<PAGE>
[LOGO OF UST APPEARS HERE]
MASTER FUNDS, INC.
MASTER TAX-EXEMPT
Management Investment Companies FUNDS, INC.
-------------------------------------------------------------------------------
Money Fund For initial purchase information, current
Government Money Fund prices, yield and performance information
Treasury Money Fund and existing account information,call (800)
Short-Term Tax-Exempt Fund 446-1012.
(From overseas, call (617) 557-8280.)
73 Tremont Street
Boston, Massachusetts 02108-3913
-------------------------------------------------------------------------------
This Prospectus describes the Money Fund, Government Money Fund and Treasury
Money Fund, three separate diversified portfolios offered to investors by UST
Master Funds, Inc. ("Master Fund") and the Short-Term Tax-Exempt Fund, a di-
versified portfolio offered by UST Master Tax-Exempt Funds, Inc. ("Master Tax-
Exempt Fund" and, collectively with Master Fund, the "Companies"). Master Fund
and Master Tax-Exempt Fund are open-end, management investment companies. Each
portfolio (individually, a "Fund" and collectively, the "Funds") has its own
investment objective and policies:
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 li-
quidity 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.
SHORT-TERM TAX-EXEMPT 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 (hereinafter referred to as the "Short-Term
Fund") will invest substantially all of its assets in high-quality short-term
Municipal Securities.
Each of the Funds is sponsored and distributed by Edgewood Services, Inc. and
advised by United States Trust Company of New York ("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, 1995 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.
SHARES IN THE FUNDS ("SHARES") ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, UNITED STATES TRUST COMPANY OF NEW YORK, ITS PARENT OR
AFFILIATES AND THE SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY OR OBLI-
GATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY. THE FUNDS SEEK TO MAINTAIN THEIR NET ASSET VALUE PER SHARE AT $1.00
FOR PURPOSES OF PURCHASES AND REDEMPTIONS, ALTHOUGH THERE CAN BE NO ASSURANCE
THAT THEY WILL DO SO ON A CONTINUOUS BASIS. INVESTMENT IN THE FUNDS INVOLVES
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August 1, 1995
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
GOVERNMENT TREASURY
MONEY MONEY MONEY SHORT-TERM
FUND FUND FUND FUND
----- ---------- -------- ----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load on Purchases
(as a percentage of offering price)..... None None None None
Sales Load on Reinvested Dividends....... None None None None
Deferred Sales Load...................... None None None None
Redemption Fees/1/....................... None None None None
Exchange Fees............................ None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (after fee waivers)/2/..... .22% .22% .28% .22%
12b-1 Fees............................... None None None None
Other Operating Expenses
Administrative Servicing Fee............ .03% .03% .02% .03%
Other Expenses.......................... .24% .25% .25% .24%
----- ----- ----- ----
Total Operating Expenses (after fee
waivers)/2/............................. .49% .50% .55% .49%
===== ===== ===== ====
</TABLE>
-------
1. The Funds' transfer agent imposes a direct $8.00 charge on each wire redemp-
tion by noninstitutional (i.e. individual) investors which is not reflected
in the expense ratios presented herein. Shareholder organizations may charge
their customers transaction fees in connection with redemptions. See "Re-
demption Procedures."
2. The Investment Adviser and Administrators may from time to time voluntarily
waive part of their respective fees, which waivers may be terminated at any
time. Until further notice, the Investment Adviser and/or Administrators in-
tend to voluntarily waive fees in an amount equal to the Administrative Ser-
vicing Fee. Without such fee waivers, "Advisory Fees" would be .25%, .25%,
.30% and .25% and "Total Operating Expenses" would be .52%, .53%, .57% and
.52% for the Money, Government Money, Treasury Money and Short-Term Funds,
respectively.
2
<PAGE>
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 $16 $27 $62
Government Money Fund........................... 5 16 28 63
Treasury Money Fund............................. 6 18 31 69
Short-Term Fund................................. 5 16 27 62
</TABLE>
The foregoing expense summary and example are intended to assist the investor
in understanding the costs and expenses that an investor in Shares of the Funds
will bear directly or indirectly. The expense summary sets forth advisory and
other expenses payable with respect to Shares of the Funds for the fiscal year
ended March 31, 1995. For more complete descriptions of the Funds' operating
expenses, see "Management of the Funds" in this Prospectus and the financial
statements and notes incorporated by reference in the Statement of Additional
Information.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
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 Master Fund's and Master Tax-Exempt Fund's Annual Reports to
Shareholders for the fiscal year ended March 31, 1995 (the "Financial State-
ments"). The information contained in the Financial Highlights for each period
has been audited by Ernst & Young LLP, Master Fund's and Master Tax-Exempt
Fund's independent auditors. The following tables should be read in conjunction
with the Financial Statements and notes thereto.
MONEY FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986/1/
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Income From
Investment
Operations
Net Investment
Income......... 0.04494 0.02780 0.03234 0.05165 0.07589 0.08454 0.07698 0.06260 0.06123 0.06824
Net Gains or
(Losses) on
Securities
(both realized
and
unrealized).... 0.00002 0.00000 0.00000 0.00017 0.00001 0.00000 0.00000 0.00000 0.00000 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total From
Investment
Operations..... 0.04496 0.02780 0.03234 0.05182 0.07590 0.08454 0.07698 0.06260 0.06123 0.06824
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less
Distributions
Dividends From
Net Investment
Income......... (0.04496) (0.02780) (0.03234) (0.05165) (0.07589) (0.08454) (0.07698) (0.06260) (0.06123) (0.06824)
Distributions
From Net
Realized Gain
on Investments. 0.00000 0.00000 0.00000 (0.00019) 0.00000 0.00000 0.00000 0.00000 (0.00001) 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total
Distributions.. (0.04496) (0.02780) (0.03234) (0.05184) (0.07589) (0.08454) (0.07698) (0.06260) (0.06124) (0.06905)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Total Return..... 4.59% 2.82% 3.25% 5.19% 7.64% 8.71% 7.76% 6.28% 6.30% 7.04%
Ratios/Supplemental
Data
Net Assets, End
of Period
(in millions).. $ 824.58 $ 736.08 $ 784.02 $ 574.27 $ 471.32 $ 432.37 $ 369.69 $ 321.27 $ 373.38 $ 174.21
Ratio of Net
Operating
Expenses to
Average Net
Assets......... 0.49% 0.51% 0.51% 0.51% 0.52% 0.55% 0.56% 0.55% 0.56% 0.60%/2/
Ratio of Gross
Operating
Expenses to
Average Net
Assets......... 0.52% 0.51% 0.51% 0.51% 0.52% 0.55% 0.56% 0.55% 0.56% 0.74%/2/
Ratio of Net
Income to
Average Net
Assets......... 4.49% 2.78% 3.21% 5.11% 7.56% 8.42% 7.71% 6.25% 6.05% 7.41%/2/
</TABLE>
-------
1.Inception date of the Fund was May 3, 1985.
2. Annualized.
4
<PAGE>
GOVERNMENT MONEY FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986/1/
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Income From
Investment
Operations
Net Investment
Income......... 0.04397 0.02736 0.03205 0.05069 0.07379 0.08379 0.07498 0.06111 0.05941 0.06560
Net Gains or
(Losses) on
Securities
(both realized
and
unrealized).... 0.00000 0.00000 0.00000 0.00002 0.00008 0.00000 0.00000 (0.00002) 0.00000 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total From
Investment
Operations..... 0.04397 0.02736 0.03205 0.05071 0.07387 0.08379 0.07498 0.06109 0.05941 0.06560
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less
Distributions
Dividends From
Net Investment
Income......... (0.04397) (0.02736) (0.03205) (0.05069) (0.07379) (0.08379) (0.07498) (0.06111) (0.05941) (0.06560)
Distributions
From Net
Realized Gain
on Investments. 0.00000 0.00000 0.00000 (0.00005) (0.00005) (0.00001) 0.00000 (0.00023) (0.00016) 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total
Distributions.. (0.04397) (0.02736) (0.03205) (0.05074) (0.07384) (0.08380) (0.07498) (0.06134) (0.05957) (0.06686)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Total Return..... 4.49% 2.77% 3.20% 5.09% 7.31% 8.30% 7.49% 6.44% 6.11% 6.92%
Ratios/Supplemental
Data
Net Assets, End
of Period
(in millions).. $ 725.77 $1,034.94 $ 710.49 $ 740.69 $ 700.22 $ 392.02 $ 241.13 $ 198.32 $ 191.51 $ 63.16
Ratio of Net
Operating
Expenses to
Average Net
Assets......... 0.50% 0.50% 0.50% 0.50% 0.50% 0.57% 0.57% 0.56% 0.56% 0.62%/2/
Ratio of Gross
Operating
Expenses to
Average Net
Assets......... 0.53% 0.50% 0.50% 0.50% 0.50% 0.57% 0.57% 0.56% 0.56% 0.77%/2/
Ratio of Net
Income to
Average Net
Assets......... 4.38% 2.74% 3.20% 5.09% 7.31% 8.30% 7.49% 6.10% 5.81% 7.26%/2/
</TABLE>
-------
NOTES:
1.Inception date of the Fund was May 8, 1985.
2.Annualized.
5
<PAGE>
SHORT-TERM TAX-EXEMPT FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986/1/
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Income From
Investment
Operations
Net Investment
Income......... 0.02825 0.01938 0.02395 0.03849 0.05292 0.05808 0.05348 0.04572 0.04233 0.04171
Net Gains or
(Losses) on
Securities
(both realized
and
unrealized).... 0.00000 0.00000 0.00000 0.00000 (0.00001) 0.00000 0.00000 0.00000 0.00000 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total From
Investment
Operations..... 0.02825 0.01938 0.02395 0.03849 0.05291 0.05808 0.05348 0.04572 0.04233 0.04171
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less
Distributions
Dividends From
Net Investment
Income......... (0.02825) (0.01938) (0.02395) (0.03849) (0.05292) (0.05808) (0.05348) (0.04572) (0.04233) (0.04171)
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.. (0.02825) (0.01938) (0.02395) (0.03849) (0.05292) (0.05808) (0.05348) (0.04572) (0.04233) (0.04238)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Total Return..... 2.86% 1.96% 2.42% 3.92% 5.42% 5.97% 5.48% 4.67% 4.32% 4.99%
Ratios/Supplemental
Data
Net Assets, End
of Period
(in millions).. $ 814.89 $ 694.58 $ 659.33 $ 666.35 $ 662.34 $ 600.06 $ 525.30 $ 580.98 $ 561.08 $ 296.73
Ratio of Net
Operating
Expenses to
Average Net
Assets......... 0.49% 0.52% 0.52% 0.52% 0.53% 0.55% 0.53% 0.52% 0.54% 0.64%/2/
Ratio of Gross
Operating
Expenses to
Average Net
Assets......... 0.52% 0.52% 0.52% 0.52% 0.53% 0.55% 0.53% 0.52% 0.54% 0.75%/2/
Ratio of Net
Income to
Average Net
Assets......... 2.85% 1.94% 2.39% 3.84% 5.28% 5.79% 5.33% 4.58% 4.18% 5.28%/2/
</TABLE>
-------
NOTES:
1. Inception date of the Fund was May 24, 1985.
2. Annualized.
6
<PAGE>
TREASURY MONEY FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------
1995 1994 1993 1992 1991/1/
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Income From Investment
Operations
Net Investment Income. 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 0.00036 0.00001
--------- --------- --------- --------- ---------
Total From Investment
Operations........... 0.04165 0.02590 0.02987 0.04767 0.00783
--------- --------- --------- --------- ---------
Less Distributions
Dividends From Net
Investment Income.... (0.04165) (0.02590) (0.02987) (0.04731) (0.00782)
Distributions From Net
Realized Gain on
Investments.......... 0.00000 0.00000 (0.00030) (0.00011) 0.00000
--------- --------- --------- --------- ---------
Total Distributions... (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
========= ========= ========= ========= =========
Total Return............ 4.25% 2.62% 3.06% 4.85% 0.78%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions). $ 196.93 $ 254.68 $ 227.79 $ 172.29 $ 110.37
Ratio of Net Operating
Expenses to Average
Net Assets........... 0.55% 0.58% 0.58% 0.52% 0.09%/2/
Ratio of Gross
Operating Expenses to
Average Net Assets... 0.57% 0.58% 0.58% 0.57% 0.60%/2/
Ratio of Net Income to
Average Net Assets... 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.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Investment Adviser uses its best efforts to achieve the investment objec-
tive of each Fund, although its achievement cannot be assured. The investment
objective of each Fund may not be changed without a vote of the holders of a
majority of the particular Fund's outstanding Shares (as defined under "Miscel-
laneous"). Except as noted below in "Investment Limitations," the investment
policies of each Fund may be changed without a vote of the holders of a major-
ity of the outstanding Shares of such Fund.
Each Fund uses the amortized cost method to value securities in its portfolio
and has a dollar-weighted portfolio maturity not exceeding 90 days.
MONEY FUND
The Money Fund's investment objective is to seek as high a level of current
income as is consistent with liquidity and stability of principal. The Fund
will generally invest in money market instruments, such as bank certificates of
deposit, bankers' acceptances, commercial paper (including variable and float-
ing rate instruments) and corporate bonds with remaining maturities of 13
months or less, as well as obligations issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities and repurchase agreements collateral-
ized by such obligations. Additional information about the Fund's policies and
portfolio instruments is set forth below under "Portfolio Instruments and Other
Investment Information."
GOVERNMENT MONEY FUND
The Government Money Fund's investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund will invest in obligations with remaining maturities of 13 months or less
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and repurchase agreements collateralized by such obligations. See "Portfolio
Instruments and Other Investment Information" for information on other portfo-
lio instruments in which the Fund may invest.
TREASURY MONEY FUND
The Treasury Money Fund's investment objective is to seek current income with
liquidity and stability of principal. The Fund invests primarily in direct ob-
ligations of the U.S. Treasury with remaining maturities of 13 months or less,
such as Treasury bills and notes. Under normal market conditions, the Fund will
invest at least 65% of its total assets in direct U.S. Treasury obligations.
The Fund may also from time to time invest in obligations with remaining matu-
rities of 13 months or less issued or guaranteed as to principal and interest
by certain agencies or instrumentalities of the U.S. Government, such as the
Farm Credit System Financial Assistance Corporation, Federal Financing Bank,
General Services Administration, Federal Home Loan Banks, Farm Credit System,
Tennessee Valley Authority and the Student Loan Marketing Association. Income
on direct investments in U.S. Treasury securities and obligations of the afore-
mentioned agencies and instrumentalities is generally not subject to state and
local income taxes by reason of Federal law. In addition, the Fund's dividends
from income that is attributable to such investments will also be exempt in
most states from state and local income taxes. Shareholders in a particular
state should determine through consultation with their own tax advisors whether
and to what extent dividends payable by the Treasury Money Fund from its in-
vestments will be considered by the state to have retained exempt status, and
whether the Fund's capital gain and other income, if any, when distributed will
be subject to the state's income tax. See "Taxes--State and Local." The Trea-
sury Money Fund will not enter into repurchase agreements.
SHORT-TERM FUND
The Short-Term Fund's investment objective is to seek a moderate level of cur-
rent interest income exempt from Federal income taxes consistent with stability
of principal. The Fund will invest substantially all of its assets in high-
quality debt obligations exempt from Federal income tax issued by or on behalf
of states, territories, and possessions of the United
8
<PAGE>
States, the District of Columbia, and their authorities, agencies, instrumen-
talities, and political subdivisions ("Municipal Securities"). Portfolio secu-
rities in the Fund will generally have remaining maturities of not more than
13 months. (See "Portfolio Instruments and Other Investment Information.")
The Short-Term Fund is designed for investors in relatively high tax brackets
who are seeking a moderate amount of tax-free income with stability of princi-
pal and less price volatility than would normally be associated with interme-
diate-term and long-term Municipal Securities.
The Short-Term Fund invests in Municipal Securities which are determined by
the Investment Adviser to present minimal credit risks. As a matter of funda-
mental policy, except during temporary defensive periods, the Fund will main-
tain at least 80% of its assets in tax-exempt obligations. (This policy may
not be changed with respect to the Fund without the vote of the holders of a
majority of its outstanding Shares). However, from time to time on a temporary
defensive basis due to market conditions, the Short-Term Fund may hold
uninvested cash reserves or invest in taxable obligations in such proportions
as, in the opinion of the Investment Adviser, prevailing market or economic
conditions may warrant. Uninvested cash reserves will not earn income. Should
the Fund invest in taxable obligations, it would purchase: (i) obligations of
the U.S. Treasury; (ii) obligations of agencies and instrumentalities of the
U.S. Government; (iii) money market instruments such as certificates of depos-
it, commercial paper, and bankers' acceptances; (iv) repurchase agreements
collateralized by U.S. Government obligations or other money market instru-
ments; or (v) securities issued by other investment companies that invest in
high-quality, short-term securities.
The Short-Term Fund 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 the Fund's total assets when added together with any
taxable investments by the Fund.
Although the Short-Term Fund does not presently intend to do so on a regular
basis, it may invest more than 25% of its assets in Municipal Securities the
interest on which is paid solely from revenues of similar projects, if such
investment is deemed necessary or appropriate by the Investment Adviser. To
the extent that the Fund's assets are concentrated in Municipal Securities
payable from revenues on similar projects, the Fund will be subject to the pe-
culiar risks presented by such projects to a greater extent than it would be
if the Fund's assets were not so concentrated.
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION
GOVERNMENT OBLIGATIONS
Government obligations acquired by the Money, Government Money, Treasury
Money and Short-Term Funds include obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities. Such investments may in-
clude obligations issued by the Farm Credit System Financial Assistance Corpo-
ration, the Federal Financing Bank, the General Services Administration, Fed-
eral Home Loan Banks, the Tennessee Valley Authority and the Student Loan Mar-
keting Association. Obligations of certain agencies and instrumentalities of
the U.S. Government are supported by the full faith and credit of the U.S.
Treasury; others are supported by the right of the issuer to borrow from the
Treasury; others are supported by the discretionary authority of the U.S. Gov-
ernment to purchase the agency's obligations; still others are supported only
by the credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored in-
strumentalities 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.
9
<PAGE>
Securities issued or guaranteed by the U.S. Government have historically in-
volved little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns shares of a Fund.
As stated above, the Treasury Money Fund will purchase primarily direct obli-
gations of the U.S. Treasury and obligations of those agencies or 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 Mon-
ey, and Short-Term Funds in accordance with their investment objectives and
policies stated above include, among other things, bank obligations, commercial
paper and corporate bonds with remaining maturities of 13 months or less.
Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"),
or by a savings and loan association or savings bank which is insured by the
Savings Association Insurance Fund of FDIC. Bank obligations acquired by the
Money Fund may also include U.S. dollar-denominated obligations of foreign
branches of U.S. banks and obligations of domestic branches of foreign banks.
Investments in bank obligations are limited to the obligations of financial in-
stitutions having more than $2 billion in total assets at the time of purchase.
Investments in bank obligations of foreign branches of domestic financial in-
stitutions or of domestic branches of foreign banks are limited so that no more
than 5% of the value of the Fund's total assets may be invested in any one
branch, and that no more than 20% of the Fund's total assets at the time of
purchase may be invested in the aggregate in such obligations. Investments in
non-negotiable time deposits are limited to no more than 5% of the value of a
Fund's total assets at time of purchase, and are further subject to the overall
10% limit on illiquid securities.
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 impo-
sition of withholding taxes on interest income, possible seizure or national-
ization of foreign deposits, the possible establishment of exchange controls,
or the adoption of other foreign governmental restrictions which might ad-
versely affect the payment of principal and interest on such obligations. In
addition, foreign branches of U.S. banks and U.S. branches of foreign banks may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting, and recordkeeping standards than those applicable to do-
mestic 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 instrument
purchased by a Fund, the Fund may, from time to time as specified in the in-
strument, demand payment of the principal of the instrument or may resell the
instrument to a third party. The absence of an active secondary market, howev-
er, could make it difficult for a Fund to dispose of the instrument if the is-
suer 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 date of pur-
chase,
10
<PAGE>
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 Instruments--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 rating catego-
ries of an NRSRO, provided that if they are rated by more than one Nationally
Recognized Statistical Rating Organization ("NRSRO"), at least one other NRSRO
rates them in one of its two highest categories; and (ii) unrated securities
determined to be of comparable quality at the time of purchase (collectively,
"Eligible Securities"). Except for the Short-Term Fund, a Fund may not invest
more than 5% of its assets in Eligible Securities that are not "First Tier Se-
curities" (as defined below under "Diversification Requirements"). The rating
symbols of the NRSROs which the Fund may use are described in the Appendix to
the Statement of Additional Information.
REPURCHASE AGREEMENTS
The Money, Government Money and Short-Term Funds may agree to purchase portfo-
lio securities subject to the seller's agreement to repurchase them at a mutu-
ally 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. No Fund will enter into repurchase agreements with
the Investment Adviser or any of its affiliates. Repurchase agreements with re-
maining maturities in excess of seven days will be considered illiquid securi-
ties and will be subject to the 10% limit applicable to such securities (see
"Investment Limitations" in the Statement of Additional Information).
The seller under a repurchase agreement will be required to maintain the value
of the securities which are subject to the agreement and held by a Fund at not
less than the repurchase price. Default or bankruptcy of the seller would, how-
ever, expose a Fund to possible delay in connection with the disposition of the
underlying securities or loss to the extent that proceeds from a sale of the
underlying securities were less than the repurchase price under the agreement.
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. Gov-
ernment, 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 as-
sets. There may be risks of delay in receiving additional collateral or in re-
covering 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.
INVESTMENT COMPANY SECURITIES
In connection with the management of their daily cash positions, the Funds may
invest in securities
11
<PAGE>
issued by other investment companies which invest in high-quality, short-term
securities and which determine their net asset value per share based on the
amortized cost or penny-rounding method. The Short-Term Fund will invest in
securities of investment companies only if such companies invest primarily in
high-quality, short-term Municipal Securities. The Government Money and Trea-
sury Money Funds intend to limit their acquisition of shares of other invest-
ment companies to those companies which are themselves permitted to invest
only in securities which may be acquired by the respective Funds. Securities
of other investment companies will be acquired by a Fund within the limits
prescribed by the Investment Company Act of 1940 (the "1940 Act"). Each Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group; and (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund. In addition to the advisory fees and other expenses a Fund
bears directly in connection with its own operations, as a shareholder of an-
other 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 in-
vestment 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.
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities which may be held
by the Short-Term Fund are "general obligation" securities and "revenue" secu-
rities. 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 the
user of the facility being financed. Private activity obligations are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity revenue obli-
gations is usually directly related to the credit standing of the corporate
user of the facility involved.
The Short-Term Fund's portfolio may also include "moral obligation" securi-
ties, which are normally issued by special-purpose public authorities. If the
issuer of moral obligation securities is unable to meet its debt service obli-
gations from current revenues, it may draw on a reserve fund the restoration
of which is a moral commitment but not a legal obligation of the state or mu-
nicipality which created the issuer. There is no limitation on the amount of
moral obligation securities that may be held by the Fund.
The Short-Term Fund may also purchase custodial receipts evidencing the right
to receive either the principal amount or the periodic interest payments or
both with respect to specific underlying Municipal Securities. In general,
such "stripped" Municipal Securities are offered at a substantial discount in
relation to the principal and/or interest payments which the holders of the
receipt will receive. To the extent that such discount does not produce a
yield to maturity for the investor that exceeds the original tax-exempt yield
on the underlying Municipal Security, such yield will be exempt from Federal
income tax for such investor to the same extent as interest on the underlying
Municipal Security. The Short-Term Fund intends to purchase custodial receipts
and "stripped" Municipal Securities only when the yield thereon will be, as
described above, exempt from Federal income tax to the same extent as interest
on the underlying Municipal Securities. "Stripped" Municipal Securities are
considered illiquid securities subject to the Fund's 10% restriction on in-
vestments in illiquid securities.
12
<PAGE>
WHEN-ISSUED AND FORWARD TRANSACTIONS AND STAND-BY COMMITMENTS
The Funds may purchase eligible securities on a "when-issued" basis and may
purchase or sell such securities on a "forward commitment" basis. These trans-
actions involve a commitment by a Fund to purchase or sell particular securi-
ties with payment and delivery taking place in the future beyond the normal
settlement date at a stated price and yield. Securities purchased on a "for-
ward commitment" or "when-issued" basis are recorded as an asset and are sub-
ject to changes in value based upon changes in the general level of interest
rates. Absent unusual market conditions, "forward commitments" and "when-
issued" purchases will not exceed 25% of the value of a Fund's total assets,
and the length of such commitments will not exceed 45 days. The Funds do not
intend to engage in "when-issued" purchases or "forward commitments" for spec-
ulative purposes, but only in furtherance of their investment objectives.
In addition, the Short-Term Fund may acquire "stand-by commitments" with re-
spect 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 Short-Term Fund will acquire "stand-by commitments"
solely to facilitate portfolio liquidity and does not intend to exercise its
rights thereunder for trading purposes. "Stand-by commitments" acquired by the
Short-Term Fund would be valued at zero in determining the Fund's net asset
value. Further information concerning "stand-by commitments" is contained in
the Statement of Additional Information under "Additional Information on Port-
folio Instruments."
ILLIQUID SECURITIES
No fund will knowingly invest more than 10% of the value of its net assets in
securities that are illiquid. Each Fund may purchase securities which are not
registered under the Securities Act of 1933 (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 deter-
mined by the Investment Adviser, acting under guidelines approved and moni-
tored by the Board, that an adequate trading market exists for that security.
This investment practice could have the effect of increasing the level of il-
liquidity in a Fund during any period that qualified institutional buyers be-
come uninterested in purchasing these restricted securities.
DIVERSIFICATION REQUIREMENTS
Each Fund other than the Short-Term Fund will limit its purchases of any one
issuer's securities (other than U.S. Government obligations and customary de-
mand deposits) to 5% of the Fund's total assets, except that it may invest
more than 5% (but no more than 25%) of its total assets in "First Tier Securi-
ties" of one issuer for a period of up to three business days. First Tier Se-
curities include: (i) securities in the highest rating category by the only
NRSRO rating them, (ii) securities in the highest rating category of at least
two NRSROs, if more than one NRSRO has rated them, (iii) securities that have
no short-term rating, but have been issued by an issuer that has other out-
standing short-term obligations that have been rated in accordance with (i) or
(ii) above and are comparable in priority and security to such securities, and
(iv) certain unrated securities that have been determined to be of comparable
quality to such securities. In addition, each Fund other than the Short-Term
Fund will limit its purchases of "Second Tier Securities" (Eligible Securities
that are not First Tier Securities) of one issuer to the greater of 1% of its
total assets or $1 million.
