Excelsior Fund's independent auditors. The following tables should
be read in conjunction with the Financial Statements and notes thereto. More
information about the performance of each Fund is also contained in the Annual
Report to Shareholders, which may be obtained from Excelsior Fund without
charge by calling the number on the front cover of this Prospectus.

BLENDED EQUITY FUND
(FORMERLY, THE EQUITY FUND)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year...... $ 25.81 $ 24.43 $ 21.40 $ 19.17 $ 18.77 $ 16.28 $14.13 $13.87 $13.22 $11.32
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income.. 0.16 0.18 0.12 0.07 0.05 0.08 0.13 0.28 0.34 0.19
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 12.59 2.50 5.21 2.67 1.16 3.01 2.23 0.39 1.26 1.88
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Total From Investment
Operations............ 12.75 2.68 5.33 2.74 1.21 3.09 2.36 0.67 1.60 2.07
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income..... (0.16) (0.14) (0.11) (0.04) (0.08) (0.09) (0.21) (0.23) (0.34) (0.17)
Distributions From Net
Realized Gain on
Investments and
Options............... (2.28) (1.16) (2.19) (0.47) (0.39) (0.51) 0.00 (0.18) (0.61) 0.00
Distributions in Excess
of Net Realized Gain
on Investments and
Options............... 0.00 0.00 0.00 0.00 (0.34) 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Total Distributions.... (2.44) (1.30) (2.30) (0.51) (0.81) (0.60) (0.21) (0.41) (0.95) (0.17)
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Net Asset Value, End of
Year................... $ 36.12 $ 25.81 $ 24.43 $ 21.40 $ 19.17 $ 18.77 $16.28 $14.13 $13.87 $13.22
======= ======= ======= ======= ======= ======= ====== ====== ====== ======
Total Return ........... 50.82% 11.09% 26.45% 14.65% 6.54% 19.26% 16.87% 5.11% 11.98% 18.52%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $594.91 $306.99 $188.57 $137.42 $122.26 $106.14 $71.62 $29.87 $25.98 $17.61
Ratio of Net Operating
Expenses to Average
Net Assets............ 0.99% 1.01% 1.05% 1.05% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16%
Ratio of Gross
Operating Expenses to
Average Net Assets/1/
...................... 1.06% 1.06% 1.12% 1.08% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16%
Ratio of Net Investment
Income to Average
Net Assets............ 0.55% 0.71% 0.55% 0.36% 0.25% 0.51% 0.87% 2.21% 2.45% 1.62%
Portfolio Turnover
Rate.................. 28.0% 39.0% 27.0% 23.0% 17.0% 24.0% 20.0% 41.0% 53.0% 46.0%
Average Commission Rate
Paid/2/............... $0.0420 $0.0663 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- --------
NOTES:

1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

2. Only required for fiscal years beginning on or after September 1, 1995.

4
<PAGE>

INCOME AND GROWTH FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year...... $ 15.25 $ 14.45 $ 11.82 $11.94 $11.45 $ 9.10 $ 8.36 $ 8.84 $ 9.09 $ 8.12
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
Income From Investment
Operations
Net Investment Income.. 0.36 0.33 0.39 0.38 0.31 0.27 0.30 0.29 0.40 0.28
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 4.53 1.45 2.61 0.26 0.46 2.43 0.72 (0.43) 0.19 1.15
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
Total From Investment
Operations............ 4.89 1.78 3.00 0.64 0.77 2.70 1.02 (0.14) 0.59 1.43
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
Less Distributions
Dividends From Net
Investment Income..... (0.34) (0.35) (0.31) (0.35) (0.27) (0.35) (0.28) (0.34) (0.39) (0.46)
Distributions From Net
Realized Gain on
Investments and
Options............... (1.85) (0.63) (0.06) (0.41) (0.01) 0.00 0.00 0.00 (0.45) 0.00
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
Total Distributions.... (2.19) (0.98) (0.37) (0.76) (0.28) (0.35) (0.28) (0.34) (0.84) (0.46)
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
Net Asset Value, End of
Year................... $ 17.95 $ 15.25 $ 14.45 $11.82 $11.94 $11.45 $ 9.10 $ 8.36 $ 8.84 $ 9.09
======= ======= ======= ====== ====== ====== ====== ======= ====== ======
Total Return............ 33.29% 12.61% 25.83% 5.74% 6.69% 30.45% 12.42% (1.30)% 6.14% 18.36%
Ratios/Supplemental Data
Net Assets, End of
Period
(in millions)......... $138.05 $132.77 $127.50 $99.93 $96.68 $51.30 $23.25 $ 19.59 $23.66 $14.62
Ratio of Net Operating
Expenses to Average
Net Assets............ 1.02% 1.03% 1.05% 1.06% 1.17% 1.15% 1.23% 1.28% 1.24% 1.22%
Ratio of Gross
Operating Expenses to
Average Net Assets/1/. 1.10% 1.11% 1.11% 1.09% 1.17% 1.15% 1.23% 1.28% 1.24% 1.22%
Ratio of Net Investment
Income to Average Net
Assets................ 2.04% 2.17% 2.95% 3.31% 2.77% 2.76% 3.52% 3.64% 4.47% 4.09%
Portfolio Turnover
Rate.................. 32.0% 25.0% 22.0% 36.0% 28.0% 28.0% 81.0% 148.0% 29.0% 24.0%
Average Commission Rate
Paid/2/............... $0.0539 $0.0777 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- --------
NOTES:

1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

2. Only required for fiscal years beginning on or after September 1, 1995.

5
<PAGE>

VALUE AND RESTRUCTURING FUND

(FORMERLY, THE BUSINESS AND INDUSTRIAL RESTRUCTURING FUND)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------- PERIOD ENDED
1998 1997 1996 1995 1994 MARCH 31, 1993/1/
------- ------- ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 15.93 $ 14.03 $10.55 $ 9.64 $ 7.71 $ 7.00
------- ------- ------ ------ ------ -------
Income From Investment
Operations
Net Investment Income. 0.10 0.13 0.10 0.07 0.06 0.02
Net Gains or (Losses)
on Securities (both
realized and
unrealized).......... 8.12 2.36 3.71 1.02 1.96 0.69
------- ------- ------ ------ ------ -------
Total From Investment
Operations........... 8.22 2.49 3.81 1.09 2.02 0.71
------- ------- ------ ------ ------ -------
Less Distributions
Dividends From Net
Investment Income.... (0.09) (0.12) (0.09) (0.06) (0.07) 0.00
Distributions From Net
Realized Gain on
Investments and
Options.............. (0.27) (0.47) (0.24) (0.12) (0.02) 0.00
------- ------- ------ ------ ------ -------
Total Distributions... (0.36) (0.59) (0.33) (0.18) (0.09) 0.00
------- ------- ------ ------ ------ -------
Net Asset Value, End of
Period................. $ 23.79 $ 15.93 $14.03 $10.55 $ 9.64 $ 7.71
======= ======= ====== ====== ====== =======
Total Return............ 52.10% 18.09% 36.48% 11.49% 26.40% 10.14%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions). $388.45 $124.01 $74.05 $30.18 $14.44 $ 1.94
Ratio of Net Operating
Expenses to Average
Net Assets........... 0.89% 0.91% 0.91% 0.98% 0.99% 0.99%/2/
Ratio of Gross
Operating Expenses to
Average
Net Assets/3/........ 0.93% 0.95% 0.95% 1.08% 1.73% 5.85%/2/
Ratio of Net
Investment Income to
Average Net Assets... 0.54% 0.90% 0.88% 0.83% 0.77% 2.48%/2/
Portfolio Turnover
Rate................. 30.0% 62.0% 56.0% 82.0% 75.0% 9.0%/2/
Average Commission
Rate Paid/4/......... $0.0624 $0.0755 N/A N/A N/A N/A
</TABLE>
- --------
NOTES:
1. Inception date of the Fund was December 31, 1992.

2. Annualized.

3. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

4. Only required for fiscal years beginning on or after September 1, 1995.

6
<PAGE>

SMALL CAP FUND

(FORMERLY, THE EARLY LIFE CYCLE FUND)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------- PERIOD ENDED
1998 1997 1996 1995 1994 MARCH 31, 1993/1/
------- -------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 8.83 $ 10.78 $ 9.77 $ 8.66 $ 7.40 $7.00
------- -------- ------- ------- ------- -----
Income From Investment
Operations
Net Investment Income
(Loss)............... (0.01) (0.03) (0.02) (0.02) (0.01) 0.00
Net Gains or (Losses)
on Securities (both
realized and
unrealized).......... 3.13 (1.43) 1.72 1.31 1.36 0.40
------- -------- ------- ------- ------- -----
Total From Investment
Operations........... 3.12 (1.46) 1.70 1.29 1.35 0.40
------- -------- ------- ------- ------- -----
Less Distributions
Dividends From Net
Investment Income.... 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and
Options.............. 0.00 (0.10) (0.69) (0.18) (0.09) 0.00
Distributions in
Excess of Net
Realized Gain on
Investments and
Options.............. 0.00 (0.39) 0.00 0.00 0.00 0.00
------- -------- ------- ------- ------- -----
Total Distributions... 0.00 (0.49) (0.69) (0.18) (0.09) 0.00
------- -------- ------- ------- ------- -----
Net Asset Value, End of
Period................. $ 11.95 $ 8.83 $ 10.78 $ 9.77 $ 8.66 $7.40
======= ======== ======= ======= ======= =====
Total Return............ 35.33% (14.33)% 18.29% 15.16% 18.27% 5.71%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions). $ 68.55 $ 53.26 $ 78.06 $ 47.78 $ 24.95 $5.51
Ratio of Net Operating
Expenses to Average
Net Assets........... 0.94% 0.94% 0.90% 0.96% 0.95% 0.99%/2/
Ratio of Gross
Operating Expenses to
Average Net
Assets/3/............ 1.01% 1.02% 0.98% 1.04% 1.15% 2.70%/2/
Ratio of Net
Investment
Income/(Loss) to
Average Net Assets... (0.14)% (0.26)% (0.17)% (0.23)% (0.25)% 0.12%/2/
Portfolio Turnover
Rate................. 73.0% 55.0% 38.0% 42.0% 20.0% 4.0%/2/
Average Commission
Rate Paid/4/......... $0.0490 $ 0.0433 N/A N/A N/A N/A
</TABLE>
- --------
NOTES:
1. Inception date of the Fund was December 31, 1992.

2. Annualized.

3. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

4. Only required for fiscal years beginning on or after September 1, 1995.

7
<PAGE>

LARGE CAP GROWTH FUND

<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1998/1/
-----------------
<S> <C>
Net Asset Value, Beginning of Period......................... $ 7.00
-------
Income From Investment Operations
Net Investment Income...................................... 0.00/2/
Net Gains or (Losses) on Securities (both realized and
unrealized)............................................... 1.51
-------
Total From Investment Operations........................... 1.51
-------
Less Distributions
Dividends From Net Investment Income....................... 0.00
Distributions From Net Realized Gain on Investments and
Options................................................... 0.00
-------
Total Distributions........................................ 0.00
-------
Net Asset Value, End of Period............................... $ 8.51
=======
Total Return................................................. 21.57%/3/
Ratios/Supplemental Data
Net Assets, End of Period (in millions).................... $ 47.53
Ratio of Net Operating Expenses to Average Net Assets...... 1.05%/4/
Ratio of Gross Operating Expenses to Average Net Assets/5/. 1.20%4
Ratio of Net Investment Income/(Loss) to Average
Net Assets................................................ (0.16)%/4/
Portfolio Turnover Rate.................................... 12%/4/
Average Commission Rate Paid............................... $0.0384
</TABLE>
- --------
NOTES:

1. Inception date of the Fund was October 1, 1997.

2. Amount represents less than $0.01 per share.

3. Not annualized.

4. Annualized.

5. Expense ratio before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

8
<PAGE>

U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES

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

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

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

In managing investments for the Large Cap Growth Fund, U.S. Trust expects to
follow a long-term investment philosophy of buying and holding equity securi-
ties of companies which it believes to be of high quality and of high growth
potential. Typically, these companies are industry leaders with the potential
to dominate their markets by being the low cost, high quality producers of
products or services. U.S. Trust believes that earnings growth is the primary
determinant of stock prices and that efficient financial markets will reward
consistently above-average earnings growth with greater than average capital
appreciation over the long term.

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

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

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

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<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The Investment Adviser will use its best efforts to achieve the investment
objective of each Fund, although their achievement cannot be assured. The in-
vestment objective of each of the Blended Equity, Income and Growth, Value and
Restructuring and Small Cap Funds is "fundamental," meaning that it may not be
changed without a vote of the holders of a majority of the particular Fund's
outstanding Shares (as defined under "Miscellaneous"). The investment objec-
tive of the Large Cap Growth Fund may be changed by Excelsior Fund's Board of
Directors without shareholder approval. Except as noted below in "Investment
Limitations," the investment policies of each Fund may be changed without a
vote of the holders of a majority of the outstanding Shares of such Fund.

BLENDED EQUITY FUND

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

VALUE AND RESTRUCTURING FUND

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

SMALL CAP FUND

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

LARGE CAP GROWTH FUND

The Large Cap Growth Fund's investment objective is to seek superior, long-
term total return. The Fund attempts to achieve this objective through invest-
ments primarily in companies with capitalizations

10
<PAGE>

in excess of $5 billion, whose growth prospects, in the opinion of U.S. Trust,
appear to exceed that of the overall market. Under normal conditions, at least
65% of the Fund's total assets will be invested in such companies.

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

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

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

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

The Blended Equity, Value and Restructuring, Small Cap and Large Cap Growth
Funds may invest in the securities of foreign issuers directly or indirectly
through sponsored and unsponsored American Depository Receipts ("ADRs"). ADRs
represent receipts typically issued by a U.S. bank or trust company which evi-
dence ownership of underlying securities of foreign issuers. Investments in
unsponsored ADRs involve additional risk because financial information based
on generally accepted accounting principles ("GAAP") may not be available for
the foreign issuers of the underlying securities. ADRs may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. The Funds may also enter into foreign currency exchange
transactions for hedging purposes.

INCOME AND GROWTH FUND

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

The Fund may invest in the securities of foreign issuers directly or indi-
rectly through sponsored and unsponsored ADRs. For information on ADRs, see
"Investment Policies Common to the Blended Equity,

11
<PAGE>

Value and Restructuring, Small Cap and Large Cap Growth Funds." The Fund may
also enter into foreign currency exchange transactions for hedging purposes.

In managing the equity portion of the Income and Growth Fund, the Investment
Adviser will generally select securities that are expected to pay dividends
and other distributions which will result in moderate current income when
added to the income from the Fund's non-equity investments. As a general mat-
ter, the Investment Adviser will use the three strategies described above in
"U.S. Trust's Investment Philosophy and Strategies"--problem/opportunity,
transaction value, and early life cycle. In applying these strategies, howev-
er, the Investment Adviser will place greater emphasis on the current and an-
ticipated income of particular securities and lesser emphasis on the potential
for capital appreciation. As a result, the Income and Growth Fund can be ex-
pected to have a relatively smaller proportion of its assets invested in com-
mon shares of early life cycle companies than the Blended Equity, Value and
Restructuring and Small Cap Funds. The Investment Adviser may also purchase
equity securities for the Income and Growth Fund from time to time without re-
gard to the strategies outlined above if it determines that the purchase is in
furtherance of the Fund's investment objectives.

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

Debt obligations rated "BB," "B" or "CCC" by S&P are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" represents the
lowest degree of speculation and "CCC" the highest degree of speculation.
While such debt will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major risk exposures to ad-
verse conditions. The rating "CC" is typically applied to a debt obligation
that is highly vulnerable to non-payment. The rating "C" is typi-

12
<PAGE>

cally used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued. Debt obligations rated "D" are in de-
fault, and payments of interest and/or repayment of principal is in arrears.
The ratings from "AA" through "CCC" are sometimes modified by the addition of
a plus or minus sign to show relative standing within the major rating catego-
ries. Moody's has a similar classification scheme for non-investment grade
debt obligations. Debt obligations rated "Ba," "B," "Caa," "Ca" and "C" pro-
vide questionable protection of interest and principal. The rating "Ba" indi-
cates that a debt obligation has some speculative characteristics. The rating
"B" indicates a general lack of characteristics of desirable investment. Debt
obligations rated "Caa" are of poor quality, while debt obligations rated "Ca"
are considered highly speculative. "C" represents the lowest rated class of
debt obligations. Moody's applies numerical modifiers 1, 2 and 3 in each ge-
neric classification from "Aa" to "B" in its bond rating system. The modifier
"1" indicates that a security ranks in the higher end of its rating category;
the modifier "2" reflects a mid-range ranking; and the modifier "3" indicates
that the security ranks at the lower end of its generic rating category.

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

RISK FACTORS

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

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

All Funds may invest in the securities of foreign issuers. Investments in
foreign securities involve certain risks not ordinarily associated with in-
vestments in domestic securities. Such risks include fluctuations in foreign
exchange rates, future political and economic developments, and the possible
imposition of exchange controls or other foreign governmental laws or restric-
tions. In addition, with respect

13
<PAGE>

to certain countries there is the possibility of expropriation of assets, con-
fiscatory taxation, political or social instability or diplomatic developments
which could adversely affect investments in those countries. There may be less
publicly available information about a foreign company than about a U.S. com-
pany, and foreign companies may not be subject to accounting, auditing and fi-
nancial reporting standards and requirements comparable to or as uniform as
those of U.S.-based companies. Foreign securities markets, while growing in
volume, have, for the most part, substantially less volume than U.S. markets,
and securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable U.S.-based companies. Transaction costs
on foreign securities markets are generally higher than in the United States.
There is generally less government supervision and regulation of foreign ex-
changes, brokers and issuers than there is in the United States and a Fund
might have greater difficulty taking appropriate legal action in a foreign
court. Dividends and interest payable on a Fund's foreign portfolio securities
may be subject to foreign withholding taxes. To the extent such taxes are not
offset by credits or deductions allowed to investors under the Federal income
tax provisions, they may reduce the net return to the shareholders.

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

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

Year 2000. Like other investment companies, financial and business organiza-
tions and individuals around the world, the Funds could be affected adversely
if the computer systems used by the Investment Adviser and Funds' other serv-
ice providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Investment Adviser and the Funds' other service providers
have informed Excelsior Fund that they are taking steps to address the Year
2000 Problem with respect to the computer systems that they use. At this time,
however, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on the Funds as a result of the Year 2000 Problem.

PORTFOLIO INSTRUMENTS AND OTHER
INVESTMENT INFORMATION

MONEY MARKET INSTRUMENTS

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

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

14
<PAGE>

ment Limitations"). Investments in time deposits are limited to no more than
5% of the value of a Fund's total assets at the time of purchase.

GOVERNMENT OBLIGATIONS

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

REPURCHASE AGREEMENTS

Each Fund may agree to purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually agreed upon date and price ("re-
purchase agreements"). Each Fund will enter into repurchase agreements only
with financial institutions that are deemed to be creditworthy by the Invest-
ment Adviser, pursuant to guidelines established by Excelsior Fund's Board of
Directors. No Fund will enter into repurchase agreements with the Investment
Adviser or any of its affiliates. Repurchase agreements with remaining maturi-
ties in excess of seven days will be considered illiquid securities and will
be subject to the limitations described below under "Illiquid Securities."