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").
13
<PAGE>
No Fund may:
1. Purchase securities of any one issuer, other than U.S. Government obliga-
tions, if immediately after such purchase more than 5% of the value of its
total assets would be invested in the securities of such issuer, except that
up to 25% of the value of its total assets may be invested without regard to
this 5% limitation; and
2. Borrow money except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing. (This borrowing provision is included solely to fa-
cilitate the orderly sale of portfolio securities to accommodate abnormally
heavy redemption requests and is not for leverage purposes.) A Fund will not
purchase portfolio securities while borrowings in excess of 5% of its total
assets are outstanding.
The Treasury Money Fund may not:
Purchase securities other than obligations issued or guaranteed by the U.S.
Treasury or an agency or instrumentality of the U.S. Government and securities
issued by investment companies that invest in such obligations.
* * *
If a percentage limitation is satisfied at the time of investment, a later
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 limita-
tion.
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 Funds are subject to additional investment limitations which are deemed
matters of their fundamental policies and, as such, may not be changed without
a requisite shareholder vote. Among such limitations are a prohibition on con-
centrating investments in a particular industry or group of industries and a
policy of limiting investments in illiquid securities to 10% of a Fund's as-
sets. For a full description of the Funds' additional fundamental investment
limitations, see the Statement of Additional Information.
PRICING OF SHARES
The net asset value of each Fund is determined and the Shares of each Fund
are priced for purchases and redemptions as of 1:00 p.m. (Eastern Time) and
the close of regular trading hours on the New York Stock Exchange (the "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. Net asset value per Share for purposes of
pricing sales and redemptions is calculated by dividing the value of all secu-
rities 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.
14
<PAGE>
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are continuously offered for sale by the Companies' spon-
sor and distributor, Edgewood Services, Inc. (the "Distributor"), a wholly-
owned subsidiary of Federated Investors. The Distributor is a registered
broker/dealer. Its principal offices are at Federated Investors Tower, 1001
Liberty Avenue, Pittsburgh, PA 15222-3779.
PURCHASE OF SHARES
Shares in each Fund are offered without any purchase or redemption charge im-
posed by the Companies. The Distributor has established several procedures for
purchasing Shares in order to accommodate different types of investors.
Shares may be purchased directly by individuals ("Direct Investors") or by in-
stitutions ("Institutional Investors" and, collectively with Direct Investors,
"Investors"). Shares may also be purchased by customers ("Customers") of the
Investment Adviser, its affiliates and correspondent banks, and other institu-
tions ("Shareholder Organizations") that have entered into shareholder servic-
ing agreements with one of the Companies. A Shareholder Organization may elect
to hold of record Shares for its Customers and to record beneficial ownership
of Shares on the account statements provided by it to its Customers. If it does
so, it is the Shareholder Organization's responsibility to transmit to the Dis-
tributor all purchase orders for its Customers and to transmit, on a timely ba-
sis, payment for such orders to Mutual Funds Service Company ("MFSC"), the
Funds' sub-transfer agent, in accordance with the procedures agreed to by the
Shareholder Organization and the Distributor. Confirmations of all such Cus-
tomer purchases and redemptions will be sent by MFSC to the particular Share-
holder Organization. As an alternative, a Shareholder Organization may elect to
establish its Customers' accounts of record with MFSC. In this event, even if
the Shareholder Organization continues to place its Customers' purchase and re-
demption orders with the Funds, MFSC will send confirmations of such transac-
tions and periodic account statements directly to Customers. A Shareholder Or-
ganization may also elect to establish its Customers as record holders.
The Companies enter into shareholder servicing agreements with Shareholder Or-
ganizations which agree to provide their Customers various shareholder adminis-
trative services with respect to their Shares (hereinafter referred to as
"Service Organizations"). See "Management of the Funds--Service 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 in accordance with procedures described below un-
der "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 UST Master Funds, to:
UST Master Funds
c/o Mutual Funds Service Company
P.O. Box 2798
Boston, MA 02208-2798
15
<PAGE>
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 UST Master 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 MFSC;
or (c) a letter stating the amount of the investment, the name of the Fund and
the account number in which the investment is to be made. Institutional Invest-
ors may purchase Shares by transmitting their purchase orders to MFSC by tele-
phone at (800) 446-1012 or by terminal access. Institutional Investors must pay
for Shares with Federal funds or funds immediately available to MFSC.
Purchases by Wire
Investors may also purchase Shares by wiring Federal funds to MFSC. Prior to
making an initial investment by wire, an Investor must telephone MFSC 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:
United States Trust Company of New York
ABA #021001318
UST Funds, Account No. 2901447
For further credit to:
Wire Control Number
UST Master Funds
Account Registration (including account number)
Investors making initial investments by wire must promptly complete the Appli-
cation accompanying this Prospectus and forward it to MFSC. Redemptions by In-
vestors will not be processed until the completed Application for purchase of
Shares has been received by MFSC and accepted by the Distributor. Investors
making subsequent investments by wire should follow the above instructions.
Other Purchase Information
Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500 per Fund. The minimum subse-
quent investment for both types of investors is $50 per Fund. Customers may
agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may charge a Customer's account fees for auto-
matic investment and other cash management services provided. The Companies re-
serve the right to reject any purchase order, in whole or in part, or to waive
any minimum investment requirements.
REDEMPTION PROCEDURES
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 MFSC and
credit such Customer accounts with the redemption proceeds on a timely basis.
Redemption orders for Institutional Investors must be transmitted to MFSC by
telephone at (800) 446-1012 or by terminal access. No charge for wiring redemp-
tion payments to Shareholder Organizations or Institutional Investors is im-
posed by the Companies, although Shareholder Organizations may charge a Custom-
er's account for wiring redemption proceeds. Information relating to such re-
demption services and charges, if any, is available from the Shareholder Orga-
nizations. An investor redeeming Shares through a registered investment adviser
or certified financial planner may incur transaction charges in connection with
such redemptions. Such investors should contact their registered investment ad-
viser or certified financial planner for further information on transaction
fees. Investors may redeem all or part of their Shares in accordance with any
of the procedures described below (these procedures also apply to Customers of
Shareholder Organizations for whom individual accounts have been established
with MFSC).
16
<PAGE>
Redemption by Mail
Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:
UST Master Funds
c/o Mutual Funds Service Company
P.O. Box 2798
Boston, MA 02208-2798
A written redemption request to MFSC must (i) state the number of Shares to be
redeemed, (ii) identify the shareholder account number and tax identification
number, and (iii) be signed by each registered owner exactly as the Shares are
registered. If the Shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or accompanied by a duly executed
stock power) and must be submitted to MFSC together with the redemption re-
quest. A redemption request for an amount in excess of $50,000 per account, or
for any amount if the proceeds are to be sent elsewhere than the address of
record, must be accompanied by signature guarantees from an eligible guarantor
institution approved by MFSC 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 MFSC pursuant to the Sig-
nature Guarantee Guidelines. Copies of the Signature Guarantee Guidelines and
information on STAMP can be obtained from MFSC at (800) 446-1012 or at the ad-
dress given above. MFSC may require additional supporting documents for redemp-
tions made by corporations, executors, administrators, trustees and guardians.
A redemption request will not be deemed to be properly received until MFSC re-
ceives all required documents in proper form. Payment for Shares redeemed will
ordinarily be made by mail within five Business Days after proper receipt by
MFSC of the redemption request. Questions with respect to the proper form for
redemption requests should be directed to MFSC 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 MFSC 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 MFSC by
telephone to mail a check for redemption proceeds of $500 or more to the share-
holder of record at his or her address of record. Institutional Investors may
also have their Shares redeemed by wire by instructing MFSC 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. An $8.00 fee for each wire redemption by
a Direct Investor is deducted by MFSC from the proceeds of the redemption. The
redemption proceeds for Direct Investors must be paid to the same bank and ac-
count as designated on the Application or in written instructions subsequently
received by MFSC.
Investors may request that Shares be redeemed and redemption proceeds wired on
the same day if telephone redemption instructions are received by 1:00 p.m.
(Eastern Time) on the day of redemption. Shares redeemed and wired on the same
day will not receive the dividend declared on the day of redemption. Redemption
requests made after 1:00 p.m. (Eastern Time) will receive the dividend declared
on the day of redemption, and redemption proceeds will be wired the following
Business Day. To request redemption of Shares by wire, Direct Investors should
call MFSC 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
17
<PAGE>
proceeds, a Direct Investor must send a written request to the Companies, c/o
MFSC, at the address listed above under "Redemption by Mail." Such request
must be signed by the Direct Investor, with signature guaranteed (see "Redemp-
tion by Mail" above, for details regarding signature guarantees). Further doc-
umentation may be requested.
MFSC and the Distributor reserve the right to refuse a wire or telephone re-
demption if it is believed advisable to do so. Procedures for redeeming Shares
by wire or telephone may be modified or terminated at any time by the Compa-
nies, MFSC or the Distributor. THE COMPANIES, MFSC AND THE DISTRIBUTOR WILL
NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING UPON TELE-
PHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING
TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, THE COMPANIES WILL USE
SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE IN-
STRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
During periods of substantial economic or market change, telephone redemp-
tions may be difficult to complete. If an Investor is unable to contact MFSC
by telephone, the Investor may also deliver the redemption request to MFSC in
writing at the address noted above under "How to Purchase and Redeem Shares--
Redemption by Mail."
Redemption by Check
Except as described in "Investor Programs" below, Direct Investors in the
Funds may redeem Shares, without charge, by check drawn on the Direct Invest-
or's particular Fund account. Checks may be made payable to the order of any
person or organization designated by the Direct Investor and must be for
amounts of $500 or more. Direct Investors will continue to earn dividends on
the Shares to be redeemed until the check clears at United States Trust Com-
pany of New York.
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 MFSC, 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 MFSC 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 MFSC reserve the right not to honor the re-
demption until MFSC 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 MFSC 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
18
<PAGE>
to the Fund remains below $500. If a Customer has agreed with a particular
Shareholder Organization to maintain a minimum balance in his or her account at
the institution with respect to Shares of a Fund, and the balance in such ac-
count falls below that minimum, the Customer may be obliged by the Shareholder
Organization to redeem all or part of his or her Shares to the extent necessary
to maintain the required minimum balance.
The Companies may also redeem Shares involuntarily or make payment for redemp-
tion in securities if it appears appropriate to do so in light of the Compa-
nies' responsibilities under the Investment Company Act of 1940.
EFFECTIVE TIME OF PURCHASES AND REDEMPTIONS
Purchase orders for Shares which are received and accepted 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 MFSC re-
ceives payment in Federal funds prior to the close of regular trading hours on
the Exchange (currently 4:00 p.m., Eastern Time). Purchase orders received and
accepted 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 begin re-
ceiving dividends the following day. Purchase orders for Shares made by Direct
Investors are not effective until the amount to be invested has been converted
to Federal funds. In those cases in which a Direct Investor pays for Shares by
check, Federal funds will generally become available two Business Days after a
purchase order is received. In certain circumstances, the Companies may not re-
quire that amounts invested by Shareholder Organizations on behalf of their
Customers or by Institutional Investors be converted into Federal funds. Re-
demption 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, provided that such other shares may legally
be sold in the state of the Investor's residence.
Master Fund currently offers, in addition to the Money Fund, Government Money
Fund and Treasury Money Fund, 17 diversified portfolios:
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 through invest-
ments in investment grade debt obligations, U.S. Government obligations and
money market instruments;
Equity Fund, a fund seeking primarily long-term capital appreciation through
investments in a diversified portfolio of primarily equity securities;
Income and Growth Fund, a fund investing substantially in equity securities
in seeking to provide moderate current income and to achieve capital appreci-
ation as a secondary objective;
Long-Term Supply of Energy Fund, a fund seeking long-term capital apprecia-
tion by investing in companies benefitting from the availability, develop-
19
<PAGE>
ment and delivery of secure hydrocarbon and other energy sources;
Productivity Enhancers Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their roles as innovators, devel-
opers and suppliers of goods and services which enhance service and manufac-
turing productivity or companies that are most effective at obtaining and ap-
plying productivity enhancement developments;
Environmentally-Related Products and Services Fund, a fund seeking long-term
capital appreciation by investing in companies benefitting from their provi-
sion of products, technologies and services related to conservation, protec-
tion and restoration of the environment;
Aging of America Fund, a fund seeking long-term capital appreciation by in-
vesting in companies benefitting from the changes occurring in the demo-
graphic structure of the U.S. population, particularly of its growing popula-
tion of individuals over the age of 40;
Communication and Entertainment Fund, a fund seeking long-term capital ap-
preciation by investing in companies benefitting from the technological and
international transformation of the communications and entertainment indus-
tries, particularly the convergence of information, communication and enter-
tainment media;
Business and Industrial Restructuring Fund, a fund seeking long-term capital
appreciation by investing in companies benefitting from their restructuring
or redeployment of assets and operations in order to become more competitive
or profitable;
Global Competitors Fund, a fund seeking long-term capital appreciation by
investing in U.S.-based companies benefitting from their position as effec-
tive and strong competitors on a global basis;
Early Life Cycle Fund, a fund seeking long-term capital appreciation by in-
vesting in smaller companies in the earlier stages of their development or
larger or more mature companies engaged in new and higher growth potential
operations;
International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;
Emerging Americas Fund, a fund seeking long-term capital appreciation
through investments in companies and securities of governments based in all
countries in the Western Hemisphere, except the U.S.;
Pacific/Asia Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Asia and on the
Asian side of the Pacific Ocean; and
Pan European Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments located in Europe.
Master Tax-Exempt Fund currently offers, in addition to the Short-Term Fund,
4 other portfolios:
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 three to ten years;
Long-Term Tax-Exempt Fund, a diversified fund attempting to maximize over
time current income exempt from Federal income taxes, investing primarily in
municipal obligations and having a dollar-weighted average portfolio maturity
of 10 to 30 years; and
New York Intermediate-Term Tax-Exempt Fund, a non-diversified fund designed
to provide New York investors with a high level of current income exempt from
Federal and, to the extent possible, New York
20
<PAGE>
state and New York City income taxes; this fund invests primarily in New York
municipal obligations and has a dollar-weighted average portfolio maturity of
three to ten years.
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. The redemption will be made at the per Share net asset value of
the Shares being redeemed next determined after the exchange request is re-
ceived. The Shares of the portfolio to be acquired will be purchased at the per
share net asset value of those shares (plus any applicable sales load) next de-
termined after acceptance of the exchange request.
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 should request and review
the prospectuses of such funds. Such prospectuses may be obtained by calling
the numbers listed above. The Companies may modify or terminate the exchange
program at any time upon 60 days' written notice to shareholders, and may re-
ject any exchange request in the amount exceeding $100,000. In order to prevent
abuse of this privilege to the disadvantage of other shareholders, Master Fund
and Master Tax-Exempt Fund 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, MFSC AND THE DISTRIBUTOR ARE NOT RESPONSIBLE
FOR THE AUTHENTICITY OF EXCHANGE REQUESTS RECEIVED BY TELEPHONE THAT ARE REA-
SONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM THAT TELEPHONE IN-
STRUCTIONS ARE GENUINE, THE COMPANIES WILL USE SUCH PROCEDURES AS ARE CONSID-
ERED REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS AND REQUESTING INFORMA-
TION AS TO ACCOUNT REGISTRATION.
SYSTEMATIC WITHDRAWAL PLAN
An Investor who owns Shares of a Fund with a value of $10,000 or more may es-
tablish a Systematic Withdrawal Plan. The Investor may request a declining-bal-
ance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an investor must complete the Supplemental Applica-
tion contained in this Prospectus and mail it to MFSC at the address given
above. Further information on establishing a Systematic Withdrawal Plan may be
obtained by calling (800) 446-1012 (from overseas, call (617) 557-8280).
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 institutions.
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 individu-
als and their spouses;
Profit Sharing and Money-Purchase Plans for corporations and self-employed
individuals and their partners to benefit themselves and their employees;
and
Keogh Plans for self-employed individuals.
Investors investing in the Funds pursuant to Profit Sharing and Money-Purchase
Plans and Keogh Plans are not subject to the minimum investment and forced re-
demption provisions described above. The minimum initial investment for IRAs is
$250 per
21
<PAGE>
Fund and the minimum subsequent investment is $50 per Fund. Detailed informa-
tion concerning eligibility, service fees and other matters related to these
plans can be obtained by calling (800) 446-1012 (from overseas, call (617) 557-
8280). Customers of Shareholder Organizations may purchase Shares of the Funds
pursuant to retirement plans if such plans are offered by their Shareholder Or-
ganizations.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits Investors to purchase Shares (minimum
of $50 per Fund per transaction) at regular intervals selected by the Investor.
The minimum initial investment for an Automatic Investment Program account is
$50 per Fund. Provided the Investor's financial institution allows automatic
withdrawals, Shares are purchased by transferring funds from an Investor's
checking, bank money market or NOW account designated by the Investor. At the
Investor's option, the account designated will be debited in the specified
amount, and Shares will be purchased, once a month, on either the first or fif-
teenth day, or twice a month, on both days.
To establish an Automatic Investment account, an Investor must complete the
Supplemental Application contained in this Prospectus and mail it to MFSC. An
Investor may cancel his participation in this Program or change the amount of
purchase at any time by mailing written notification to MFSC, P.O. Box 2798,
Boston, MA 02208-2798 and notification will be effective three Business Days
following receipt. The Companies may modify or terminate this privilege at any
time or charge a service fee, although no such fee currently is contemplated.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Funds is declared daily as a dividend to the
persons who are shareholders of the respective Funds immediately after the
1:00 p.m. pricing of Shares on the day of declaration. All such dividends are
paid within ten days after the end of each month or within seven days after the
redemption of all of a shareholder's Shares of a Fund. For dividend purposes, a
Fund's investment income is reduced by accrued expenses directly attributable
to that Fund and the general expenses of the Companies prorated to that Fund on
the basis of its relative net assets. Net realized capital gains, if any, are
distributed at least annually.
All dividends and distributions paid on Shares held of record by the Invest-
ment Adviser and its affiliates or correspondent banks will be paid in cash.
Direct and Institutional Investors and Customers of other Shareholder Organiza-
tions will receive dividends and distributions in additional Shares of the Fund
on which the dividend is paid or the distribution made (as determined on the
payable date), unless they have requested in writing (received by MFSC at the
Companies' address prior to the payment date) to receive dividends and distri-
butions in cash. Reinvested dividends and distributions receive the same tax
treatment as those paid in cash.
TAXES
FEDERAL
Each of the Funds qualified for their 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 under the Code requires, among
other things, that a Fund distribute to its shareholders an amount equal to at
least the sum of 90% of its investment company taxable income and 90% of its
exempt-interest income (if any) net of certain deductions for each taxable
year. In general, a Fund's investment company taxable income will be its tax-
able income (including interest) subject to certain adjustments and excluding
22
<PAGE>
the excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. The taxable Funds intend to
distribute substantially all of their investment company taxable income each
year. Such dividends will be taxable as ordinary income to Fund shareholders
who are not currently exempt from Federal income taxes, whether such income is
received in cash or reinvested in additional Shares. (Federal income taxes for
distributions to IRAs and qualifying pension plans are deferred under the
Code.) Because all of each Fund's net investment income is expected to be de-
rived from earned interest, it is anticipated that no part of any distributions
will be eligible for the dividends received deduction for corporations.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by a Fund on December 31 of such
year in the event such dividends are actually paid during January of the fol-
lowing year.
The Short-Term Fund: The Short-Term 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 ex-
empt-interest income ("exempt-interest dividends") may be treated by the Fund's
shareholders as items of interest excludable from their gross income under Sec-
tion 103(a) of the Code, unless, under the circumstances applicable to the par-
ticular shareholder, exclusion would be disallowed. (See Statement of Addi-
tional Information under "Additional Information Concerning Taxes.")
If the Short-Term Fund should hold certain "private activity bonds" issued af-
ter August 7, 1986, the portion of dividends paid by the Fund which are 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 and the environmental
tax applicable to corporations. Corporate shareholders must also take all ex-
empt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of .12% on the excess of
the corporation's modified Federal alternative minimum taxable income over $2
million. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the tax-
ability of such benefits.
Dividends payable by the Short-Term Fund which are derived from taxable income
or from long-term or short-term capital gains will be subject to Federal income
tax, whether such dividends are paid in the form of cash or additional Shares.
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.
Nevertheless in some jurisdictions, exempt-interest dividends and other dis-
tributions paid by the Short-Term Fund may be taxable to shareholders under
23
<PAGE>
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 re-
alized directly, would be exempt from such income taxes.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situa-
tions. Shareholders will be advised annually as to the Federal income tax con-
sequences of distributions made each year.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of the
Companies' Boards of Directors. The Statement of Additional Information con-
tains the names of and general background information concerning the Compa-
nies' directors.
INVESTMENT ADVISER
United States Trust Company of New York serves as the Investment Adviser to
each Fund. U.S. Trust is a state-chartered bank and trust company. The Invest-
ment 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. The Investment
Adviser is a member bank of the Federal Reserve System and the Federal Deposit
Insurance Corporation and is one of the twelve members of the New York Clear-
ing House Association.
On December 31, 1994, the Investment Adviser's Asset Management Group had ap-
proximately $33 billion in assets under management. The Investment Adviser,
which has its principal offices at 114 W. 47th Street, New York, New York
10036, is a subsidiary of U.S. Trust Corporation, a registered bank holding
company.
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 .25% of the average daily net assets of each of the Money,
Government Money and Short-Term Funds. For the services provided and expenses
assumed with respect to the Treasury Money Fund, the Investment Adviser is en-
titled to a fee, computed daily and paid monthly, at the annual rate of .30%
of the Fund's average daily net assets. For the fiscal year ended March 31,
1995, the Investment Adviser received an advisory fee at the effective annual
rates of .22%, .22%, .22% and .28% of the average daily net assets of the Mon-
ey, Government Money, Short-Term and Treasury Money Funds, respectively. For
the same period, the Investment Adviser waived advisory fees at the effective
annual rate of .03%, .03%, .03% and .02% of the average daily net assets of
the Money, Government Money, Short-Term and Treasury Money Fund, respectively.
From time to time, the Investment Adviser may waive (either voluntarily or
pursuant to applicable state expense limitations) all or a portion of the ad-
visory fees payable to it by a Fund, which waiver may be terminated at any
time. See "Management of the Funds--Service Organizations" for additional in-
formation on fee waivers.
ADMINISTRATORS
MFSC and Federated Administrative Services serve as the Funds' administrators
(the "Administrators") and provide them with general administrative and opera-
tional assistance. The Administrators also serve as
24
<PAGE>
administrators of the other portfolios of the Companies, which are also advised
by the Investment Adviser and distributed by the Distributor. For the services
provided to all portfolios of both Companies (except the International, Emerg-
ing Americas, Pacific/Asia and Pan European Funds of Master Fund), the Adminis-
trators are entitled jointly to annual fees, computed daily and paid monthly,
based on the combined aggregate average daily net assets of the Companies (ex-
cluding the International, Emerging Americas, Pacific/Asia and Pan European
Funds) as follows:
<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY
NET ASSETS OF BOTH COMPANIES
(EXCLUDING THE INTERNATIONAL,
EMERGING AMERICAS, PACIFIC/ASIA
AND PAN EUROPEAN FUNDS) ANNUAL FEE
-------------------------------- ----------
<S> <C>
first $200 million.................................................. .200%
next $200 million................................................... .175%
over $400 million................................................... .150%
</TABLE>
Administration fees payable to the Administrators by each portfolio of the
Companies are allocated in proportion to their relative average daily net as-
sets at the time of determination. From time to time, the Administrators may
waive (either voluntarily or pursuant to applicable state expense limitations)
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--Service
Organizations" for additional information on fee waivers. For the fiscal year
ended March 31, 1995, MFSC and Concord Holding Corporation, the former co-ad-
ministrator, received an aggregate administration fee (under the same compensa-
tion arrangements noted above) at the effective annual rate of .154% of the av-
erage daily net assets of each of the Money, Government Money, Treasury Money
and Short-Term Funds, respectively.
SERVICE ORGANIZATIONS
Each Company will enter into an agreement ("Servicing Agreement") with each
Service Organization requiring it to provide administrative support services to
its Customers beneficially owning Shares. As a consideration for the adminis-
trative services provided to Customers, a Fund will pay the Service Organiza-
tion an administrative service fee at the annual rate of up to .40% of the av-
erage daily net asset value of its Shares held by the Service Organization's
Customers. Such services, which are described more fully in the Statement of
Additional Information under "Management of the Funds--Service Organizations,"
may include assisting in processing purchase, exchange and redemption requests;
transmitting and receiving funds in connection with Customer orders to pur-
chase, exchange or redeem Shares; and providing periodic statements. Under the
terms of the Servicing Agreement, Service Organizations will be required to
provide to Customers a schedule of any fees that they may charge in connection
with a Customer's investment. Until further notice, the Investment Adviser and
Administrators have voluntarily agreed to waive fees payable by a Fund in an
amount equal to administrative service fees payable by that Fund.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and prohibit banks generally from issuing, underwriting, selling or distribut-
ing securities such as Shares of the Funds, but such banking laws and regula-
tions do not prohibit such a holding company or affiliate or banks generally
from acting as investment adviser, transfer agent, or custodian to such an in-
vestment company, or from purchasing shares of such company for and upon the
order of customers. The Investment Adviser, MFSC and certain Shareholder Orga-
nizations may be subject to such banking laws and regulations. State securities
laws may differ from the interpretations of Federal law discussed in this para-
graph and banks and financial institutions may be required to register as deal-
ers pursuant to state law.
25
<PAGE>
Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Investment Adviser and such
Shareholder Organizations might be required to alter materially or discontinue
the investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Funds' method of operations would af-
fect their net asset values per Share or result in financial loss to any share-
holder.
DESCRIPTION OF CAPITAL STOCK
Master Fund was organized as a Maryland corporation on August 2, 1984. Cur-
rently, Master Fund has authorized capital of 35 billion shares of Common
Stock, $.001 par value per share, classified into 34 series of shares repre-
senting interests in 20 investment portfolios. Master Fund's Charter authorizes
the Board of Directors to classify or reclassify any class of shares of Master
Fund into one or more classes or series. Shares of Class A, Class B and Class G
represent interests in the Money Fund, Government Money Fund and Treasury Money
Fund Funds, respectively.