SECURITIES LENDING

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

15
<PAGE>

OPTIONS

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

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

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

FUTURES CONTRACTS

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

The Blended Equity, Value and Restructuring, Small Cap and Large Cap Growth
Funds will not engage in futures transactions for speculation, but only as a
hedge against changes in market values of securities which a Fund holds or in-
tends to purchase. The Funds will engage in futures transactions only to the
extent permitted by the Commodity Futures Trading Commission ("CFTC") and the
Securities and Exchange Commission ("SEC"). When investing in futures con-
tracts, the Funds must satisfy certain asset segregation requirements to en-
sure that the use of futures is unleveraged. When a Fund takes a long position
in a futures contract, it must maintain a segregated account containing liquid
assets equal to the purchase price of the contract, less any margin or depos-
it. When a Fund takes a short position in a futures contract, the Fund must
maintain a segregated account containing liquid assets in an amount equal to
the market value of the securities underlying such contract (less any margin
or deposit), which amount must be at least equal to the market price at which
the short position was established. Asset segregation requirements are not ap-
plicable when a Fund "covers" an options or futures position generally by en-
tering into an offsetting position. Each Fund will limit its hedging transac-
tions in futures contracts and related options so that, immediately after any
such transaction, the aggregate initial margin that is required to be posted
by the Fund under the rules of the exchange on which the futures contract (or
futures option) is traded, plus any premiums paid by the Fund on its open
futures options positions, does not exceed 5% of the Fund's total assets, af-
ter taking into account any unrealized profits and unrealized losses on the
Fund's open contracts (and excluding the amount that a futures option is "in-
the-money" at the time of purchase). An option to buy a futures contract is
"in-the-money" if the then-current purchase price of the underlying futures
contract exceeds the exercise or strike price; an option to sell a futures
contract is "in-the-money" if the exercise or strike price exceeds the then-
current pur -

16
<PAGE>

chase price of the contract that is the subject of the option. In addition,
the use of futures contracts is further restricted to the extent that no more
than 10% of a Fund's total assets may be hedged.

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

INVESTMENT COMPANY SECURITIES

Each Fund may invest in securities issued by other investment companies which
invest in high-quality, short-term debt securities and which determine their
net asset value per share based on the amortized cost or penny-rounding meth-
od. The Income and Growth Fund may also purchase securities of unit investment
trusts registered with the SEC as investment companies. In addition to the ad-
visory fees and other expenses a Fund bears directly in connection with its
own operations, as a shareholder of another investment company, a Fund would
bear its pro rata portion of the other investment company's advisory fees and
other expenses. As such, the Fund's shareholders would indirectly bear the ex-
penses of the Fund and the other investment company, some or all of which
would be duplicative. Such securities will be acquired by each Fund within the
limits prescribed by the Investment Company Act of 1940, as amended (the "1940
Act"), which include, subject to certain exceptions, a prohibition against a
Fund investing more than 10% of the value of its total assets in such securi-
ties.

WHEN-ISSUED AND FORWARD TRANSACTIONS

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

BORROWING AND REVERSE REPURCHASE AGREEMENTS

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ILLIQUID SECURITIES

No Fund will knowingly invest more than 10% (15%, with respect to the Large
Cap Growth Fund) of the value of its net assets in securities that are illiq-
uid. A security will be considered illiquid if it may not be disposed of
within seven days at approximately the value at which the particular Fund has
valued the security. Each Fund may purchase securities which are not regis-
tered under the Securities Act of 1933, as amended (the "Act"), but which can
be sold to "qualified institutional buyers" in accordance with Rule 144A under
the Act. Any such security will not be considered illiquid so long as it is
determined by the Investment Adviser, acting under guidelines approved and
monitored by the Board, that an adequate trading market exists for that secu-
rity. This investment practice could have the effect of increasing the level
of illiquidity in a Fund during any period that qualified institutional buyers
are no longer interested in purchasing these restricted securities.

PORTFOLIO TURNOVER

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

INVESTMENT LIMITATIONS

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

A Fund may not:

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

2. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that (a) with respect to the Blended Equity and In-
come and Growth Funds, there is no limitation with respect to securities is-
sued or guaranteed by the U.S. Government or domestic bank obligations, (b)
with respect to the Value and Restructuring and Small Cap Funds, there is no
limitation with respect to securities issued or guaranteed by the U.S. Gov-
ernment, (c) with respect to the Large Cap Growth Fund, there is no limita-
tion with respect to securities issued or guaranteed by the U.S. Government,
any state, territory or possession of the United States, the District of Co-
lumbia or any of their authorities, agencies, instrumentalities or political
subdivisions, and repurchase agreements secured by such securities, and (d)
neither all finance companies, as a group, nor all utility companies, as a
group, are considered a single industry for purposes of this policy.

18
<PAGE>

Each of the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap Funds may not:

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

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

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

5. Invest in obligations of foreign branches of financial institutions or in
domestic branches of foreign banks, if immediately after such purchase
(i) more than 5% of the value of its total assets would be invested in obli-
gations of any one foreign branch of the financial institution or domestic
branch of a foreign bank; or (ii) more than 20% of its total assets would be
invested in foreign branches of financial institutions or in domestic
branches of foreign banks; and

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

The Large Cap Growth Fund may not:

7. Borrow money or mortgage, pledge or hypothecate its assets except to the
extent permitted under the 1940 Act. Optioned stock held in escrow is not
deemed to be a pledge; and

8. Purchase securities of any one issuer, other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or other
investment companies if, immediately after such purchase, more than 5% of the
value of its total assets would be invested in the securities of such issuer,
except that up to 25% of the value of its total assets may be invested with-
out regard to this 5% limitation.

* * *

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

The Value and Restructuring, Small Cap and Large Cap Growth Funds may not in-
vest in obligations of foreign branches of financial institutions or in domes-
tic branches of foreign banks if immediately after such purchase (i) more than
5% of the value of their respective total assets would be invested in obliga-
tions of any one foreign branch of the financial institution or domestic
branch of a foreign bank; or (ii) more than 20% of their respective total as-
sets would be invested in foreign branches of financial institutions or in do-
mestic branches of foreign banks. In addition, the Large Cap Growth Fund will
not purchase portfolio securities while borrowings in excess of 5% of its to-
tal assets are outstanding. These investment policies may be changed by Excel-
sior Fund's Board of Directors without shareholder approval.

19
<PAGE>

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

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

PRICING OF SHARES

The net asset value of each Fund is determined and the Shares of each Fund
are priced at the close of regular trading hours on the New York Stock Ex-
change (the "Exchange"), currently 4:00 p.m. (Eastern Time). Net asset value
and pricing for each Fund are determined on each day the Exchange and the In-
vestment Adviser are open for trading ("Business Day"). Currently, the holi-
days which the Funds observe are New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day and Christmas. A Fund's net asset
value per Share for purposes of pricing sales and redemptions is calculated by
dividing the value of all securities and other assets allocable to the Fund,
less the liabilities allocable to the Fund, by the number of its outstanding
Shares.

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

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

20
<PAGE>

HOW TO PURCHASE AND REDEEM SHARES

DISTRIBUTOR

Shares in each Fund are continuously offered for sale by Excelsior Fund's
sponsor and distributor, Edgewood Services, Inc. (the "Distributor"), a whol-
ly-owned subsidiary of Federated Investors, Inc. The Distributor is a
registered broker/dealer. Its principal business address is 5800 Corporate
Drive, Pittsburgh, PA 15237-5829.

PURCHASE OF SHARES

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

21
<PAGE>

(800) 446-1012.) An Investor purchasing Shares through a registered investment
adviser or certified financial planner may incur transaction charges in connec-
tion with such purchases. Such Investors should contact their registered in-
vestment adviser or certified financial planner for further information on
transaction fees. Investors may also purchase Shares directly from the Distrib-
utor in accordance with procedures described below under "Purchase Procedures."

PURCHASE PROCEDURES

General

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

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

Purchases by Wire

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

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

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

OTHER PURCHASE INFORMATION

22
<PAGE>

charge a Customer's account fees for automatic investment and other cash man-
agement services provided. Excelsior Fund reserves the right to reject any pur-
chase order, in whole or in part, or to waive any minimum investment require-
ments. Third party checks will not be accepted as payment for Fund Shares.

REDEMPTION PROCEDURES

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

REDEMPTION BY MAIL

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

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

23
<PAGE>

REDEMPTION BY WIRE OR TELEPHONE

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

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

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

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

OTHER REDEMPTION INFORMATION

GENERAL

24
<PAGE>

after the close of regular trading hours on the Exchange are priced at the net
asset value per Share determined on the next Business Day.

INVESTOR PROGRAMS

EXCHANGE PRIVILEGE

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

Excelsior Fund currently offers 13 additional portfolios as follows:

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

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

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

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

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

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

Energy and Natural Resources Fund, a non-diversified fund seeking long-term
capital appreciation by investing in companies that are in the energy and
other natural resources groups of industries;

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

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

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

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

25
<PAGE>

Emerging Markets Fund, a fund seeking long-term capital appreciation through
investments primarily in equity securities of emerging country issuers.

Excelsior Tax-Exempt Fund currently offers 7 portfolios as follows:

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

New York Tax-Exempt Money Fund, a non-diversified tax-exempt money market
fund seeking a moderate level of current interest income exempt from Federal
and, to the extent possible, New York State and New York City income taxes
through investments primarily in New York municipal obligations maturing
within 13 months;

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

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

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

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

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

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

26
<PAGE>

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

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

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

SYSTEMATIC WITHDRAWAL PLAN

An Investor who owns Shares of a Fund with a value of $10,000 or more may es-
tablish a Systematic Withdrawal Plan. The Investor may request a declining-
balance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an Investor must complete Section 9 of the New Ac-
count Application contained in this Prospectus and mail it to CGFSC at the ad-
dress given above. Further information on establishing a Systematic Withdrawal
Plan may be obtained by calling (800) 446-1012 (from overseas, call (617) 557-
8280.)

RETIREMENT PLANS

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

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

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

Keogh Plans for self-employed individuals.

27
<PAGE>

AUTOMATIC INVESTMENT PROGRAM

DIVIDENDS AND DISTRIBUTIONS

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

TAXES

FEDERAL

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

28
<PAGE>

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

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

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

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

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

29
<PAGE>

manner as by the partnership or trust. Some of the investments that the Income
and Growth Fund may make (such as liquidating trust receipts and creditor
claims) may not be securities or may not produce qualifying income. Therefore,
it may be necessary for the Investment Adviser to restrict the investments of
that Fund to ensure that non-qualifying income does not exceed 10% of that
Fund's total gross income for a taxable year.

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

STATE AND LOCAL

MANAGEMENT OF THE FUNDS

INVESTMENT ADVISER

The Blended Equity Fund's portfolio co-managers, Leigh H. Weiss and Bruce
Tavel, are the persons primarily responsible for the day-to-day management of
the Fund's investment portfolio. Mr. Weiss, a Managing Director and Senior
Portfolio Manager, has been with U.S. Trust since 1993 and has managed the
Fund since August 1997. Prior to joining U.S. Trust, Mr. Weiss was a portfolio
manager with Goldman, Sachs & Co. Mr. Tavel, a Senior Vice President and head
of U.S. Trust's Structured Investments Division, has been with U.S. Trust
since 1980 and has managed the Fund since August 1997.

The Income and Growth Fund's portfolio manager, Richard L. Bayles, is the
person primarily responsible for the day-to-day management of the investment
portfolio. Mr. Bayles, a Managing Director and Senior Portfolio Manager of the
Personal Investment Division of U.S. Trust, has been with U.S. Trust since
1990 and has managed the Fund since 1990.

30
<PAGE>

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

The Small Cap Fund's portfolio co-managers are Timothy Pettee and Margaret
Doyle. Mr. Pettee, a Managing Director and Director of Equity Research with
U.S. Trust, has managed the Fund since August 1998. Prior to joining U.S.
Trust, Mr. Pettee was a Vice President and fund manager with Alliance Capital
Management in New York from 1993 to 1998. Ms. Doyle, a Vice President in U.S.
Trust's Equity Research Division, has managed the Fund since August 1998. From
1996 to 1998, Ms. Doyle was a Vice President and Investment Officer with J & W
Seligman & Co. in New York. Prior to 1996, Ms. Doyle was an Equity Research
Analyst with Solomon Brothers, Inc. in New York.

All investment decisions for the Large Cap Growth Fund are made by a commit-
tee of investment professionals and no persons are primarily responsible for
making recommendations to that committee. U.S. Trust New York provides its in-
vestment advisory services to the Large Cap Growth Fund primarily through its
Campbell Cowperthwait division.

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

Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the Blended Equity, Income and Growth, Value and Restructuring and Small Cap
Funds pursuant to advisory agreements substantially similar to the Investment
Advisory Agreements currently in effect for the Funds. For the fiscal year or
period ended March 31, 1998, U.S. Trust received an advisory fee at the effec-
tive annual rates of .68%, .67%, .56%, .53% and .60% of the average daily net
assets of the Blended Equity, Income and Growth, Value and Restructuring,
Small Cap and Large Cap Growth Funds, respectively. For the same period, U.S
Trust waived advisory fees at the effective annual rates of .07%, .08%, .04%,
.07% and .15% of the average daily net assets of the Blended Equity, Income
and Growth, Value and Restructuring, Small Cap and Large Cap Growth Funds, re-
spectively.

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

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

ADMINISTRATORS

31
<PAGE>

international portfolios of Excelsior Fund and Excelsior Institutional Trust),
the Administrators are entitled jointly to annual fees, computed daily and
paid monthly, based on the combined aggregate average daily net assets of the
three companies (excluding the international portfolios of Excelsior Fund and
Excelsior Institutional Trust) as follows:

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

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

Prior to May 16, 1997, CGFSC, Federated Administrative Services and U.S.
Trust New York served as Excelsior Fund's administrators pursuant to an admin-
istration agreement substantially similar to the administration agreement cur-
rently in effect for Excelsior Fund. For the fiscal year or period ended March
31, 1998, CGFSC, Federated Administrative Services and U.S. Trust received an
aggregate administration fee at the effective annual rates of .153%, .152%,
.151%, .153% and .153% of the average daily net assets of the Blended Equity,
Income and Growth, Value and Restructuring, Small Cap and Large Cap Growth
Funds, respectively, and waived administration fees at the effective annual
rates of .001% and .002% of the average daily net assets of the Income and
Growth and Value and Restructuring Funds, respectively.

SHAREHOLDER ORGANIZATIONS

BANKING LAWS

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

32
<PAGE>

such banking laws and regulations. State securities laws may differ from the
interpretations of Federal law discussed in this paragraph and banks and fi-
nancial institutions may be required to register as dealers pursuant to state
law.

DESCRIPTION OF CAPITAL STOCK

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

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

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

CUSTODIAN AND TRANSFER AGENT

EXPENSES

33
<PAGE>

cations fees; costs of preparing and printing prospectuses for regulatory pur-
poses and for distribution to shareholders; advisory, administration and ad-
ministrative servicing fees; charges of the custodian, transfer agent, and
dividend disbursing agent; certain insurance premiums; outside auditing and
legal expenses; costs of shareholder reports and shareholder meetings; and any
extraordinary expenses. The Funds also pay for brokerage fees and commissions
in connection with the purchase of portfolio securities.

PERFORMANCE INFORMATION

From time to time, in advertisements or in reports to shareholders, the per-
formance of the Funds may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant indices or
to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of a Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds. The performance of the Blended Equity, Value and
Restructuring, Small Cap and Large Cap Growth Funds also may be compared to
the Standard & Poor's 500 Stock Index ("S&P 500"), an unmanaged index of com-
mon stocks of 500 companies, most of which are listed on the Exchange, the
Consumer Price Index, or the Dow Jones Industrial Average, a recognized unman-
aged index of common stocks of 30 industrial companies listed on the Exchange.

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

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

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

MISCELLANEOUS

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

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

34
<PAGE>

INSTRUCTIONS FOR NEW ACCOUNT APPLICATION

OPENING YOUR ACCOUNT:

FOR OVERNIGHT DELIVERY: send to:
Complete the Application and mail to:

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

Boston, MA 02108-3913

Please enclose with the Application your check made payable to the "Excel-
sior Funds" in the amount of your investment.

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

MINIMUM INVESTMENTS:

REDEMPTIONS:

SIGNATURES: Please be sure to sign the Application.

QUESTIONS:

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

35
<PAGE>

PROSPECTUS AUGUST 1, 1998

LOGO EXCELSIOR
FUNDS INC.

BLENDED EQUITY FUND

INCOME AND GROWTH FUND

VALUE AND RESTRUCTURING FUND

SMALL CAP FUND

LARGE CAP GROWTH FUND

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................................................... 2
EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 4
U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES..................... 9
INVESTMENT OBJECTIVES AND POLICIES.................................... 10
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION................ 14
INVESTMENT LIMITATIONS................................................ 18
PRICING OF SHARES..................................................... 20
HOW TO PURCHASE AND REDEEM SHARES..................................... 21
INVESTOR PROGRAMS..................................................... 25
DIVIDENDS AND DISTRIBUTIONS........................................... 28
TAXES................................................................. 28
MANAGEMENT OF THE FUNDS............................................... 30
DESCRIPTION OF CAPITAL STOCK.......................................... 33
CUSTODIAN AND TRANSFER AGENT.......................................... 33
EXPENSES.............................................................. 33
PERFORMANCE INFORMATION............................................... 34
MISCELLANEOUS......................................................... 34
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION.............................. 35
</TABLE>

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

USTEQP898

<PAGE>

EXCELSIOR FUNDS, INC.

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

STATEMENT OF ADDITIONAL INFORMATION

August 1, 1998

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, Small Cap and Large Cap Growth Funds
(individually, a "Fund" and collectively, the "Funds") of Excelsior Funds, Inc.
("Excelsior Fund") dated August 1, 1998 (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 - Blended Equity, Value and Restructuring,
Small Cap and Large Cap Growth Funds 1
Other Investment Considerations - Income and Growth Fund.................... 2
Additional Information on Portfolio Instruments............................. 4
Additional Investment Limitations........................................... 10

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................... 13

INVESTOR PROGRAMS................................................................ 14

Systematic Withdrawal Plan.................................................. 14
Exchange Privilege.......................................................... 15
Other Investor Programs..................................................... 15

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

MANAGEMENT OF THE FUNDS.......................................................... 17

Directors and Officers...................................................... 17
Investment Advisory and Administration Agreements........................... 23
Shareholder Organizations................................................... 25
Expenses.................................................................... 26
Custodian and Transfer Agent................................................ 26

PORTFOLIO TRANSACTIONS........................................................... 27

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

COUNSEL.......................................................................... 30

ADDITIONAL INFORMATION CONCERNING TAXES.......................................... 30

PERFORMANCE INFORMATION.......................................................... 31

MISCELLANEOUS.................................................................... 33

FINANCIAL STATEMENTS............................................................. 34

APPENDIX A....................................................................... A-1

</TABLE>
<PAGE>

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

The investment objectives and policies of the Blended Equity (prior to
August 1, 1997, the "Equity"), Income and Growth, Value and Restructuring (prior
to August 1, 1997, the "Business and Industrial Restructuring"), Small Cap
(prior to August 1, 1997, the "Early Life Cycle") and Large Cap Growth Funds are
described in the Prospectus. The following information supplements the
description of the investment objectives and policies as set forth in the
Prospectus.

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

The Blended Equity, Value and Restructuring, Small Cap and Large Cap
Growth 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, the Investment Adviser expects that the broad and
diversified strategies utilized by it 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 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.

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.

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.

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, Small Cap and Large Cap Growth Funds.
Further, although the Investment Adviser will generally use the three strategies
described above for the Blended Equity, Value and Restructuring, Small Cap and
Large Cap Growth 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.

- 2 -
<PAGE>

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 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.

- 3 -
<PAGE>

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

Options
-------

As stated in the Prospectus, the Income and Growth, Value and
Restructuring, Small Cap and Large Cap Growth Funds may purchase put and call
options listed on a national securities exchange and issued by the Options
Clearing Corporation. 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 Income and Growth, Value
and Restructuring, Small Cap and Large Cap Growth 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.

- 4 -
<PAGE>

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, Small Cap and Large Cap Growth 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, Small Cap and Large Cap Growth Funds to hedge against exposure to
fluctuations in exchange rates between the U.S. dollar and other currencies
arising from multinational transactions.

- 5 -
<PAGE>

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, Small Cap
and Large Cap Growth 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.

Utilization of futures transactions by the Value and Restructuring,
Small Cap and Large Cap Growth 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.

- 6 -
<PAGE>

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

The Value and Restructuring, Small Cap and Large Cap Growth 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 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
------------------------------------

- 7 -
<PAGE>

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.

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.

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.

- 8 -
<PAGE>

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.

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.

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

- 9 -
<PAGE>

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 without shareholder approval.

The following investment limitations are fundamental with respect to
each of the Blended Equity, Income and Growth, Value and Restructuring and Small
Cap Funds. Each such 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

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 Large Cap Growth Fund. The Fund may not:

4. 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

- 10 -
<PAGE>

disposition of certain portfolio securities acquired within the limitation on
purchases of restricted securities and except to the extent that the purchase of
obligations directly from the issuer thereof in accordance with its investment
objective, policies and limitations may be deemed to be underwriting;

5. Purchase or sell real estate, except that (a) the Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by real estate or interests therein, and (b) the Fund may hold
and sell any real estate it acquires as a result of the Fund's ownership of such
securities;

6. Issue any senior securities, except insofar as any borrowing in accordance
with the Fund's investment limitations might be considered to be the issuance of
a senior security; and

7. Purchase or sell commodities or commodities futures contracts or invest in
oil, gas, or other mineral exploration or development programs; provided,
however, that the Fund may: (a) purchase publicly traded securities of
companies engaging in whole or in part in such activities or invest in
liquidating trust receipts, certificates of beneficial ownership or other
instruments in accordance with its investment objective and policies, and (b)
purchase and sell options, forward contracts, futures contracts and futures
options.

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, Small Cap and Large Cap Growth Funds.
No Fund may:

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

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

10. 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:

11. 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

- 11 -
<PAGE>

Growth Fund may purchase options and other rights in accordance with its
investment objective and policies;

12. 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

13. 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
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:

14. 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.

* * *

In addition to the above investment limitations, each Fund currently
intends to limit its investments in warrants so that, valued at the lower of
cost or market value, they do not exceed 5% of the Fund's net assets. For the
purpose of this limitation, warrants acquired by a Fund in units or attached to
securities will be deemed to be without value. Each Fund also intends 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.

- 12 -
<PAGE>

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

Excelsior Fund has authorized certain brokers to accept on its behalf
purchase, exchange and redemption orders. Such brokers are authorized to
designate other intermediaries to accept purchase, exchange and redemption
orders on behalf of Excelsior Fund. Excelsior Fund will be deemed to have
received a purchase, exchange or redemption order when such an authorized broker
or designated intermediary accepts the order.

Shares of the Funds are offered for sale at their net asset value per
Share next computed after a purchase order is received in good order by
Excelsior Fund's sub-transfer agent or after a purchase order is accepted by an
authorized broker or designated intermediary. Similarly, an order for the
exchange or redemption of Shares will receive the net asset value per Share next
computed after the order is received in good order by Excelsior Fund's sub-
transfer agent or after the order is accepted by an authorized broker or
designated intermediary.

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
and 1996, total sales charges paid by shareholders of the Blended Equity, Income
and Growth, Value and Restructuring and Small Cap Funds were $3,806 and $2,725;
$1,241 and $1,223; $8,716 and $3,970; and $698 and $961, 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 with respect to the Blended Equity Fund; $298 with
respect to the Income and Growth Fund; $42 with respect to the Value and
Restructuring Fund; and $0 with respect to the Small Cap Fund for the period
April 1, 1995 through July 31, 1995. 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

- 13 -
<PAGE>

customary weekend and holiday closings; (c) the SEC has by order permitted such
suspension; or (d) an emergency exists as determined by the SEC.

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 certain circumstances, Excelsior Fund may, in its discretion,
accept securities as payment for Shares. Securities acquired in this manner
will be limited to securities issued in transactions involving a bona fide
---------
reorganization or statutory merger, or other transactions involving securities
that meet the investment objective and policies of any Fund acquiring such
securities.

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

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

(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>

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.

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

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.

- 15 -
<PAGE>

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. Prior to December 28, 1995,
Excelsior Fund was known as "UST Master Funds, Inc."

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, its
shareholders are entitled to receive the assets available for distribution
belonging to that Fund 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, 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 and the election of
directors may be effectively acted upon by shareholders of Excelsior Fund voting
without regard to class.

- 16 -
<PAGE>

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.

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:

- 17 -
<PAGE>

Principal Occupation
Position 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: 67 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 1984);
New York, NY 10021 Director of UST Master
Age: 72 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 and Excelsior
Continuation Investments Group, Inc. Tax-Exempt Fund (since 1996); Trustee of
1251 Avenue of the Americas Excelsior Institutional Trust and Excelsior
9th Floor Funds (since 1994); Director, Parsons
New York, NY 10020 Brinkerhoff Energy Services Inc. (since 1996);
Age: 55 Director, Parsons Brinkerhoff, Inc.
(engineering firm) (since 1995); President,
Continuation Investments Group, Inc. (since
1997); President, Mandrake Group (investment
and consulting firm) (1994-1997); Director,
Hyperion Total Return Fund, Inc. and four other
funds for which Hyperion Capital Management,
Inc. serves as investment adviser (since 1991);
Co-Chairman, KMR Power Corporation (power
plants) (from 1993 to 1996); Director, The
Latin America Smaller Companies Fund, Inc.
(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).
</TABLE>

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

- 18 -
<PAGE>

Principal Occupation
Position with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- -------------- ------------------
<S> <C> <C>
Joseph H. Dugan Director Retired; Director of
913 Franklin Lake Road Excelsior Fund and Excelsior
Franklin Lakes, NJ 07417 Tax-Exempt Fund (since 1984);
Age: 73 Director of UST Master
Variable Series, Inc.
(from 1994 to June 1997); and Trustee of
Excelsior Institutional Trust (since 1995).

W. Wallace McDowell, Jr. Director Director of Excelsior Fund and Excelsior
c/o Prospect Capital Tax-Exempt Fund (since 1996); Trustee of
Corp. Excelsior Institutional Trust and Excelsior
43 Arch Street Funds (since 1994); Private Investor (since
Greenwich, CT 06830 1994); Managing Director, Morgan Lewis Githens
Age: 61 & 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).

- 19 -
<PAGE>

Principal Occupation
Position with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- -------------- ------------------
<S> <C> <C>
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: 72 (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. (1974-1998); Trustee, HSBC Funds
Trust and HSBC Mutual Funds Trust (since 1982);
and Director, Infinity Funds, Inc. (since 1995).

Alfred C. Tannachion/2/ Director Retired; Director of Excelsior Fund and
6549 Pine Meadows Drive Excelsior Tax-Exempt Fund (since 1985);
Spring Hill, FL 34606 Chairman of the Board of Excelsior Fund and
Age: 72 Excelsior Tax-Exempt Fund (1991-1997) and
Excelsior Institutional Trust (1996-1997);
President and Treasurer of Excelsior Fund and
Excelsior Tax-Exempt Fund (1994-1997) and
Excelsior Institutional Trust (1996-1997);
Chairman of the Board, President and Treasurer
of UST Master Variable Series, Inc.
(1994-1997); and Trustee of Excelsior
Institutional Trust (since 1995).

W. Bruce McConnel, III Secretary Partner of the law firm of Drinker
Philadelphia National Biddle & Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 55

Michael P. Malloy Assistant Secretary Partner of the law firm of Drinker Biddle &
Philadelphia National Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 39
</TABLE>

- -------------------------
/2/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.

- 20 -
<PAGE>

Principal Occupation
Position with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- -------------- ------------------
<S> <C> <C>
Edward Wang Assistant Manager of Blue Sky Compliance, Chase Global
Chase Global Funds Secretary Funds Services Company (November 1996 to
Services Company present); and Officer and Manager of Financial
73 Tremont Street Reporting, Investors Bank & Trust Company
Boston, MA 02108-3913 (January 1991 to November 1996).
Age: 37

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 Messrs. McConnel and Malloy are partners, 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 8, 1998, 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.

- 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 $18,000 None $38,000(3)**
Director

Rodman L. Drake $16,500 None $39,500(4)**
Director

Joseph H. Dugan $18,000 None $38,000(3)**
Director

Wolfe J. Frankl $16,500 None $36,500(3)**
Director

W. Wallace McDowell, Jr. $15,000 None $38,000(4)**
Director

Jonathan Piel $18,000 None $43,000(4)**
Director

Robert A. Robinson $18,000 None $38,000(3)**
Director

Alfred C. Tannachion $18,000 None $38,000(3)**
Director

Frederick S. Wonham $23,000 None $53,000(4)**
Chairman of the Board,
President and Treasurer
</TABLE>

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

* The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt
Fund, Excelsior Funds and Excelsior Institutional Trust.

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

- 22 -
<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 Agreements, 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.

For the fiscal year or period ended March 31, 1998, Excelsior Fund
paid U.S. Trust advisory fees of $3,139,705, $990,357, $1,163,708, $320,547 and
$65,472 with respect to the Blended Equity, Income and Growth, Value and
Restructuring, Small Cap and Large Cap Growth Funds, respectively. For the same
period, U.S. Trust waived advisory fees totaling $332,044, $110,502, $84,739,
$41,845 and $16,680 with respect to the Blended Equity, Income and Growth, Value
and Restructuring, Small Cap and Large Cap Growth 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 totaling $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.

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 totaling $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.

- 23 -
<PAGE>

duties or from reckless disregard by it of its duties and obligations
thereunder. In addition, the Investment Adviser has undertaken in the Investment
Advisory Agreements to maintain its policy and practice of conducting its Asset
Management Group independently of its Banking Group.

Chase Global Funds Services Company ("CGFSC"), Federated
Administrative Services (an affiliate of the Distributor) and U.S. Trust
Connecticut (collectively, the "Administrators") serve as Excelsior Fund's
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 Excelsior Fund's administrators pursuant to an
administration agreement substantially similar to the Administration Agreement
currently in effect for Excelsior Fund. Prior to August 1, 1995, administrative
services were provided to Excelsior Fund 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 or period ended March 31, 1998, Excelsior Fund
paid CGFSC, Federated Administrative Services and U.S. Trust $707,403, $223,661,
$315,023, $92,358 and $16,759 in the aggregate with respect to the Blended
Equity, Income and Growth, Value and Restructuring, Small Cap and Large Cap
Growth Funds, respectively. For the same period, CGFSC, Federated
Administrative Services and U.S. Trust waived administration fees totaling $834,
$914, $3,331 and $52 with respect to the Blended Equity, Income and Growth,
Value and Restructuring and Small Cap Funds.

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 Administrative Services and U.S. Trust New
York waived administration fees totaling $5,344, $1,132, $108 and $87 with
respect to the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap 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 $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

- 24 -
<PAGE>

totaling $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 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 totaling $1,640, $575, $34 and
$75 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 0.40% of the average daily net
assets of the Fund's Shares beneficially owned by Customers of the Shareholder
Organization. Such services may include: (a) acting as recordholder of Shares;
(b) assisting in processing purchase, exchange and redemption transactions; (c)
providing periodic statements showing a Customer's account balances and
confirmations of transactions by the Customer; (d) providing tax and dividend
information to shareholders as appropriate; (e) transmitting proxy statements,
annual reports, updated prospectuses and other communications from 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 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 or periods ended March 31, 1998, 1997 and 1996,
payments to Shareholder Organizations totaled $182,660, $132,737 and $112,827;
$111,416, $106,888 and $71,628; $88,070, $41,617 and $21,172; $41,897, $61,972
and $58,058; and $1,501, $0 and $0 with respect to the Blended Equity, Income
and Growth, Value and Restructuring, Small Cap and Large Cap Growth Funds,
respectively. Of these amounts,

- 25 -
<PAGE>

$175,989, $118,778 and $97,209; $107,369, $103,262 and $66,022; $55,667, $41,514
and $21,149; $41,636, $61,952 and $58,039; and $1,501, $0 and $0 were paid to
affiliates of U.S. Trust with respect to the Blended Equity, Income and Growth,
Value and Restructuring, Small Cap and Large Cap Growth 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 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

- 26 -
<PAGE>

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.

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.

For the fiscal years ended March 31, 1998, 1997 and 1996, the Blended
Equity Fund paid brokerage commissions aggregating $288,470, $271,411 and
$174,492, respectively, none of which was paid to affiliates of U.S. Trust.

For the fiscal years ended March 31, 1998, 1997 and 1996, the Income
and Growth Fund paid brokerage commissions aggregating $113,280, $74,499 and
$89,512, respectively, none of which was paid to affiliates of U.S. Trust.

For the fiscal years ended March 31, 1998 and 1997, the Value and
Restructuring Fund paid brokerage commissions aggregating $412,406 and $271,334,
respectively, of which $26,847 and $13,069, respectively, was paid to UST
Securities Corp., an affiliate of U.S. Trust. For the same periods, the
percentages of total commissions paid by the Fund to UST Securities Corp. were
6.51% and 4.82%, respectively, and the percentages of the total amount of the
Fund's brokerage transactions involving the payment of commissions that was
effected through UST Securities Corp. were 7.74% and 5.76%, respectively. For
the same periods, the average commissions per Share paid by the Fund to UST
Securities Corp. and other unaffiliated brokers were $0.09 and $0.06, and $0.09
and

- 27 -
<PAGE>

$0.08, respectively. For the fiscal year ended March 31, 1996, the Fund paid
brokerage commissions aggregating $152,269, none of which was paid to affiliates
of U.S. Trust.

For the fiscal year ended March 31, 1998, the Small Cap Fund paid
brokerage commissions aggregating $131,936, none of which was paid to affiliates
of U.S. Trust. For the fiscal year ended March 31, 1997, the Small Cap Fund
paid brokerage commissions aggregating $122,184, of which $7,047 was paid to UST
Securities Corp. For the same period, the percentage of total commissions paid
by the Fund to UST Securities Corp. was 5.77%, and the percentage of the total
amount of the Fund's brokerage transactions involving the payment of commissions
that was effected through UST Securities Corp. was 1.83%. For the same period,
the average commissions per Share paid by the Fund to UST Securities Corp. and
other unaffiliated brokers were $0.03 and $0.04, respectively. For the fiscal
year ended March 31, 1996, the Fund paid brokerage commissions aggregating
$95,108, none of which was paid to affiliates of U.S. Trust.

For the fiscal period ended March 31, 1998, the Large Cap Growth Fund
paid brokerage commissions aggregating $25,680, none of which was paid to
affiliates of U.S. Trust.

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 Agreements between Excelsior Fund and the
Investment Adviser provide 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 reasonableness of the commission, if any, for
the specific transaction and on a continuing basis.

In addition, the Investment Advisory Agreements authorize 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.

- 28 -
<PAGE>

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 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, 1998, the following Funds held the following securities of Excelsior
Fund's regular brokers or dealers or their parents: the Blended Equity Fund held
202,694 shares of common stock of Morgan Stanley Dean Witter & Co.; the Income &
Growth Fund held 45,000 shares of common stock of Morgan Stanley Dean Witter &
Co.; and the Value and Restructuring Fund held 43,000 shares of common stock of
J.P. Morgan & Co., Inc.

- 29 -
<PAGE>

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, 1998 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, and Mr. Malloy, Assistant Secretary of Excelsior Fund, are
partners), 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 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 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.

Each 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.

- 30 -
<PAGE>

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 to the 1 divided by 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:

- 31 -
<PAGE>

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 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 average annual 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, 1998 were 50.82%,
33.29%, 52.10% and 35.33%, respectively. The average annual total returns for
the Shares of the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap Funds for the five year period ended March 31, 1998 were 20.92%,
16.84%, 28.11% and 13.30%, 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, 1998 were 17.52% and 14.58%, 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, 1998 were 28.97% and 13.83%, respectively. The aggregate total return
for the Shares of the Large Cap Growth Fund for the period October 1, 1997
(commencement of operations) to March 31, 1998 was 21.57%.

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

- 32 -
<PAGE>

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.

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 communications 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 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 8, 1998, 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

- 33 -
<PAGE>

such shares beneficially because they did not have voting or investment
discretion with respect to such shares.

As of July 8, 1998, the name, address and percentage ownership of each
person that owned beneficially or of record 5% or more of the outstanding Shares
of a Fund were as follows: 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, 11.41%; and United States Trust Company of New York Trustee FBO U.S.
Trust Plan, U.S. Trust Company of The Pacific Northwest, Attn: Jill Williams,
4380 SW Macadam Avenue, Suite 2700, Portland, Oregon 97201, 6.7%; Income and
----------
Growth Fund: U.S. Trust Company of California, N.A. Trustee For Crucible Fund,
- -----------
U.S. Trust Company of The Pacific Northwest, Attn: Jill Williams, 4380 SW
Macadam Avenue, Suite 450, Portland, Oregon 97201, 5.38%; Value and
---------
Restructuring Fund: Charles Schwab & Co., Inc., Special Custody A/C For Benefit
- ------------------
of Customers, Attn: Mutual Funds, 101 Montgomery Street, San Francisco,
California 94104, 20.13%; and 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, 16.00%.

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

The audited financial statements and notes thereto in Excelsior Fund's
Annual Report to Shareholders for the fiscal year ended March 31, 1998 (the
"1998 Annual Report") for the Funds are incorporated in this Statement of
Additional Information by reference. No other parts of the 1998 Annual Report
are incorporated by reference herein. The financial statements included in the
1998 Annual Report for the Funds have been audited by Excelsior Fund's
independent auditors, Ernst & Young LLP, whose reports thereon also appear in
the 1998 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 1998 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.

- 34 -
<PAGE>

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

Commercial Paper Ratings
- ------------------------

"C" - Obligations are currently vulnerable to nonpayment and are
dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.

A-1
<PAGE>

industries; high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity.

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

"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.

A-2
<PAGE>

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

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

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

"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to

A-3
<PAGE>

adverse developments (both internal and external) than those with higher
ratings, the capacity to service principal and interest in a timely fashion is
considered adequate.

"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.

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

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

"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.

"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.

"B" - Debt is more vulnerable to non-payment than obligations rated
"BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.

A-4
<PAGE>

"CC" - An obligation rated "CC" is currently highly vulnerable to non-
payment.

"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.

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.

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

A-5
<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.

A-6
<PAGE>

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

A-7
<PAGE>

"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.

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

A-8
<PAGE>

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

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

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

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

"SG" - This designation denotes speculative quality and lack of
margins of protection.