Master Tax-Exempt Fund was organized as a Maryland corporation on August 8,
1984. Currently, Master Tax-Exempt Fund has authorized capital of 14 billion
shares of Common Stock, $.001 par value per share, classified into 5 classes of
shares representing 5 investment portfolios currently being offered. Master
Tax-Exempt Fund's Charter authorizes the Board of Directors to classify or re-
classify any class of shares of Master Tax-Exempt Fund into one or more classes
or series. Shares of Class A Common Stock represent interests in the Short-Term
Fund's Shares.
Each Share represents an equal proportionate interest in the particular Fund
with other shares of the same class, and is entitled to such dividends and dis-
tributions out of the income earned on the assets belonging to such Fund as are
declared in the discretion of the Companies' Boards of Directors.
Shareholders 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 expressly required by law.
Certificates for Shares will not be issued unless expressly requested in writ-
ing to MFSC and will not be issued for fractional Shares.
As of July 11, 1995, U.S. Trust held of record substantially all of the Shares
in the Funds as agent or custodian for its customers, but did not own such
Shares beneficially because it did not have voting or investment discretion
with respect to such Shares.
CUSTODIAN AND TRANSFER AGENT
United States Trust Company of New York serves as the custodian of the Funds'
assets and as their transfer and dividend disbursing agent. Communications to
the custodian and transfer agent should be directed to United States Trust Com-
pany of New York, Mutual Funds Service Division, 770 Broadway, New York, New
York 10003-9598.
U.S. Trust has also entered into a sub-transfer agency arrangement with MFSC,
73 Tremont Street, Boston, Massachusetts 02108-3913, pursuant to which MFSC
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 pre-
pared by independent services or other financial or industry publications that
monitor the performance of mutual funds. For
26
<PAGE>
example, the yields of the Funds may be compared to the applicable averages
compiled by Donoghue's Money Fund Report, a widely recognized independent pub-
lication 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 income
generated over a particular seven-day period identified in the advertisement by
an investment in the Fund. This income is annualized, i.e., the income during a
particular week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The Funds may also advertise the
"effective yields" of Shares which are calculated similarly but, when
annualized, income is assumed to be reinvested, thereby making the effective
yields slightly higher because of the compounding effect of the assumed rein-
vestment.
In addition, the Short-Term Fund 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 the Fund.
This yield is computed by increasing the yields of the Fund's Shares (calcu-
lated as above) by the amount necessary to reflect the payment of Federal in-
come 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 often pro-
vide an agreed or guaranteed fixed yield for a stated period of time. Share-
holders should remember that yield is generally a function of the kind and
quality of the instruments held in a portfolio, portfolio maturity, operating
expenses, and market conditions. Any fees charged by Shareholder Organizations
with respect to accounts of Customers that have invested in Shares will not be
included in calculations of yield.
MISCELLANEOUS
Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds' in-
dependent auditors.
The staff of the SEC has expressed the view that the use of this combined Pro-
spectus for the Funds may subject the Funds to liability for losses arising out
of any statement or omission regarding a particular Fund. The Companies do not
believe, however, that such risk is significant under the circumstances.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of a Company or a particular Fund means, with respect to the
approval of an investment advisory agreement or a change in a fundamental in-
vestment policy, the affirmative vote of the lesser of (a) more than 50% of the
outstanding Shares of such Company or such Fund, or (b) 67% or more of the
Shares of such Company or such Fund present at a meeting if more than 50% of
the 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."
27
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) and mail to: FOR OVERNIGHT DELIVERY: send to:
UST Master Funds UST Master Funds
c/o Mutual Fund Service Company c/o Mutual Funds Service Company--
P.O. Box 2798 Transfer Agent
Boston, MA 02208-2798 73 Tremont Street
Boston, MA 02108-3913
Please enclose with the Application(s) your check made payable to the "UST
Master Funds" in the amount of your investment.
For direct wire purchases please refer to the section of the Prospectus enti-
tled "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 organiza-
tions, 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 transfer agent at (800) 446-1012 between 9:00 a.m.
and 5:00 p.m. (Eastern Time).
28
<PAGE>
[LOGO OF UST MUTUAL FUNDS SERVICE COMPANY
MASTER FUNDS CLIENT SERVICES
APPEARS HERE] P.O. Box 2798
Boston, MA 02208-2798
(800) 446-1012 NEW ACCOUNT APPLICATION
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION
-----------------------------------------------------------------------------
[_] Individual [_] Joint Tenants [_] Trust [_] Gift/Transfer to Minor
[_] Other ____________
Note: Joint tenant registration will be as "joint tenants
with right of survivorship" unless otherwise specified. Trust
registrations should specify name of the trust, trustee(s),
beneficiary(ies), and the date of the trust instrument.
Registration for Uniform Gifts/Transfers to Minors should be
in the name of one custodian and one minor and include the
state under which the custodianship is created (using the
minor's Social Security Number ("SSN")). For IRA accounts a
different application is required.
------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
Indentification #
( )
------------------------------ -----------------------------
Name Telephone #
------------------------------
Address
[_] U.S. Citizen
------------------------------ [_] Other (specify)____________
City/State/Zip
-----------------------------------------------------------------------------
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 PER
FUND AND $50 PER FUND, RESPECTIVELY. MAKE CHECKS PAYABLE TO "UST MASTER
FUNDS.")
-----------------------------------------------------------------------------
INITIAL INVESTMENT
[_] Money Fund $ ____________ 803
[_] Short-Term Tax-Exempt Fund $ ____________ 806
[_] Government Money Fund $ ____________ 804
[_] Treasury Money Fund $ ____________ 811
TOTAL INITIAL INVESTMENT: $ ____________
NOTE: If investing by wire, you must obtain a Bank Wire Control Number. To
do so, please call (800) 446-1012 and ask for the Wire Desk.
A. BY MAIL: Enclosed is a check in the amount of $ ____ payable to "UST
Master Funds."
B. BY WIRE: A bank wire in the amount of $ ______ has been sent to the
Fund from
------------------ ---------------------
Name of Bank Wire Control Number
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and
dividend distributions will be reinvested in additional
shares unless appropriate boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------
TELEPHONE EXCHANGE AND REDEMPTION
[_] I/We appoint MFSC as my/our agent to act upon instructions received by
telephone in order to effect the telephone exchange and redemption
privileges. I/We hereby ratify any instructions given pursuant to this
authorization and agree that Master Fund, Master Tax-Exempt Fund, MFSC and
their directors, officers and employees will not be liable for any loss,
liability, cost or expense for acting upon instructions believed to be
genuine and in accordance with the procedures described in the then current
Prospectus. To the extent that Master Fund and Master Tax-Exempt Fund fail
to use reasonable procedures as a basis for their belief, they or their
service contractors may be liable for instructions that prove to be
fraudulent or unauthorized.
I/We further acknowledge that it is my/our responsibility to read the
Prospectus of any Fund into which I/we exchange.
[_] I/We do not wish to have the ability to exercise telephone redemption
and exchange privileges. I/We further understand that all exchange and
redemption requests must be in writing.
SPECIAL PURCHASE AND REDEMPTION PLANS
I/We have completed and attached the Supplemental Application for:
[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan
AUTHORITY TO TRANSMIT REDEMPTION PROCEEDS TO PRE-DESIGNATED ACCOUNT.
I/We hereby authorize MFSC to act upon instructions received by telephone to
withdraw $500 or more from my/our account in the UST Master Funds and to
wire the amount withdrawn to the following commercial bank account. I/We
understand that MFSC charges an $8.00 fee for each wire redemption, which
will be deducted from the proceeds of the redemption.
Title on Bank Account*____________________________________________________
Name of Bank _____________________________________________________________
Bank A.B.A. Number____________________ Account Number ____________________
Bank Address _____________________________________________________________
City/State/Zip ___________________________________________________________
(attach voided check here)
A corporation, trust or partnership must also submit a "Corporate
Resolution" (or "Certificate of Partnership") indicating the names and
titles of officers authorized to act on its behalf.
* TITLE ON BANK AND FUND ACCOUNT MUST BE IDENTICAL.
<PAGE>
--------------------------------------------------------------------------------
CHECK WRITING PRIVILEGE
--------------------------------------------------------------------------------
[_] I/We wish to take advantage of the check writing privilege
and have signed and attached the Check Writing Signature
Card to this application.
[_] I/We do not wish to take advantage of the check writing
privilege at this time, but I/we may elect to do so at a
later date.
SIGNATURE CARD SIGNATURE REQUIREMENTS. If the shares are
registered in the name of:
. AN INDIVIDUAL, the individual must sign the Card.
. JOINT ACCOUNT, both individuals must sign the Card.
. INSTITUTIONAL ACCOUNT, an officer must sign the Card
indicating corporate, trust or partnership office or title.
. TRUST ACCOUNT, trustee or other fiduciary must sign the
Card indicating capacity.
. CUSTODIAN FOR MINOR, custodian must sign the Card.
--------------------------------------------------------------------------------
AGREEMENTS AND SIGNATURES
--------------------------------------------------------------------------------
By signing this application, I/we hereby certify under
penalty of perjury that the information on this application
is complete and correct and that as required by Federal law:
[_] I/We certify that (1) the number(s) shown on this form
is/are the correct taxpayer identification number(s) and (2)
I/we are not subject to backup withholding either because
I/we have not been notified by the Internal Revenue Service
that I/we are subject to backup withholding, or the IRS has
notified me/us that I am/we are no longer subject to backup
withholding. (NOTE: IF ANY OR ALL OF PART 2 IS NOT TRUE,
PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
[_] If no taxpayer identification number ("TIN") or SSN has
been provided above, I/we have applied, or intend to apply,
to the IRS or the Social Security Administration for a TIN or
a SSN, and I/we understand that if I/we do not provide this
number to MFSC within 60 days of the date of this
application, or if I/we fail to furnish my/our correct SSN or
TIN, I/we may be subject to a penalty and a 31% backup
withholding on distributions and redemption proceeds. (Please
provide this number on Form W-9. You may request the form by
calling MFSC at the number listed above).
I/We represent that I am/we are of legal age and capacity to
purchase shares of the UST Master Funds. I/We have received,
read and carefully reviewed a copy of the appropriate Fund's
current Prospectus and agree to its terms and by signing
below I/we acknowledge that neither the Fund nor the
Distributor is a bank and that Fund shares are not deposits
or obligations of, or guaranteed or endorsed by, United
States Trust Company of New York, its parent or affiliates
and Fund Shares are not federally insured by, guaranteed by
or obligations of or otherwise supported by the U.S.
Government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other governmental agency; that
while the Funds seek to maintain their net asset value per
share at $1.00 for purposes of purchases and redemptions,
there can be no assurance that they will be able to do so on
a continuous basis; and investment in the Funds involves
investment risk, including the possible loss of the principal
amount invested.
X ___________________________ Date __________________________
Owner Signature
X ___________________________ Date __________________________
Co-Owner Signature
Sign exactly as name(s) of registered owner(s) appear(s) above
(including legal title if signing for a corporation, trust
custodial account, etc.)
--------------------------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
--------------------------------------------------------------------------------
We hereby submit this application for the purchase of shares
in accordance with the terms of our selling agreement with
Edgewood Services Inc., and with the Prospectus and Statement
of Additional Information of each Fund purchased.
----------------------------- -------------------------------
Investment Dealer's Name Source of Business Code
----------------------------- -------------------------------
Main Office Address Branch Number
----------------------------- -------------------------------
Representative's Number Representative's Name
----------------------------- -------------------------------
Branch Address Telephone
----------------------------- -------------------------------
Investment Dealer's Title
Authorized Signature
<PAGE>
CHECK WRITING SIGNATURE CARD UST MASTER FUNDS
By signing on the reverse, I/we hereby appoint as agent United States Trust
Company of New York ("U.S. Trust") and, as such agent, U.S. Trust is hereby
authorized and directed, upon presentment of check(s), to request the
redemption of shares of the applicable Fund registered in my/our name(s) in
the amount of such check(s) drawn on my/our Fund account. I/We further
authorize Mutual Funds Service Company ("MFSC"), the transfer agent, to accept
and execute instructions relating to this check writing privilege. I/We agree
that U.S. Trust and MFSC, acting as agents on my/our behalf in connection with
the foregoing check writing privileges, shall be liable only for their own
willful misfeasance, bad faith or gross negligence.
I/We acknowledge that this check writing arrangement is subject to the
applicable terms and restrictions, including charges, set forth in the current
Prospectus for each Fund with respect to which I/we have arranged to redeem
Fund shares by check writing. I/We understand and agree to be bound and
subject to U.S. Trust's rules, regulations and associated laws governing check
collection, as amended from time to time.
Stop payment instructions must be given to MFSC by calling toll-free (800)
446-1012.
To take advantage of the check writing privilege, please complete the
Signature Card on the reverse. Each person signing below guarantees the
genuineness of the other's signature. You will receive a supply of checks
approximately 3 weeks after this application is processed.
<PAGE>
Account Number ______________________ FUND
__________________ ______________ ___ [_] Money Fund [_] Short-Term
Last Name First M.I. Tax-Exempt Fund
__________________ ______________ ___ [_] Government [_] Treasury
Last Name First M.I. Money Fund Money Fund
By signing this Signature Card, the
undersigned agree(s) that the UST
Master Funds check writing privileges
will be subject to the instructions and
rules of Master Fund, Master Tax-Exempt
Fund and U.S. Trust, as now in effect and
as amended from time to time, as they
pertain to the use of redemption checks.
(Please use black ink) [_] Check here if both signatures
required on checks.
______________________________________ [_] Check here if only one signature
Signature required on checks.
______________________________________ If neither box is checked, all
Joint Signature checks will require both signatures.
UST MASTER FUNDS
<PAGE>
[LOGO OF UST MUTUAL FUNDS SERVICE COMPANY
MASTER FUNDS CLIENT SERVICES SUPPLEMENTAL APPLICATION
APPEARS HERE] P.O. Box 2798 SPECIAL INVESTMENT AND
Boston, MA 02208-2798 WITHDRAWAL OPTIONS
(800) 446-1012
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
-----------------------------------------------------------------------------
Fund Name __________________ Account Number _________________
Owner Name _________________ Social Security or Taxpayer ID
Street Address _____________ Number _________________________
Resident City, State, Zip Code __________
of [_] U.S. [_] Other ____ [_] Check here if this is a change of address
-----------------------------------------------------------------------------
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
-----------------------------------------------------------------------------
A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked: All dividends are to be [_] reinvested
[_] paid in cash
All capital gains are to be [_] reinvested
[_] paid in cash
B. PAYMENT ORDER: Complete only if distribution checks are to be payable
to another party. Make distribution checks payable to:
Name of Your Bank ______________
Name _______________________ Bank Account Number ____________
Address ____________________ Address of Bank ________________
City, State, Zip Code ________________________________________
C. DISTRIBUTIONS REINVESTED-CROSS FUNDS: Permits all distributions from
one Fund to be automatically reinvested into another identically-
registered UST Master Fund. (NOTE: You may NOT open a new Fund account
with this option.) Transfer all distributions earned:
From: ______________________ Account No. ____________________
(Fund)
To: ________________________ Account No. ____________________
(Fund)
-----------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN [_] YES [_] NO
-----------------------------------------------------------------------------
I/We hereby authorize MFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable public offering price
determined on that day.
[_] Monthly on the 1st day [_] Monthly on the 15th day [_] Monthly on both
the 1st and 15th
days
Amount of each debit (minimum $50 per Fund) $ ________________
NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
------------------------------------------------------------------------------
------------------------------------------------------------------------------
UST MASTER FUNDS
CLIENT SERVICES AUTOMATIC INVESTMENT PLAN
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
BANK AUTHORIZATION
-----------------------------------------------------------------------------
----------------------- ------------------------ --------------------------
Bank Name Bank Address Bank Account Number
I/We authorize you, the above named bank, to debit my/our
account for amounts drawn by MFSC, acting as my agent for the
purchase of Fund shares. I/We agree that your rights in
respect to each withdrawal shall be the same as if it were a
check drawn upon you and signed by me/us. This authority
shall remain in effect until revoked in writing and received
by you. I/We agree that you shall incur no liability when
honoring debits, except a loss due to payments drawn against
insufficient funds. I/We further agree that you will incur no
liability to me if you dishonor any such withdrawal. This
will be so even though such dishonor results in the
cancellation of that purchase.
---------------------------- --------------------------------
Account Holder's Name Joint Account Holder's Name
X ---------------- --------- X ------------------ -----------
Signature Date Signature Date
<PAGE>
--------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN [_] YES [_] NO NOT AVAILABLE FOR IRA'S
--------------------------------------------------------------------------------
AVAILABLE TO SHAREHOLDERS WITH ACCOUNT BALANCES OF $10,000 OR MORE.
I/We hereby authorize MFSC to redeem the necessary number of shares from
my/our UST Master Fund Account on the designated dates in order to make the
following periodic payments:
[_] Monthly on the 24th day [_] Quarterly on the 24th day of
January, April, July and October
[_] Other______
(This request for participation in the Plan must be received by the 18th day
of the month in which you wish withdrawals to begin.)
Amount of each check ($100 minimum) $______________________
Please make check payable to: Recipient ________________________
(To be completed only if redemption
proceeds to be paid to other than Street Address ___________________
account holder of record or mailed
to address other than address of City, State, Zip Code ____________
record)
NOTE: If recipient of checks is not the registered shareholder, signature(s)
----
below must be guaranteed. A corporation, trust or partnership must also submit
a "Corporate Resolution" (or "Certification of Partnership") indicating the
names and titles of officers authorized to act on its behalf.
--------------------------------------------------------------------------------
AGREEMENT AND SIGNATURES
--------------------------------------------------------------------------------
The investor(s) certifies and agrees that the certifications, authorizations,
directions and restrictions contained herein will continue until MFSC receives
written notice of any change or revocation. Any change in these instructions
must be in writing with all signatures guaranteed (if applicable).
Date ______________________
X X
--------------------------------------- -------------------------------------
Signature Signature
--------------------------------------- -------------------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)
X X
--------------------------------------- -------------------------------------
Signature Signature
--------------------------------------- -------------------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)
*ELIGIBLE GUARANTORS: An Eligible Guarantor institution is a bank, trust
company, broker, dealer, municipal or government securities broker or dealer,
credit union, national securities exchange, registered securities association,
clearing agency or savings association, provided that such institution is a
participant in STAMP, the Securities Transfer Agents Medallion Program.
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY........................................................... 2
FINANCIAL HIGHLIGHTS...................................................... 4
INVESTMENT OBJECTIVES AND POLICIES........................................ 8
Money Fund............................................................... 8
Government Money Fund.................................................... 8
Treasury Money Fund...................................................... 8
Short-Term Fund.......................................................... 8
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION.................... 9
Government Obligations................................................... 9
Money Market Instruments................................................. 10
Variable and Floating Rate Instruments................................... 10
Quality of Investments................................................... 11
Repurchase Agreements.................................................... 11
Securities Lending....................................................... 11
Investment Company Securities............................................ 11
Types of Municipal Securities............................................ 12
When-Issued and Forward Transactions and Stand-by Commitments............ 13
Illiquid Securities...................................................... 13
Diversification Requirements............................................. 13
INVESTMENT LIMITATIONS.................................................... 13
PRICING OF SHARES......................................................... 14
HOW TO PURCHASE AND REDEEM SHARES......................................... 15
Distributor.............................................................. 15
Purchase of Shares....................................................... 15
Purchase Procedures...................................................... 15
Redemption Procedures.................................................... 16
Effective Time of Purchases and Redemptions.............................. 19
INVESTOR PROGRAMS......................................................... 19
Exchange Privilege....................................................... 19
Systematic Withdrawal Plan............................................... 21
Retirement Plans......................................................... 21
Automatic Investment Program............................................. 22
DIVIDENDS AND DISTRIBUTIONS............................................... 22
TAXES..................................................................... 22
Federal.................................................................. 22
State and Local.......................................................... 23
Miscellaneous............................................................ 24
MANAGEMENT OF THE FUNDS................................................... 24
Investment Adviser....................................................... 24
Administrators........................................................... 24
Service Organizations.................................................... 25
Banking Laws............................................................. 25
DESCRIPTION OF CAPITAL STOCK.............................................. 26
CUSTODIAN AND TRANSFER AGENT.............................................. 26
YIELD INFORMATION......................................................... 26
MISCELLANEOUS............................................................. 27
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION.................................. 28
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' STATEMENT OF ADDI-
TIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OF-
FERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REP-
RESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANIES
OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
COMPANIES OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
USTMMP895
[LOGO OF UST MASTER FUNDS, INC. APPEARS HERE]
MASTER FUNDS, INC.
MASTER TAX-EXEMPT FUNDS, INC.
MONEY FUND
GOVERNMENT MONEY FUND
TREASURY MONEY FUND
SHORT-TERM TAX-EXEMPT FUND
Prospectus
August 1, 1995
<PAGE>
[LOGO OF UST
A Management Investment Company MASTER TAX-EXEMPT FUNDS, INC.]
-------------------------------------------------------------------------------
Tax-Exempt Funds For initial purchase information, current
prices, yield and performance information
and existing account information, call
(800) 446-1012. (From overseas, call
(617) 557-8280.)
73 Tremont Street Boston, Massachusetts 02108-3913
-------------------------------------------------------------------------------
This Prospectus describes three separate diversified portfolios offered to in-
vestors by UST Master Tax-Exempt Funds, Inc. ("Master Tax-Exempt 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 TAX-EXEMPT SECURITIES FUND'S investment objective is to seek as
high a level of current interest income exempt from Federal income taxes as is
consistent with relative stability of principal. The Fund (hereinafter re-
ferred to as the "Short-Term Fund") will invest substantially all of its as-
sets in Municipal Obligations and will ordinarily have a dollar-weighted aver-
age portfolio maturity of one to three years.
INTERMEDIATE-TERM TAX-EXEMPT FUND'S investment objective is to seek as high a
level of current interest income exempt from Federal income taxes as is con-
sistent with relative stability of principal. The Fund (hereinafter referred
to as the "Intermediate-Term Fund") will invest substantially all of its as-
sets in Municipal Obligations and will ordinarily have a dollar-weighted aver-
age portfolio maturity of three to ten years.
LONG-TERM TAX-EXEMPT FUND'S investment objective is to seek to maximize cur-
rent interest income exempt from Federal income taxes. This objective will be
realized over time with a view toward relative stability of principal and
preservation of capital. The Fund (hereinafter referred to as the "Long-Term
Fund") will invest substantially all of its assets in Municipal Obligations
and will generally have a dollar-weighted average portfolio maturity of 10 to
30 years.
Each of the Funds is sponsored and distributed by Edgewood Services, Inc. and
advised by United States Trust Company of New York (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, 1995, and containing additional information about
the Funds, has been filed with the Securities and Exchange Commission. The
current Statement of Additional Information is available to investors without
charge by writing to Master Tax-Exempt Fund at 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.
SHARES IN THE FUNDS ("SHARES") ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, UNITED STATES TRUST COMPANY OF NEW YORK, ITS PARENT AND
AFFILIATES AND THE SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGA-
TIONS 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.
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, 1995
<PAGE>
PROSPECTUS SUMMARY
UST MASTER TAX-EXEMPT FUNDS, INC. is an investment company offering various
diversified and non-diversified investment portfolios with differing objectives
and policies. Founded in 1984, Master Tax-Exempt Fund currently offers five
Funds with combined assets of approximately $1.3 billion. See "Description of
Capital Stock."
INVESTMENT ADVISER: United States Trust Company of New York serves as the
Funds' investment adviser. U.S. Trust is a trust company offering a variety of
specialized financial and fiduciary services to high-net worth individuals, in-
stitutions and corporations. Master Tax-Exempt 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 in-
vestment portfolio which invests principally in debt obligations exempt from
Federal income tax issued by or on behalf of states, territories and posses-
sions of the United States, the District of Columbia and their authorities,
agencies, instrumentalities and political subdivisions. The Funds' investment
objectives and policies are summarized on the cover and explained in greater
detail later in this Prospectus. See "Investment Objectives and Policies,"
"Portfolio Instruments and Other Investment Information," and "Investment Limi-
tations."
HOW TO INVEST: The Funds' shares are offered at their public offering price,
i.e., their net asset value per share plus a sales load which is subject to
substantial reductions for large purchases and programs for accumulation. The
sales load is not applicable to investors making their investments through a
variety of institutions, such as U.S. Trust, other banks and trust companies.
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 appropriate
sales agreements with Master Tax-Exempt Fund. See "How to Purchase and Redeem
Shares."
HOW TO REDEEM: Redemptions may be requested directly from Master Tax-Exempt
Fund by mail, wire or telephone. Investors investing through another institu-
tion should request redemptions through their Shareholder Organization. See
"How to Purchase and Redeem Shares."
INVESTMENT RISKS AND CHARACTERISTICS: Since the Funds invest in bonds and
other fixed-income securities, they will be affected directly by credit markets
and fluctuations in interest rates. The prices of fixed-income securities gen-
erally fluctuate inversely with changes 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 directly by a
Fund and ultimately by its shareholders. Investment in the Funds should not be
considered a complete investment program. See "Investment Objectives and Poli-
cies" and "Portfolio Instruments and Other Information".
2
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
SHORT- INTERMEDIATE- LONG-TERM
TERM FUND TERM FUND FUND
--------- ------------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load on Purchases (as
percentages of offering price)............. 4.50% 4.50% 4.50%
Sales Load on Reinvested Dividends.......... None None None
Deferred Sales Load......................... None None None
Redemption Fees/1/.......................... None None None
Exchange Fees............................... None None None
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (after fee waivers)/2/........ .28% .32% .47%
12b-1 Fees.................................. None None None
Other Operating Expenses
Administrative Servicing Fee.............. .02% .03% .03%
Other Expenses............................ .29% .26% .30%
----- ----- -----
Total Operating Expenses (after fee
waivers)/2/................................ .59% .61% .80%
===== ===== =====
</TABLE>
-------
1. The Funds' transfer agent imposes a direct $8.00 charge on each wire redemp-
tion by noninstitutional (i.e. individual) investors, which is not reflected
in the expense ratios presented herein. Shareholder organizations may charge
their customers transaction fees in connection with redemptions. See "Re-
demption Procedures."