A-9
<PAGE>

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

A-10
<PAGE>

CROSS-REFERENCE SHEET
---------------------

EXCELSIOR FUNDS, INC.
(International, Latin America,
Pacific/Asia, Pan European and Emerging Markets Funds)

Form N-1A, Part A, Item Prospectus Caption
- ----------------------- ------------------

1. Cover Page........................... Cover Page

2. Synopsis............................. Prospectus Summary; Expense
Summary

3. Condensed Financial Information...... Financial Highlights;
Performance Information

4. General Description of Registrant.... Prospectus Summary;
Investment Objectives and
Policies; Portfolio Instruments
and Other Investment
Information; Investment
Limitations

5. Management of the Fund............... Management of the Funds;
Custodian and Transfer Agent

5A. Management's Discussion of Fund
Performance.......................... Not Applicable

6. Capital Stock and
Other Securities.................... How to Purchase and Redeem
Shares; Dividends and
Distributions; Taxes; Description
of Capital Stock; Miscellaneous

7. Purchase of Securities
Being Offered....................... Pricing of Shares; How to
Purchase and Redeem Shares;
Investor Programs

8. Redemption or Repurchase............. How to Purchase and Redeem
Shares

9. Pending Legal Proceedings............ Not Applicable

<PAGE>

LOGO EXCELSIOR
FUNDS INC.

Excelsior International Funds
- -------------------------------------------------------------------------------

73 Tremont Street For initial purchase information, current
Boston, MA 02108-3913 prices, performance information and existing
account information, call (800) 446-1012.
(From overseas, call (617) 557-8280.)
- -------------------------------------------------------------------------------

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

INTERNATIONAL FUND seeks total return on its assets through capital appreci-
ation and income derived primarily from investments in a diversified portfolio
of marketable foreign equity securities.

LATIN AMERICA FUND seeks long-term capital appreciation through investments
in companies and securities of governments based in all countries in Central
and South America.

PACIFIC/ASIA FUND seeks long-term capital appreciation through investments
in companies and securities of governments based in all countries in Asia and
on the Asian side of the Pacific Ocean.

PAN EUROPEAN FUND seeks long-term capital appreciation through investments
in companies and securities of governments based in Europe.

EMERGING MARKETS FUND seeks long-term capital appreciation through invest-
ments primarily in equity securities of emerging country issuers.

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

This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1998 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to Excelsior Fund at its address shown above or by calling
(800) 446-1012. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus. The Securities and Exchange Commission maintains a World Wide
Web site (http://www.sec.gov) that contains the Statement of Additional Infor-
mation and other information regarding Excelsior Fund.

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

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

August 1, 1998
<PAGE>

PROSPECTUS SUMMARY

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

INVESTMENT OBJECTIVES AND POLICIES: Generally, each Fund is a diversified
investment portfolio which invests principally in the equity securities of
foreign companies. The Funds also may invest in warrants, convertible securi-
ties, bonds and other securities of foreign companies and governments. The
Funds' investment objectives and policies are summarized on the cover and ex-
plained in greater detail later in this Prospectus. See "Investment Objectives
and Policies," "Portfolio Instruments and Other Information" and "Investment
Limitations."

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

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

INVESTMENT RISKS AND CHARACTERISTICS: Generally, each Fund is subject to
market risk and currency risk. Market risk is the possibility that stock
prices will decline over short or even extended periods. Stock markets tend to
be cyclical, with periods of generally rising prices and periods of generally
declining prices. These cycles will affect the values of each Fund. In addi-
tion, since the Funds invest in foreign securities, the Funds are subject to
the risks of fluctuations of the value of foreign currencies relative to the
U.S. dollar and other risks associated with such investments. While the Inter-
national Fund diversifies its investments in a variety of companies and coun-
tries, the Latin America, Pacific/Asia and Pan European Funds (collectively,
the "Regional Funds") focus their investment activities in their designated
regions. As a result, each Regional Fund is susceptible to regional economic,
market, political and other more localized risks. The Emerging Markets Fund's
investments in securities of issuers located in developing or emerging coun-
tries may impose greater risks not typically associated with investments in
more established markets. Although each Fund generally seeks to invest for the
long term, each Fund may engage in short-term trading of portfolio securities.
A high rate of portfolio turnover may involve correspondingly greater transac-
tion costs which must be borne directly by a Fund and ultimately by its share-
holders. Investments in the Funds should not be considered a complete invest-
ment program. See "Investment Objectives and Policies--Risk Factors" and
"Portfolio Instruments and Other Investment Information."

2
<PAGE>

EXPENSE SUMMARY

<TABLE>
<CAPTION>
LATIN PAN EMERGING
INTERNATIONAL AMERICA PACIFIC/ASIA EUROPEAN MARKETS
FUND FUND FUND FUND FUND
------------- ------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales Load...... None None None None None
Sales Load on Reinvested
Dividends................ None None None None None
Deferred Sales Load....... None None None None None
Redemption Fees........... None None None None None
Exchange Fees............. None None None None None
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory Fees (after fee
waivers)/1/.............. 0.92% 0.90% 0.91% 0.93% 1.00%
12b-1 Fees................ None None None None None
Other Operating Expenses
Administrative Servicing
Fee/1/................. 0.08% 0.10% 0.09% 0.07% 0.08%
Other Expenses.......... 0.44% 0.50% 0.48% 0.43% 0.77%
---- ---- ---- ---- ----
Total Operating Expenses
(after fee waivers)/1/... 1.44% 1.50% 1.48% 1.43% 1.85%
==== ==== ==== ==== ====
</TABLE>
- --------

1. The Investment Adviser and administrators may, from time to time, voluntar-
ily waive a portion of their respective fees, which waivers may be termi-
nated at any time. Until further notice, the Investment Adviser and/or ad-
ministrators intend to voluntarily waive fees in an amount equal to the Ad-
ministrative Servicing Fee. Without such fee waivers, "Advisory Fees" would
be 1.00%, 1.00%, 1.00%, 1.00% and 2.10%, and "Total Operating Expenses"
would be 1.52%, 1.60%, 1.57%, 1.50% and 1.90% for the International, Latin
America, Pacific/Asia, Pan European and Emerging Markets Funds, respective-
ly.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
International Fund.............................. $15 $46 $ 79 $172
Latin America Fund.............................. 15 47 82 179
Pacific/Asia Fund............................... 15 47 81 177
Pan European Fund............................... 15 45 78 171
Emerging Markets Fund........................... 19 58 100 217
</TABLE>

The foregoing expense summary and example are intended to assist investors in
understanding the costs and expenses that an investor in Shares of the Funds
will bear directly or indirectly. The expense summary sets forth advisory and
other expenses payable with respect to Shares of the International, Latin Amer-
ica, Pacific/Asia and Pan European Funds for the fiscal year ended March 31,
1998, and the estimated advisory and other expenses payable with respect to
Shares of the Emerging Markets Fund for the current fiscal year. For more com-
plete descriptions of the Funds' operating expenses, see "Management of the
Funds" in this Prospectus and the financial statements and notes incorporated
by reference in the Statement of Additional Information.

3
<PAGE>

FINANCIAL HIGHLIGHTS

The following tables include selected data for a Share outstanding throughout
each period and other performance information derived from the financial state-
ments included in Excelsior Fund's Annual Report to Shareholders for the year
ended March 31, 1998 (the "Financial Statements"). The information contained in
the Financial Highlights for each period has been audited by Ernst & Young LLP,
Excelsior Fund's independent auditors. The following tables should be read in
conjunction with the Financial Statements and notes thereto. More information
about the performance of each Fund is also contained in the Annual Report to
Shareholders, which may be obtained from Excelsior Fund without charge by call-
ing the number on the front cover of this Prospectus.

INTERNATIONAL FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year...... $ 11.34 $ 10.91 $ 9.82 $10.44 $ 8.66 $ 8.27 $ 8.75 $ 9.84 $ 8.61 $ 7.85
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income.. 0.04 0.09 0.10 0.10 0.05 0.15 0.08 0.13 0.15 0.05
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 2.11 0.63 1.15 (0.29) 1.88 0.25 (0.45) (0.64) 1.47 0.77
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Total From Investment
Operations............ 2.15 0.72 1.25 (0.19) 1.93 0.40 (0.37) (0.51) 1.62 0.82
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income..... (0.02) (0.10) (0.08) 0.00 (0.02) (0.01) (0.11) (0.11) (0.16) (0.06)
Dividends in Excess of
Net Investment Income. (0.04) (0.00) (0.01) (0.11) (0.12) 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments........... (0.31) (0.19) (0.07) (0.32) (0.01) 0.00 0.00 (0.47) (0.23) 0.00
Distributions in Excess
of Net Realized Gain
on Investments........ (0.12) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions.... (0.49) (0.29) (0.16) (0.43) (0.15) (0.01) (0.11) (0.58) (0.39) (0.06)
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Year................... $ 13.00 $ 11.34 $10.91 $ 9.82 $10.44 $ 8.66 $ 8.27 $ 8.75 $ 9.84 $ 8.61
======= ======= ====== ====== ====== ====== ====== ====== ====== ======
Total Return............ 19.42% 6.78% 12.77% (1.93)% 22.34% 4.85% (4.35)% (5.20)% 18.91% 10.59%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $204.89 $126.82 $97.85 $64.05 $55.74 $30.37 $46.92 $31.87 $21.49 $13.01
Ratio of Net Operating
Expenses to Average
Net Assets............ 1.44% 1.43% 1.40% 1.47% 1.53% 1.50% 1.52% 1.61% 1.34% 1.28%
Ratio of Gross
Operating Expenses to
Average Net Assets/1/. 1.52% 1.51% 1.50% 1.53% 1.53% 1.50% 1.52% 1.61% 1.58% 1.93%
Ratio of Net Investment
Income to Average Net
Assets................ 0.32% 0.70% 0.82% 0.71% 0.18% 1.27% 0.94% 1.57% 1.55% 0.75%
Portfolio Turnover
Rate.................. 37.0% 116.0% 39.0% 66.0% 64.0% 31.0% 32.0% 47.0% 50.0% 80.0%
Average Commission Rate
Paid/2/............... $0.0105 $0.0123 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- --------
NOTES:

1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

2. Only required for fiscal years beginning on or after September 1, 1995.

4
<PAGE>

LATIN AMERICA FUND
(FORMERLY, THE EMERGING AMERICAS FUND)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERIOD ENDED
----------------------------------------- MARCH 31,
1998 1997 1996 1995 1994 1993/1/
------- ------- ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 9.46 $ 7.37 $ 5.86 $ 9.30 $ 7.12 $7.00
------- ------- ------ ------ ------ -----
Income From Investment
Operations
Net Investment Income. 0.10 0.05 0.10 0.01 0.05 0.00/4/
Net Gains or (Losses)
on Securities (both
realized and
unrealized).......... 1.22 2.09 1.49 (2.56) 2.24 0.12
------- ------- ------ ------ ------ -----
Total From Investment
Operations........... 1.32 2.14 1.59 (2.55) 2.29 0.12
------- ------- ------ ------ ------ -----
Less Distributions
Dividends From Net
Investment Income.... (0.02) (0.05) (0.04) 0.00 (0.03) 0.00
Dividends in Excess of
Net Investment
Income............... 0.00 0.00 (0.04) (0.17) (0.02) 0.00
Distributions From Net
Realized Gain on
Investments.......... (0.16) 0.00 0.00 0.00 (0.06) 0.00
Distributions in
Excess of Net
Realized Gain on
Investments.......... 0.00 0.00 0.00 (0.72) 0.00 0.00
------- ------- ------ ------ ------ -----
Total Distributions... (0.18) (0.05) (0.08) (0.89) (0.11) 0.00
------- ------- ------ ------ ------ -----
Net Asset Value, End of
Period................. $ 10.60 $ 9.46 $ 7.37 $ 5.86 $ 9.30 $7.12
======= ======= ====== ====== ====== =====
Total Return............ 14.05% 29.09% 27.29% (30.47)% 32.25% 1.71%
Ratios/Supplemental Data
Net Assets, End of
Period
(in millions)........ $ 88.70 $ 70.90 $43.16 $27.34 $39.28 $3.83
Ratio of Net Operating
Expenses to Average
Net Assets........... 1.50% 1.48% 1.48% 1.50% 1.49% 1.67%/2/
Ratio of Gross
Operating Expenses to
Average Net
Assets/3/............ 1.60% 1.56% 1.57% 1.57% 1.71% 2.56%/2/
Ratio of Net
Investment
Income/(Loss) to
Average Net Assets... 0.88% 0.50% 1.12% 0.06% 0.29% (0.04)%/2/
Portfolio Turnover
Rate................. 77.0% 73.0% 54.0% 69.0% 51.0% 76.0%/2/
Average Commission
Rate Paid/5/......... $0.0004 $0.0005 N/A N/A N/A N/A
</TABLE>
- --------
NOTES:

1. Inception date of the Fund was December 31, 1992.
2. Annualized.

3. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

4. Amount represents less than $0.01 per Share.

5. Only required for fiscal years beginning on or after September 1, 1995.

5
<PAGE>

PACIFIC/ASIA FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERIOD ENDED
------------------------------------------- MARCH 31,
1998 1997 1996 1995 1994 1993/1/
------- ------- ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 9.09 $ 9.78 $ 8.45 $10.04 $ 7.54 $7.00
------- ------- ------ ------ ------ -----
Income From Investment
Operations
Net Investment Income. 0.01 0.07 0.12 0.08 0.08 0.00/4/
Net Gains or (Losses)
on Securities (both
realized and
unrealized).......... (2.52) (0.53) 1.33 (0.58) 2.81 0.54
------- ------- ------ ------ ------ -----
Total From Investment
Operations........... (2.51) (0.46) 1.45 (0.50) 2.89 0.54
------- ------- ------ ------ ------ -----
Less Distributions
Dividends From Net
Investment Income.... (0.01) (0.07) (0.09) (0.03) (0.05) 0.00
Dividends in Excess of
Net Investment
Income............... (0.05) 0.00 (0.01) (0.23) (0.06) 0.00
Distributions From Net
Realized Gain on
Investments.......... 0.00 (0.16) (0.02) (0.83) (0.28) 0.00
Distributions in
Excess of Net
Realized Gain on
Investments.......... 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------ ------ ------ -----
Total Distributions... (0.06) (0.23) (0.12) (1.09) (0.39) 0.00
------- ------- ------ ------ ------ -----
Net Asset Value, End of
Period................. $ 6.52 $ 9.09 $ 9.78 $ 8.45 $10.04 $7.54
======= ======= ====== ====== ====== =====
Total Return............ (27.56)% (4.80)% 17.22% (5.89)% 38.11% 7.71%
Ratios/Supplemental Data
Net Assets, End of
Period
(in millions)........ $ 43.81 $ 89.95 $76.19 $47.62 $53.03 $9.67
Ratio of Net Operating
Expenses to Average
Net Assets........... 1.48% 1.45% 1.43% 1.47% 1.53% 1.67%/2/
Ratio of Gross
Operating Expenses to
Average Net
Assets/3/............ 1.57% 1.52% 1.51% 1.52% 1.77% 2.00%/2/
Ratio of Net
Investment Income to
Average Net Assets... 0.22% 0.69% 1.12% 0.85% 0.54% 0.27%/2/
Portfolio Turnover
Rate................. 52.0% 126.0% 29.0% 69.0% 68.0% 1.0%/2/
Average Commission
Rate Paid/5/......... $0.0169 $0.0094 N/A N/A N/A N/A
</TABLE>
- --------
NOTES:

1. Inception date of the Fund was December 31, 1992.
2. Annualized.

3. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

4. Amount represents less than $0.01 per Share.

5. Only required for fiscal years beginning on or after September 1, 1995.

6
<PAGE>

PAN EUROPEAN FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERIOD ENDED
----------------------------------------- MARCH 31,
1998 1997 1996 1995 1994 1993/1/
------- ------- ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 10.94 $ 9.19 $ 8.19 $ 8.03 $ 7.34 $7.00
------- ------- ------ ------ ------ -----
Income From Investment
Operations
Net Investment Income. (0.01) 0.11 0.11 0.09 0.03 0.00/4/
Net Gains or (Losses)
on Securities (both
Realized and
unrealized).......... 4.01 2.01 1.35 0.25 0.70 0.34
------- ------- ------ ------ ------ -----
Total From Investment
Operations........... 4.00 2.12 1.46 0.34 0.73 0.34
------- ------- ------ ------ ------ -----
Less Distributions
Dividends From Net
Investment Income.... 0.00 (0.10) (0.10) (0.09) 0.00 0.00
Dividends in Excess of
Net Investment
Income............... 0.00 0.00 0.00 0.00 (0.04) 0.00
Distributions From Net
Realized Gain on
Investments.......... (0.81) (0.27) (0.36) (0.09) 0.00 0.00
Distributions in
Excess of Net
Realized Gain on
Investments.......... 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------ ------ ------ -----
Total Distributions... (0.81) (0.37) (0.46) (0.18) (0.04) 0.00
------- ------- ------ ------ ------ -----
Net Asset Value, End of
Period................. $ 14.13 $ 10.94 $ 9.19 $ 8.19 $ 8.03 $7.34
======= ======= ====== ====== ====== =====
Total Return............ 38.02% 23.76% 18.25% 4.33% 10.05% 4.86%
Ratios/Supplemental Data
Net Assets, End of
Period
(in millions)........ $207.64 $121.99 $47.92 $39.98 $36.68 $3.80
Ratio of Net Operating
Expenses to Average
Net Assets........... 1.43% 1.45% 1.46% 1.51% 1.61% 1.67%/2/
Ratio of Gross
Operating Expenses to
Average Net
Assets/3/............ 1.50% 1.52% 1.55% 1.57% 1.72% 3.13%/2/
Ratio of Net
Investment
Income/(Loss) to
Average Net Assets... (0.13)% 1.23% 1.28% 1.11% 0.06% (0.33)%/2/
Portfolio Turnover
Rate................. 40.0% 82.0% 42.0% 47.0% 30.0% 9.0%/2/
Average Commission
Rate Paid/5/......... $0.0026 $0.0012 N/A N/A N/A N/A
</TABLE>
- --------
NOTES:

1. Inception date of the Fund was December 31, 1992.
2. Annualized.

3. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

4. Amount represents less than $0.01 per Share.

5. Only required for fiscal years beginning on or after September 1, 1995.

7
<PAGE>

EMERGING MARKETS FUND

<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31,
1998/1/
------------
<S> <C>
Net Asset Value, Beginning of Period......................... $ 7.00
-------
Income From Investment Operations:
Net Investment Income...................................... 0.00/2/
Net Gains or (Losses) on Securities (both realized and
unrealized)............................................... 0.00/2/
-------
Total From Investment Operations........................... 0.00/2/
-------
Less Distributions:
Dividends From Net Investment Income....................... 0.00
Distributions From Net Realized Gain on Investments........ 0.00
-------
Total Distributions........................................ 0.00
-------
Net Asset Value, End of Period............................... $ 7.00
=======
Total Return................................................. (0.14)%/3/
Ratios/Supplemental Data:
Net Assets, End of Period (in millions).................... $ 6.54
Ratio of Net Operating Expenses to Average Net Assets...... 1.85%/4/,/5/
Ratio of Gross Operating Expenses to Average Net Assets/6/. 2.74%/4/
Ratio of Net Investment Income to Average Net Assets....... 2.33%/4/
Portfolio Turnover Rate.................................... 0.0%/2/
Average Commission Rate Paid............................... $0.0002
</TABLE>
- --------

NOTES:

1. Inception date of the Fund was January 2, 1998.

2. Amount represents less than $0.01 per Share.

3. Not annualized.

4. Annualized.

5. The annualized ratio of net operating expenses to average net assets, ex-
cluding foreign investment taxes, is 1.65%.

6. Expense ratio before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

8
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The Investment Adviser will use its best efforts to achieve the investment
objectives of each Fund, although their achievement cannot be assured. The in-
vestment objective of the International and each Regional Fund is "fundamen-
tal," meaning that it may not be changed without a vote of the holders of a
majority of the particular Fund's outstanding Shares (as defined under "Mis-
cellaneous"). The investment objective of the Emerging Markets Fund may be
changed by Excelsior Fund's Board of Directors without shareholder approval.
Except as noted below in "Investment Limitations," the investment policies of
each Fund may be changed without a vote of the holders of a majority of the
outstanding Shares of such Fund.

INTERNATIONAL FUND

The International Fund's investment objective is to seek total return on its
assets through capital appreciation and income derived primarily from invest-
ments in a diversified portfolio of marketable foreign equity securities.

In seeking to achieve this investment objective, the International Fund will
invest primarily in equity securities of foreign issuers who will, in the
opinion of the Investment Adviser, benefit from global economic trends, prom-
ising technologies or products and specific country opportunities resulting
from changing geo-political, economic or currency relationships. In making in-
vestment decisions, the Investment Adviser will seek to identify values not
recognized in the market price of a security. The primary emphasis will be on
the achievement of a higher total return focusing, as circumstances warrant,
solely on either growth of capital or generation of current income or any com-
bination thereof.

The International Fund does not intend to have, at any time, a specified
percentage of its assets invested either for growth or for income, and all or
any portion of its assets may be allocated among these two components based on
the Investment Adviser's analysis of the prevailing market conditions. Al-
though the Fund will seek to realize its investment objective primarily
through investments in foreign equity securities, it may, from time to time,
assume a defensive position by allocating all or any portion of its assets to
foreign debt obligations. In determining investment strategy and allocating
investments, the Investment Adviser will continuously analyze a broad range of
international equity and fixed-income securities in order to assess the level
of return, and degree of risk, that can be expected from each type of invest-
ment and from each market.

The International Fund's investments will generally be diversified among ge-
ographic regions and countries. While there are no prescribed limits on geo-
graphic distribution, the Fund will normally include in its portfolio securi-
ties of issuers collectively having their principal business in no fewer than
three foreign countries. The Fund's assets may be invested in securities of
issuers located in the Pacific Basin (e.g., Japan, Hong Kong, Singapore, Ma-
laysia), Europe, Australia, Latin America and Canada. The Fund may also, from
time to time, invest in other regions, seeking to capitalize on investment op-
portunities emerging in other parts of the world.

REGIONAL FUNDS:

The investment objective of each Regional Fund is long-term capital appreci-
ation. In seeking to achieve this investment objective, each Regional Fund
will invest primarily in equity securities of foreign issuers who will, in the
opinion of the Investment Adviser, benefit from global and regional economic
trends, promising technologies or products and specific country and regional
opportunities resulting from changing geo-political, economic or currency re-
lationships. In making investment decisions, the Investment Adviser will seek
to identify values not recognized in the market price of a security.

Although each Regional Fund will seek to realize its investment objective
primarily through investments in foreign equity and government securities, it
may, from time to time, assume a defensive

9
<PAGE>

position by allocating all or any portion of its assets to U.S. Government or
foreign debt obligations. The Regional Funds will limit their investments in
foreign debt obligations to those rated within the top three ratings by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Services
("S&P") or, if unrated, determined by the Investment Adviser to be of compara-
ble quality. No Regional Fund currently expects to invest more than 25% of its
total assets in the securities issued by any single foreign government. Any
such investment would subject the particular Regional Fund to the risks pre-
sented by investing in securities of such foreign government to a greater ex-
tent than it would if that Fund's assets were not so concentrated. In determin-
ing investment strategy and allocating investments, the Investment Adviser will
continuously analyze a broad range of international equity and fixed-income se-
curities in order to assess the level of return, and degree of risk, that can
be expected from each type of investment and from each market.

Under normal circumstances, each Regional Fund will invest at least 65% of
its total assets in securities of issuers based in its targeted region. A com-
pany is "based in" a region if it derives more than half of its assets, reve-
nues or profits from such region. The Regional Funds and their targeted regions
are as follows:

LATIN AMERICA FUND. The Latin America Fund invests primarily in securities of
companies and governments based in all countries in Central and South America.
These countries may include Mexico, Ecuador, Costa Rica, Venezuela, Colombia,
Peru, Brazil, Argentina and Chile. Under normal conditions, the Fund will in-
vest at least 65% of its total assets in securities of issuers based in Central
and South America. The Fund may also invest in Brady Bonds, which are securi-
ties issued in various currencies (primarily the dollar) that have been created
through the exchange of existing commercial bank loans to Latin American public
and private entities for new bonds in connection with debt restructurings under
a debt restructuring plan announced by former U.S. Secretary of the Treasury
Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been issued only re-
cently and for that reason do not have a long payment history. Brady Bonds may
be collateralized or uncollateralized, are issued in various currencies (pri-
marily the U.S. dollar) and are actively traded in the over-the-counter second-
ary market for Latin American debt instruments. Brady Bonds are neither issued
nor guaranteed by the U.S. Government. Additional information on Brady Bonds is
included in the Statement of Additional Information.

PACIFIC/ASIA FUND. The Pacific/Asia Fund invests primarily in securities of
companies and governments based in Asia and on the Asian side of the Pacific
Ocean. Currently, the Investment Adviser believes that such countries may in-
clude Australia, New Zealand, Hong Kong, India, Japan, Indonesia, the Philip-
pines, Malaysia, Singapore, Taiwan, China, Thailand, South Korea, Sri Lanka and
Pakistan.

PAN EUROPEAN FUND. The Pan European Fund invests primarily in securities of
companies and governments based in Europe. Currently, the Investment Adviser
believes that such countries may include Ireland, the United Kingdom, the Neth-
erlands, Norway, Sweden, Finland, Belgium, Luxembourg, France, Portugal, Spain,
Denmark, Germany, Poland, Czech Republic, Slovakia, Hungary, Switzerland, Aus-
tria, Greece, Turkey and Italy. As other formerly communist and Eastern Euro-
pean countries become economically viable, investments may be made there as
well.

INVESTMENT POLICIES COMMON TO THE INTERNATIONAL AND REGIONAL FUNDS

Under normal market and economic conditions, at least 75% of the Interna-
tional and each Regional Fund's assets will be invested in foreign securities.
Foreign securities include common stock, preferred stock, securities convert-
ible into common stock, warrants, bonds, notes and other debt obligations is-
sued by foreign entities, as well as shares of U.S. registered investment com-
panies that invest primarily in foreign securities. Foreign debt securities
purchased by a Fund may include obligations issued in the Eurocurrency markets
and obligations of foreign governments and their political subdivisions. In ad-
dition, each Fund may invest in U.S. Government obligations, including the
when-issued securities of such issuers, and obligations issued by U.S. compa-
nies which are either denominated in

10
<PAGE>

foreign currency and sold abroad or, if denominated in U.S. dollars, payment
on which is determined by reference to some other foreign currency.

Convertible and non-convertible debt securities purchased by the Interna-
tional and Regional Funds will be rated "investment grade," or, if unrated,
deemed by the Investment Adviser to be comparable to securities rated "invest-
ment grade," by Moody's or S&P. Debt obligations rated in the lowest of the
top four "investment grade" ratings ("Baa" by Moody's and "BBB" by S&P) are
considered to have some speculative characteristics and may be more sensitive
to adverse economic change than higher rated securities. Each Fund will sell
in an orderly fashion as soon as possible any convertible and non-convertible
debt securities it holds if they are downgraded below "Baa" by Moody's or be-
low "BBB" by S&P. Foreign securities are generally unrated. In purchasing for-
eign equity securities, the Investment Adviser will look generally to estab-
lished foreign companies. Each Fund may purchase securities both on recognized
stock exchanges and in over-the-counter markets. Most of the Funds' portfolio
transactions will be effected in the primary trading market for the given se-
curity.

EMERGING MARKETS FUND

The investment objective of the Emerging Markets Fund is to provide long-
term capital appreciation by investing primarily in equity securities of
emerging country issuers. Under normal conditions, at least 65% of the Fund's
total assets will be invested in emerging country equity securities. While
there are no prescribed limits on its geographic distribution, the Fund will
normally invest in securities of issuers from at least three different emerg-
ing countries. With respect to the Fund, equity securities include common and
preferred stocks, convertible securities, rights and warrants to purchase com-
mon stocks, and sponsored and unsponsored depository receipts and other simi-
lar instruments. As used in this Prospectus, the term "emerging country" ap-
plies to any country which, in the opinion of the Investment Adviser, is gen-
erally considered to be an emerging or developing country by the international
financial community, including the International Bank for Reconstruction and
Development (more commonly known as The World Bank) and the International Fi-
nance Corporation. There are currently over 130 countries which, in the opin-
ion of the Investment Adviser, are generally considered to be emerging or de-
veloping countries by the international financial community, approximately 40
of which currently have stock markets. These countries generally include every
nation in the world except the United States, Canada, Japan, Australia, New
Zealand and most nations located in Western Europe. Currently, investing in
many emerging countries is not feasible or may involve unacceptable political
risks. The countries in which the Fund may invest include, but are not limited
to: Argentina; Botswana; Brazil; Chile; China; Colombia; Ghana; Greece; Hong
Kong; Hungary; India; Indonesia; Israel; Jamaica; Jordan; Kenya; Malaysia;
Mexico; Morocco; Nigeria; Pakistan; Peru; Philippines; Poland; Portugal;
Russia; South Africa; South Korea; Sri Lanka; Taiwan; Thailand; Turkey; Vene-
zuela; and Zimbabwe.

As markets in other countries develop, the Emerging Markets Fund may expand
and further diversify the emerging countries in which it invests. The Fund
generally intends to invest only in securities in countries where the currency
is freely convertible to U.S. dollars.

An emerging country security is one issued by a company that, in the opinion
of the Investment Adviser, has one or more of the following characteristics:
(i) its principal securities trading market is in an emerging country; (ii)
alone or on a consolidated basis it derives 50% or more of its annual revenue
from either goods produced, sales made or services performed in emerging coun-
tries; or (iii) it is organized under the laws of, and has a principal office
in, an emerging country. The Investment Adviser will base determinations as to
eligibility on publicly available information and inquiries made to the compa-
nies.

To the extent that the Emerging Markets Fund's assets are not invested in
emerging country equity securities, the remainder of the assets may be in-
vested in: (i) debt securities denominated in the currency of an emerging
country or issued or guaranteed by an emerging country company or the govern-
|

11
<PAGE>

ment of an emerging country; (ii) equity or debt securities of corporate or
governmental issuers located in industrialized countries; (iii) short-term and
medium-term debt securities; and (iv) other securities described below under
"Portfolio Instruments and Other Investment Information." The Fund's assets
may be invested in debt securities when the Investment Adviser believes that,
based upon factors such as relative interest rate levels and foreign exchange
rates, such debt securities offer opportunities for long-term capital appreci-
ation. Debt securities in which the Fund may invest include, without limita-
tion, Brady Bonds (see "Regional Funds: Latin America Fund" above for addi-
tional information on Brady Bonds). It is likely that many of the debt securi-
ties in which the Fund will invest will be unrated, and whether or not rated,
such securities may have speculative characteristics. When deemed appropriate
by the Investment Adviser, the Fund may invest up to 10% of its total assets
in lower quality debt securities. Lower quality debt securities, also known as
"junk bonds," are often considered to be speculative and involve greater risk
of default or price changes due to changes in the issuer's creditworthiness.
The market prices of these securities may fluctuate more than those of higher
quality securities and may decline significantly in periods of general eco-
nomic difficulty, which may follow periods of rising interest rates. Securi-
ties in the lowest quality category may present the risk of default, or may be
in default.

INVESTMENT POLICIES COMMON TO ALL FUNDS

Under unusual economic and market conditions, each Fund may restrict the se-
curities markets in which its assets are invested and may invest all or a ma-
jor portion of its assets in U.S. Government obligations or in U.S. dollar-de-
nominated securities of U.S. companies. During normal market conditions, up to
25% of each Fund's assets may also be held on a continuous basis in cash or
invested in U.S. money market instruments (see below under "Money Market In-
struments") to meet redemption requests or to take advantage of emerging in-
vestment opportunities.

To the extent described below under "Portfolio Instruments and Other Invest-
ment Information," each Fund may: invest in illiquid securities, non-publicly
traded securities, private placements and restricted securities; purchase
shares of other investment companies; and engage in repurchase agreements, se-
curities lending, forward currency contracts and futures contracts, options on
futures and covered call options. Each Fund also may invest up to 5% of its
total assets in gold bullion. Investments in gold will not produce dividends
or interest income, and the Funds can look only to price appreciation for a
return on such investments.

RISK FACTORS

Generally. Each Fund is subject to market risk, interest rate risk and the
risks of investing in foreign securities. Market risk is the possibility that
stock prices will decline over short or even extended periods. The stock mar-
kets tend to be cyclical, with periods of generally rising prices and periods
of generally declining prices. These cycles will affect the values of each
Fund. In addition, to the extent that the Funds invest in debt instruments,
the prices of bonds and other debt instruments generally fluctuate inversely
with interest rate changes.

Investments in securities of foreign issuers involve certain risks not ordi-
narily associated with investments in securities of domestic issuers. Such
risks include fluctuations in foreign exchange rates, future political and
economic developments, and the possible imposition of exchange controls or
other foreign governmental laws or restrictions. Since each Fund will invest
heavily in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will, to the extent a Fund
does not adequately hedge against such fluctuations, affect the value of secu-
rities in the portfolio and the unrealized appreciation or depreciation of in-
vestments so far as U.S. investors are concerned. In addition, with respect to
certain countries, there is the possibility of expropriation of assets, con-
fiscatory taxation, political or social instability or diplomatic developments
which could adversely affect investments in those countries.

12
<PAGE>

There may be less publicly available information about a foreign company
than about a U.S. company, and foreign companies may not be subject to ac-
counting, auditing and financial reporting standards and requirements compara-
ble to or as uniform as those of U.S.-based companies. Foreign securities mar-
kets, while growing in volume, have, for the most part, substantially less
volume than U.S. markets, and securities of many foreign companies are less
liquid and their prices more volatile than securities of comparable U.S.-based
companies. Transaction costs on foreign securities markets are generally
higher than in the United States. There is generally less government supervi-
sion and regulation of foreign exchanges, brokers and issuers than there is in
the U.S. The rights of investors in certain foreign countries may be more lim-
ited than those of shareholders of U.S. corporations. The Funds might have
greater difficulty taking appropriate legal action in a foreign court than in
a U.S. court.

Investing in securities of issuers located in developing or emerging market
countries may impose greater risks not typically associated with investing in
more established markets. For example, in many emerging markets there is less
government supervision and regulation of business and industry practices,
stock exchanges, brokers and listed companies than in more established mar-
kets. The foreign securities markets of many of the countries in which the
Funds may invest are likely to be smaller, less liquid and subject to greater
price volatility than those in more established markets. Securities traded in
certain emerging markets may also be subject to risks due to the inexperience
of financial intermediaries, the lack of modern technology, and the lack of a
sufficient capital base to expand business operations. Developing countries
may also impose restrictions on a Fund's ability to repatriate investment in-
come or capital. Even where there is no outright restriction on repatriation
of investment income or capital, the mechanics of repatriation may affect cer-
tain aspects of the operations of a Fund. In addition, some of the currencies
in emerging markets have experienced devaluations relative to the U.S. dollar,
and major adjustments have been made periodically in certain of such curren-
cies. Certain developing countries also face serious exchange restraints and
their currencies may not be internationally traded.

Governments of some developing countries exercise substantial influence over
many aspects of the private sector. In some countries, the government owns or
controls many companies, including the largest in the country. As such, gov-
ernment actions in the future could have a significant effect on economic con-
ditions in developing countries, which could affect private sector companies,
a Fund and the value of its securities. The leadership or policies of emerging
market countries may also halt the expansion of or reverse the liberalization
of foreign investment policies and adversely affect existing investment oppor-
tunities. Certain developing countries are also among the largest debtors to
commercial banks and foreign governments. Trading in debt obligations issued
or guaranteed by such governments or their agencies and instrumentalities in-
volves a high degree of risk. Countries such as certain Eastern European coun-
tries also involve the risk of reverting to a centrally planned economy.

Foreign securities markets also have different registration, clearance and
settlement procedures. Registration, clearance and settlement of securities in
developing countries involve risks not associated with securities transactions
in the United States and other more developed markets. In certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such trans-
actions. Delays in registration, clearance or settlement could result in tem-
porary periods when assets of a Fund are uninvested and no return is earned
thereon. The inability of a Fund to make intended security purchases due to
registration, clearance or settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of portfolio securi-
ties due to registration, clearance or settlement problems could result either
in losses to a Fund due to subsequent declines in value of the portfolio secu-
rity or, if the Fund has entered into a contract to sell the security, could
result in possible liability to the purchaser.

As an example, the registration, clearing and settlement of securities
transactions in Russia are subject to significant risks not normally associ-
ated with securities transactions in the United States and other more devel-
oped markets. Ownership of shares in Russian companies is reflected by entries
in share registers maintained by registrar companies or the companies them-
selves, and the issuance of

13
<PAGE>

extracts of the register, although the evidentiary value of such extracts is
uncertain. Formal share certificates may be obtained in certain limited cases.
Russian share registers may be unreliable, and the Fund could possibly lose
its registration through oversight, negligence or fraud. Russia also lacks a
centralized registry to record securities transactions and registrar companies
are located throughout Russia. There can be no assurance that registrar compa-
nies will provide extracts to potential purchasers in a timely manner or at
all and are not necessarily subject to effective state supervision. In addi-
tion, while registrars are liable under law for losses resulting from their
errors, it may be difficult for a Fund to enforce any rights it may have
against the registrar or issuer of the securities in the event of loss of
share registration. Although Russian companies with more than 1,000 sharehold-
ers are required by law to employ an independent company to maintain share
registers, in practice, such companies have not always followed this law. Be-
cause of this lack of independence of registrars, management of a Russian com-
pany may be able to exert considerable influence over who can purchase and
sell the company's shares by illegally instructing the registrar to refuse to
record transactions on the share register. These practices may also prevent a
Fund from investing in the securities of certain Russian companies deemed
suitable by the Investment Adviser and could cause a delay in the sale of Rus-
sian securities by a Fund if the company deems a purchaser unsuitable, which
may expose the Fund to potential loss on its investment.

From time to time, a Fund may invest a significant portion of its total as-
sets in the securities of issuers located in the same country. Investment in a
particular country of a significant portion of a Fund's total assets will make
the Fund's performance more dependent upon the political and economic circum-
stances of that country than a mutual fund that is more geographically diver-
sified.