2. The Investment Adviser and Administrators may from time to time voluntarily
waive part of their respective fees, which waivers may be terminated at any
time. Until further notice, the Investment Adviser and/or Administrators in-
tend to voluntarily waive fees in an amount equal to the Administrative Ser-
vicing Fee, and to further waive fees and reimburse expenses to the extent
necessary for the Short-Term Fund to maintain an annual expense ratio of not
more than .60%. Without such fee waivers, "Advisory Fees" would be .30%,
.35% and .50% and "Total Operating Expenses" would be .61%, .64% and .83%
for the Short-Term, Intermediate-Term and Long-Term Funds, respectively.
3
<PAGE>
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>
Short-Term Fund................................. $51 $63 $76 $115
Intermediate-Term Fund.......................... 51 64 77 118
Long-Term Fund.................................. 53 69 87 140
</TABLE>
The foregoing expense summary and example (based on the maximum sales load
payable on the Shares of the Funds) are intended to assist the investor in un-
derstanding the costs and expenses that an investor in Shares of the Funds will
bear directly or indirectly. The expense summary sets forth advisory and other
expenses payable with respect to Shares of the Funds for the fiscal year ended
March 31, 1995. For more complete descriptions of the Funds' operating ex-
penses, see "Management of the Funds" in this Prospectus and the financial
statements and notes incorporated by reference in the Statement of Additional
Information.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
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 Master Tax-Exempt Fund's Annual Report to Shareholders for
the fiscal year ended March 31, 1995 (the "Financial Statements"). The informa-
tion contained in the Financial Highlights for each period has been audited by
Ernst & Young LLP, Master Tax-Exempt Fund's independent auditors. The following
tables should be read in conjunction with the Financial Statements and notes
thereto. More information about the performance of each Fund is also contained
in the Annual Report to Shareholders which may be obtained from Master Tax-Ex-
empt Fund without charge by calling the number on the front cover of this Pro-
spectus.
SHORT-TERM TAX-EXEMPT SECURITIES FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
PERIOD ENDED
1995 1994 MARCH 31, 1993/1/
---------- ---------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period. $ 6.99 $ 7.07 $ 7.00
---------- ---------- ------
Income From Investment Operations
Net Investment Income.............. 0.25 0.21 0.05
Net Gains or (Losses) on Securities
(both realized and unrealized).... (0.02) (0.03) 0.07
---------- ---------- ------
Total From Investment Operations... 0.23 0.18 0.12
---------- ---------- ------
Less Distributions
Dividends From Net Investment
Income............................ (0.25) (0.21) (0.05)
Distributions From Net Realized
Gain on Investments............... (0.01) (0.05) 0.00
---------- ---------- ------
Total Distributions................ (0.26) (0.26) (0.05)
---------- ---------- ------
Net Asset Value, End of Period....... $ 6.96 $ 6.99 $ 7.07
========== ========== ======
Total Return/2/...................... 3.45% 2.55% 1.65%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)......................... $ 48.19 $ 57.73 $28.60
Ratio of Net Operating Expenses to
Average Net Assets................ 0.59% 0.59% 0.60%/3/
Ratio of Gross Operating Expenses
to Average Net Assets............. 0.61% 0.60% 0.84%/3/
Ratio of Net Income to Average Net
Assets............................ 3.60% 2.94% 2.80%/3/
Portfolio Turnover Rate............ 565% 539% 0%
</TABLE>
-------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
5
<PAGE>
INTERMEDIATE-TERM TAX-EXEMPT FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986/1/
------- ------- ------- ------- ------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 8.64 $ 9.24 $ 8.95 $ 8.83 $ 8.67 $ 8.52 $ 8.69 $ 8.87 $ 8.77 $ 8.00
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
Income From Investment
Operations.............
Net Investment Income.. 0.37 0.34 0.42 0.49 0.56 0.57 0.55 0.55 0.60 0.17
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 0.16 (0.09) 0.59 0.19 0.16 0.15 (0.17) (0.11) 0.25 0.72
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
Total From Investment
Operations............ 0.53 0.25 1.01 0.68 0.72 0.72 0.38 0.44 0.85 0.89
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income..... (0.37) (0.34) (0.42) (0.49) (0.56) (0.57) (0.55) (0.55) (0.60) (0.12)
Distributions From Net
Realized Gain on
Investments........... (0.00) (0.26) (0.30) (0.07) 0.00 0.00 0.00 (0.07) (0.15) 0.00
Distributions in Excess
of Net Realized Gain
on Investments........ 0.00 (0.25) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
Total Distributions.... (0.37) (0.85) (0.72) (0.56) (0.56) (0.57) (0.55) (0.62) (0.75) (0.12)
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $ 8.80 $ 8.64 $ 9.24 $ 8.95 $ 8.83 $ 8.67 $ 8.52 $ 8.69 $ 8.87 $ 8.77
======= ======= ======= ======= ======= ====== ====== ====== ====== ======
Total Return/2/......... 6.34% 2.58% 11.70% 7.95% 8.64% 8.58% 4.49% 5.37% 10.11% 11.19%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $234.99 $298.26 $281.57 $220.92 $122.62 $90.73 $58.29 $53.70 $37.68 $ 6.79
Ratio of Net Operating
Expenses to Average
Net Assets............ 0.61% 0.64% 0.64% 0.64% 0.66% 0.69% 0.68% 0.70% 0.81% 0.62%/3/
Ratio of Gross
Operating Expenses to
Average Net Assets.... 0.64% 0.64% 0.64% 0.64% 0.66% 0.69% 0.68% 0.70% 0.82% 1.33%/3/
Ratio of Net Income to
Average Net Assets.... 4.28% 3.74% 4.57% 5.48% 6.47% 6.48% 6.43% 6.44% 6.10% 7.21%/3/
Portfolio Turnover
Rate.................. 362.0% 379.0% 429.0% 276.0% 216.0% 154.0% 256.0% 290.0% 126.0% 85.0%/3/
</TABLE>
-------
NOTES:
1. Inception date of the Fund was December 3, 1985.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
6
<PAGE>
LONG-TERM TAX-EXEMPT FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986/1/
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 8.87 $ 9.76 $ 9.25 $ 9.15 $ 8.87 $ 8.80 $ 8.68 $ 8.77 $ 8.72 $ 8.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income.. 0.43 0.42 0.46 0.51 0.54 0.55 0.53 0.54 0.63 0.09
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 0.50 (0.12) 0.99 0.30 0.33 0.38 0.32 0.26 0.45 0.66
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total From Investment
Operations............ 0.93 0.30 1.45 0.81 0.87 0.93 0.85 0.80 1.08 0.75
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income..... (0.43) (0.42) (0.46) (0.51) (0.54) (0.55) (0.53) (0.54) (0.63) (0.03)
Distributions From Net
Realized Gain on
Investments........... (0.10) (0.50) (0.48) (0.20) (0.05) (0.31) (0.20) (0.35) (0.40) 0.00
Distributions in Excess
of Net Realized Gain
on Investments........ 0.00 (0.27) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions.... (0.53) (1.19) (0.94) (0.71) (0.59) (0.86) (0.73) (0.89) (1.03) (0.03)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $ 9.27 $ 8.87 $ 9.76 $ 9.25 $ 9.15 $ 8.87 $ 8.80 $ 8.68 $ 8.77 $ 8.72
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return/2/......... 11.01% 2.38% 16.35% 9.19% 10.11% 10.67% 10.14% 10.15% 13.45% 9.39%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $78.88 $82.15 $85.52 $62.73 $38.04 $36.16 $19.73 $ 8.84 $ 9.36 $ 2.57
Ratio of Net Operating
Expenses to Average
Net Assets............ 0.80% 0.85% 0.86% 0.85% 0.86% 0.92% 0.76% 0.85% 0.80% 0.90%/3/
Ratio of Gross
Operating Expenses to
Average Net Assets.... 0.83% 0.86% 0.86% 0.85% 0.86% 0.92% 0.87% 1.18% 1.24% 1.84%/3/
Ratio of Net Income to
Average Net Assets.... 4.86% 4.25% 4.73% 5.52% 6.01% 5.99% 6.14% 6.37% 6.47% 7.67%/3/
Portfolio Turnover
Rate.................. 214.0% 252.0% 300.0% 218.0% 197.0% 437.0% 550.0% 668.0% 356.0% 134.0%/3/
</TABLE>
-------
NOTES:
1. Inception date of the Fund was February 5, 1986.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Investment Adviser will use its best efforts to achieve the investment ob-
jective of each Fund, although their achievement cannot be assured. The invest-
ment objective of each Fund is "fundamental," meaning that it may not be
changed without a vote of the holders of a majority of the particular Fund's
outstanding Shares (as defined under "Miscellaneous"). Except as noted below
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 FUND
The Short-Term Fund's investment objective is to seek as high a level of cur-
rent interest income exempt from Federal income taxes as is consistent with
relative stability of principal. The Fund will invest substantially all of its
assets in debt obligations exempt from Federal income tax issued by or on be-
half of states, territories, and possessions of the United States, the District
of Columbia and their authorities, agencies, instrumentalities, and political
subdivisions ("Municipal Obligations"). Although the Short-Term Fund has no re-
strictions as to the minimum or maximum maturity of any individual Municipal
Obligation, it will generally have a dollar-weighted average portfolio maturity
of one to three years.
INTERMEDIATE-TERM FUND
The Intermediate-Term Fund's investment objective is to seek as high a level
of current interest income exempt from Federal income taxes as is consistent
with relative stability of principal. The Fund will invest substantially all of
its assets in Municipal Obligations. Although the Fund has no restrictions as
to the minimum or maximum maturity of any individual Municipal Obligation, it
will generally have a dollar-weighted average portfolio maturity of three to
ten years.
The Intermediate-Term Fund is designed for investors in relatively high tax
brackets who are seeking greater stability of principal than is generally
available from longer-term Municipal Obligations and who are willing to accept
a somewhat lower yield in order to achieve this stability. Generally, the price
for its Shares will be less volatile than that normally associated with a port-
folio consisting of longer-term Municipal Obligations.
LONG-TERM FUND
The Long-Term Fund's investment objective is to seek to maximize current in-
terest income exempt from Federal income taxes. The Fund will realize this ob-
jective over time with a view toward relative stability of principal and pres-
ervation of capital. The Fund will invest substantially all of its assets in
Municipal Obligations with no maturity restrictions. While the Fund's dollar-
weighted average portfolio maturity may be as long as 30 years, during tempo-
rary defensive periods it could be considerably shorter.
The Long-Term Fund is designed for investors in relatively high tax brackets
who are seeking the highest levels of current tax-free income and who are will-
ing to accept a somewhat higher price volatility than that normally associated
with short-term and intermediate-term Municipal Obligations.
Common Investment Policies
The Funds invest in Municipal Obligations which are determined by the Invest-
ment Adviser to present minimal credit risks. As a matter of fundamental poli-
cy, except during temporary defensive periods, each Fund will maintain at least
80% of its assets in tax-exempt obligations. (This policy may not be changed
with respect to a Fund without the vote of the holders of a majority of its
outstanding Shares.) However, from time to time on a temporary defensive basis
due to market conditions, each Fund may hold uninvested cash reserves or invest
in taxable obligations in such proportions as, in the opinion of the Investment
Adviser, prevailing market or economic conditions may
8
<PAGE>
warrant. Uninvested cash reserves will not earn income. Should a Fund invest in
taxable obligations, it would purchase: (i) obligations of the U.S. Treasury;
(ii) obligations of agencies and instrumentalities of the U.S. Government;
(iii) money market instruments such as certificates of deposit, commercial pa-
per, and bankers' acceptances; (iv) repurchase agreements collateralized by
U.S. Government obligations or other money market instruments; (v) municipal
bond index futures and interest rate futures contracts; or (vi) securities is-
sued by other investment companies that invest in high quality, short-term se-
curities.
In seeking to achieve its investment objective, each Fund may invest in "pri-
vate activity bonds" (see "Types of Municipal Obligations" below), the interest
on which is treated as a specific tax preference item under the Federal alter-
native minimum tax. Investments in such securities, however, will not exceed
under normal market conditions 20% of each Fund's total assets when added to-
gether with any taxable investments held by that Fund.
The Municipal Obligations purchased by the Funds will consist of: (1) munici-
pal bonds rated "A" or better by Moody's Investors Service, Inc. ("Moody's") or
by Standard & Poor's Ratings Group ("S&P") or, in certain instances, municipal
bonds with lower ratings if they are deemed by the Investment Adviser to be
comparable to A-rated issues; (2) municipal notes rated "MIG-2" or better
("VMIG-2" or better in the case of variable rate notes) by Moody's or "SP-2" or
better by S&P; and (3) municipal commercial paper rated "Prime-2" or better by
Moody's or "A-2" or better by S&P. If not rated, securities purchased by the
Funds will be of comparable quality to the above ratings as determined by the
Investment Adviser under the supervision of the Board of Directors. A discus-
sion of Moody's and S&P's rating categories is contained in Appendix A to the
Statement of Additional Information.
Although the Funds do not presently intend to do so on a regular basis, they
may invest more than 25% of their assets in Municipal Obligations the interest
on which is paid solely from revenues of similar projects, if such investment
is deemed necessary or appropriate by the Investment Adviser. To the extent
that a Fund's assets are concentrated in Municipal Obligations payable from
revenues on similar projects, the Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if the Fund's
assets were not so concentrated.
The value of securities in the Funds can be expected to vary inversely with
changes in prevailing interest rates. The Funds are not intended to constitute
a complete investment program and are not designed for investors seeking capi-
tal appreciation or maximum tax-exempt income irrespective of fluctuations in
principal.
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION
TYPES OF MUNICIPAL OBLIGATIONS
The two principal classifications of Municipal Obligations which may be held
by the Funds are "general obligation" securities and "revenue" securities. Gen-
eral obligation securities are secured by the issuer's pledge of its full
faith, credit, and taxing power for the payment of principal and interest. Rev-
enue 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 spe-
cial excise tax or other specific revenue source such as the user of the facil-
ity being financed. Private activity 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 Funds' portfolios may also include "moral obligation" securities, which
are normally issued by
9
<PAGE>
special-purpose public authorities. If the issuer of moral obligation securi-
ties is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund the restoration of which is a moral commitment, but
not a legal obligation of the state or municipality which created the issuer.
There is no limitation on the amount of moral obligation securities that may be
held by the Funds.
The Funds may also purchase custodial receipts evidencing the right to receive
either the principal amount or the periodic interest payments or both with re-
spect to specific underlying Municipal Obligations. In general, such "stripped"
Municipal Obligations are offered at a substantial discount in relation to the
principal and/or interest payments which the holders of the receipt will re-
ceive. 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 Obligation, such yield will be exempt from Federal income tax for
such investor to the same extent as interest on the underlying Municipal Obli-
gation. The Funds intend to purchase "stripped" Municipal Obligations only when
the yield thereon will be, as described above, exempt from Federal income tax
to the same extent as interest on the underlying Municipal Obligations.
"Stripped" Municipal Obligations are considered illiquid securities subject to
the limit described in Investment Limitation No. 4 below. Each Fund will limit
its investments in interest-only and principal-only Municipal Obligations to 5%
of its total assets.
FUTURES CONTRACTS
The Funds may purchase and sell municipal bond index and interest rate futures
contracts as a hedge against changes in market conditions. A municipal bond in-
dex assigns values daily to the municipal bonds included in the index based on
the independent assessment of dealer-to-dealer municipal bond brokers. A munic-
ipal bond index futures contract represents a firm commitment by which two par-
ties agree to take or make delivery of an amount equal to a specified dollar
amount times the difference between the municipal bond index value on the last
trading date of the contract and the price at which the futures contract is
originally struck. No physical delivery of the underlying securities in the in-
dex is made.
The Funds may enter into contracts for the future delivery of fixed-income se-
curities commonly known as interest rate futures contracts. Interest rate
futures contracts are similar to the municipal bond index futures contracts ex-
cept that, instead of a municipal bond index, the "underlying commodity" is
represented by various types of fixed-income securities.
The Funds will not engage in transactions in futures contracts for specula-
tion, but only as a hedge against changes in market values of securities which
they hold or intend to purchase where the transactions are intended to reduce
risks inherent in the management of the Funds. Each Fund may engage in futures
contracts only to the extent permitted by the Commodity Futures Trading Commis-
sion ("CFTC") and the Securities and Exchange Commission ("SEC"). As of the
date of this Prospectus, each Fund intends to limit its hedging transactions in
futures contracts so that, immediately after any such transaction, the aggre-
gate initial margin that is required to be posted by the Fund under the rules
of the exchange on which the futures contract is traded does not exceed 5% of
the Fund's total assets, after taking into account any unrealized profits and
unrealized losses on the Fund's open contracts.
When investing in futures contracts, the Funds must satisfy certain asset seg-
regation requirements to ensure that the use of futures is unleveraged. When a
Fund takes a long position in a futures contract, it must maintain a segregated
account containing cash and/or certain 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 cash and/or certain liquid assets in an amount equal to the market
value of the securities
10
<PAGE>
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 position generally by entering into an offsetting position.
Transactions by a Fund in futures contracts may subject the Fund to a number
of risks. Successful use of futures by a Fund is subject to the ability of the
Investment Adviser to anticipate correctly movements in the direction of the
market. In addition, there may be an imperfect correlation, or no correlation
at all, between movements in the price of the futures contracts and movements
in the price of the instruments being hedged. Further, there is no assurance
that a liquid market will exist for any particular futures contract 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. Any income from investments in futures
contracts will be taxable income of the Funds.
MONEY MARKET INSTRUMENTS
"Money market instruments" that may be purchased by the Funds in accordance
with their investment objectives and policies stated above include, among other
things, bank obligations, commercial paper and corporate bonds with remaining
maturities of 13 months or less.
Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation, or by a
savings and loan association or savings bank which is insured by the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation. In-
vestments in time deposits are limited to no more than 5% of the value of a
Fund's total assets at time of purchase.
Investments by the Funds in commercial paper will consist of issues that are
rated "A-2" or better by S&P or "Prime-2" or better by Moody's. In addition,
each Fund may acquire unrated commercial paper that is determined by the In-
vestment Adviser at the time of purchase to be of comparable quality to rated
instruments that may be acquired by the particular Fund.
Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instrument
purchased by a Fund, the Fund may, from time to time as specified in the in-
strument, demand payment of the principal of the instrument or may resell the
instrument to a third party. The absence of an active secondary market, howev-
er, could make it difficult for the Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods that the Fund is
not entitled to exercise its demand rights, and the Fund could, for this or
other reasons, suffer a loss with respect to such instrument.
REPURCHASE AGREEMENTS
As stated above, each Fund may agree to purchase portfolio securities subject
to the seller's agreement to repurchase them at a mutually agreed upon date and
price ("repurchase agreements"). Each Fund will enter into repurchase agree-
ments only with financial institutions such as banks or broker/dealers which
are deemed to be creditworthy by the Investment Adviser under guidelines ap-
proved by Master Tax-Exempt Fund's Board of Directors. No Fund will enter into
repurchase agreements with the Investment Adviser or its affiliates. Repurchase
agreements with remaining maturities in excess of seven days will be considered
illiquid securities subject to the 10% limit described in Investment Limitation
No. 4 below.
The seller under a repurchase agreement will be required to maintain the value
of the obligations subject to the agreement at not less than the repurchase
price. Default or bankruptcy of the seller would, however, expose a Fund to
possible delay in connection
11
<PAGE>
with the disposition of the underlying securities or loss to the extent that
proceeds from a sale of the underlying securities were less than the repurchase
price under the agreement. Income on the 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 method.
In addition to the advisory fees and other expenses a Fund bears directly in
connection with its own operations, as a shareholder of another investment com-
pany, a Fund would bear its pro rata portion of the other investment company's
advisory fees and other expenses. As such, the Fund's shareholders would indi-
rectly bear the expenses of the Fund and the other investment company, some or
all of which would be duplicative. Such securities will be acquired by the
Funds within the limits prescribed by the Investment Company Act of 1940 (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 AND STAND-BY COMMITMENTS
Each of the Funds may purchase eligible securities on a "when-issued" basis
and may purchase or sell securities on a "forward commitment" basis. These
transactions involve a commitment by a Fund to purchase or sell particular se-
curities with payment and delivery taking place in the future, beyond the nor-
mal settlement date, at a stated price and yield. Securities purchased on a
"forward commitment" or "when-issued" basis are recorded as an asset and are
subject to changes in value based upon changes in the general level of interest
rates. It is expected that forward commitments and "when-issued" purchases will
not exceed 25% of the value of a Fund's total assets absent unusual market con-
ditions, and that the length of such commitments will not exceed 45 days. The
Funds do not intend to engage in "when-issued" purchases and forward commit-
ments for speculative purposes, but only in furtherance of their investment
objectives.
In addition, the Funds may acquire "stand-by commitments" with respect to Mu-
nicipal Obligations held by them. Under a "stand-by commitment," a dealer
agrees to purchase at a Fund's option specified Municipal Obligations at a
specified price. The Funds will acquire "stand-by commitments" solely to facil-
itate 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.
ILLIQUID SECURITIES
No Fund will knowingly invest more than 10% of the value of its net assets in
securities that are illiquid. Each Fund may purchase securities which are not
registered under the Securities Act of 1933 (the "Act") but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the Act.
Any such security will not be considered illiquid so long as it is determined
by the adviser, acting under guidelines approved and monitored by the Board,
that an adequate trading market exists for that security. This investment prac-
tice could have the effect of increasing the level of illiquidity in a Fund
during any period that qualified institutional buyers become uninterested in
purchasing these restricted securities.
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 a
Fund's investment objective. 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 the investments. A high rate
of portfolio turn-
12
<PAGE>
over may involve correspondingly greater transaction costs, which must be
borne directly by a Fund and ultimately by its shareholders. Portfolio turn-
over will not be a limiting factor in making portfolio decisions. High portfo-
lio turnover may result in the realization of substantial net capital gains.
To the extent that net short-term capital gains are realized, any distribu-
tions resulting from such gains are considered ordinary income for Federal in-
come 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. Purchase securities of any one issuer, other than U.S. Government obliga-
tions, if immediately after such purchase more than 5% of the value of its
total assets would be invested in the securities of such issuer, except that
up to 25% of the value of its total assets may be invested without regard to
this 5% limitation;
2. Borrow money except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing, provided that each Fund may enter into futures con-
tracts and futures options. (This borrowing provision is included solely to
facilitate the orderly sale of portfolio securities to accommodate abnormally
heavy redemption requests and is not for leverage purposes.) A Fund will not
purchase portfolio securities while borrowings in excess of 5% of its total
assets are outstanding; and
3. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that (a) with respect to the Intermediate-Term Tax-
Exempt and Long-Term Tax-Exempt Funds, 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, instrumentali-
ties, or political subdivisions, and (b) with respect to the Short-Term Fund,
there is no limitation with respect to 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, instrumen-
talities, or political subdivisions.
Each of the Intermediate-Term Tax-Exempt and Long-Term Tax-Exempt Funds may
not:
4. Knowingly invest more than 10% of the value of its total assets in secu-
rities which may be illiquid in light of legal or contractual restrictions on
resale or the absence of readily available market quotations.
* * *
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 guar-
13
<PAGE>
anteed security may also be considered to be an issuer in connection with such
guarantee; and (c) securities issued or guaranteed by the United States Govern-
ment, 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 Tax-Exempt Securities Fund may not 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. This investment policy may be changed by Master
Tax-Exempt Fund's Board of Directors upon reasonable notice to shareholders.
The Intermediate-Term Tax-Exempt and Long-Term Tax-Exempt Funds will not in-
vest more than 25% of the value of their respective total assets in domestic
bank obligations.
With respect to all investment policies, if a percentage limitation is satis-
fied at the time of investment, a later increase or decrease in such percentage
resulting from a change in the value of a Fund's portfolio securities will not
constitute a violation of such limitation.
In order to permit the sale of Shares in certain states, Master Tax-Exempt
Fund may make commitments that are more restrictive than the investment poli-
cies and limitations described above. Should Master Tax-Exempt Fund determine
that any such commitment is no longer in the Funds' best interests, it will re-
voke the commitment by terminating sales of Shares to investors residing in the
state involved.
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 Master Tax-Exempt Fund observes are New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Inde-
pendence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas. Net asset value per share for purposes of pricing sales and redemp-
tions is calculated by dividing the value of all securities and other assets
allocable to a Fund, less the liabilities charged to the Fund, by the number of
its outstanding Shares.
Portfolio securities in the Funds for which market quotations are readily
available (other than debt securities maturing in 60 days or less) are valued
at market value. Securities and other assets for which market quotations are
not readily available are valued at fair value, pursuant to the guidelines
adopted by Master Tax-Exempt Fund's Board of Directors. Absent unusual circum-
stances, portfolio securities maturing in 60 days or less are normally valued
at amortized cost. The net asset value of Shares in the Funds will fluctuate as
the market value of their portfolio securities changes in response to changing
market rates of interest and other factors.
Securities traded on only over-the-counter markets are valued on the basis of
closing over-the-counter bid prices. Securities for which there were no trans-
actions are valued at the average of the most recent bid and asked prices. A
futures contract is valued at the last sales price quoted on the principal ex-
change or board of trade on which such contract is traded, or in the absence of
a sale, the mean between the last bid and asked prices. Restricted securities
and other assets are valued at fair value pursuant to guidelines adopted by the
Board of Directors.
The Funds' Administrators have undertaken to price the securities in the
Funds' portfolios and may use one or more pricing services to value certain
port-
14
<PAGE>
folio 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 serv-
ices and the valuations so established will be reviewed by the administrators
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 Master Tax-Exempt
Fund's sponsor and distributor, Edgewood Services, Inc. (the "Distributor"), a
wholly-owned subsidiary of Federated Investors. The Distributor is a registered
broker/dealer. Its principal offices are at Federated Investors Tower, 1001
Liberty Avenue, Pittsburgh, PA 15222-3779.
PURCHASE OF SHARES
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 in-
stitutions ("Institutional Investors" and, collectively with Direct Investors,
"Investors"). Shares may also be purchased by customers ("Customers") of the
Investment Adviser, its affiliates and correspondent banks, and other institu-
tions ("Shareholder Organizations") that have entered into shareholder servic-
ing agreements with Master Tax-Exempt Fund. A Shareholder Organization may
elect to hold of record Shares for its Customers and to record beneficial own-
ership 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 Mutual Funds Service Company ("MFSC"),
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 MFSC to the particular
Shareholder Organization. As an alternative, a Shareholder Organization may
elect to establish its Customers' accounts of record with MFSC. In this event,
even if the Shareholder Organization continues to place its Customers' purchase
and redemption orders with the Funds, MFSC will send confirmations of such
transactions and periodic account statements directly to Customers. A Share-
holder Organization may also elect to establish its Customers as record hold-
ers.