Dividends and interest payable on a Fund's foreign portfolio securities may
be subject to foreign withholding taxes. Each Fund also may be subject to
taxes on trading profits in some countries. In addition, some countries have a
transfer or stamp duties tax on certain securities transactions. The imposi-
tion of these taxes will increase the cost to a Fund of investing in any coun-
try imposing such taxes. To the extent such taxes are not offset by credits or
deductions allowed to investors under the Federal income tax provisions--see
"Taxes--Federal"--they may reduce the net return to the Fund's shareholders.
Investors should also understand that the expense ratio of the Funds can be
expected to be higher than those of funds investing in domestic securities.
The costs attributable to investing abroad are usually higher for several rea-
sons, such as the higher cost of investment research, higher cost of custody
of foreign securities, higher commissions paid on comparable transactions on
foreign markets and additional costs arising from delays in settlements of
transactions involving foreign securities.

The expected introduction of a single currency, the euro, on January 1, 1999
for participating nations in the European Economic and Monetary Union presents
unique uncertainties, including whether the payment and operational systems of
banks and other financial institutions will be ready by the scheduled launch
date; the legal treatment of certain outstanding financial contracts after
January 1, 1999 that refer to existing currencies rather than the euro; the
establishment of exchange rates for existing currencies and the euro; and the
creation of suitable clearing and settlement payment systems for the new cur-
rency. These or other factors, including political and economic risks, could
cause market disruptions before or after the introduction of the euro, and
could adversely affect the value of securities held by a Fund.

Latin America Fund. The Latin American economies have experienced consider-
able difficulties in the past decade. Although there have been significant im-
provements in recent years, the Latin American economies continue to experi-
ence significant problems, including high inflation rates and high interest
rates. Inflation and rapid fluctuations in inflation rates have had and may
continue to have very negative effects on the economies and securities markets
of certain Latin American countries. The emergence of the Latin American econ-
omies and securities markets will require continued economic and fiscal disci-
pline which has been lacking at times in the past, as well as stable political
and social conditions. There is no assurance that economic initiatives will be
successful. Recovery may also be influenced by interna-

14
<PAGE>

tional economic conditions, particularly those in the United States, and by
world prices for oil and other commodities.

Pan European Fund. Political and economic developments in Europe, especially
as they relate to changes in the structure of the European Economic Community
and the anticipated development of a unified common market (see "Risk Fac-
tors--Generally" above), may have profound effects upon the value of a large
segment of the Fund's investment portfolio.

Pacific/Asia Fund. The extent of economic development, political stability
and market depth of different countries in the Pacific/Asia region varies
widely. Certain countries in the region are either comparatively underdevel-
oped or are in the process of becoming developed, and investments in the secu-
rities of issuers in such countries typically involve greater potential for
gain or loss than investments in securities of issuers in more developed coun-
tries. Certain countries in the region also depend to a large degree upon ex-
ports of primary commodities and, therefore, are vulnerable to changes in com-
modity prices which, in turn, may be affected by a variety of factors. The
Fund may be particularly sensitive to changes in the economies of certain
countries in the Pacific/Asia region resulting from any reversal of economic
liberalization, political unrest or the imposition of sanctions by the United
States or other countries.

Emerging Markets Fund. The Emerging Markets Fund may invest in lower quality
securities, also known as junk bonds. Lower quality securities have different
risks than investments in securities that are rated "investment grade." Risk
of loss upon default by the borrower is significantly greater because lower-
rated securities are generally unsecured and are often subordinated to other
creditors of the issuer, and because the issuers frequently have high levels
of indebtedness and are more sensitive to adverse economic conditions, such as
recessions, individual corporate developments and increasing interest rates
than are investment grade issuers. As a result, the market price of such secu-
rities, and the net asset value of the Fund's Shares, may be particularly vol-
atile.

Additional risks associated with lower-rated fixed income securities are (a)
the relative youth and growth of the market for such securities, (b) the rela-
tively low trading market liquidity for the securities, (c) the impact that
legislation may have on the high-yield bond market (and, in turn, on the
Fund's net asset value and investment practices), (d) the operation of manda-
tory sinking fund or call/redemption provisions during periods of declining
interest rates whereby the Fund may be required to reinvest premature redemp-
tion proceeds in lower yielding portfolio securities, and (e) the creditwor-
thiness of the issuers of such securities. During an economic downturn or sub-
stantial period of rising interest rates, highly-leveraged issuers may experi-
ence financial stress which would adversely affect their ability to service
their principal and interest payment obligations, to meet projected business
goals and to obtain additional financing. An economic downturn could also dis-
rupt the market for lower-rated bonds generally and adversely affect the value
of outstanding bonds and the ability of the issuers to repay principal and in-
terest. If the issuer of a lower-rated security held by the Fund defaulted,
the Fund could incur additional expenses to seek recovery. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may
also decrease the values and liquidity of lower-rated securities held by the
Fund, especially in a thinly traded market.

* * *

15
<PAGE>

Because of the risks associated with common stock investments, the Funds are
intended to be long-term investment vehicles and are not designed to provide
investors with a means of speculating on short-term stock market movements.
Because of the Funds' investment policies and the considerations discussed
above, investments in Shares of the Funds may not be appropriate for all in-
vestors and should not be considered a complete investment program.

PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION

MONEY MARKET INSTRUMENTS

"Money market instruments" which may be purchased by each Fund in accordance
with its policies set forth above include, among other things, bank obliga-
tions, commercial paper and corporate bonds with remaining maturities of 13
months or less.

Investments by a Fund in commercial paper will consist of issues that are
rated "A-2" or better by S&P or "Prime-2" or better by Moody's. In addition,
each Fund may acquire unrated commercial paper and corporate bonds that are
determined by the Investment Adviser at the time of purchase to be of compara-
ble quality to rated instruments that may be acquired by each Fund.

ADRS, EDRS AND GDRS

Each Fund may invest indirectly in the securities of foreign issuers through
sponsored and unsponsored depository receipts such as American Depository Re-
ceipts ("ADRs"), European Depository Receipts ("EDRs"), Global Depository Re-
ceipts ("GDRs") and other similar instruments. ADRs typically are issued by an
American bank or trust company and evidence ownership of underlying securities
issued by a foreign corporation. EDRs, which are sometimes referred to as Con-
tinental Depository Receipts, are receipts issued in Europe, typically by for-
eign banks and trust companies, that evidence ownership of either foreign or
domestic underlying securities. GDRs are depository receipts structured like
global debt issues to facilitate trading on an international basis.
Unsponsored ADR, EDR, and GDR programs are organized independently and without
the cooperation of the issuer of the underlying securities. As a result,
available information concerning the issuer may not be as current as for spon-
sored ADRs, EDRs and GDRs, and the prices of unsponsored ADRs, EDRs and GDRs
may be more volatile than if such instruments were sponsored by the issuer.

Investments in ADRs, EDRs and GDRs present additional investment considera-
tions as described above under "Investment Objectives and Policies--Risk Fac-
tors."

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<PAGE>

REPURCHASE AGREEMENTS

Each Fund may agree to purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually agreed upon date and price ("repur-
chase agreements"). The Funds will enter into repurchase agreements only with
financial institutions that are deemed to be creditworthy by the Investment
Adviser, pursuant to guidelines established by Excelsior Fund's Board of Di-
rectors. The Funds will not enter into repurchase agreements with the Invest-
ment Adviser or any of its affiliates. Repurchase agreements with remaining
maturities in excess of seven days will be considered illiquid securities and
will be subject to the limitations discussed below under "Illiquid Securi-
ties."

SECURITIES LENDING

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

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 con-
tract 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 simi-
lar to foreign currency futures contracts described below; however, unlike
futures contracts, which are traded on recognized commodities exchanges, for-
ward 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 in-
volved 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. The In-
vestment Adviser does not expect to hedge positions as a routine investment
technique, but anticipates hedging principally with respect to specific trans-
actions. 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 pur-
pose 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 Funds will not speculate in foreign currency exchange transac-
tions. Transaction and position hedging will not be limited to an overall per-
centage 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 posi-
tions to an extent greater than the aggregate market value (at the time of en-
tering into the forward contract) of the securities held in its portfolio

17
<PAGE>

denominated, quoted in, or currently convertible into that particular curren-
cy. When the Funds engage in forward currency transactions, certain asset seg-
regation requirements must be satisfied. 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 mar-
ket price at which the short position was established. Asset segregation re-
quirements are not applicable when a Fund "covers" a forward currency position
generally by entering into an offsetting position. Additional information on
forward currency transactions, including a discussion of risks involved in
such transactions (which are similar to those described below under "Futures
Contracts"), is included in the Statement of Additional Information.

FUTURES CONTRACTS

Each Fund may also enter into interest rate futures contracts, other types
of financial futures contracts (such as foreign currency futures contracts,
which are similar to forward currency contracts described above) and related
futures options, as well as any index or foreign market futures which are
available on recognized exchanges or in other established financial markets.

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

Transactions in futures as a hedging device may subject a Fund to a number
of risks. Successful use of futures by a Fund is subject to the ability of the
Investment Adviser to correctly anticipate movements in the direction of the
market, currency exchange rates and other economic factors. There may be an
imperfect correlation, or no correlation at all, between movements in the
price of the futures contracts (or options) and movements in the price of the
instruments being hedged. In addition, investments in futures may subject a
Fund to losses due to unanticipated market movements which are potentially

18
<PAGE>

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

OPTIONS

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

The Regional Funds and the Emerging Markets Fund may purchase put and call
options in an amount not exceeding 5% of a Fund's net assets, as described
further in the Statement of Additional Information. Such options may or may
not be listed on a U.S. or foreign exchange and issued by the Options Clearing
Corporation. Such options may relate to particular securities, various stock
or bond indices or foreign currencies. Purchasing options is a specialized in-
vestment technique which entails a substantial risk of a complete loss of the
amounts paid as premiums to the writer of the options. In addition, unlisted
options are not subject to the protections afforded purchasers of listed op-
tions issued by the Options Clearing Corporation, which performs the obliga-
tions of its members if they default.

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

INVESTMENT COMPANY SECURITIES

Each Fund may invest in securities issued by other investment companies
which invest in high-quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method. Each Fund may also purchase shares of investment companies investing
primarily in foreign securities, including so called "country funds," which
have portfolios consisting exclusively of securities of issuers located in one
foreign country, and funds that invest in securities included in foreign secu-
rity indices, such as World Equity Benchmark SharesSM ("WEBS"). The Regional
Funds will limit their investments in such funds to those funds which invest
in the appropriate regions in light of their respective investment policies.
Securities of other investment companies will be acquired by a Fund within the
limits prescribed by the Investment Company Act of 1940, as amended (the "1940
Act"), which include, subject to certain exceptions, a prohibition against the
Fund investing more than 10% of the value of its total assets in such securi-
ties. In addition to the advisory fees and other expenses each Fund bears di-
rectly in connection with its own operations, as a shareholder of another in-
vestment company, each Fund would bear its pro rata portion of the other in-
vestment company's advisory fees and other expenses. As such, a Fund's share-
holders would indirectly bear the expenses of the Fund and the other invest-
ment company, some or all of which would be duplicative.

WHEN-ISSUED AND FORWARD TRANSACTIONS

Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transac-
tions involve a commitment by a Fund to

19
<PAGE>

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

BORROWING AND REVERSE REPURCHASE AGREEMENTS

ILLIQUID SECURITIES

No Fund will knowingly invest more than 10% (15%, with respect to the Emerg-
ing Markets Fund) of the value of its net assets in securities that are illiq-
uid. A security will be considered illiquid if it may not be disposed of
within seven days at approximately the value at which the particular Fund has
valued the security. Each Fund may purchase securities which are not regis-
tered under the Securities Act of 1933, as amended (the "Act"), but which can
be sold to "qualified institutional buyers" in accordance with Rule 144A under
the Act. Any such security will not be considered illiquid so long as it is
determined by the Investment Adviser, acting under guidelines approved and
monitored by the Board, that an adequate trading market exists for that secu-
rity. This investment practice could have the effect of increasing the level
of illiquidity in a Fund during any period that qualified institutional buyers
are no longer interested in purchasing these restricted securities.

The Emerging Markets Fund may also purchase non-publicly traded securities,
private placements and other restricted securities. These securities may in-
volve a higher degree of business and financial risk that can result in sub-
stantial losses. As a result of the absence of a public trading market for
these securities, they may be less liquid than publicly traded securities. Al-
though these securities may be resold in privately negotiated transactions,
the prices realized from these sales could be less than those originally paid
by the Fund or less than what may be considered the fair value of such securi-
ties. Furthermore, companies whose securities are not publicly traded may not
be subject to the disclosure and other investor protection requirements which
might be applicable if their securities were publicly traded. If such securi-
ties are required to be registered under the securities laws of one or more
jurisdictions before being resold, the Fund may be required to bear the ex-
penses of registration.

PORTFOLIO TURNOVER

Each Fund may sell a portfolio investment immediately after its acquisition
if the Investment Adviser believes that such a disposition is consistent with
attaining the investment objective of the particular Fund. Portfolio invest-
ments may be sold for a variety of reasons, such as a more favorable invest-
ment opportunity or other circumstances bearing on the desirability of contin-
uing to hold such investments.

The annual portfolio turnover rate for the Emerging Markets Fund is not ex-
pected to exceed 100%. A rate of 100% indicates that the equivalent of all of
the Fund's assets have been sold and reinvested in

20
<PAGE>

a calendar year. A high rate of portfolio turnover may involve correspondingly
greater brokerage commission expenses and other transaction costs, which must
be borne directly by the Fund and ultimately by its shareholders. High portfo-
lio turnover may result in the realization of substantial net capital gains.
(See "Financial Highlights" and "Taxes--Federal.")

INVESTMENT LIMITATIONS

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

A Fund may not:

3. Make loans, except that (i) a Fund may purchase or hold debt securi-
ties in accordance with its investment objective and policies, and may en-
ter into repurchase agreements with respect to obligations issued or guar-
anteed by the U.S. Government, its agencies or instrumentalities, (ii) each
of the International, Latin America, Pacific/Asia and Pan European Funds
may lend portfolio securities in an amount not exceeding 30% of its total
assets, and (iii) the Emerging Markets Fund may lend portfolio securities
in accordance with its investment objective and policies.

The International Fund may not:

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

Each of the International and Regional Funds may not:

5. Borrow money, except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time
of such borrowing; or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed and 10% of the value of its total as-
sets at the time of such borrowing. (This borrowing provision is included
solely to facilitate the orderly sale of portfolio securities to accommo-
date abnormally heavy redemption requests and is not for leverage purpos-
es.) The Fund will not purchase portfolio securities while borrowings in
excess of 5% of its total assets are outstanding. Optioned stock held in
escrow is not deemed to be a pledge.

The Emerging Markets Fund may not:

6. Borrow money or mortgage, pledge or hypothecate its assets except to
the extent permitted under the 1940 Act.

* * *

21
<PAGE>

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

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

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

PRICING OF SHARES

The net asset value of each Fund is determined and its Shares are priced at
the close of regular trading hours on the New York Stock Exchange (the "Ex-
change"), currently 4:00 p.m. (Eastern Time). Net asset value and pricing for
each Fund are determined on each day the Exchange and the Investment Adviser
are open for trading ("Business Day"). Currently, the holidays which the Funds
observe are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day and Christmas. A Fund's net asset value per Share for purposes
of pricing sales and redemptions is calculated by dividing the value of all se-
curities and other assets allocable to the Fund, less the liabilities allocable
to the Fund, by the number of its outstanding Shares.

The Funds' portfolio securities which are primarily traded on a domestic ex-
change are valued at the last sale price on that exchange or, if there is no
recent sale, at the last current bid quotation. Portfolio securities which are
primarily traded on foreign securities exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges, ex-
cept that when an event subsequent to the time when value was so established is
likely to have changed such value, then the fair value of those securities will
be determined by consideration of other factors under the direction of the
Board of Directors. A security which is listed or traded on more than one ex-
change is valued at the quotation on the exchange determined to be the primary
market for such security. Investments in debt securities having a maturity of
60 days or less are valued based upon the amortized cost method. An option,
futures or foreign currency futures contract is valued at the last sales price
quoted on the principal exchange or board of trade on which such option or con-
tract is traded, or in the absence of a sale, the mean between the last bid and
asked prices. A forward currency contract is valued based on the last published
forward currency rate which reflects the duration of the contract and the value
of the underlying currency. All other foreign securities are valued at the last
current bid quotation if market quotations are available, or at fair value as
determined in accordance with guidelines adopted by the Board of Directors. For
valuation purposes, quotations of foreign securities in foreign currency are
converted to U.S. dollars equivalent at the prevailing market rate on the day
of conversion.

Some of the securities acquired by the Funds may be traded on foreign ex-
changes or over-the-counter markets on days which are not Business Days. In
such cases, the net asset value of the Shares may be significantly affected on
days when investors can neither purchase nor redeem a Fund's Shares.

Excelsior Fund's administrators have undertaken to price the securities in
each Fund's portfolio, and may use one or more independent pricing services in
connection with this service.

22
<PAGE>

HOW TO PURCHASE AND REDEEM SHARES

DISTRIBUTOR

Shares in each Fund are continuously offered for sale by Excelsior Fund's
sponsor and distributor, Edgewood Services, Inc. (the "Distributor"), a wholly-
owned subsidiary of Federated Investors, Inc. The Distributor is a registered
broker/dealer. Its principal business address is 5800 Corporate Drive, Pitts-
burgh, PA 15237-5829.

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

PURCHASE OF SHARES

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

A Shareholder Organization may elect to hold of record Shares for its Custom-
ers and to record beneficial ownership of Shares on the account statements pro-
vided by it to its Customers. If it does so, it is the Shareholder Organiza-
tion's responsibility to transmit to the Distributor all purchase orders for
its Customers and to transmit, on a timely basis, payment for such orders to
Chase Global Funds Services Company ("CGFSC"), the Funds' sub-transfer agent,
in accordance with the procedures agreed to by the Shareholder Organization and
the Distributor. Confirmations of all such Customer purchases and redemptions
will be sent by CGFSC to the particular Shareholder Organization. As an alter-
native, a Shareholder Organization may elect to establish its Customers' ac-
counts of record with CGFSC. In this event, even if the Shareholder Organiza-
tion continues to place its Customers' purchase and redemption orders with the
Funds, CGFSC will send confirmations of such transactions and periodic account
statements directly to the shareholders of record. Shares in the Funds bear the
expenses of fees payable to Shareholder Organizations for such services. See
"Management of the Funds--Shareholder Organizations."

23
<PAGE>

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

PURCHASE PROCEDURES

General

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

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

Purchases by Wire

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

Other Purchase Information

24
<PAGE>

Customers may agree with a particular Shareholder Organization to make a mini-
mum purchase with respect to their accounts. Depending upon the terms of the
particular account, Shareholder Organizations may charge a Customer's account
fees for automatic investment and other cash management services provided. Ex-
celsior Fund reserves the right to reject any purchase order, in whole or in
part, or to waive any minimum investment requirements. Third party checks will
not be accepted as payment for Fund Shares.

REDEMPTION PROCEDURES

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

Redemption by Mail

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

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

25
<PAGE>

Redemption by Wire or Telephone

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

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

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

Other Redemption Information

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

GENERAL

26
<PAGE>

INVESTOR PROGRAMS

EXCHANGE PRIVILEGE

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

Excelsior Fund currently offers 13 additional portfolios as follows:

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

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

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

Energy and Natural Resources Fund, a non-diversified fund seeking long-
term capital appreciation by investing in companies that are in the energy
and other natural resources groups of industries;

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

27
<PAGE>

Excelsior Tax-Exempt Fund currently offers 7 portfolios as follows:

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

28
<PAGE>

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

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

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

SYSTEMATIC WITHDRAWAL PLAN

RETIREMENT PLANS

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

IRAs (including "rollovers" from existing retirement plans) for individu-
als and their spouses;

Profit Sharing and Money-Purchase Plans for corporations and self-em-
ployed individuals and their partners to benefit themselves and their em-
ployees; and

Keogh Plans for self-employed individuals.

Investors investing in the Funds pursuant to Profit Sharing and Money-Pur-
chase Plans and Keogh Plans are not subject to the minimum investment and
forced redemption provisions described above.

29
<PAGE>

The minimum initial investment for IRAs is $250 per Fund and the minimum sub-
sequent investment is $50 per Fund. Detailed information concerning eligibili-
ty, service fees and other matters related to these plans can be obtained by
calling (800) 446-1012 (from overseas, call (617) 557-8280). Customers of
Shareholder Organizations may purchase Shares of the Funds pursuant to retire-
ment plans if such plans are offered by their Shareholder Organizations.

AUTOMATIC INVESTMENT PROGRAM

DIVIDENDS AND DISTRIBUTIONS

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

30
<PAGE>

TAXES

FEDERAL

Qualification as a regulated investment company under the Code requires,
among other things, that a Fund distribute to its shareholders an amount equal
to at least 90% of its investment company income for each taxable year. In
general, a Fund's investment company taxable income will be its income (in-
cluding dividends, interest and short-term capital gains), subject to certain
adjustments and excluding the excess of any net long-term capital gain for the
taxable year over the net short-term capital loss, if any, for such year. Each
Fund intends to distribute substantially all of its investment company taxable
income each year. Such dividends will be taxable as ordinary income to a
Fund's shareholders who are not currently exempt from Federal income taxes,
whether such income is received in cash or reinvested in additional Shares.
(Federal income taxes for distributions to IRAs and qualified pension plans
are deferred under the Code.) It is anticipated that none of the dividends
paid by a Fund will be eligible for the dividends received deduction for cor-
porations.

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

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

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

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

It is expected that dividends and certain interest income earned by each
Fund from foreign securities will be subject to foreign withholding taxes or
other taxes. So long as more than 50% of the value of a Fund's total assets at
the close of any taxable year consists of stock or securities of foreign cor-
porations, such Fund may elect, for U.S. Federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes
and other foreign income taxes, as paid by its shareholders. A Fund may make
this election. As a consequence, the amount of such foreign taxes paid by a
Fund will

31
<PAGE>

be included in its shareholders' income pro rata (in addition to taxable dis-
tributions actually received by them), and each shareholder will be entitled
either (a) to credit his proportionate amounts of such taxes against his U.S.
Federal income tax liabilities, or (b) if he itemizes his deductions, to de-
duct such proportionate amounts from his U.S. taxable income, should he so
choose.

Qualification as a regulated investment company under the Code also requires
that a Fund satisfy certain requirements with respect to the source of its in-
come for a taxable year. At least 90% of the gross income of a Fund must be
derived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign cur-
rencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies. The Treasury Department may
by regulation exclude from qualifying income foreign currency gains which are
not directly related to a Fund's principal business of investing in stock or
securities, or options and futures with respect to stock or securities. Some
of the investments that a Fund may make (such as gold bullion) may not be se-
curities or may not produce qualifying income. Therefore, it may be necessary
for the Investment Adviser to restrict the investments of a Fund to ensure
that non-qualifying income does not exceed 10% of such Fund's total gross in-
come for a taxable year.

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

STATE AND LOCAL

MANAGEMENT OF THE FUNDS

INVESTMENT ADVISER

32
<PAGE>

The International and Pan European Funds' portfolio manager, Rosemary Sagar,
is the person primarily responsible for the day-to-day management of the
Funds' investment portfolios. Ms. Sagar is the Managing Director of U.S.
Trust's Global Investment Division and she has been with U.S. Trust since
1996. Prior to joining U.S. Trust, Ms. Sagar was Senior Vice President for in-
ternational equity investments for General Electric Investments Corp. in Stam-
ford, CT from 1990 to 1996. Ms. Sagar has been the Funds' portfolio manager
since November 1996.

The Latin America and Emerging Markets Funds' portfolio manager, Don
Hoskins, is the person primarily responsible for the day-to-day management of
the Funds' investment portfolios. Mr. Hoskins is a Senior Vice President in
U.S. Trust's Global Investment Division, where he heads the Emerging Markets
investment team. Mr. Hoskins has been employed by U.S. Trust since February
1997. Prior to joining U.S. Trust, he was Director of Research at Globalvest,
an advisory firm based in St. Thomas, V.I., where he specialized in Latin
American investments. From 1993 to 1995, Mr. Hoskins worked in Peru for a lo-
cal brokerage firm and as a Consultant to the World Bank. Prior to 1993, he
was with Sanford Bernstein as an International Equities Analyst. Mr. Hoskins
has been the Latin America Fund's portfolio manager since March 1997 and the
Emerging Markets Fund's portfolio manager since its inception.

The Pacific/Asia Fund's portfolio manager, David J. Linehan, is the person
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Linehan, a Senior Vice President in U.S. Trust's Global Invest-
ment Division, has been with U.S. Trust since July 1998 and has managed the
Fund since August 1998. From 1995 to 1998, Mr. Linehan was an international
investment manager with Cowen Asset Management in New York. Prior to 1995, Mr.
Linehan was an international equity trader with Morgan Grenfell in New York
and an associate portfolio manager with Kemper Financial Services in Chicago.

For the services provided and expenses assumed pursuant to its Investment
Advisory Agreements, the Investment Adviser is entitled to be paid a fee, com-
puted daily and paid monthly, at the annual rate of 1.00% of the average daily
net assets of each of the International, Latin America, Pacific/Asia and Pan
European Funds, and 1.25% of the average daily net assets of the Emerging Mar-
kets Fund.

Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the International and Regional Funds pursuant to advisory agreements substan-
tially similar to the Investment Advisory Agreements currently in effect for
the Funds. For the fiscal year or period ended March 31, 1998, U.S. Trust re-
ceived an advisory fee after waivers at the effective annual rates of 0.92%,
0.90%, 0.91%, 0.93% and 0.36% of the average daily net assets of the Interna-
tional, Latin America, Pacific/Asia, Pan European and Emerging Markets Funds,
respectively. For the same period, U.S. Trust waived advisory fees at the ef-
fective annual rates of 0.08%, 0.10%, 0.09%, 0.07% and 0.89% of the average
daily net assets of the International, Latin America, Pacific/Asia, Pan Euro-
pean and Emerging Markets Funds, respectively.

From time to time, the Investment Adviser may voluntarily waive all or a
portion of the advisory fees payable with respect to a Fund, which waivers may
be terminated at any time. See "Management of the Funds--Shareholder Organiza-
tions" for additional information on fee waivers.

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

33
<PAGE>

ADMINISTRATORS

CGFSC, Federated Administrative Services and U.S. Trust Connecticut serve as
the Funds' administrators (the "Administrators") and provide them with general
administrative and operational assistance. For the services provided to the
Funds, the Administrators are jointly entitled to a fee, computed daily and
paid monthly, at the annual rate of 0.20% of the average daily net assets of
each Fund. From time to time, the Administrators may voluntarily waive all or
a portion of the administration fee payable to them by a Fund, which waivers
may be terminated at any time. See "Management of the Funds--Shareholder Orga-
nizations" for additional information on fee waivers.

SHAREHOLDER ORGANIZATIONS

As described above under "Purchase of Shares," Excelsior Fund has agreements
with certain Shareholder Organizations--firms that provide services, which may
include acting as record shareholder, to their Customers who beneficially own
Shares. As a consideration for these services, a Fund will pay the Shareholder
Organization an administrative service fee up to the annual rate of 0.40% of
the average daily net asset value of its Shares held by the Shareholder Orga-
nization's Customers. Such services, which are described more fully in the
Statement of Additional Information under "Management of the Funds--Share-
holder Organizations," may include assisting in processing purchase, exchange
and redemption requests; transmitting and receiving funds in connection with
Customer orders to purchase, exchange or redeem Shares; and providing periodic
statements. It is the responsibility of Shareholder Organizations to advise
Customers of any fees that they may charge in connection with a Customer's in-
vestment. Until further notice, the Investment Adviser and Administrators have
voluntarily agreed to waive fees payable by a Fund in an aggregate amount
equal to administrative service fees payable by that Fund.

BANKING LAWS

34
<PAGE>

DESCRIPTION OF CAPITAL STOCK

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

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

CUSTODIAN AND TRANSFER AGENT

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 Direc-
tors and officers who are not affiliated with the Distributor or the Adminis-
trators); 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; cer-
tain insurance premiums; outside auditing and legal expenses; costs of share-
holder reports and shareholder meetings; and any extraordinary expenses. The
Funds also pay for brokerage fees and commissions in connection with the pur-
chase of portfolio securities.

35
<PAGE>

PERFORMANCE INFORMATION

From time to time, in advertisements or in reports to shareholders, the per-
formance of the Funds may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant indices or
to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of a Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds. The performance of a Fund may also be compared to
the Morgan Stanley Capital International Europe, Australia, and Far East Index
("EAFE"), Emerging Markets Free Index, and other unmanaged foreign securities
indexes.

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

MISCELLANEOUS

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

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

36
<PAGE>

INSTRUCTIONS FOR NEW ACCOUNT APPLICATION

OPENING YOUR ACCOUNT:

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

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

Please enclose with the Application your check made payable to the "Excel-
sior Funds" in the amount of your investment.

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

MINIMUM INVESTMENTS:

REDEMPTIONS:

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

* A corporate resolution or appropriate certificate may be required.

QUESTIONS:

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

37
<PAGE>

PROSPECTUS AUGUST 1, 1998

LOGO EXCELSIOR
FUNDS INC.

INTERNATIONAL FUND

LATIN AMERICA FUND

PACIFIC/ASIA FUND

PAN EUROPEAN FUND

EMERGING MARKETS FUND

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................................................... 2
EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 4
INVESTMENT OBJECTIVES AND POLICIES.................................... 9
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION................ 16
INVESTMENT LIMITATIONS................................................ 21
PRICING OF SHARES..................................................... 22
HOW TO PURCHASE AND REDEEM SHARES..................................... 23
INVESTOR PROGRAMS..................................................... 27
DIVIDENDS AND DISTRIBUTIONS........................................... 30
TAXES................................................................. 31
MANAGEMENT OF THE FUNDS............................................... 32
DESCRIPTION OF CAPITAL STOCK.......................................... 35
CUSTODIAN AND TRANSFER AGENT.......................................... 35
EXPENSES.............................................................. 35
PERFORMANCE INFORMATION............................................... 36
MISCELLANEOUS......................................................... 36
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION.............................. 37
</TABLE>

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

USTINLP898
<PAGE>

EXCELSIOR FUNDS, INC.

International Fund
Latin America Fund
Pacific/Asia Fund
Pan European Fund
Emerging Markets Fund

STATEMENT OF ADDITIONAL INFORMATION

August 1, 1998

This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectus for the International, Latin America
(prior to August 1, 1997, "Emerging Americas"), Pacific/Asia, Pan European and
Emerging Markets Funds (each a "Fund" and collectively the "Funds") of Excelsior
Funds, Inc. ("Excelsior Fund") dated August 1, 1998 (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
-----------------

Page
====

INVESTMENT OBJECTIVES AND POLICIES...................... 1

Other Investment Considerations.................... 1
Additional Information on Portfolio Instruments.... 2
Additional Investment Limitations.................. 9

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.......... 11

INVESTOR PROGRAMS....................................... 12

Systematic Withdrawal Plan......................... 12
Exchange Privilege................................. 13
Other Investor Programs............................ 13

DESCRIPTION OF CAPITAL STOCK............................ 14

MANAGEMENT OF THE FUNDS................................. 15

Directors and Officers............................. 15
Investment Advisory and Administration Agreements.. 21
Shareholder Organizations.......................... 24
Expenses........................................... 25
Custodian and Transfer Agent....................... 25

PORTFOLIO TRANSACTIONS.................................. 26

INDEPENDENT AUDITORS.................................... 28

COUNSEL................................................. 28

ADDITIONAL INFORMATION CONCERNING TAXES................. 28

Generally.......................................... 28

PERFORMANCE INFORMATION................................. 29

MISCELLANEOUS........................................... 32

FINANCIAL STATEMENTS.................................... 32
APPENDIX A.............................................. A-1

-3-
<PAGE>

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

The following information supplements the description of the Funds'
investment objectives and policies as set forth in the Prospectus.

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

In determining the preferred allocation of investments of the Funds
among various geographic regions and countries, 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") will consider, among other things, regional and
country-by-country prospects for economic growth, anticipated levels of
inflation, prevailing interest rates, the historical patterns of government
regulation of the economy and the outlook for currency relationships.

The transaction costs to the Funds of engaging in forward currency
transactions described in the Prospectus 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.
<PAGE>

Each Fund may purchase gold bars primarily of standard weight
(approximately 400 troy ounces) at the best available prices in the New York
bullion market. However, the Investment Adviser will have discretion to
purchase or sell gold bullion in other markets, including foreign markets, if
better prices can be obtained. Gold bullion is valued by the Funds at the mean
between the closing bid and asked prices in the New York bullion market as of
the close of the New York Stock Exchange each business day. When there is no
readily available market quotation for gold bullion, the bullion will be valued
by such method as determined by Excelsior Fund's Board of Directors to best
reflect its fair value. For purpose of determining net asset value, gold held
by a Fund, if any, will be valued in U.S. dollars.

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

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 to be loans by a Fund under the Investment Company Act of 1940, as
amended (the "1940 Act").

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

When a Fund lends its portfolio 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 securities lent 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.

Government Obligations
----------------------

Options
-------

As stated in the Prospectuses, the Latin America, Pacific/Asia and Pan
European Funds may enter into options transactions for hedging purposes, and the
Emerging

-2-
<PAGE>

Markets Fund may enter into options transactions for hedging purposes
or to increase total return. Such purchases would be in an amount not exceeding
5% of each 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 or the value of a foreign
currency 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 or currency, and
therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an investment in the underlying securities or currency.
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 or currency at the stated exercise price at
any time prior to the expiration of the option, regardless of the market price
of the security or currency. 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 or currency at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security or
currency. 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.

Also as stated in the Prospectuses, 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.

-3-
<PAGE>

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.

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

Each Fund may invest in futures contracts and related options. Each
Fund 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.

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 a 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 a Fund's ability to
effectively hedge.

Successful use of futures by the Funds is also subject to the ability
of the Investment Adviser 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

-4-
<PAGE>

requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. A Fund may have to sell
securities at a time when it may be disadvantageous to do so.

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

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

Each Fund 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

-5-
<PAGE>

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 the 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.

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.

-6-
<PAGE>

Brady Bonds
-----------

The Latin America and Emerging Markets Funds may invest in Brady
Bonds, which are securities created through the exchange of existing commercial
bank loans to Latin American public and private entities for new bonds in
connection with debt restructuring under a debt restructuring plan announced by
former U.S. Secretary of the Treasury Nicholas F. Brady (the "Brady Plan").
Brady Bonds may be collateralized or uncollateralized, are issued in various
currencies (primarily the U.S. dollar) and are currently actively traded in the
over-the-counter secondary market for Latin American debt instruments.

Dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on these Brady Bonds generally are collateralized by
cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of rolling interest payments or, in the case of floating
rate bonds, initially is equal to at least one year's rolling interest payments
based on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.

All Mexican Brady Bonds issued to date, except New Money Bonds, have
principal repayments at final maturity fully collateralized by U.S. Treasury
zero coupon bonds (or comparable collateral in other currencies) and interest
coupon payments collateralized on an 18-month rolling-forward basis by funds
held in escrow by an agent for the bondholders. Approximately half of the
Venezuelan Brady Bonds issued to date have principal repayments at final
maturity collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral in other currencies), while slightly more than half have interest
coupon payments collateralized on a 14-month rolling-forward basis by securities
held by the Federal Reserve Bank of New York as collateral agent.

Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at final maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constituting the "residual risk").

ADRs, EDRs and GDRs
- -------------------

Each Fund may invest indirectly in the securities of foreign issuers
through sponsored and unsponsored American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs") and
other similar instruments. ADRs typically are issued by an American bank or
trust company and evidence ownership of

-7-
<PAGE>

underlying securities issued by a foreign corporation. EDRs, which are
sometimes referred to as Continental Depository Receipts, are receipts issued in
Europe, typically by foreign banks and trust companies, that evidence ownership
of either foreign or domestic underlying securities. GDRs are depository
receipts structured like global debt issues to facilitate trading on an
international basis. Unsponsored ADR, EDR and GDR programs are organized
independently and without the cooperation of the issuer of the underlying
securities. As a result, available information concerning the issuer may not be
as current as for sponsored ADRs, EDRs and GDRs, and the prices of unsponsored
ADRs, EDRs and GDRs may be more volatile than if such instruments were sponsored
by the issuer.

Each Fund may also invest indirectly in foreign securities through
share entitlement certificates. Share entitlement certificates are transferable
securities similar to depository receipts which are structured like global debt
issues to facilitate trading on an international basis. The holder of a share
entitlement certificate holds a fully collateralized obligation of the issuer
the value of which is linked directly to that of the underlying foreign
security.

World Equity Benchmark SharesSM
- -------------------------------

Each Fund may invest up to 5% of its total assets in World Equity
Benchmark SharesSM issued by The Foreign Fund, Inc. ("WEBS"), closed-end funds
and similar securities of other issuers. WEBS are shares of an investment
company that invests substantially all of its assets in securities included in
the Morgan Stanley Capital International ("MSCI") indices for specific
countries. Because the expense associated with an investment in WEBS may be
substantially lower than the expense of small investments directly in the
securities comprising the indices they seek to track, U.S. Trust believes that
investments in WEBS may provide a cost-effective means of diversifying a Fund's
assets across a broad range of equity securities.

The market prices of WEBS are expected to fluctuate in accordance with
both changes in the net asset values of their underlying indices and the supply
and demand of WEBS on the exchanges on which they are traded. To date, WEBS
have traded at relatively modest discounts and premiums to their net assets
values. However, WEBS have a limited operating history, and information is
lacking regarding the actual performance and trading liquidity of WEBS for
extended periods or over complete market cycles. In addition, there is no
assurance that the requirements of the exchanges necessary to maintain the
listing of WEBS will continue to be met or will remain unchanged. In the event
substantial market or other disruptions affecting WEBS should occur in the
future, the liquidity and value of a Fund's Shares could be adversely affected.

Miscellaneous
- -------------

The International, Latin America, Pacific/Asia and Pan European Funds
may not invest in oil, gas or mineral leases.

-8-
<PAGE>

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

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

2. Purchase or sell real estate, except that the 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 the Funds' 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 International Fund, but are operating policies with respect to the Latin
America, Pacific/Asia, Pan European and Emerging Markets Funds. Each Fund may
not:

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 International Fund. The International Fund may not:

7. Invest in or sell put options, call options, straddles, spreads,
or any combination thereof; provided, however, that the Fund may write covered
call options with respect to its portfolio securities that are traded on a
national securities exchange or on foreign exchanges and may enter into closing
purchase transactions with respect to such options if, at the

-9-
<PAGE>

time of the writing of such option, the aggregate value of the securities
subject to the options written by the Fund does not exceed 25% of the value of
its total assets; and provided that the Fund may enter into forward currency
contracts 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 (i) this shall not prohibit the Fund from purchasing publicly traded
securities of companies engaging in whole or in part in such activities; and
(ii) the Fund may enter into forward currency contracts, futures contracts and
related options and may invest up to 5% of its total assets in gold bullion.