Master Tax-Exempt Fund enters into shareholder servicing agreements with
Shareholder Organizations which agree to provide their Customers various share-
holder administrative services with respect to their Shares (hereinafter re-
ferred to as "Service Organizations"). Shares in the Funds bear the expense of
fees payable to Service Organizations for such services. See "Management of the
Funds--Service 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."
PUBLIC OFFERING PRICE
The public offering price for Shares of each Fund is the sum of the net asset
value of the Shares pur-
15
<PAGE>
chased plus a sales load according to the table below:
<TABLE>
<CAPTION>
REALLOWANCE
TOTAL SALES CHARGE TO DEALER
------------------------------ --------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
--------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Less than $50,000................. 4.50% 4.71% 4.00%
$50,000 to $99,999................ 4.00 4.17 3.50
$100,000 to $249,999.............. 3.50 3.63 3.00
$250,000 to $499,999.............. 3.00 3.09 2.50
$500,000 to $999,999.............. 2.00 2.05 1.50
$1,000,000 to $1,999,999.......... 1.00 1.00 .50
$2,000,000 and over............... .50 .50 .25
</TABLE>
The reallowance to dealers may be changed from time to time but will remain
the same for all such dealers.
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 reallow to any dealer that sponsors
sales contests or recognition programs conforming to criteria established by
the Distributor, or participates in sales programs sponsored by the Distribu-
tor, an amount not exceeding the total applicable sales charges on the sales
generated by the dealer at the public offering price during such programs. Al-
so, the Distributor in its discretion may from time to time, pursuant to ob-
jective criteria established by the Distributor, pay fees to qualifying deal-
ers for certain services or activities which are primarily intended to result
in sales of Shares of the Funds. If any such program is made available to any
dealer, it will be made available to all dealers on the same terms and condi-
tions. 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. These programs will
not change the price of Shares or the amount that the Funds will receive from
such sales.
The sales load described above will not be applicable to: (a) purchases of
Shares by customers of the Investment Adviser or its affiliates; (b) trust,
agency or custodial accounts opened through the trust department of a bank,
trust company or thrift institution, provided that appropriate notification of
such status is given at the time of investment; (c) companies, corporations
and partnerships (excluding full service broker/dealers and financial plan-
ners, registered investment advisers and depository institutions not covered
by the exemptions in (d) and (e) below); (d) financial planners and registered
investment advisers not affiliated with or clearing purchases through full
service broker/dealers; (e) purchases of Shares by depository institutions for
their own account as principal; (f) exchange transactions (described below un-
der "Investor Programs-Exchange Privilege") where the Shares being exchanged
were acquired in connection with the distribution of assets held in trust,
agency or custodial accounts maintained with the trust department of a bank;
(g) corporate/business retirement plans (such as 401(k), 403(b)(7), 457 and
Keogh accounts) sponsored by the Distributor and IRA accounts sponsored by the
Investment Adviser; (h) company-sponsored employee pension or retirement plans
making direct investments in the Funds; (i) purchases of Shares by officers,
trustees, directors, employees, former employees and retirees of Master Tax-
Exempt Fund, UST Master Funds, Inc. ("Master Fund"), the Investment Adviser,
the Distributor or of any direct or indirect affiliate of any of them; (j)
purchases of Shares by all beneficial shareholders of Master Tax-Exempt Fund
or Master Fund as of May 22, 1989; (k) purchases of Shares by investment ad-
visers registered under the Investment Advisers Act of 1940 for their custom-
ers through an omnibus account established with United States Trust Company of
New York; (l) purchases of Shares by directors, officers and employees of bro-
kers and dealers selling shares pursuant to a selling agreement with Master
Tax-Exempt Fund and Master Fund; (m) purchases of shares by investors who are
members of affinity groups serviced by USAffinity Investments Limited Partner-
ship; and (n) customers of certain financial institutions who purchase Shares
through a registered representative of UST Financial Services Corp. on the
premises of their financial institutions. In addition, no sales load is
16
<PAGE>
charged on the reinvestment of dividends or distributions or in connection with
certain share exchange transactions. Investors who have previously redeemed
shares in an "Eligible Fund" (as defined below) on which a sales load has been
paid also have a one-time privilege of purchasing shares of another "Eligible
Fund" at net asset value without a sales charge, provided that such privilege
will apply only to purchases made within 30 calendar days from the date of re-
demption and only with respect to the amount of the redemption. These exemp-
tions to the imposition of a sales load are due to the nature of the investors
and/or reduced sales effort that will be needed in obtaining investments.
Quantity Discounts
An investor in the Funds may be entitled to reduced sales charges through
Rights of Accumulation, a Letter of Intent or a combination of investments, as
described below, even if the investor does not wish to make an investment of a
size that would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify MFSC at
the time of purchase that he or she would like to take advantage of any of the
discount plans described below. Upon such notification, the investor will re-
ceive the lowest applicable sales charge. Quantity discounts may be modified or
terminated at any time and are subject to confirmation of an investor's hold-
ings through a check of appropriate records. For more information about quan-
tity discounts, please call (800) 446-1012 or contact your Shareholder Organi-
zation.
Rights of Accumulation. A reduced sales load applies to any purchase of shares
of any portfolio of Master Tax-Exempt Fund and Master Fund that is sold with a
sales load ("Eligible Fund") where an investor's then current aggregate invest-
ment is $50,000 or more. "Aggregate investment" means the total of: (a) the
dollar amount of the then current purchase of shares of an Eligible Fund and
(b) the value (based on current net asset value) of previously purchased and
beneficially owned shares of any Eligible Fund on which a sales load has been
paid. If, for example, an investor beneficially owns shares of one or more Eli-
gible Funds with an aggregate current value of $49,000 on which a sales load
has been paid and subsequently purchases shares of an Eligible Fund having cur-
rent value of $1,000, the load applicable to the subsequent purchase would be
reduced to 4.00% of the offering price. Similarly, with respect to each subse-
quent investment, all shares of Eligible Funds that are beneficially owned by
the investor at the time of investment may be combined to determine the appli-
cable sales load.
Letter of Intent. By completing the Letter of Intent included as part of the
New Account Application, an investor becomes eligible for the reduced sales
load applicable to the total number of Eligible Fund shares purchased in a 13-
month period pursuant to the terms and under the conditions set forth below and
in the Letter of Intent. To compute the applicable sales load, the offering
price of shares of an Eligible Fund on which a sales load has been paid, bene-
ficially owned by an investor on the date of submission of the Letter of In-
tent, may be used as a credit toward completion of the Letter of Intent. Howev-
er, the reduced sales load will be applied only to new purchases.
MFSC will hold in escrow shares equal to 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if an investor does not
purchase the full amount indicated in the Letter of Intent. The escrow will be
released when an investor fulfills the terms of the Letter of Intent by pur-
chasing the specified amount. If purchases qualify for a further sales load re-
duction, the sales load will be adjusted to reflect an investor's total pur-
chases. If total purchases are less than the amount specified, an investor will
be requested to remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the total purchases. If such re-
mittance is not received within 20 days, MFSC, as attorney-in-fact pursuant to
the terms of the Letter of Intent and at the Distributor's direction, will re-
deem an appropriate number of shares held in escrow to realize the
17
<PAGE>
difference. Signing a Letter of Intent does not bind an investor to purchase
the full amount indicated at the sales load in effect at the time of signing,
but an investor must complete the intended purchase in accordance with the
terms of the Letter of Intent to obtain the reduced sales load. To apply, an
investor must indicate his or her intention to do so under a Letter of Intent
at the time of purchase.
Qualification for Discounts. For purposes of applying the Rights of Accumula-
tion and Letter of Intent privileges described above, the scale of sales loads
applies to the combined purchases made by any individual and/or spouse pur-
chasing securities for his, her or their own account or for the account of any
minor children, or the aggregate investments of a trustee or custodian of any
qualified pension or profit sharing plan or IRA established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
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 UST Master Funds, to:
UST Master Funds
c/o Mutual Funds Service 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 UST Master 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
MFSC; 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
MFSC 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 MFSC.
Purchases by Wire
Investors may also purchase Shares by wiring Federal funds to MFSC. Prior to
making an initial investment by wire, an Investor must telephone MFSC 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:
United States Trust Company of New York
ABA #021001318
UST Funds, Account No. 2901447
For further credit to:
UST Master Funds
Wire Control Number
Account Registration (including account number)
Investors making initial investments by wire must promptly complete the Ap-
plication accompanying this Prospectus and forward it to MFSC. Redemptions by
Investors will not be processed until the completed Application for purchase
of Shares has been received by MFSC 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 au-
tomatic investment
18
<PAGE>
and other cash management services provided. Master Tax-Exempt Fund reserves
the right to reject any purchase order, in whole or in part, or to waive any
minimum investment requirements.
REDEMPTION PROCEDURES
Customers of Shareholder Organizations holding Shares of record may redeem all
or part of their investments in the Funds in accordance with procedures gov-
erning their accounts at the Shareholder Organizations. It is the responsibil-
ity of the Shareholder Organizations to transmit redemption orders to MFSC and
credit such Customer accounts with the redemption proceeds on a timely basis.
Redemption orders for Institutional Investors must be transmitted to MFSC 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 Master Tax-Exempt Fund, although Shareholder Organizations may charge
a Customer's account for wiring redemption proceeds. Information relating to
such redemption services and charges, if any, is available from the Shareholder
Organizations. An investor redeeming Shares through a registered investment 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 MFSC).
Redemption by Mail
Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:
UST Master Funds
c/o Mutual Funds Service Company
P.O. Box 2798
Boston, MA 02208-2798
A written redemption request to MFSC must (i) state the number of Shares to be
redeemed, (ii) identify the shareholder account number and tax identification
number, and (iii) be signed by each registered owner exactly as the Shares are
registered. If the Shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or accompanied by a duly executed
stock power) and must be submitted to MFSC together with the redemption re-
quest. 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 MFSC 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 MFSC pursuant to the Sig-
nature Guarantee Guidelines. Copies of the Signature Guarantee Guidelines and
information on STAMP can be obtained from MFSC at (800) 446-1012 or at the ad-
dress given above. MFSC may require additional supporting documents for redemp-
tions made by corporations, executors, administrators, trustees and guardians.
A redemption request will not be deemed to be properly received until MFSC re-
ceives all required documents in proper form. Payment for Shares redeemed will
ordinarily be made by mail within five Business Days after proper receipt by
MFSC of the redemption request. Questions with respect to the proper form for
redemption requests should be directed to MFSC 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 MFSC by
19
<PAGE>
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 MFSC 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 MFSC 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. An $8.00 fee for each wire redemption by a Direct Investor is
deducted by MFSC from the proceeds of the redemption. 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 MFSC.
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 Master Tax-Exempt
Fund, c/o MFSC, at the address listed above under "Redemption by Mail." Such
requests must be signed by the Direct Investor, with signatures guaranteed (see
"Redemption by Mail" above, for details regarding signature guarantees). Fur-
ther documentation may be requested.
MFSC and the Distributor reserve the right to re- fuse 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 Master Tax-
Exempt Fund, MFSC or the Distributor. MASTER TAX-EXEMPT FUND, MFSC AND THE DIS-
TRIBUTOR 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, MASTER TAX-EXEMPT
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, Master Tax-Exempt Fund and MFSC reserve the right not to honor
the redemption until MFSC 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 con-
nection 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 collect-
ed, the purchase will be cancelled and MFSC will charge a fee of $25.00 to the
Direct Investor's account.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. If an Investor is unable to contact MFSC by tele-
phone, the Investor may also deliver the redemption request to MFSC in writing
at the address noted above under "How to Purchase and Redeem Shares--Redemption
by Mail."
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 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 Organ-
ization to maintain a minimum balance in his or her account at the institution
with respect to Shares of a Fund, and the balance in such account falls below
that minimum, the Customer may be obliged by the Shareholder Organization to
redeem all or part of his or her Shares to the extent necessary to maintain the
required minimum balance.
GENERAL
Purchase and redemption orders for Shares which are received and accepted
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 and accepted after the
close
20
<PAGE>
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 Master Tax-Exempt
Fund, exchange Shares in a Fund having a value of at least $500 for Shares of
any other portfolio offered by Master Tax-Exempt Fund or Master Fund, provided
that such other shares may legally be sold in the state of the Investor's resi-
dence.
Master Fund currently offers 20 investment portfolios as follows:
Money Fund, a money market fund seeking as high a level of current income as
is consistent with liquidity and stability of principal through investments
in high-quality money market instruments maturing within 13 months;
Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaranteed by the U.S. Govern-
ment, its agencies and instrumentalities and repurchase agreements collater-
alized by such obligations;
Treasury Money Fund, a money market fund seeking current income generally
exempt from state and local income taxes through investments in direct short-
term obligations issued by the U.S. Treasury and certain agencies or instru-
mentalities of the U.S. Government;
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 through invest-
ments in investment grade debt obligations, U.S. Government obligations and
money market instruments;
Equity Fund, a fund seeking primarily long-term capital appreciation through
investments in a diversified portfolio of primarily equity securities;
Income and Growth Fund, a fund investing substantially in equity securities
in seeking to provide moderate current income and to achieve capital appreci-
ation as a secondary objective;
Long-Term Supply of Energy Fund, a fund seeking long-term capital apprecia-
tion by investing in companies benefitting from the availability, development
and delivery of secure hydrocarbon and other energy sources;
Productivity Enhancers Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their roles as innovators, devel-
opers and suppliers of goods and services which enhance service and manufac-
turing productivity or companies that are most effective at obtaining and ap-
plying productivity enhancement developments;
Environmentally-Related Products and Services Fund, a fund seeking long-term
capital appreciation by investing in companies benefitting from their provi-
sion of products, technologies and services related to conservation, protec-
tion and restoration of the environment;
Aging of America Fund, a fund seeking long-term capital appreciation by in-
vesting in companies benefitting from the changes occurring in the demo-
graphic structure of the U.S. population, particularly of its growing popula-
tion of individuals over the age of 40;
21
<PAGE>
Communication and Entertainment Fund, a fund seeking long-term capital ap-
preciation by investing in companies benefitting from the technological and
international transformation of the communications and entertainment indus-
tries, particularly the convergence of information, communication and enter-
tainment media;
Business and Industrial Restructuring Fund, a fund seeking long-term capital
appreciation by investing in companies benefitting from their restructuring
or redeployment of assets and operations in order to become more competitive
or profitable;
Global Competitors Fund, a fund seeking long-term capital appreciation by
investing in U.S.-based companies benefitting from their position as effec-
tive and strong competitors on a global basis;
Early Life Cycle Fund, a fund seeking long-term capital appreciation by in-
vesting in smaller companies in the earlier stages of their development or
larger or more mature companies engaged in new and higher growth potential
operations;
International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;
Emerging Americas Fund, a fund seeking long-term capital appreciation
through investments in companies and securities of governments based in all
countries in the Western Hemisphere, except the U.S.;
Pacific/Asia Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Asia and on the
Asian side of the Pacific Ocean; and
Pan European Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments located in Europe.
Master Tax-Exempt Fund currently offers, in addition to the Funds, two other
portfolios as follows:
Short-Term Tax-Exempt Fund, a diversified tax- exempt money market fund
seeking a moderate level of current interest income exempt from Federal in-
come taxes through investing primarily in high-quality municipal obligations
maturing within 13 months; and
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 three to ten
years.
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
Master Tax-Exempt Fund or Master Fund. 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. The Shares of the portfolio to be acquired will
be purchased at the per share net asset value of those shares (plus any appli-
cable sales load) next determined after acceptance of the exchange request. No
sales load will be payable on shares to be acquired through an exchange to the
extent that a sales load was previously paid on the Shares being exchanged.
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 Master Tax-Exempt Fund or Master Fund
should request and review the prospectuses of such funds. Such prospectuses may
be obtained by calling the telephone numbers listed above. Master Tax-Exempt
Fund may modify or terminate the exchange program at any time upon 60 days'
written notice to shareholders, and may reject any exchange request. In order
to prevent abuse of this privilege to the disadvantage of other sharehold-
22
<PAGE>
ers, Master Fund and Master Tax-Exempt Fund reserve the right to limit the num-
ber of exchange requests of Investors and Customers of Shareholder Organiza-
tions to no more than six per year. MASTER TAX-EXEMPT FUND, MFSC AND THE DIS-
TRIBUTOR ARE NOT RESPONSIBLE FOR THE AUTHENTICITY OF EXCHANGE REQUESTS RECEIVED
BY TELEPHONE THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CON-
FIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, MASTER TAX-EXEMPT FUND WILL USE
SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE IN-
STRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
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 mak-
ing an exchange, an investor should consult a tax or other financial adviser to
determine tax consequences.
SYSTEMATIC WITHDRAWAL PLAN
An Investor who owns Shares of a Fund with a value of $10,000 or more may es-
tablish a Systematic Withdrawal Plan. The Investor may request a declining-bal-
ance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an investor must complete the Supplemental Applica-
tion contained in this Prospectus and mail it to MFSC at the address given
above. Further information on establishing a Systematic Withdrawal Plan may be
obtained by calling (800) 446-1012 (from overseas, call (617) 557-8280).
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 institutions.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits Investors to purchase Shares (minimum
of $50 per Fund per transaction) at regular intervals selected by the Investor.
The minimum initial investment for an Automatic Investment Program account is
$50 per Fund. Provided the Investor's financial institution allows automatic
withdrawals, Shares are purchased by transferring funds from an Investor's
checking, bank money market or NOW account designated by the Investor. At the
Investor's option, the account designated will be debited in the specified
amount, and Shares will be purchased, once a month, on either the first or fif-
teenth day, or twice a month, on both days.
The Automatic Investment Program is one means by which an Investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time market
performance, a fixed dollar amount is invested in Shares at predetermined in-
tervals. This may help Investors to reduce their average cost per share because
the agreed upon fixed investment amount allows more Shares to be purchased dur-
ing periods of lower share prices and fewer Shares during periods of higher
prices. In order to be effective, Dollar Cost Averaging should usually be fol-
lowed on a sustained, consistent basis. Investors should be aware, however,
that Shares bought using Dollar Cost Averaging are purchased without regard to
their price on the day of investment or to market trends. In addition, while
Investors may find Dollar Cost Averaging to be beneficial, it will not prevent
a loss if an Investor ultimately redeems his Shares at a price which is lower
than their purchase price.
To establish an Automatic Investment account permitting Investors to use the
Dollar Cost Averaging investment method described above, an Investor must com-
plete the Supplemental Application contained in this Prospectus and mail it to
MFSC. An Investor may cancel his participation in this Program or change the
amount of purchase at any time by mailing written notification to MFSC, P.O.
Box 2798, Boston, MA 02208-2798 and notification will be effec-
23
<PAGE>
tive three Business Days following receipt. Master Tax-Exempt Fund may modify
or terminate 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.
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 assets,
less (ii) amortization of premium on such assets, accrued expenses directly at-
tributable to the Fund, and the general expenses or the expenses common to more
than one Fund (e.g., legal, administrative, accounting, and Directors' fees) of
Master Tax-Exempt Fund, 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 distributed at
least annually.
All dividends and distributions paid on Shares held of record by the Invest-
ment Adviser and its affiliates or correspondent banks will be paid in cash.
Direct and Institutional Investors and Customers of other Shareholder Organiza-
tions will receive dividends and distributions in additional Shares of the Fund
on which the dividend or distribution is paid (as determined on the payable
date), unless they have requested in writing (received by MFSC at Master Tax-
Exempt Fund's address prior to the payment date) to receive dividends and dis-
tributions in cash. Reinvested dividends and distributions receive the same tax
treatment as those paid in cash.
TAXES
FEDERAL
Each of the Funds qualified for its last taxable year as a "regulated invest-
ment company" under the Internal Revenue Code of 1986, as amended (the "Code").
Each Fund expects to so qualify in future years. Such qualification generally
relieves a Fund of liability for Federal income taxes to the extent its earn-
ings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code requires, among
other things, that a Fund distribute to its shareholders an amount equal to at
least the sum of 90% of its investment company taxable income and 90% of its
exempt-interest income (if any), net of certain deductions for each taxable
year. In general, a Fund's investment company taxable income will be its tax-
able income (including interest) subject to certain adjustments and excluding
the excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. It is anticipated that none of
the dividends paid by the Funds will be eligible for the dividends received de-
duction for corporations.
Distribution by a Fund of the excess of its net long-term capital gain over
its net short-term capital loss is taxable to shareholders as long-term 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.
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.
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
24
<PAGE>
payment, although in effect a return of capital, will be taxable to them.
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 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 such Shares
for Shares of another Fund within 90 days of the purchase and is able to reduce
the sales charges applicable to the new Shares (by virtue of the exchange priv-
ilege), the amount equal to reduction may not be included in the tax basis of
the shareholder's exchanged Shares, but may be included (subject to the limita-
tion) in the tax basis of the new Shares.
Each 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. Some dividends derived from exempt-interest income ("exempt-in-
terest dividends") may be treated by a Fund's shareholders as items of interest
excludable from their gross income under Section 103(a) of the Code, unless,
under the circumstances applicable to the particular shareholder, exclusion
would be disallowed. (See Statement of Additional Information under "Additional
Information Concerning Taxes.")
If a Fund should hold certain "private activity bonds" issued after August 7,
1986, the portion of dividends paid by the Fund which are attributable to in-
terest on such bonds must be included in a shareholder's Federal alternative
minimum taxable income, as an item of tax preference, for the purpose of deter-
mining liability (if any) for the 26% to 28% alternative minimum tax applicable
to individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all exempt-
interest dividends into account in determining certain adjustments under the
Federal alternative minimum tax. The environmental tax applicable to corpora-
tions is imposed at the rate of .12% on the excess of the corporation's modi-
fied Federal alternative minimum taxable income over $2 million. Shareholders
receiving Social Security benefits should note that all exempt-interest divi-
dends will be taken into account in determining the taxability of such bene-
fits.
Dividends payable by the Funds which are derived from taxable income or from
long-term or short-term capital gains will be subject to Federal income tax,
whether such dividends are paid in the form of cash or additional Shares.
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 situations.
Shareholders will be advised at least annually as to the Federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Funds may be
taxable to shareholders under state or local law as dividend income, even
though all or a portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes. Purchasers are advised to consult their tax advisers concerning
the application of state and local taxes, which may have different consequences
from those of the Federal income tax law described above.
25
<PAGE>
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of Mas-
ter Tax-Exempt Fund's Board of Directors. The Statement of Additional Informa-
tion contains the names of and general background information concerning Master
Tax-Exempt Fund's directors.
INVESTMENT ADVISER
United States Trust Company of New York serves as the Investment Adviser to
each Fund. U.S. Trust is a state-chartered bank and trust company. The Invest-
ment Adviser provides trust and banking services to individuals, corporations,
and institutions both nationally and internationally, including investment man-
agement, estate and trust administration, financial planning, corporate trust
and agency banking, and personal and corporate banking. The Investment Adviser
is a member bank of the Federal Reserve System and the Federal Deposit Insur-
ance Corporation and is one of the twelve members of the New York Clearing
House Association.
On December 31, 1994, the Investment Adviser's Asset Management Group had ap-
proximately $33 billion in assets under management. The Investment Adviser,
which has its principal offices at 114 W. 47th Street, New York, New York
10036, is a subsidiary of U.S. Trust Corporation, a registered bank holding
company.
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.
The Short-Term, Intermediate-Term and Long-Term Funds' portfolio manager, Ken-
neth J. McAlley, is the person primarily responsible for the day-to-day manage-
ment of the Funds' investment portfolios. Mr. McAlley, Executive Vice President
and Manager of the Fixed Income Investment Division of U.S. Trust, has been
with U.S. Trust since 1980 and has been the Long-Term Fund's portfolio manager
since 1986 and the Short-Term and Intermediate-Term Funds' portfolio manager
since 1995.
For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreements, the Investment Adviser is entitled to be paid a fee, com-
puted daily and paid monthly, at the annual rates of .30% of the average daily
net assets of the Short-Term Fund, .35% of the average daily net assets of the
Intermediate-Term Fund, and .50% of the average daily net assets of the Long-
Term Fund. For the fiscal year ended March 31, 1995, the Investment Adviser re-
ceived an advisory fee at the effective annual rates of .28%, .32% and .47% of
the average daily net assets of the Short-Term, Intermediate-Term and Long-Term
Funds, respectively. For the same period, the Investment Adviser waived advi-
sory fees at the effective annual rates of .02%, .03% and .03% of the average
daily net assets of each of the Short-Term, Intermediate-Term and Long-Term
Funds, respectively.
From time to time, the Investment Adviser may waive (either voluntarily or
pursuant to applicable statutory expense limitations) all or a portion of the
advisory fees payable to it by a Fund, which waiver may be terminated at any
time. See "Management of the Funds--Service Organizations" for additional in-
formation on fee waivers.
ADMINISTRATORS
MFSC and Federated Administrative Services serve as the Funds' administrators
(the "Administrators") and provide them with general administrative and opera-
tional assistance. The Administrators also serve as administrators of the other
portfolios of Master Tax-Exempt Fund and Master Fund, which are also advised by
the Investment Adviser and distributed by the Distributor. For the services
provided to all portfolios of Master Tax-Exempt Fund and Master Fund (except
the International, Emerging Americas, Pacific/Asia and Pan European Funds of
Master
26
<PAGE>
Fund), the Administrators are entitled jointly to annual fees, computed daily
and paid monthly, based on the combined aggregate average daily net assets of
the two companies (excluding the International, Emerging Americas, Pacific/Asia
and Pan European Funds) as follows:
<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY
NET ASSETS OF MASTER TAX-EXEMPT
FUND AND MASTER FUND
(EXCLUDING THE INTERNATIONAL,
EMERGING AMERICAS, PACIFIC/ASIA AND
PAN EUROPEAN FUNDS) 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 Master
Tax-Exempt Fund and Master Fund are allocated in proportion to their relative
average daily net assets at the time of determination. From time to time, the
Administrators may waive (either voluntarily or pursuant to applicable state
expense limitations) all or a portion of the administration fee payable to them
by a Fund, which waiver may be terminated at any time. See "Management of the
Funds--Service Organizations" for additional information on fee waivers. For
the fiscal year ended March 31, 1995, the MFSC and Concord Holding Corporation,
the former co-administrator, received an aggregate administration fee (under
the same compensation arrangements noted above) at the effective annual rate of
.154% of the average daily net assets of each of the Short-Term, Intermediate-
Term and Long-Term Funds.