The following investment limitation is fundamental with respect to the
Latin America, Pacific/Asia, Pan European and Emerging Markets Funds. Each of
such 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 a Fund from purchasing
publicly traded securities of companies engaging in whole or in part in such
activities; and (ii) a Fund may enter into forward currency contracts, futures
contracts and related options and may invest up to 5% of its total assets in
gold bullion.

* * *

In addition to the above investment limitations, each Fund currently
intends to limit its investments in warrants so that, valued at the lower of
cost or market value, they do not exceed 5% of the Fund's net assets. For the
purpose of this limitation, warrants acquired by a Fund in units or attached to
securities will be deemed to be without value. Each Fund also intends to refrain
from entering into arbitrage transactions.

The International Fund 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 portfolio securities will not constitute a violation of such
limitation.

-10-
<PAGE>

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

Prior to February 14, 1997, Shares of the Funds were offered for sale
with a maximum sales charge of 4.50%. No sales charges were imposed in
connection with sales of Shares of the International Fund during the fiscal
years ended March 31, 1997 and 1996.

Total sales charges paid by shareholders of the Latin America,
Pacific/Asia and Pan European Funds for the fiscal years ended March 31, 1997
and 1996 were $528 and $698; $3,715 and $333; and $550 and $99, respectively.
Of these respective amounts, UST Distributors, Inc., the Funds' former
distributor, retained $203 with respect to the Latin America Fund; $9 with
respect to the Pacific/Asia Fund; and $1 with respect to the Pan European Fund
for the period April 1, 1995 through July 31, 1995. The Distributor retained
none of the foregoing sales charges with respect to the Latin America,
Pacific/Asia and Pan

-11-
<PAGE>

European Funds for the period August 1, 1995 through March 31, 1996, and the
fiscal year ended March 31, 1997. The balance was paid to selling dealers.

Under certain circumstances, Excelsior Fund may, at its discretion,
accept securities as payment for Shares. Securities acquired in this manner
will be limited to securities issued in transactions involving a bona fide
---------
reorganization or statutory merger, or other transactions involving securities
that meet the investment objective and policies of any Fund acquiring such
securities.

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

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

(1) A fixed-dollar withdrawal;

(2) A fixed-share withdrawal;

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

-12-
<PAGE>

(4) A declining-balance withdrawal.

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 effects an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and is able to reduce the sales load otherwise applicable
to the new shares (by virtue of the Companies' exchange privilege), the amount
equal to such reduction may not be included in the tax basis of the
shareholder's exchanged Shares but may be included (subject to the limitation)
in the tax basis of the new shares.

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

-13-
<PAGE>

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

-14-
<PAGE>

ratification of the appointment of independent public accountants 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 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 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 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.

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:

-15-
<PAGE>

Donald L. Campbell Director Retired; Director of Excelsior Fund and
333 East 69th Street Excelsior Tax-Exempt Fund (since 1984);
Apt. 10-H Director of UST Master Variable Series,
New York, NY 10021 Inc. (from 1994 to June 1997); Trustee of
Age: 72 Excelsior Institutional Trust (since
1995); and Director, Royal Life Insurance
Co. of New York (since 1991).

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

-16-
<PAGE>

<TABLE>
<CAPTION>
Principal Occupation During Past 5 years
Name and Address Position with Excelsior Fund and Other Affiliations
- -------------------- ---------------------------- -----------------------------------------
<S> <C> <C>
Rodman L. Drake Director Director, Excelsior Fund and Excelsior
Continuation Investments Group, Inc. Tax-Exempt Fund (since 1996); Trustee,
1251 Avenue of the Americas, 9th Floor Excelsior Institutional Trust and
New York, NY 10020 Excelsior Funds (since 1994); Director,
Age: 55 Parsons Brinkeroff Energy Services Inc.
(since 1996); Director, Parsons
Brinkerhoff, Inc. (engineering firm)
(since 1995); President, Continuation
Investments Group, Inc. (since 1997);
President, Mandrake Group (investment and
consulting firm) (1994 - 1997); Director,
Hyperion Total Return Fund, Inc. and four
other funds for which Hyperion Capital
Management, Inc. serves as investment
adviser (since 1991); Co-Chairman, KMR
Power Corporation (power plants) (from
1993 to 1996); Director, The Latin America
Smaller Companies Fund, Inc. (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 Excelsior Fund and
913 Franklin Lake Road Excelsior Tax-Exempt Fund (since 1984);
Franklin Lakes, NJ 07417 Director of UST Master Variable Series,
Age: 73 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: 77 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).
</TABLE>

-17-
<PAGE>

Jonathan Piel Director Director of Excelsior Fund and Excelsior
558 E. 87th Street Tax-Exempt Fund (since 1996); Trustee of
New York, NY 10128 Excelsior Institutional Trust and
Age: 59 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).

</TABLE>

-18-
<PAGE>

<TABLE>
<CAPTION>
Principal Occupation During Past 5 years
Name and Address Position with Excelsior Fund and Other Affiliations
- -------------------- ---------------------------- -----------------------------------------
<S> <C> <C>
Robert A. Robinson Director Director of Excelsior Fund and Excelsior
Church Pension Fund Tax-Exempt Fund (since 1987); Director of
800 Second Avenue UST Master Variable Series, Inc. (from
New York, NY 10017 1994 to June 1997); Trustee of Excelsior
Age: 72 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. (1974 - 1974);
Trustee, HSBC Funds Trust and HSBC Mutual
Funds Trust (since 1982); and Director,
Infinity Funds, Inc. (since 1995).

Alfred C. Tannachion Director Retired; Director of Excelsior Fund and
6549 Pine Meadows Drive Excelsior Tax-Exempt Fund (since 1985);
Spring Hill, FL 34606 Chairman of the Board of Excelsior Fund
Age: 72 and Excelsior Tax-Exempt Fund (1991-1997)
and Excelsior Institutional Trust
(1996-1997); President and Treasurer of
Excelsior Fund and Excelsior Tax-Exempt
Fund (1994-1997) and Excelsior
Institutional Trust (1996-1997); Chairman
of the Board, President and Treasurer of
UST Master Variable Series, Inc.
(1994-1997); and Trustee of Excelsior
Institutional Trust (since 1995).

W. Bruce McConnel, III Secretary Partner of the law firm of Drinker Biddle
Philadelphia National & Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 55

Michael P. Malloy Assistant Secretary Partner of the law firm of Drinker Biddle
Philadelphia National & Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 39

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

-19-
<PAGE>

<TABLE>
<CAPTION>
Principal Occupation During Past 5 years
Name and Address Position with Excelsior Fund and Other Affiliations
- -------------------- ---------------------------- -----------------------------------------
<S> <C> <C>
Edward Wang Assistant Secretary Manager of Blue Sky Compliance, Chase
Chase Global Funds Global Funds Services Company (November
Services Company 1996 to present); and Officer and Manager
73 Tremont Street of Financial Reporting, Investors Bank &
Boston, MA 02108-3913 Trust Company (January 1991 to November
Age: 37 1996).

John M. Corcoran Assistant Treasurer Vice President, Director of Fund
Chase Global Funds Administration, Chase Global Funds
Services Company Services Company (since April 1998); Vice
73 Tremont Street President, Senior Manager of Fund
Boston, MA 02108-3913 Administration, Chase Global Funds
Age: 33 Services Company (from July 1996 to April
1998); Second Vice President, Manager of
Fund Administration, Chase Global Funds
Services Company (from October 1993 to
July 1996); and Audit Manager, Ernst &
Young LLP (from August 1987 to September
1993).
</TABLE>

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

-20-
<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 $18,000 None $38,000 (3)**
Director

Rodman L. Drake $16,500 None $39,500 (4)**
Director

Joseph H. Dugan $18,000 None $38,000 (3)**
Director

Wolfe J. Frankl $16,500 None $36,500 (3)**
Director

W. Wallace McDowell, Jr. $15,000 None $38,000 (4)**
Director

Jonathan Piel $18,000 None $43,000 (4)**
Director

Robert A. Robinson $18,000 None $38,000 (3)**
Director

Alfred C. Tannachion $18,000 None $38,000 (3)**
Director

Frederick S. Wonham $23,000 None $53,000 (4)**
Chairman of the Board,
President and Treasurer
- ---------------------------

* The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt
Fund, Excelsior Funds and Excelsior Institutional Trust.

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

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

-21-
<PAGE>

described in the Prospectus. The Investment Adviser has also agreed to pay all
expenses incurred by it in connection with its activities under the 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 International, Latin America, Pacific/Asia and Pan European Funds
pursuant to advisory agreements substantially similar to the Investment Advisory
Agreements currently in effect for such Funds. Prior to November 1, 1996,
Foreign and Colonial Asset Management ("FACAM") served as sub-adviser to the
International and Pan European Funds, and Foreign & Colonial Emerging Markets
Ltd. ("FCEML") served as sub-adviser to the Latin America and Pacific/Asia
Funds.

For the fiscal year or period ended March 31, 1998, Excelsior Fund
paid U.S. Trust advisory fees of $1,591,051, $870,385, $686,528, $1,536,067 and
$3,355 with respect to the International, Latin America, Pacific/Asia, Pan
European and Emerging Markets Funds, respectively. For the same period, U.S.
Trust waived advisory fees totaling $134,671, $94,398, $67,740, $119,690 and
$8,751 with respect to the International, Latin America, Pacific/Asia, Pan
European and Emerging Markets Funds, respectively.

For the fiscal year ended March 31, 1997, Excelsior Fund paid U.S.
Trust New York advisory fees of $999,833, $494,539, $796,280 and $637,580 with
respect to the International, Latin America, Pacific/Asia and Pan European
Funds, respectively. For the same period, U.S. Trust New York waived advisory
fees totaling $87,156, $42,840, $65,538 and $48,946 with respect to the
International, Latin America, Pacific/Asia and Pan European Funds, respectively.
For the period from April 1, 1996 to October 31, 1996, FACAM received sub-
advisory fees from U.S. Trust New York with respect to the International and Pan
European Funds totaling $293,566 and $126,440, respectively, and FCEML received
sub-advisory fees from U.S. Trust New York with respect to the Latin America and
Pacific/Asia Funds totaling $65,708 and $168,214, respectively.

For the fiscal year ended March 31, 1996, Excelsior Fund paid U.S.
Trust New York advisory fees of $733,456, $326,552, $536,350 and $405,582 with
respect to the International, Latin America, Pacific/Asia, and Pan European
Funds, respectively. For the same period, U.S. Trust New York waived advisory
fees totaling $79,560, $29,512, $45,970 and $40,033 with respect to the
International, Latin America, Pacific/Asia and Pan European Funds, respectively.
For the fiscal year ended March 31, 1996, FACAM received sub-advisory fees from
U.S. Trust New York with respect to the International and Pan European Funds
totaling $402,062 and $263,111, respectively, and FCEML received sub-advisory
fees from U.S. Trust New York with respect to the Latin America and Pacific/Asia
Funds totaling $182,039 and $336,130, respectively.

The Investment Adviser may, from time to time, voluntarily waive a
portion of its fees, which waiver may be terminated at any time.

-22-
<PAGE>

Prior to May 16, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York served as Excelsior Fund's administrators pursuant to an
administrative agreement substantially similar to the Administration Agreement
currently in effect for Excelsior Fund. Prior to August 1, 1995, administrative
services were provided 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 or period ended March 31, 1998, Excelsior Fund
paid CGFSC, Federated Administrative Services and U.S. Trust $344,846, $190,906,
$150,789, $330,551 and $1,957 in the aggregate with respect to the
International, Latin America, Pacific/Asia, Pan European and Emerging Markets
Funds, respectively. For the same period, the administrators waived fees
totaling $299, $2,051, $65, $607 and $0 with respect to the International, Latin
America, Pacific/Asia, Pan European and Emerging Markets Funds,
respectively.

For the fiscal year ended March 31, 1997, Excelsior Fund paid CGFSC,
Federated Administrative Services and U.S. Trust New York $217,356, $107,418,
$172,296 and $137,304 in the aggregate with respect to the International, Latin
America, Pacific/Asia and Pan European Funds, respectively. For the same
period, CGFSC, Federated Administrative Services and U.S. Trust New York waived
fees totaling $47, $58, $68 and $1 with respect to the International, Latin
America, Pacific/Asia and Pan European Funds, respectively.

-23-
<PAGE>

For the period August 1, 1995 through March 31, 1996, Excelsior Fund
paid CGFSC, Federated Administrative Services and U.S. Trust New York $115,390,
$49,315, $82,681 and $60,758 in the aggregate with respect to the International,
Latin America, Pacific/Asia and Pan European Funds, respectively. For the same
period, CGFSC, Federated Administrative Services and U.S. Trust New York waived
fees totaling $84, $32, $17 and $4 with respect to the International, Latin
America, Pacific/Asia and Pan European Funds, respectively.

For the period April 1, 1995 through July 31, 1995, Excelsior Fund
paid the former administrators $46,929, $21,815, $33,502 and $28,271 in the
aggregate with respect to the International, Latin America, Pacific/Asia and Pan
European Funds, respectively. For the same period, the former administrators
waived fees totaling $199, $51, $264 and $90 with respect to the International,
Latin America, Pacific/Asia and Pan European Funds, respectively.

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

-24-
<PAGE>

For the fiscal years ended March 31, 1998, 1997 and 1996, payments to
Shareholder Organizations totaled $134,970, $87,203 and $79,843; $96,449,
$42,898 and $29,595; $67,805, $65,606 and $46,251; and $120,297, $48,947 and
$40,127 with respect to the International, Latin America, Pacific/Asia and Pan
European Funds, respectively. Of these amounts, $133,194, $87,203 and $79,843;
$86,789, $42,877 and $29,594; $67,453, $65,398 and $46,251; and $117,511,
$48,947 and $40,127 were paid to affiliates of U.S. Trust with respect to the
International, Latin America, Pacific/Asia and Pan European Funds, respectively.
For the fiscal period ended March 31, 1998, payments to Shareholder
Organizations totaled $994 with respect to the Emerging Markets Fund, all of
which was paid to affiliates of U.S. Trust.

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

-25-
<PAGE>

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.

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

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 a Fund 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. Transactions on foreign
stock exchanges involve payment for brokerage commissions which are generally
fixed. For the fiscal years ended March 31, 1998, March 31, 1997 and March 31,
1996, the International, Latin America, Pacific/Asia and Pan European Funds paid
brokerage commissions aggregating $456,367, $396,525 and $218,421; $529,715,
$254,681 and $153,428; $470,122, $700,865 and $234,659; and $384,700, $296,765
and $81,250, respectively, none of which were paid to affiliates of U.S. Trust.
For the fiscal period ended March 31, 1998, the Emerging Markets Fund paid
brokerage commissions aggregating $15,112, none of which were paid to affiliates
of U.S. Trust.

-26-
<PAGE>

Transactions in both foreign and 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, a Fund, 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 cost of securities purchased from underwriters includes an
underwriting commission or concession.

The Investment Advisory Agreements between Excelsior Fund and U.S.
Trust provide 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 reasonableness of the commission, if any, for the specific transaction
and on a continuing basis.

In addition, the Investment Advisory Agreements authorize 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 a Fund 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. Such services might also include reports
on global, regional, and country-by-country prospects for economic growth,
anticipated levels of inflation, prevailing and expected interest rates, and the
outlook for currency relationships.

Supplementary research information so received is in addition to and
not in lieu of services required to be performed by U.S. Trust and does not
reduce the investment advisory fees payable by the Funds. Such information may
be useful to U.S. Trust in serving the Funds and other clients and, conversely,
supplemental information obtained by the placement of business of other clients
may be useful to U.S. Trust 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 any 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 each Fund are made independently from those
for other investment companies, common trust funds and other types of funds
managed by U.S. Trust. 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

-27-
<PAGE>

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 U.S. Trust 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 a Fund or the size
of the position obtained by the Fund. To the extent permitted by law, U.S. Trust
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.

To the extent that a Fund effects brokerage transactions with any
broker-dealer affiliated directly or indirectly with 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.

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 fiscal year
ended March 31, 1998 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
-------

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

Generally
- ---------

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

-28-
<PAGE>

tax treatment afforded regulated investment companies, the 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 would be taxable as ordinary income to shareholders to the extent
of such Fund's current and accumulated earnings and profits and would be
eligible for the dividends received deduction in the case of corporate
shareholders.

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

Each 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. Shareholders should note that, upon the sale or exchange
of Fund 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 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."

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

-29-
<PAGE>

ERV/1/n/
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 that advertises an "aggregate total return" for its Shares
computes such return 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 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 average annual total returns
for the Shares of the International Fund for the one, five and ten year periods
ended March 31, 1998 were 19.42%, 11.51% and 7.98%, respectively. The average
annual total returns for the Shares of the Latin America, Pacific/Asia and Pan
European Funds for the one and five year periods ended March 31, 1998 were
14.05% and 11.48%; -27.56% and 0.99%; and 38.02% and 18.30%, respectively. The
aggregate total return for the Shares of the Emerging Markets Fund for the
period from January 2, 1998 (commencement of operations) to March 31, 1998 was
0.14%.

-30-
<PAGE>

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, sales literature 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 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 communications may
include symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein.

-31-
<PAGE>

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

As used in the Prospectus, "assets belonging to a Fund" means the
consideration received upon the issuance of Shares in a 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 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 8, 1998, 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 8, 1998, 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:
International Fund: U.S. Trust Retirement Fund, c/o United States Trust Company
- ------------------
of New York, 114 West 47th Street, New York, New York 10036, 7.56%; and Emerging
--------
Markets Fund: M&W Eisenberg Family Foundation, c/o United States Trust Company
- ------------
of New York, 114 West 47th Street, New York, New York 10036, 7.71%; The
Feinstein Family Foundation, c/o United States Trust Company of New York, 114
West 47th Street, New York, New York 10036, 7.55%; and U.S. Trust Retirement
Fund, c/o United States Trust Company of New York, 114 West 47th Street, New
York, New York 10036, 25.36%.

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

-32-
<PAGE>

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

Commercial Paper Ratings
- ------------------------

"C" - Obligations are currently vulnerable to nonpayment and are
dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.

A-1
<PAGE>

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

"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.

A-2
<PAGE>

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

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

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

A-3
<PAGE>

"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.

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

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

"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.

"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.

A-4
<PAGE>

"B" - Debt is more vulnerable to non-payment than obligations rated
"BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.

"CC" - An obligation rated "CC" is currently highly vulnerable to non-
payment.

"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.

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.

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

A-5
<PAGE>

protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.

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.

A-6
<PAGE>

"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.

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

"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
investment risk. The

A-7
<PAGE>

capacity for timely payment of financial commitments is adequate, but adverse
changes in circumstances and in economic conditions are more likely to impair
this category.

"CCC", "CC" and "C" - Bonds have high default risk. Capacity for
meeting financial commitments is reliant upon sustained, favorable business or
economic developments. "CC" ratings indicate that default of some kind appears
probable, and "C" ratings signal imminent default.

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

A-8
<PAGE>

"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
- ----------------------

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

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

A-9
<PAGE>

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

"SG" - This designation denotes speculative quality and lack of
margins of protection.

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

A-10
<PAGE>

CROSS-REFERENCE SHEET
---------------------

EXCELSIOR FUNDS, INC.
(Energy and Natural Resources and
Real Estate Funds)