SERVICE ORGANIZATIONS
Master Tax-Exempt Fund will enter into an agreement ("Servicing Agreement")
with each Service Organization requiring it to provide administrative support
services to its Customers beneficially owning Shares. As a consideration for
the administrative services provided to Customers, a Fund will pay the Service
Organization an administrative service fee at the annual rate of up to .40% of
the average daily net asset value of its Shares held by the Service Organiza-
tion's Customers. Such services, which are described more fully in the State-
ment of Additional Information under "Management of the Funds--Service Organi-
zations," 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. Un-
der the terms of the Servicing Agreement, Service Organizations will be re-
quired to provide to Customers a schedule of any fees that they may charge in
connection with a Customer's investment. Until further notice, the Investment
Adviser and Administrators have voluntarily agreed to waive fees payable by a
Fund in an amount equal to administrative service fees payable by that Fund.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and prohibit banks generally from issuing, underwriting, selling or distribut-
ing securities such as Shares of the Funds, but such banking laws and regula-
tions do not prohibit such a holding company or affiliate or banks generally
from acting as investment adviser, transfer agent, or custodian to such an in-
vestment company, or from purchasing shares of such company for and upon the
order of customers. The Investment Adviser, MFSC and certain Shareholder Orga-
nizations may be subject to such banking laws and regulations. State securities
laws may differ from the interpretations of Federal law discussed in this para-
graph and banks and financial institutions may be required to register as deal-
ers pursuant to state law.
Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Invest-
27
<PAGE>
ment Adviser and such Shareholder Organizations might be required to alter ma-
terially 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 finan-
cial loss to any shareholder.
DESCRIPTION OF CAPITAL STOCK
Master Tax-Exempt Fund was organized as a Maryland corporation on August 8,
1984. Currently, Master Tax-Exempt Fund has authorized capital of 14 billion
shares of Common Stock, $.001 par value per share, classified into 5 classes of
shares representing 5 investment portfolios currently being offered. Master
Tax-Exempt Fund's Charter authorizes the Board of Directors to classify or re-
classify any class of shares of Master Tax-Exempt Fund into one or more classes
or series. Shares of Class B, C and F represent interests in the Intermediate-
Term Tax-Exempt, Long-Term Tax-Exempt and Short-Term Tax-Exempt Securities
Funds, respectively.
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 dis-
tributions out of the income earned on the assets belonging to such Fund as are
declared in the discretion of Master Tax-Exempt Fund's Board of Directors.
Shareholders 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 expressly required by law.
Certificates for Shares will not be issued unless expressly requested in writ-
ing to MFSC and will not be issued for fractional Shares.
As of July 11, 1995, U.S. Trust held of record substantially all of the Shares
in the Funds as agent or custodian for its customers, but did not own such
Shares beneficially because it did not have voting or investment discretion
with respect to such Shares.
CUSTODIAN AND TRANSFER AGENT
United States Trust Company of New York serves as the custodian of the Funds'
assets and as their transfer and dividend disbursing agent. Communications to
the custodian and transfer agent should be directed to United States Trust Com-
pany of New York, Mutual Funds Service Division, 770 Broadway, New York, New
York 10003-9598.
U.S. Trust has entered into a sub-transfer agency arrangement with MFSC, 73
Tremont Street, Boston, Massachusetts 02108-3913, pursuant to which MFSC pro-
vides certain transfer agent, dividend disbursement and registrar services to
the Funds.
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 per-
formance of mutual funds.
Performance and yield data as reported in national financial publications, in-
cluding 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 maximum offering
price per Share on the last day of the period, and annualizing the result on a
semiannual basis.
28
<PAGE>
In addition, each Fund may from time to time advertise its "tax-equivalent
yield" to demonstrate the level of taxable yield necessary to produce an after-
tax yield equivalent to that achieved by the Fund. This yield is computed by
increasing the yield of the Fund's Shares (calculated as above) by the amount
necessary to reflect the payment of Federal income taxes at a stated tax rate.
From time to time, each Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure re-
flects the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring pe-
riod. Average total return figures will be given for the most recent one-year
period and may be given for other periods as well (such as from the commence-
ment of a Fund's operations, or on a year-by-year basis). Each Fund may also
use aggregate total return figures for various periods, representing the cumu-
lative change in the value of an investment in the Fund for the specific peri-
od. Both methods of calculating total return assume that dividends and capital
gain distributions made by a Fund during the period are reinvested in Fund
Shares, and also reflect the maximum sales load charged by the Fund.
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 compare
an investment in the Funds with bank deposits, savings accounts and similar in-
vestment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that the performance
and yield are generally functions of the kind and quality of the instruments
held in a portfolio, portfolio maturity, operating expenses, and market condi-
tions. Any fees charged by the Shareholder Organizations with respect to ac-
counts of Customers that have invested in Shares will not be included in calcu-
lations of yield and performance.
MISCELLANEOUS
Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds' in-
dependent auditors.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of Master Tax-Exempt Fund or a particular Fund means, with re-
spect to the approval of an investment advisory agreement or a change in a fun-
damental investment policy, the affirmative vote of the lesser of (a) more than
50% of the outstanding shares of Master Tax-Exempt Fund or such Fund, or (b)
67% or more of the shares of Master Tax-Exempt Fund or such Fund present at a
meeting if more than 50% of the outstanding shares of Master Tax-Exempt 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:
Complete the Application(s) and mail to: FOR OVERNIGHT DELIVERY: send to:
UST Master Funds UST Master Funds
c/o Mutual Funds Service Company c/o Mutual Funds Service Company--
P.O. Box 2798 Transfer Agent
Boston, MA 02208-2798 73 Tremont Street
Boston, MA 02108-3913
Please enclose with the Application(s) your check made payable to the "UST
Master Funds" in the amount of your investment.
For direct wire purchases please refer to the section of the Prospectus enti-
tled "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 organiza-
tions, 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 transfer agent at (800) 446-1012 between 9:00 a.m.
and 5:00 p.m. (Eastern Time).
30
<PAGE>
[LOGO OF UST MUTUAL FUNDS SERVICE COMPANY
MASTER FUNDS CLIENT SERVICES
APPEARS HERE] P.O. Box 2798
Boston, MA 02208-2798
(800) 446-1012
NEW ACCOUNT APPLICATION
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION
-----------------------------------------------------------------------------
[_] Individual [_] Joint Tenants [_] Trust [_] Gift/Transfer to Minor
[_] Other_____________________
Note: Joint tenant registration will be as "joint tenants with right of
survivorship" unless otherwise specified. Trust registrations should specify
name of the trust, trustee(s), beneficiary(ies), and the date of the trust
instrument. Registration for Uniform Gifts/Transfers to Minors should be in
the name of one custodian and one minor and include the state under which
the custodianship is created (using the minor's Social Security Number
("SSN")). For IRA accounts a different application is required.
------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
Identification #
------------------------------
Name ( )
-----------------------------
------------------------------ Telephone #
Address
------------------------------ [_] U.S. Citizen [_] Other
City/State/Zip (specify)
--------------------
-----------------------------------------------------------------------------
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 PER
FUND AND $50 PER FUND, RESPECTIVELY. MAKE CHECKS PAYABLE TO "UST MASTER
FUNDS.")
-----------------------------------------------------------------------------
INITIAL INVESTMENT
[_] Short-Term Tax-Exempt
Securities Fund $ ____________ 825
[_] Intermediate-Term Tax-Exempt
Fund $ ____________ 807
INITIAL INVESTMENT
[_] Long-Term Tax-Exempt
Fund $ ____________ 808
[_] Other _______________ $ ____________
TOTAL INITIAL INVESTMENT: $ ____________
NOTE: If investing by wire, you must obtain a Bank Wire Control Number. To
do so, please call (800) 446-1012 and ask for the Wire Desk.
A. BY MAIL: Enclosed is a check in the amount of $ ____ payable to "UST
Master Funds."
B. BY WIRE: A bank wire in the amount of $ _____ has been sent to the Fund
from
------------------ ----------------------
Name of Bank Wire Control Number
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------
TELEPHONE EXCHANGE AND REDEMPTION
[_] I/We appoint MFSC as my/our agent to act upon instructions received by
telephone in order to effect the telephone exchange and redemption
privileges. I/We hereby ratify any instructions given pursuant to this
authorization and agree that Master Fund, Master Tax-Exempt Fund, MFSC and
their directors, officers and employees will not be liable for any loss,
liability, cost or expense for acting upon instructions believed to be
genuine and in accordance with the procedures described in the then current
Prospectus. To the extent that Master Fund and Master Tax-Exempt Fund fail
to use reasonable procedures as a basis for their belief, they or their
service contractors may be liable for instructions that prove to be
fraudulent or unauthorized.
I/We further acknowledge that it is my/our responsibility to read the
Prospectus of any Fund into which I/we exchange.
[_] I/We do not wish to have the ability to exercise telephone redemption
and exchange privileges. I/We further understand that all exchange and
redemption requests must be in writing.
SPECIAL PURCHASE AND REDEMPTION PLANS
I/We have completed and attached the Supplemental Application for:
[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan
AUTHORITY TO TRANSMIT REDEMPTION PROCEEDS TO PRE-DESIGNATED ACCOUNT.
I/We hereby authorize MFSC to act upon instructions received by telephone to
withdraw $500 or more from my/our account in the UST Master Funds and to
wire the amount withdrawn to the following commercial bank account. I/We
understand that MFSC charges an $8.00 fee for each wire redemption, which
will be deducted from the proceeds of the redemption.
Title on Bank Account*____________________________________________________
Name of Bank _____________________________________________________________
Bank A.B.A. Number______________ Account Number _________________________
Bank Address _____________________________________________________________
City/State/Zip ___________________________________________________________
(attach voided check here)
A corporation, trust or partnership must also submit a "Corporate
Resolution" (or "Certificate of Partnership") indicating the names and
titles of officers authorized to act on its behalf.
* TITLE ON BANK AND FUND ACCOUNT MUST BE IDENTICAL.
<PAGE>
------------------------------------------------------------------
RIGHTS OF ACCUMULATION
------------------------------------------------------------------
To qualify for Rights of Accumulation, you must complete this
section, listing all of your accounts including those in your
spouse's name, joint accounts and accounts held for your
minor children. If you need more space, please attach a
separate sheet.
[_] I/We qualify for the Rights of Accumulation sales charge
discount described in the Prospectus and Statement of
Additional Information.
[_] I/We own shares of more than one Fund distributed by
Edgewood Services, Inc. Listed below are the numbers of
each of my/our Shareholder Accounts.
[_] The registration of some of my/our shares differs from that
shown on this application. Listed below are the account
number(s) and full registration(s) in each case.
LIST OF OTHER UST MASTER FUND ACCOUNTS:
______________________ _______________________________________
______________________ _______________________________________
______________________ _______________________________________
ACCOUNT NUMBER ACCOUNT REGISTRATIONS
------------------------------------------------------------------
LETTER OF INTENT
------------------------------------------------------------------
[_] I agree to the Letter of Intent provisions set forth in
the Prospectus. Although I am not obligated to purchase, and
Master Tax-Exempt Fund is not obligated to sell, I intend to
invest, over a 13-month period beginning on , 19 , an
aggregate amount in Eligible Funds of Master Fund and Master
Tax-Exempt Fund at least equal to (check appropriate box):
[_] $50,00 [_] $100,000 [_] $250,000 [_] $500,000
[_] $1,000,000 [_] $2,000,0000
By signing this application, I hereby authorize MFSC to
redeem an appropriate number of shares held in escrow to pay
any additional sales loads payable in the event that I do not
fulfill the terms of this Letter of Intent.
------------------------------------------------------------------
AGREEMENTS AND SIGNATURES
------------------------------------------------------------------
By signing this application, I/we hereby certify under
penalty of perjury that the information on this application
is complete and correct and that as required by Federal law:
[_] I/We certify that (1) the number(s) shown on this form
is/are the correct taxpayer identification number(s) and (2)
I/we are not subject to backup withholding either because
I/we have not been notified by the Internal Revenue Service
that I/we are subject to backup withholding, or the IRS has
notified me/us that I am/we are no longer subject to backup
withholding. (NOTE: IF ANY OR ALL OF PART 2 IS NOT TRUE,
PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
[_] If no taxpayer identification number ("TIN") or SSN has
been provided above, I/we have applied, or intend to apply,
to the IRS or the Social Security Administration for a TIN or
a SSN, and I/we understand that if I/we do not provide this
number to MFSC within 60 days of the date of this
application, or if I/we fail to furnish my/our correct SSN or
TIN, I/we may be subject to a penalty and a 31% backup
withholding on distributions and redemption proceeds. (Please
provide this number on Form W-9. You may request the form by
calling MFSC at the number listed above).
I/We represent that I am/we are of legal age and capacity to
purchase shares of the UST Master Funds. I/We have received,
read and carefully reviewed a copy of the appropriate Fund's
current Prospectus and agree to its terms and by signing
below I/we acknowledge that neither the Fund nor the
Distributor is a bank and that Fund Shares are not deposits
or obligations of, or guaranteed or endorsed by, United
States Trust Company of New York, its parent and affiliates
and the Shares are not federally insured by, guaranteed by,
obligations of or otherwise supported by the U.S. Government,
the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other governmental agency; and that an
investment in the Funds involves investment risks, including
possible loss of principal amount invested.
X ___________________________ Date __________________________
Owner Signature
X ___________________________ Date __________________________
Co-Owner Signature
Sign exactly as name(s) of registered owner(s) appear(s) above
(including legal title if signing for a corporation, trust
custodial account, etc.).
------------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
------------------------------------------------------------------
We hereby submit this application for the purchase of shares
in accordance with the terms of our selling agreement with
Edgewood Services, Inc., and with the Prospectus and
Statement of Additional Information of each Fund purchased.
We agree to notify MFSC of any purchases made under the
Letter of Intent or Rights of Accumulation.
----------------------------- -------------------------------
Investment Dealer's Name Source of Business Code
----------------------------- -------------------------------
Main Office Address Branch Number
----------------------------- -------------------------------
Representative's Number Representative's Name
----------------------------- -------------------------------
Branch Address Telephone
----------------------------- -------------------------------
Investment Dealer's Title
Authorized Signature
<PAGE>
[LOGO OF UST MUTUAL FUNDS SERVICE COMPANY
MASTER FUNDS CLIENT SERVICES SUPPLEMENTAL APPLICATION
APPEARS HERE] P.O. Box 2798 SPECIAL INVESTMENT AND
Boston, MA 02208-2798 WITHDRAWAL OPTIONS
(800) 446-1012
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
-----------------------------------------------------------------------------
Fund Name __________________ Account Number _________________
Owner Name _________________ Social Security or Taxpayer ID
Street Address _____________ Number _________________________
Resident City, State, Zip Code __________
of [_] U.S. [_] Other ____ [_] Check here if this is a change of address
-----------------------------------------------------------------------------
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
-----------------------------------------------------------------------------
A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked: All dividends are to be [_] reinvested
[_] paid in cash
All capital gains are to be [_] reinvested
[_] paid in cash
B. PAYMENT ORDER: Complete only if distribution checks are to be payable
to another party. Make distribution checks payable to:
Name of Your Bank ______________
Name _______________________ Bank Account Number ____________
Address ____________________ Address of Bank ________________
City, State, Zip Code ________________________________________
C. DISTRIBUTIONS REINVESTED-CROSS FUNDS: Permits all distributions from
one Fund to be automatically reinvested into another identically-
registered UST Master Fund. (NOTE: You may NOT open a new Fund account
with this option.) Transfer all distributions earned:
From: ______________________ Account No. ____________________
(Fund)
To: ________________________ Account No. ____________________
(Fund)
-----------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN [_] YES [_] NO
-----------------------------------------------------------------------------
I/We hereby authorize MFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable public offering price
determined on that day.
[_] Monthly on the 1st day [_] Monthly on the 15th day [_] Monthly on both
the 1st and 15th
days
Amount of each debit (minimum $50 per Fund) $ ________________
NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
------------------------------------------------------------------------------
------------------------------------------------------------------------------
UST MASTER FUNDS
CLIENT SERVICES AUTOMATIC INVESTMENT PLAN
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
BANK AUTHORIZATION
-----------------------------------------------------------------------------
----------------------- ------------------------ --------------------------
Bank Name Bank Address Bank Account Number
I/We authorize you, the above named bank, to debit my/our
account for amounts drawn by MFSC, acting as my agent for the
purchase of Fund shares. I/We agree that your rights in
respect to each withdrawal shall be the same as if it were a
check drawn upon you and signed by me/us. This authority
shall remain in effect until revoked in writing and received
by you. I/We agree that you shall incur no liability when
honoring debits, except a loss due to payments drawn against
insufficient funds. I/We further agree that you will incur no
liability to me if you dishonor any such withdrawal. This
will be so even though such dishonor results in the
cancellation of that purchase.
---------------------------- --------------------------------
Account Holder's Name Joint Account Holder's Name
X ---------------- --------- X ------------------ -----------
Signature Date Signature Date
<PAGE>
--------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN [_] YES [_] NO NOT AVAILABLE FOR IRA'S
--------------------------------------------------------------------------------
AVAILABLE TO SHAREHOLDERS WITH ACCOUNT BALANCES OF $10,000 OR MORE.
I/We hereby authorize MFSC to redeem the necessary number of shares from
my/our UST Master Fund Account on the designated dates in order to make the
following periodic payments:
[_] Monthly on the 24th day [_] Quarterly on the 24th day of
January, April, July and October
[_] Other______
(This request for participation in the Plan must be received by the 18th day
of the month in which you wish withdrawals to begin.)
Amount of each check ($100 minimum) $______________________
Please make check payable to: Recipient ________________________
(To be completed only if redemption
proceeds to be paid to other than Street Address ___________________
account holder of record or mailed
to address other than address of City, State, Zip Code ____________
record)
NOTE: If recipient of checks is not the registered shareholder, signature(s)
----
below must be guaranteed. A corporation, trust or partnership must also submit
a "Corporate Resolution" (or "Certification of Partnership") indicating the
names and titles of officers authorized to act on its behalf.
--------------------------------------------------------------------------------
AGREEMENT AND SIGNATURES
--------------------------------------------------------------------------------
The investor(s) certifies and agrees that the certifications, authorizations,
directions and restrictions contained herein will continue until MFSC receives
written notice of any change or revocation. Any change in these instructions
must be in writing with all signatures guaranteed (if applicable).
Date ______________________
X X
--------------------------------------- -------------------------------------
Signature Signature
--------------------------------------- -------------------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)
X X
--------------------------------------- -------------------------------------
Signature Signature
--------------------------------------- -------------------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)
*ELIGIBLE GUARANTORS: An Eligible Guarantor institution is a bank, trust
company, broker, dealer, municipal or government securities broker or dealer,
credit union, national securities exchange, registered securities association,
clearing agency or savings association, provided that such institution is a
participant in STAMP, the Securities Transfer Agents Medallion Program.
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY......................................................... 2
EXPENSE SUMMARY............................................................ 3
FINANCIAL HIGHLIGHTS....................................................... 5
INVESTMENT OBJECTIVES AND POLICIES......................................... 8
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION..................... 9
INVESTMENT LIMITATIONS..................................................... 13
PRICING OF SHARES.......................................................... 14
HOW TO PURCHASE AND REDEEM SHARES.......................................... 15
INVESTOR PROGRAMS.......................................................... 21
DIVIDENDS AND DISTRIBUTIONS................................................ 24
TAXES...................................................................... 24
MANAGEMENT OF THE FUNDS.................................................... 26
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 THE COMPANIES
OR BY 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.
USTTXXP895
[LOGO OF UST MASTER
TAX-EXEMPT FUNDS, INC. APPEARS HERE]
MASTER TAX-EXEMPT FUNDS, INC.
SHORT-TERM TAX-EXEMPT SECURITIES FUND
INTERMEDIATE-TERM TAX-EXEMPT FUND
LONG-TERM TAX-EXEMPT FUND
Prospectus
August 1, 1995
<PAGE>
[LOGO OF UST MASTER TAX-EXEMPT
A Management Investment Company FUNDS, INC. APPEARS HERE]
-------------------------------------------------------------------------------
New York Intermediate-Term For initial purchase information, current
Tax-Exempt Fund prices, yield and performance information
and existing account information, call (800)
446-1012. (From overseas, call (617) 557-
73 Tremont Street 8280.)
Boston, Massachusetts 02108-3913
-------------------------------------------------------------------------------
This Prospectus describes the New York Intermediate-Term Tax-Exempt Fund (the
"Fund"), a non-diversified investment portfolio offered to investors by UST
Master Tax-Exempt Funds, Inc. ("Master Tax-Exempt Fund"), an open-end manage-
ment investment company.
NEW YORK INTERMEDIATE-TERM TAX-EXEMPT FUND'S investment objective is to pro-
vide New York investors with as high a level of current interest income 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 relative stability
of principal. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in New York Municipal Obligations. Although the Fund
has no restrictions as to the minimum or maximum maturity of any individual
security it may hold, it will have a dollar-weighted average portfolio matu-
rity of 3 to 10 years.
Edgewood Services, Inc. sponsors the Fund and serves as its distributor and
United States Trust Company of New York (the "Investment Adviser" or "U.S.
Trust") serves as the Fund's investment adviser.
This Prospectus sets forth concisely the information about the Fund 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, 1995 and containing additional information about
the Fund 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 Master Tax-Exempt Fund at its 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.
SHARES IN THE FUND ("SHARES") ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, UNITED STATES TRUST COMPANY, 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 COR-
PORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August 1, 1995
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
NEW YORK
INTERMEDIATE-TERM
TAX-EXEMPT FUND
-----------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load on Purchases (as percentage of offering
price)...................................................... 4.50%
Sales Load on Reinvested Dividends........................... None
Deferred Sales Load.......................................... None
Redemption Fees/1/........................................... None
Exchange Fee................................................. None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
Advisory Fees (after fee waivers)/2/......................... .48%
12b-1 Fees................................................... None
Other Operating Expenses
Administrative Servicing Fee................................ .02%
Other Expenses.............................................. .28%
-----
Total Operating Expenses (after fee waivers)/2/.............. .78%
=====
</TABLE>
-------
1. The Fund's transfer agent imposes a direct $8.00 charge on each wire redemp-
tion by noninstitutional (i.e. individual) investors which is not reflected
in the estimated expense ratios presented herein. Shareholder organizations
may charge their customers transaction fees in connection with redemptions.
See "Redemption Procedures."
2. The Investment Adviser and Administrators may from time to time voluntarily
waive part of their respective fees, which waivers may be terminated at any
time. Until further notice, the Investment Adviser and/or Administrators in-
tend to voluntarily waive fees in an amount equal to the Administrative Ser-
vicing Fee. Without such fee waivers, "Advisory Fee" would be .50% and "To-
tal Operating Expenses" would be .80% for the Fund.
Example: You would pay the following estimated 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>
New York Intermediate-Term Tax-Exempt Fund...... $53 $69 $86 $137
</TABLE>
The foregoing expense summary and example (based on the maximum sales load
payable on the Shares) are intended to assist the investor in understanding the
costs and expenses that an investor in Shares of the Fund will bear directly or
indirectly. The expense summary sets forth advisory and other expenses payable
with respect to Shares of the Fund for the fiscal year ended March 31, 1995.
For more complete descriptions of the Fund's operating expenses, see "Manage-
ment of the Fund" in this Prospectus and the financial statements and notes in-
corporated by reference in the Statement of Additional Information.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a Share outstanding throughout
each period and other performance information derived from the financial state-
ments included in Master Tax-Exempt Fund's Annual Report to Shareholders for
the fiscal year ended March 31, 1995 (the "Financial Statements"). The informa-
tion contained in the Financial Highlights for each period has been audited by
Ernst & Young LLP, Master Tax- Exempt Fund's independent auditors. The follow-
ing table should be read in conjunction with the Financial Statements and notes
thereto. More information about the performance of the Fund is also contained
in the Annual Report to Shareholders, which may be obtained from Master Tax-Ex-
empt Fund without charge by calling the number on the front cover of this Pro-
spectus.
NEW YORK INTERMEDIATE-TERM TAX-EXEMPT FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1995 1994 1993 1992 1991/1/
------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 8.18 $ 8.61 $ 8.31 $ 8.20 $ 8.00
------ ------- ------ ------ ------
Income From Investment Operations
Net Investment Income............. 0.33 0.31 0.34 0.41 0.39
Net Gains or (Losses) on
Securities (both realized and
unrealized)...................... 0.15 (0.13) 0.41 0.19 0.20
------ ------- ------ ------ ------
Total From Investment Operations.. 0.48 0.18 0.75 0.60 0.59
------ ------- ------ ------ ------
Less Distributions
Dividends From Net Investment
Income........................... (0.33) (0.31) (0.34) (0.41) (0.39)
Distributions From Net Realized
Gain on Investments.............. (0.09) (0.22) (0.11) (0.08) 0.00
Distributions in Excess of Net
Realized Gain on Investments..... 0.00 (0.08) 0.00 0.00 0.00
------ ------- ------ ------ ------
Total Distributions............... (0.42) (0.61) (0.45) (0.49) (0.39)
------ ------- ------ ------ ------
Net Asset Value, End of Period...... $ 8.24 $ 8.18 $ 8.61 $ 8.31 $ 8.20
====== ======= ====== ====== ======
Total Return/2/..................... 6.05% 1.87% 9.27% 7.42% 7.54%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)........................ $87.16 $107.49 $88.25 $52.26 $25.88
Ratio of Net Operating Expenses to
Average Net Assets............... 0.78% 0.87% 0.89% 0.88% 0.86%/3/
Ratio of Gross Operating Expenses
to Average Net Assets............ 0.80% 0.87% 0.89% 0.88% 0.86%/3/
Ratio of Net Income to Average Net
Assets........................... 4.06% 3.55% 3.94% 4.82% 5.72%/3/
Portfolio Turnover Rate........... 563.0% 326.0% 339.0% 106.0% 105.0%/3/
</TABLE>
-------
NOTES
1. Inception date of the Fund was May 31, 1990.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Investment Adviser will use its best efforts to achieve the Fund's invest-
ment objective although its achievement cannot be assured. The Fund's invest-
ment objective and, except as indicated otherwise, the policies described below
may be changed by Master Tax-Exempt Fund's Board of Directors without a vote of
the Fund's shareholders. Certain investment limitations which cannot be changed
without the requisite vote of the shareholders are set forth below under "In-
vestment Limitations."
GENERAL
The Fund is a non-diversified investment portfolio whose investment objective
is to provide New York investors with as high a level of current interest in-
come 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 the preser-
vation of capital and relative stability of principal. To accomplish this goal,
the Fund anticipates that it will invest primarily in New York Municipal Obli-
gations as defined below. Although the Fund has no restrictions as to the mini-
mum or maximum maturity of any individual security that it may hold, it will
have a dollar-weighted average portfolio maturity of 3 to 10 years.
As a matter of fundamental policy, except during temporary defensive periods,
at least 80% of the Fund's net assets will be invested in debt obligations is-
sued by or on behalf of the State of New York and other states, territories and
possessions of the United States, the District of Columbia and their respective
authorities, agencies, instrumentalities and political sub-divisions, the in-
terest from which is, in the opinion of bond counsel to the issuer, exempt from
Federal income tax ("Municipal Obligations"). The Fund expects that, except
during temporary defensive periods, under normal market conditions 65% of the
Fund's total assets will be invested in debt securities of the State of New
York, its political sub-divisions, authorities, agencies, instrumentalities and
corporations, and certain other governmental issuers such as Puerto Rico, the
interest from which is, in the opinion of bond counsel to the issuer, exempt
from Federal, New York state and New York City income taxes ("New York Munici-
pal Obligations"). In general, the Fund anticipates that dividends derived from
interest on Municipal Obligations other than New York Municipal Obligations
will be exempt from regular Federal income tax but may be subject to New York
state and New York City personal income taxes. See "Taxes" below.
Under normal market conditions, up to 20% of the Fund's assets may be held in
cash or invested in taxable obligations described below under "Portfolio In-
struments and Other Investment Information--Eligible Taxable Obligations." When
market conditions are uncertain, the Fund may hold cash reserves and eligible
taxable securities without limitations in order to maintain a temporary defen-
sive position. Uninvested cash reserves will not earn income.
QUALITY OF INVESTMENTS
The Fund invests in Municipal Obligations that are rated at the time of pur-
chase: (1) "A" or higher by Standard & Poor's Ratings Group ("S&P") or by
Moody's Investors Service, Inc. ("Moody's"), in the case of bonds (or, in cer-
tain instances, municipal bonds with lower ratings if they are determined by
the Investment Adviser to be comparable to A-rated issues); (2) "SP-2" or
higher by S&P or "MIG-2" or higher ("VMIG-2" or higher, in the case of variable
rate notes) by Moody's, in the case of notes; and (3) "A-2" or higher by S&P or
"Prime-2" or higher by Moody's, in the case of tax-exempt commercial paper. If
not rated, Municipal Obligations purchased by the Fund will be of comparable
quality to the above ratings as determined by the Investment Adviser under the
supervision of the Board of Directors. A discussion of Moody's and S&P's rating
categories is contained in Appendix A to the Statement of Additional Informa-
tion.
4
<PAGE>
TYPES OF MUNICIPAL OBLIGATIONS
The two principal classifications of Municipal Obligations which may be held
by the Fund are "general obligation" securities and "revenue" securities. Gen-
eral obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest. Reve-
nue securities are payable only from the revenues derived from a particular fa-
cility or class of facilities or, in some cases, from the proceeds of a special
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities may include private activity bonds. Such
bonds may be issued by or on behalf of public authorities to finance various
privately operated facilities, and are not payable from the unrestricted reve-
nues of the issuer. As a result, the credit quality of private activity bonds
is frequently related directly to the credit standing of private corporations
or other entities. Since interest on private activity bonds is treated as a
specific tax preference item under the Federal alternative minimum tax, the
Fund's investments in private activity bonds will not exceed, under normal mar-
ket conditions, 20% of its total assets when added together with cash and any
taxable investments held by the Fund.
The Fund's portfolio may also include, without limitation, "moral obligation"
securities, which are normally issued by special-purpose public authorities. If
the issuer of moral obligation securities is unable to meet its debt service
obligations from current revenues, it may draw on a reserve fund, the restora-
tion of which is a moral commitment but not a legal obligation of the state or
municipality which created the issuer.
The Fund may also purchase custodial receipts evidencing the right to receive
either the principal amount or the periodic interest payments or both with re-
spect to specific underlying Municipal Obligations. In general, such "stripped"
Municipal Obligations are offered at a substantial discount in relation to the
principal and/or interest payments which the holders of the receipt will re-
ceive. 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 Obligation, such yield will be exempt from Federal income tax for
such investor to the same extent as interest on the underlying Municipal Obli-
gation. The Fund intends to purchase "stripped" Municipal Obligations only when
the yield thereon will be, as described above, exempt from Federal income tax
to the same extent as interest on the underlying Municipal Obligations.
"Stripped" Municipal Obligations are considered illiquid securities subject to
the 10% limit described in Investment Limitation No. 3 below.
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION
VARIABLE AND FLOATING RATE INSTRUMENTS
Municipal Obligations purchased by the Fund may include variable and floating
rate instruments. The interest rates on such instruments are not fixed and vary
with changes in the particular interest rate benchmarks or indexes. Unrated
variable and floating rate instruments will be purchased by the Fund based upon
the Investment Adviser's determination that their quality at the time of pur-
chase is comparable to at least the minimum ratings set forth above. In some
cases the Fund may require that the issuer's obligation to pay the principal be
backed by an unconditional and irrevocable bank letter or line of credit, guar-
antee or commitment to lend. Although there may be no active secondary market
with respect to a particular variable or floating rate instrument purchased by
the Fund, the Fund may (at any time or during specified intervals within a pre-
scribed period, depending upon the instrument involved) demand payment in full
of the principal and may resell the instrument to a third party. The absence of
an active secondary market, however, could make it difficult for the Fund to
dispose of a variable or floating rate instrument in the event the issuer de-
faulted on its payment obligation or during periods when the Fund is
5
<PAGE>
not entitled to exercise its demand rights. In such cases, the Fund could suf-
fer a loss with respect to the instruments.
WHEN-ISSUED AND FORWARD TRANSACTIONS AND STAND-BY COMMITMENTS
The Fund may purchase Municipal Obligations on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transactions
involve a commitment by the Fund to purchase or sell particular Municipal Obli-
gations 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. The Fund expects that its forward commitments and "when-issued" pur-
chases will not exceed 25% of the value of its total assets absent unusual mar-
ket conditions, and that the length of such commitments will not exceed 45
days. The Fund does not intend to engage in "when-issued" purchases and forward
commitments for speculative purposes but only in furtherance of its investment
objective.
The Fund may also acquire "stand-by commitments" with respect to Municipal Ob-
ligations held in its portfolio. Under a "stand-by commitment," a dealer agrees
to purchase at the Fund's option specified Municipal Obligations at a stated
price. The Fund will acquire "stand-by commitments" solely to facilitate port-
folio liquidity and does not intend to exercise its rights thereunder for trad-
ing purposes. "Stand-by commitments" acquired by the Fund will be valued at
zero in determining the Fund's net asset value.
ELIGIBLE TAXABLE OBLIGATIONS
Taxable securities that may be held by the Fund within the limits described
above include: (i) municipal bond index and interest rate futures contracts;
(ii) obligations of the U.S. Treasury; (iii) obligations of agencies and in-
strumentalities of the U.S. Government; (iv) money market instruments such as
certificates of deposit and bankers' acceptances; (v) repurchase agreements
collateralized by U.S. Government obligations or other money market instru-
ments; or (vi) securities issued by other investment companies. Municipal bond
index futures contracts, investment company securities and repurchase agree-
ments are described below.
Futures Contracts
The Fund may purchase and sell municipal bond index and interest rate futures
contracts as a hedge against changes in market conditions. A municipal bond in-
dex assigns values daily to the municipal bonds included in the index based on
the independent assessment of dealer-to-dealer municipal bond brokers. A munic-
ipal bond index futures contract represents a firm commitment by which two par-
ties agree to take or make delivery of an amount equal to a specified dollar
amount multiplied by the difference between the municipal bond index value on
the last trading date of the contract and the price at which the futures con-
tract is originally struck. No physical delivery of the underlying securities
in the index is made.
The Fund may enter into contracts for the future delivery of fixed-income se-
curities commonly known as interest rate futures contracts. Interest rate
futures contracts are similar to the municipal bond index futures contracts ex-
cept that, instead of a municipal bond index, the "underlying commodity" is
represented by various types of fixed-income securities.
The Fund will not engage in transactions in futures contracts for speculation,
but only as a hedge against changes in market values of securities which the
Fund holds or intends to purchase where the transactions reduce risks inherent
in the management of the Fund. The Fund will engage in futures contracts only
to the extent permitted by the Commodity Futures Trading Commission ("CFTC")
and the Securities and Exchange Commission ("SEC"). When investing in
6
<PAGE>
futures contracts, the Funds must satisfy certain asset segregation require-
ments 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 con-
taining cash and/or certain 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 cash
and/or certain liquid assets in an amount equal to the market value of the se-
curities 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 es-
tablished. Asset segregation requirements are not applicable when the Fund
"covers" a futures position generally by entering into an offsetting position.
As of the date of this Prospectus, the Fund intends to limit its hedging trans-
actions in futures contracts 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 is traded does not ex-
ceed 5% of the Fund's total assets, after taking into account any unrealized
profits and losses on the Fund's open contracts.
Transactions in futures contracts as a hedging device may subject the Fund to
a number of risks. Successful use of futures contracts by the Fund is subject
to the ability of the Investment Adviser to correctly anticipate movements in
the direction of the market. In addition, there may be an imperfect correla-
tion, or no correlation at all, between movements in the price of the futures
contracts and movements in the price of the securities being hedged. Further,
there is no assurance that a liquid market will exist for any particular
futures contract at any particular time. Consequently, the 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. Any income
from investments in futures contracts will be taxable.
Investment Company Securities
Subject to the limit on investments in taxable obligations described above,
the Fund may invest in securities issued by other investment companies which
invest in high-quality, short-term securities and which determine their net as-
set value per share based on the amortized cost or penny-rounding method. In
addition to the advisory fees and other expenses the Fund bears directly in
connection with its own operations, as a shareholder of another investment com-
pany, the 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 acquired
by the Fund within the limits prescribed by the Investment Company Act of 1940
(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 securities.
Repurchase Agreements
The 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 Fund will enter into repurchase agreements only with
financial institutions that are deemed to be creditworthy by the Investment Ad-
viser, pursuant to guidelines established by Master Tax-Exempt Fund's Board of
Directors. The Fund will not enter into repurchase agreements with the Invest-
ment Adviser or any of its affiliates. Repurchase agreements with remaining ma-
turities in excess of seven days will be considered to be illiquid securities
and will be subject to the 10% limit described in Investment Limitation No. 3
below.
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 the Fund at
not less than the repurchase price. Default or bankruptcy of the seller would,
however, expose the Fund
7
<PAGE>
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 re-
purchase agreements will be taxable.
ILLIQUID SECURITIES
The Fund will not knowingly invest more than 10% of the value of its net as-
sets in securities that are illiquid. The Fund may purchase securities which
are not registered under the Securities Act of 1933 (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 de-
termined by the Investment Adviser, acting under guidelines approved and moni-
tored by the Board, that an adequate trading market exists for that security.
This investment practice could have the effect of increasing the level of illi-
quidity in the Fund during any period that qualified institutional buyers be-
come uninterested in purchasing these restricted securities.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment immediately after its acquisition if
the Investment Adviser believes that such a disposition is consistent with the
Fund's investment objective. The rate of portfolio turnover will not be a lim-
iting factor in making portfolio decisions. A high rate of portfolio turnover
may involve correspondingly greater transaction costs which will ultimately be
borne by the Fund's shareholders and may result in the realization of substan-
tial net capital gains. To the extent that net short-term capital gains are re-
alized, any distributions resulting from such gains are considered ordinary in-
come for Federal income tax purposes. (See "Financial Highlights" and "Taxes--
Federal").
RISK FACTORS
The Fund intends to follow the diversification standards set forth in the 1940
Act except to the extent the Investment Adviser determines that non-diversifi-
cation is appropriate in order to maximize the percentage of the Fund's assets
that are New York Municipal Obligations. The investment return on a non-diver-
sified portfolio typically is dependent upon the performance of a smaller num-
ber of securities relative to the number of securities held in a diversified
portfolio. The Fund's assumption of large positions in the obligations of a
small number of issuers will affect the value of the Fund's portfolio to a
greater extent than that of a diversified portfolio in the event of changes in
the financial condition or in the market's assessment of the issuers.
Although the Fund does not presently intend to do so on a regular basis, it
may invest more than 25% of its assets in Municipal Obligations the interest on
which is paid solely from revenues on similar projects if such investment is
deemed necessary or appropriate by the Investment Adviser. To the extent that
the Fund's assets are concentrated in Municipal Obligations payable from reve-
nues on similar projects, the Fund will be subject to the particular risks pre-
sented by such projects to a greater extent than it would be if its assets were
not so concentrated.
The Fund's ability to achieve its investment objective is dependent upon the
ability of the issuers of New York Municipal Obligations to meet their continu-
ing 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 Obligations to
meet their financial obligations.
Certain substantial issuers of New York Municipal Obligations (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
8
<PAGE>
outstanding debt obligations. In recent years, several different issues of mu-
nicipal securities of New York State and its agencies and instrumentalities and
of New York City have been downgraded by S&P and Moody's. On the other hand,
strong demand for New York Municipal Obligations has at times had the effect of
permitting New York Municipal Obligations 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 Obligations 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 Obligations. Although as of
the date of this Prospectus, no issuers of New York Municipal Obligations 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 Obligations and, consequently, the net as-
set value of the Fund's portfolio.
Other considerations affecting the Fund's investments in New York Municipal
Obligations are summarized in the Statement of Additional Information.
Opinions relating to the validity of Municipal Obligations and to the exemp-
tion of interest thereon from Federal income tax (and, with respect to New York
Municipal Obligations, 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. Neither the Fund nor its Investment
Adviser will review the proceedings relating to the issuance of Municipal Obli-
gations or the basis for such opinions.
INVESTMENT LIMITATIONS
The Fund's following investment limitations may not be changed without the
vote of a majority of the Fund's outstanding Shares (as defined under
"Miscellaneous").
The Fund may not:
1. Purchase securities of any one issuer if, as a result, more than 5% of
the value of the Fund's total assets would be invested in the securities of
such issuer, except that (a) up to 50% of the value of the Fund's assets may
be invested without regard to this 5% limitation, provided that no more than
25% of the value of the Fund's total assets are invested in the securities of
any one issuer; and (b) the foregoing 5% limitation does not apply to securi-
ties issued or guaranteed by the U.S. Government, its agencies or instrumen-
talities;
2. Borrow money except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing, provided that the Fund may enter into futures con-
tracts and futures options. (This borrowing provision is included solely to
facilitate the orderly sale of portfolio securities to accommodate abnormally
heavy redemption requests and is not for leverage purposes.) The Fund may not
purchase portfolio securities while borrowings in excess of 5% of its total
assets are outstanding;
3. 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 and other securities which are not readily marketable;
and
4. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry; provided that there is no limitation with respect to domestic
9
<PAGE>
bank obligations and 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 po-
litical sub-divisions.
* * *
For purposes of Investment Limitation No. 1 above: (a) a security is consid-
ered to be issued by the governmental entity or entities whose assets and rev-
enues 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 guar-
antee; and (c) securities issued or guaranteed by the United States Govern-
ment, 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 Fund will not knowingly invest more than 10% of the value of its net as-
sets in illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days and other securities which are not readily
marketable.
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
the Fund's portfolio securities will not constitute a violation of such limi-
tation.
PRICING OF SHARES
The net asset value of the 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 the Fund's Shares are determined on each day the Ex-
change and the Investment Adviser are open for business ("Business Day"). Cur-
rently, the holidays which the Fund observes are: New Year's Day, Martin Lu-
ther 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 the Fund, less the liabilities charged to the Fund, by the number of out-
standing Shares.
Portfolio securities in the Fund for which market quotations are readily
available (other than debt securities maturing in 60 days or less) are valued
at market value. Securities and other assets for which market quotations are
not readily available are valued at fair value, pursuant to guidelines adopted
by Master Tax-Exempt Fund's Board of Directors. Absent unusual circumstances,
portfolio securities maturing in 60 days or less are normally valued at amor-
tized cost. A futures contract is valued at the last sales price quoted on the
principal exchange or board of trade on which such contract is traded, or in
the absence of a sale, the mean between the last bid and asked prices. The net
asset value of the Fund will fluctuate as the market value of the Fund's port-
folio securities changes in response to changing market rates of interest and
other factors.
The Fund's Administrators have undertaken to price the securities in the
Fund's portfolio and may use one or more pricing services to value certain
portfolio securities 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 administrators under
the general supervision of Master Tax-Exempt Fund's Board of Directors.
10
<PAGE>
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares are continuously offered for sale by Master Tax-Exempt Fund's sponsor
and distributor, Edgewood Services, Inc. (the "Distributor"), a wholly-owned
subsidiary of Federated Investors. The Distributor is a registered
broker/dealer. Its principal offices are at Federated Investors Tower, 1001
Liberty Avenue, Pittsburgh, PA 15222-3779.
PURCHASE OF SHARES
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 in-
stitutions ("Institutional Investors" and, collectively with Direct Investors,
"Investors"). Shares may also be purchased by customers ("Customers") of the
Investment Adviser, its affiliates and correspondent banks, and other institu-
tions ("Shareholder Organizations") that have entered into shareholder servic-
ing agreements with Master Tax-Exempt Fund. A Shareholder Organization may
elect to hold of record Shares for its Customers and to record beneficial own-
ership 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 Mutual Funds Service Company ("MFSC"),
the Fund's 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 MFSC to the particular
Shareholder Organization. As an alternative, a Shareholder Organization may
elect to establish its Customers' accounts of record with MFSC. In this event,
even if the Shareholder Organization continues to place its Customers' purchase
and redemption orders with the Fund, MFSC will send confirmations of such
transactions and periodic account statements directly to Customers. A Share-
holder Organization may also elect to establish its Customers as record hold-
ers.
Master Tax-Exempt Fund enters into shareholder servicing agreements with
Shareholder Organizations which agree to provide their Customers various share-
holder administrative services with respect to their Shares (hereinafter re-
ferred to as "Service Organizations"). Shares in the Fund bear the expense of
fees payable to Service Organizations for such services. See "Management of the
Fund--Service 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 in accordance with procedures described below un-
der "Purchase Procedures."
PUBLIC OFFERING PRICE
The public offering price for the Shares is the sum of the net asset value of
the Shares purchased plus a sales load according to the table below:
<TABLE>
<CAPTION>
REALLOWANCE
TOTAL SALES CHARGES TO DEALERS
------------------------------ --------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
--------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Less than $50,000................. 4.50% 4.71% 4.00%
$50,000 to $99,999................ 4.00 4.17 3.50
$100,000 to $249,999.............. 3.50 3.63 3.00
$250,000 to $499,999.............. 3.00 3.09 2.50
$500,000 to $999,999.............. 2.00 2.05 1.50
$1,000,000 to $1,999,999.......... 1.00 1.00 .50
$2,000,000 and over............... .50 .50 .25
</TABLE>
11
<PAGE>
The reallowance to dealers may be changed from time to time but will remain
the same for all such dealers.
At various times the Distributor may implement programs under which a dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any dealer that sponsors sales con-
tests or recognition programs conforming to criteria established by the Dis-
tributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the dealer at the public offering price during such programs. Also, the Dis-
tributor in its discretion may from time to time, pursuant to objective crite-
ria established by the Distributor, pay fees to qualifying dealers for certain
services or activities which are primarily intended to result in sales of
Shares of the Fund. If any such program is made available to any dealer, it
will be made available to all dealers on the same terms and conditions. Pay-
ments made under such programs will be made by the Distributor out of its own
assets and not out of the assets of the Fund. These programs will not change
the price of Shares or the amount that the Fund will receive from such sales.
The sales load described above will not be applicable to: (a) purchases of
Shares by customers of the Investment Adviser or its affiliates; (b) trust,
agency or custodial accounts opened through the trust department of a bank,
trust company or thrift institution, provided that appropriate notification of
such status is given at the time of investment; (c) companies, corporations and
partnerships (excluding full service broker/dealers and financial planners,
registered investment advisers and depository institutions not covered by the
exemptions in (d) and (e) below); (d) financial planners and registered invest-
ment advisers not affiliated with or clearing purchases through full service
broker/dealers; (e) purchases of Shares by depository institutions for their
own account as principal; (f) exchange transactions (described below under "In-
vestor Programs--Exchange Privilege") where the Shares being exchanged were ac-
quired in connection with the distribution of assets held in a trust, agency or
custodial account maintained with the trust department of a bank; (g)
corporate/business retirement plans (such as 401(k), 403(b)(7), 457 and Keogh
accounts) sponsored by the Distributor and IRA accounts sponsored by the In-
vestment Adviser; (h) company-sponsored employee pension or retirement plans
making direct investments in the Fund; (i) purchases of Shares by officers,
trustees, directors, employees, former employees and retirees of Master Tax-Ex-
empt Fund, UST Master Funds, Inc. ("Master Fund"), the Investment Adviser, the
Distributor or of any direct or indirect affiliate of any of them; (j) pur-
chases of Shares by all beneficial shareholders of Master Tax-Exempt Fund or
Master Fund as of May 22, 1989; (k) purchases of Shares by investment advisers
registered under the Investment Advisers Act of 1940 for their customers
through an omnibus account established with United States Trust Company of New
York; (l) purchases of Shares by directors, officers and employees of brokers
and dealers selling shares pursuant to a selling agreement with Master Tax-Ex-
empt Fund and Master Fund; (m) purchases of shares by investors who are members
of affinity groups serviced by USAffinity Investments Limited Partnership; and
(n) customers of certain financial institutions who purchase Shares through a
registered representative of UST Financial Services Corp. on the premises of
their financial institutions. In addition, no sales load is charged on the re-
investment of dividends or distributions or in connection with certain share
exchange transactions. Investors who have previously redeemed shares in an "El-
igible Fund" (as defined below) on which a sales load has been paid also have a
one-time privilege of purchasing shares of another "Eligible Fund" at net asset
value without a sales charge, provided that such privilege will apply only to
purchases made within 30 calendar days from the date of redemption and only
with respect to the amount of the redemption. These exemptions to the imposi-
tion of a sales load are due to the nature of the investors and/or reduced
sales effort that will be needed in obtaining investments.
12
<PAGE>
Quantity Discounts
An investor in the Fund may be entitled to reduced sales charges through
Rights of Accumulation, a Letter of Intent or a combination of investments, as
described below, even if the investor does not wish to make an investment of a
size that would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify MFSC at
the time of purchase that he or she would like to take advantage of any of the
discount plans described below. Upon such notification, the investor will re-
ceive the lowest applicable sales charge. Quantity discounts may be modified or
terminated at any time and are subject to confirmation of an investor's hold-
ings through a check of appropriate records. For more information about quan-
tity discounts, please call (800) 446-1012 or contact your Shareholder Organi-
zation.
Rights of Accumulation. A reduced sales load applies to any purchase of shares
of any portfolio of Master Tax-Exempt Fund and Master Fund that is sold with a
sales load ("Eligible Fund") where an investor's then current aggregate invest-
ment is $50,000 or more. "Aggregate investment" means the total of: (a) the
dollar amount of the then current purchase of shares of an Eligible Fund and
(b) the value (based on current net asset value) of previously purchased and
beneficially owned shares of any Eligible Fund on which a sales load has been
paid. If, for example, an investor beneficially owns shares of one or more Eli-
gible Funds with an aggregate current value of $49,000 on which a sales load
has been paid and subsequently purchases shares of an Eligible Fund having cur-
rent value of $1,000, the load applicable to the subsequent purchase would be
reduced to 4.00% of the offering price. Similarly, with respect to each subse-
quent investment, all shares of Eligible Funds that are beneficially owned by
the investor at the time of investment may be combined to determine the appli-
cable sales load.
Letter of Intent. By completing the Letter of Intent included as part of the
New Account Application, an investor becomes eligible for the reduced sales
load applicable to the total number of Eligible Fund shares purchased in a 13-
month period pursuant to the terms and under the conditions set forth below and
in the Letter of Intent. To compute the applicable sales load, the offering
price of shares of an Eligible Fund on which a sales load has been paid, bene-
ficially owned by an investor on the date of submission of the Letter of In-
tent, may be used as a credit toward completion of the Letter of Intent. Howev-
er, the reduced sales load will be applied only to new purchases.
MFSC will hold in escrow shares equal to 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if an investor does not
purchase the full amount indicated in the Letter of Intent. The escrow will be
released when an investor fulfills the terms of the Letter of Intent by pur-
chasing the specified amount. If purchases qualify for a further sales load re-
duction, the sales load will be adjusted to reflect an investor's total pur-
chases. If total purchases are less than the amount specified, an investor will
be requested to remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the total purchases. If such re-
mittance is not received within 20 days, MFSC, as attorney-in-fact pursuant to
the terms of the Letter of Intent and at the Distributor's direction, will re-
deem an appropriate number of shares held in escrow to realize the difference.
Signing a Letter of Intent does not bind an investor to purchase the full
amount indicated at the sales load in effect at the time of signing, but an in-
vestor must complete the intended purchase in accordance with the terms of the
Letter of Intent to obtain the reduced sales load. To apply, an investor must
indicate his or her intention to do so under a Letter of Intent at the time of
purchase.
Qualification for Discounts. For purposes of applying the Rights of Accumula-
tion and Letter of Intent privileges described above, the scale of sales loads
applies to the combined purchases made by any individual and/or spouse purchas-
ing securities for his, her or their own account or for the account of any mi-
nor
13
<PAGE>
children, or the aggregate investments of a trustee or custodian of any quali-
fied pension or profit sharing plan or IRA established (or the aggregate in-
vestment of a trustee or other fiduciary) for the benefit of the persons listed
above.
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 UST Master Funds, to:
UST Master Funds
c/o Mutual Funds Service Company
P.O. Box 2798
Boston, MA 02208-2798
Subsequent investments in an existing account in the Fund may be made at any
time by sending to the above address a check payable to UST Master 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 MFSC;
or (c) a letter stating the amount of the investment and the account number in
which the investment is to be made. Institutional Investors may purchase Shares
by transmitting their purchase orders to MFSC by telephone at (800) 446-1012 or
by terminal access. Institutional Investors must pay for Shares with Federal
funds or funds immediately available to MFSC.
Purchases by Wire
Investors may also purchase Shares by wiring Federal funds to MFSC. Prior to
making an initial investment by wire, an Investor must telephone MFSC 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:
United States Trust Company of New York
ABA #021001318
UST Funds, Account No. 2901447
For further credit to:
UST Master 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 MFSC. Redemptions by In-
vestors will not be processed until the completed Application for purchase of
Shares has been received by MFSC 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. The minimum subsequent in-
vestment for both types of investors is $50. Customers may agree with a partic-
ular Shareholder Organization to make a minimum purchase with respect to their
accounts. Depending upon the terms of the particular account, Shareholder Orga-
nizations may charge a Customer's account fees for automatic investment and
other cash management services provided. Master Tax-Exempt Fund reserves the
right to reject any purchase order, in whole or in part, or to waive any mini-
mum investment requirements.
REDEMPTION PROCEDURES
Customers of Shareholder Organizations holding Shares of record may redeem all
or part of their investments in the Fund 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 MFSC
14
<PAGE>
and credit such Customer accounts with the redemption proceeds on a timely ba-
sis. Redemption orders for Institutional Investors must be transmitted to MFSC
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 Master Tax-Exempt Fund, although Shareholder Organizations may
charge a Customer's account for wiring redemption proceeds. Information relat-
ing to such redemption services and charges, if any, is available from the
Shareholder Organizations. An investor redeeming Shares through a registered
investment adviser or certified financial planner may incur transaction charges
in connection with such redemptions. Such investors should contact their regis-
tered investment 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 MFSC).
REDEMPTION BY MAIL
Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:
UST Master Funds
c/o Mutual Funds Service Company
P.O. Box 2798
Boston, MA 02208-2798
A written redemption request to MFSC must (i) state the number of Shares to be
redeemed, (ii) identify the shareholder account number and tax identification
number, and (iii) be signed by each registered owner exactly as the Shares are
registered. If the Shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or accompanied by a duly executed
stock power) and must be submitted to MFSC together with the redemption re-
quest. 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 MFSC 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 MFSC pursuant to the Sig-
nature Guarantee Guidelines. Copies of the Signature Guarantee Guidelines and
information on STAMP can be obtained from MFSC at (800) 446-1012 or at the ad-
dress given above. MFSC may require additional supporting documents for redemp-
tions made by corporations, executors, administrators, trustees and guardians.
A redemption request will not be deemed to be properly received until MFSC re-
ceives all required documents in proper form. Payment for Shares redeemed will
ordinarily be made by mail within five Business Days after proper receipt by
MFSC of the redemption request. Questions with respect to the proper form for
redemption requests should be directed to MFSC 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 MFSC 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 MFSC 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 MFSC by telephone at (800) 446-1012 or by
terminal access. Only redemptions of
15
<PAGE>
$500 or more will be wired to a Direct Investor's account. An $8.00 fee for
each wire redemption by a Direct Investor is deducted by MFSC from the proceeds
of the redemption. 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 MFSC.
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 Master Tax-Exempt
Fund, c/o MFSC, at the address listed above under "Redemption by Mail." Such
requests must be signed by the Direct Investor, with signatures guaranteed (see
"Redemption by Mail" above, for details regarding signature guarantees). Fur-
ther documentation may be requested.
MFSC 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 Master Tax-
Exempt Fund, MFSC or the Distributor. MASTER TAX-EXEMPT FUND, MFSC AND THE DIS-
TRIBUTOR 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, MASTER TAX-EXEMPT
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, Master Tax-Exempt Fund and MFSC reserve the right not to honor
the redemption until MFSC 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 con-
nection 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 collect-
ed, the purchase will be cancelled and MFSC will charge a fee of $25.00 to the
Direct Investor's account.
During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. If an investor is unable to contact MFSC by tele-
phone, the Investor may also deliver the redemption request to MFSC in writing
at the address noted above under "How to Purchase and Redeem Shares--Redemption
by Mail."
Other Redemption Information
Except as described in "Investor Programs" below, Investors may be required to
redeem Shares after 60 days' written notice if due to investor redemptions the
balance in the particular account with respect to the Fund remains below $500.
If a Customer has agreed with a particular Shareholder Organization to maintain
a minimum balance in his or her account at the institution with respect to
Shares of the Fund, and the balance in such account falls below that minimum,
the Customer may be obliged by the Shareholder Organization to redeem all or
part of his or her Shares to the extent necessary to maintain the required min-
imum balance.
GENERAL
Purchase and redemption orders for Shares which are received and accepted
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 and accepted 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
16
<PAGE>
without an exchange fee imposed by Master Tax-Exempt Fund, exchange Shares of
the Fund having a value of at least $500 for Shares of any other portfolio of-
fered by Master Tax-Exempt Fund or Master Fund, provided that such other shares
may legally be sold in the state of the Investor's residence.
UST Master Tax-Exempt Funds, Inc. currently offers, in addition to the Fund,
four other portfolios:
Short-Term Tax-Exempt Fund, a diversified tax-exempt money market fund seek-
ing a moderate level of current interest income exempt from Federal income
taxes through investing primarily in high-quality municipal obligations ma-
turing 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 three to ten years; and
Long-Term Tax-Exempt Fund, a diversified fund attempting to maximize over
time current income exempt from Federal income taxes, investing in municipal
obligations and having a dollar-weighted average portfolio maturity of 10 to
30 years.
UST Master Funds, Inc. currently offers twenty investment portfolios:
Money Fund, a money market fund seeking as high a level of current income as
is consistent with liquidity and stability of principal through investments
in high-quality money market instruments maturing within 13 months;
Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaranteed by the U.S. Govern-
ment, its agencies and instrumentalities and repurchase agreements collater-
alized by such obligations;
Treasury Money Fund, a money market fund seeking current income generally
exempt from state and local income taxes through investments in direct short-
term obligations issued by the U.S. Treasury and certain agencies or instru-
mentalities of the U.S. Government;
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 through invest-
ments in investment grade debt obligations, U.S. Government obligations and
money market instruments;
Equity Fund, a fund seeking primarily long-term capital appreciation through
investments in a diversified portfolio of primarily equity securities;
Income and Growth Fund, a fund investing substantially in equity securities
in seeking to provide moderate current income and to achieve capital appreci-
ation as a secondary objective;
Long-Term Supply of Energy Fund, a fund seeking long-term capital apprecia-
tion by investing in companies benefiting from the availability, development
and delivery of secure hydrocarbon and other energy sources;
Productivity Enhancers Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their roles as innovators, devel-
opers and suppliers of goods and services which enhance service and manufac-
turing productivity or
17
<PAGE>
companies that are most effective at obtaining and applying productivity en-
hancement developments;
Environmentally-Related Products and Services Fund, a fund seeking long-term
capital appreciation by investing in companies benefitting from their provi-
sion of products, technologies and services related to conservation, protec-
tion and restoration of the environment;
Aging of America Fund, a fund seeking long-term capital appreciation by in-
vesting in companies benefitting from the changes occurring in the demo-
graphic structure of the U.S. population, particularly of its growing popula-
tion of individuals over the age of 40;
Communication and Entertainment Fund, a fund seeking long-term capital ap-
preciation by investing in companies benefitting from the technological and
international transformation of the communications and entertainment indus-
tries, particularly the convergence of information, communication and enter-
tainment media;
Business and Industrial Restructuring Fund, a fund seeking long-term capital
appreciation by investing in companies benefitting from their restructuring
or redeployment of assets and operations in order to become more competitive
or profitable;
Global Competitors Fund, a fund seeking long-term capital appreciation by
investing in U.S.-based companies benefitting from their position as effec-
tive and strong competitors on a global basis;
Early Life Cycle Fund, a fund seeking long-term capital appreciation by in-
vesting in smaller companies in the earlier stages of their development or
larger or more mature companies engaged in new and higher growth potential
operations;
International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;
Emerging Americas Fund, a fund seeking long-term capital appreciation
through investments in companies and securities of governments in all coun-
tries in the Western Hemisphere, except the U.S.;
Pacific/Asia Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Asia and on the
Asian side of the Pacific Ocean; and
Pan European Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments located in Europe.
An exchange involves a redemption of all or a portion of the Shares in the
Fund and the investment of the redemption proceeds in shares of another portfo-
lio of Master Tax-Exempt Fund or Master Fund. The redemption will be made at
the per Share net asset value of the Shares being redeemed next determined af-
ter the exchange request is received. The Shares of the portfolio to be ac-
quired will be purchased at the per share net asset value of those shares (plus
any applicable sales load) next determined after acceptance of the exchange re-
quest. No sales load will be payable on shares to be acquired through an ex-
change to the extent that a sales load was previously paid on the Shares being
exchanged.
Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in the Fund. For fur-
ther information regarding exchange privileges, shareholders should call (800)
446-1012 (from overseas, call (617) 557-8280). Investors exercising the ex-
change privilege with the other portfolios of Master Tax-Exempt Fund or Master
Fund should request and review the prospectuses of such Funds. Such prospec-
tuses may be obtained by calling the telephone numbers listed above. Master
Tax-Exempt Fund may modify or terminate the exchange program at any time upon
60 days' written notice to shareholders, and may reject any exchange request.
In order to prevent abuse of this privilege to the disadvantage of other share-
holders, Master Fund and Master Tax-Exempt Fund reserve the right to limit the
number of exchange requests of Investors and Customers of Shareholder Organiza-
tions to no more than six per year. MASTER TAX-EXEMPT FUND, MFSC AND THE DIS-
TRIBUTOR ARE NOT RESPONSIBLE FOR THE AUTHENTICITY OF EXCHANGE
18
<PAGE>
REQUESTS RECEIVED BY TELEPHONE THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN
ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, MASTER TAX-EX-
EMPT FUND WILL USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RE-
CORDING THOSE INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRA-
TION.
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 mak-
ing an exchange, an investor should consult a tax or other financial adviser to
determine tax consequences.
SYSTEMATIC WITHDRAWAL PLAN
An Investor who owns Shares of the Fund with a value of $10,000 or more may
establish a Systematic Withdrawal Plan. The Investor may request a declining-
balance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an investor must complete the Supplemental Applica-
tion contained in this Prospectus and mail it to MFSC at the address given
above. Further information on establishing a Systematic Withdrawal Plan may be
obtained by calling (800) 446-1012 (from overseas, call (617) 557-8280).
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 institutions.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits Investors to purchase Shares (minimum
of $50 per transaction) at regular intervals selected by the Investor. The min-
imum initial investment for an Automatic Investment Program account is $50.
Provided the Investor's financial institution allows automatic withdrawals,
Shares are purchased by transferring funds from an Investor's checking, bank
money market or NOW account designated by the Investor. At the Investor's op-
tion, the account designated will be debited in the specified amount, and
Shares will be purchased, once a month, on either the first or fifteenth day,
or twice a month, on both days.
The Automatic Investment Program is one means by which an Investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time market
performance, a fixed dollar amount is invested in Shares at predetermined in-
tervals. This may help Investors to reduce their average cost per share because
the agreed upon fixed investment amount allows more Shares to be purchased dur-
ing periods of lower share prices and fewer Shares during periods of higher
prices. In order to be effective, Dollar Cost Averaging should usually be fol-
lowed on a sustained, consistent basis. Investors should be aware, however,
that Shares bought using Dollar Cost Averaging are purchased without regard to
their price on the day of investment or to market trends. In addition, while
Investors may find Dollar Cost Averaging to be beneficial, it will not prevent
a loss if an Investor ultimately redeems his Shares at a price which is lower
than their purchase price.
To establish an Automatic Investment account permitting Investors to use the
Dollar Cost Averaging investment method described above, an Investor must com-
plete the Supplemental Application contained in this Prospectus and mail it to
MFSC. An Investor may cancel his participation in this Program or change the
amount of purchase at any time by mailing written notification to MFSC, P.O.
Box 2798, Boston, MA 02208-2798 and notification will be effective three Busi-
ness Days following receipt. Master Tax-Exempt Fund may modify or terminate
this privilege at any time or charge a service fee, although no such fee cur-
rently is contemplated. An Investor may also implement the Dollar Cost Averag-
ing method on his own initiative or through other entities.
19
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The 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 assets,
less (ii) amortization of premium on such assets, accrued expenses directly at-
tributable to the Fund, and the general expenses or the expenses common to more
than one Fund (e.g., legal, administrative, accounting, and Directors' fees) of
Master Tax-Exempt Fund, prorated to the Fund on the basis of its relative net
assets.
The net investment income of the Fund is declared daily as a dividend to the
persons who are shareholders of the Fund 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. Net realized capital gains are distributed at least annually.
All dividends and distributions paid on Shares held of record by the Invest-
ment Adviser and its affiliates or correspondent banks will be paid in cash.
Direct and Institutional Investors and Customers of Shareholder Organizations
will receive dividends and distributions in additional Shares (as determined on
the payable date), unless they have requested in writing (received by MFSC at
Master Tax-Exempt Fund's address prior to the payment date) to receive divi-
dends and distributions in cash. Reinvested dividends and distributions receive
the same tax treatment as those paid in cash.
TAXES
FEDERAL
The Fund has qualified and intends to continue to qualify as a "regulated in-
vestment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification generally relieves the Fund of liability for Fed-
eral income taxes to the extent that the Fund's earnings are distributed in ac-
cordance with the Code.
The Fund's policy is to pay its shareholders dividends each year equal to at
least the sum of 90% of its exempt-interest income (net of certain deductions)
and 90% of its investment company taxable income, if any. Some dividends de-
rived from exempt-interest income ("exempt-interest dividends") may be treated
by the Fund's shareholders as items of interest excludable from their gross in-
come under Section 103(a) of the Code, unless under the circumstances applica-
ble to the particular shareholder, exclusion would be disallowed. (See State-
ment of Additional Information--"Additional Information Concerning Taxes.")
If the Fund should hold certain private activity bonds issued after August 7,
1986, shareholders must include, as an item of tax preference, the portion of
dividends paid by the Fund that is attributable to interest on such bonds in
their Federal alternative minimum taxable income for purposes of determining
liability (if any) for the 26% to 28% alternative minimum tax applicable to in-
dividuals and the 20% alternative minimum tax and the environmental tax appli-
cable to corporations. Corporate shareholders must also take all exempt-inter-
est dividends into account in determining certain adjustments under the Federal
alternative minimum tax. The environmental tax applicable to corporations is
imposed at the rate of .12% on the excess of the corporation's modified Federal
alternative minimum taxable income over $2 million. Shareholders receiving So-
cial Security benefits should note that all exempt-interest dividends will be
taken into account in determining the taxability of such benefits.
Dividends payable by the Fund which are derived from taxable income or from
long-term or short-term capital gains will be subject to Federal income tax,
whether such dividends are paid in the form of cash or additional Shares. An
investor considering buying Shares of the Fund on or just before the record
date
20
<PAGE>
of a dividend should be aware that the amount of the forthcoming dividend pay-
ment, although in effect a return of capital, will be taxable to them.
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 the Fund on December 31 of such
year in the event such dividends are actually paid during January of the fol-
lowing 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 portfolio within 90 days of the purchase and is able to re-
duce the sales charges 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, but may be included (subject to the lim-
itation) in the tax basis of the new shares.
NEW YORK
Exempt-interest dividends (as defined for Federal income tax purposes) derived
from interest on New York Municipal Obligations (as defined above) will be ex-
empt from New York state and New York City personal income taxes (but not cor-
porate franchise taxes), provided the interest on such obligations is and con-
tinues 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 Fund may be
taxable income for purposes thereof. Dividends and distributions derived from
income (including capital gains on all New York Municipal Obligations) other
than interest on the New York Municipal Obligations described above are not ex-
empt from New York State and New York City taxes. A percentage of the interest
on indebtedness incurred or continued by a shareholder to purchase or carry
Shares of the Fund is not deductible for Federal, New York state or New York
City personal income tax purposes.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations generally
affecting the Fund and its shareholders and is not intended as a substitute for
careful tax planning. Accordingly, potential investors in the Fund should con-
sult their tax advisers with specific reference to their own tax situations.
Shareholders will be advised at least annually as to the Federal, New York
state and New York City personal income tax consequences of distributions made
each year.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of Master
Tax-Exempt Fund's Board of Directors. The Statement of Additional Information
contains the names of and general background information concerning Master Tax-
Exempt Fund's directors.
INVESTMENT ADVISER
United States Trust Company of New York serves as the Investment Adviser to
the Fund. U.S. Trust is a state-chartered bank and trust company. The Invest-
ment Adviser provides trust and banking services to individuals, corporations,
and institutions both
21
<PAGE>
nationally and internationally, including investment management, estate and
trust administration, financial planning, corporate trust and agency banking,
and personal and corporate banking. The Investment Adviser is a member bank of
the Federal Reserve System and the Federal Deposit Insurance Corporation and is
one of the twelve members of the New York Clearing House Association.
On December 31, 1994, the Investment Adviser's Asset Management Group had ap-
proximately $33 billion in assets under management. The Investment Adviser,
which has its principal offices at 114 W. 47th Street, New York, New York
10036, is a subsidiary of U.S. Trust Corporation, a registered bank holding
company.
The Investment Adviser manages the Fund, makes decisions with respect to and
places orders for all purchases and sales of the Fund's portfolio securities,
and maintains records relating to such purchases and sales. The Fund's portfo-
lio manager, Kenneth J. McAlley, is the person primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. McAlley, Execu-
tive Vice President and Manager of the Fixed Income Investment Division of U.S.
Trust, has been with U.S. Trust since 1980 and has been the Fund's portfolio
manager since 1995.
For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreement, the Investment Adviser is entitled to be paid a fee, computed
daily and paid monthly, at the annual rate of .50% of the average daily net as-
sets of the Fund. For the fiscal year ended March 31, 1995, the Investment Ad-
viser received an advisory fee at the effective annual rate of .48% of the
Fund's average daily net assets. For the same period, the Investment Adviser
waived advisory fees at the effective annual rate of .02% of the Fund's average
daily net assets.
From time to time, the Investment Adviser may waive (either voluntarily or
pursuant to applicable state expense limitations) all or a portion of the
advisory fees payable to it by the Fund, which waivers may be terminated at any
time. See "Management of the Fund--Service Organizations" for additional infor-
mation on fee waivers.
ADMINISTRATORS
MFSC and Federated Administrative Services serve as the Fund's administrators
(the "Administrators") and provide it with general administrative and opera-
tional assistance. The Administrators also serve as administrators to the other
portfolios of Master Tax-Exempt Fund and Master Fund, which are also advised by
the Investment Adviser and distributed by the Distributor. For the services
provided to all portfolios of Master Tax-Exempt Fund and Master Fund (except
the International, Emerging Americas, Pacific/Asia and Pan European Funds), the
Administrators are entitled jointly to annual fees, computed daily and paid
monthly, based on the combined aggregate average daily net assets of the two
companies (excluding the International, Emerging Americas, Pacific/Asia and Pan
European Funds) as follows:
<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY
NET ASSETS OF MASTER FUND
(EXCLUDING THE INTERNATIONAL,
EMERGING AMERICAS, PACIFIC/ASIA AND
PAN EUROPEAN FUNDS) AND
MASTER TAX-EXEMPT FUND 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 Master
Tax-Exempt Fund and Master Fund are determined in proportion to their relative
average daily net assets at the time of determination. From time to time, the
Administrators may waive (either voluntarily or pursuant to applicable state
expense limitations) all or a portion of the administration fee payable to them
by the Fund, which waivers may be terminated at any time. See "Management of
the Fund--Service Organizations" for additional information on fee waivers. For
the fiscal year ended March 31, 1995, MFSC and Concord Holding
22
<PAGE>
Corporation, the former co-administrator, received an aggregate administration
fee (under the same compensation arrangements noted above) at the effective
annual rate of .154% of the Fund's average daily net assets.
SERVICE ORGANIZATIONS
Master Tax-Exempt Fund will enter into an agreement ("Servicing Agreement")
with each Service Organization requiring it to provide administrative support
services to its Customers beneficially owning Shares. As a consideration for
the administrative services provided to Customers, the Fund will pay the Serv-
ice Organization an administrative service fee at the annual rate of up to .40%
of the average daily net asset value of the Fund's Shares held by the Service
Organization's Customers. Such services, which are described more fully in the
Statement of Additional Information under "Management of the Fund--Service Or-
ganizations," may include assisting in processing purchase, exchange and re-
demption requests; transmitting and receiving funds in connection with Customer
orders to purchase, exchange or redeem Shares; and providing periodic state-
ments. Under the terms of the Servicing Agreement, Service Organizations will
be required to provide to Customers a schedule of any fees that they may charge
in connection with a Customer's investments. Until further notice, the Invest-
ment Adviser and Administrators have voluntarily agreed to waive fees payable
by the Fund in an amount equal to administrative service fees payable by the
Fund.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and prohibit banks generally from issuing, underwriting, selling or distribut-
ing securities such as Shares of the Fund, but such banking laws and regula-
tions do not prohibit such a holding company or affiliate or banks generally
from acting as investment adviser, transfer agent, or custodian to such an in-
vestment company, or from purchasing shares of such company for and upon the
order of customers. The Investment Adviser, MFSC and certain Shareholder Orga-
nizations may be subject to such banking laws and regulations. State securities
laws may differ from the interpretations of Federal law discussed in this para-
graph and banks and financial institutions may be required to register as deal-
ers pursuant to state law.
Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Investment Adviser and such
Shareholder Organizations might be required to alter materially or discontinue
the investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Fund's method of operations would af-
fect its net asset value per Share or result in financial loss to any share-
holder.
DESCRIPTION OF CAPITAL STOCK
Master Tax-Exempt Fund was organized as a Maryland corporation on August 8,
1984. Currently, Master Tax-Exempt Fund has authorized capital of 14 billion
shares of Common Stock, $.001 par value per share, classified into 5 classes of
shares representing 5 investment portfolios currently being offered. Master
Tax-Exempt Fund's Charter authorizes the Board of Directors to classify or re-
classify any class of shares of Master Tax-Exempt Fund into one or more classes
or series. Shares of Class D represent interests in the New York Intermediate-
Term Tax-Exempt Fund.
Each Share represents an equal proportionate interest in the Fund and is enti-
tled to such dividends and distributions out of the income earned on the
23
<PAGE>
assets belonging to the Fund as are declared in the discretion of Master Tax-
Exempt Fund's Board of Directors.
Shareholders 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 expressly required by law.
Certificates for Shares will not be issued unless expressly requested in writ-
ing to MFSC and will not be issued for fractional Shares.
As of July 11, 1995, U.S. Trust held of record substantially all of the Shares
in the Fund as agent or custodian for its customers, but did not own such
Shares beneficially because it did not have voting or investment discretion
with respect to such Shares.
CUSTODIAN AND TRANSFER AGENT
United States Trust Company of New York serves as the custodian of the Fund's
assets and as its transfer and dividend disbursing agent. Communications to the
custodian and transfer agent should be directed to United States Trust Company
of New York, Mutual Funds Service Division, 770 Broadway, New York, New York
10003-9598.
U.S. Trust has entered into a sub-transfer agency arrangement with MFSC, 73
Tremont Street, Boston, Massachusetts 02108-3913, pursuant to which MFSC pro-
vides certain transfer agent, dividend disbursement and registrar services to
the Fund.
EXPENSES
Except as noted below, the Investment Adviser and the Administrators will bear
all expenses in connection with the performance of their advisory and adminis-
trative services. The Fund will bear the expenses incurred in its operations.
Such expenses include taxes; interest; fees, including the Fund's portion of
the fees paid to Master Tax-Exempt Fund's directors and officers who are not
affiliated with the Distributor or the Administrators; SEC fees; state securi-
ties qualification fees; costs of preparing and printing prospectuses for regu-
latory purposes and for distribution to shareholders; advisory and administra-
tion 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 Fund also pays for any brokerage fees and commis-
sions in connection with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the per-
formance and yields of the Fund 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 the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the per-
formance of mutual funds.
Performance and yield data as reported in national financial publications, in-
cluding 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 Fund.
The 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 maximum offering price per
Share on the last day of the period, and annualizing the result on a semi-an-
nual basis.
24
<PAGE>
In addition, the Fund may from time to time advertise its "tax-equivalent
yield" to demonstrate the level of taxable yield necessary to produce an after-
tax yield equivalent to that achieved by the Fund. This yield is computed by
increasing the yield of the Fund's Shares (calculated as above) by the amount
necessary to reflect the payment of Federal, New York state and New York City
income taxes at stated tax rates.
From time to time, the Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure re-
flects the average percentage change in the value of an investment in the Fund
from the beginning date of the measuring period to the end of the measuring pe-
riod. Average total return figures will be given for the most recent one-year
period and may be given for other periods as well (such as from the commence-
ment of the Fund's operations, or on a year-by-year basis). The Fund may also
use aggregate total return figures for various periods, representing the cumu-
lative change in the value of an investment in the Fund for the specific peri-
od. Both methods of calculating total return assume that dividends and capital
gain distributions made by a Fund during the period are reinvested in Fund
Shares and also reflect the maximum sales load charged by the Fund.
Performance and yields will fluctuate and any quotation of performance and
yield should not be considered as representative of the Fund's future perfor-
mance. Since yields fluctuate, yield data cannot necessarily be used to compare
an investment in the Fund with bank deposits, savings accounts and similar in-
vestment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that performance and
yield are generally functions of the kind and quality of the instruments held
in a portfolio, portfolio maturity, operating expenses, and market conditions.
Any fees charged by Shareholder Organizations with respect to accounts of Cus-
tomers that have invested in Shares will not be included in calculations of
yield and performance.
MISCELLANEOUS
Shareholders will receive unaudited semiannual reports describing the Fund's
investment operations and annual financial statements audited by the Fund's in-
dependent auditors.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of Master Tax-Exempt Fund or the 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 Master Tax-Exempt Fund or the Fund, or (b) 67% or
more of the shares of Master Tax-Exempt Fund or the Fund present at a meeting
if more than 50% of the outstanding shares of Master Tax-Exempt Fund or the
Fund are represented at the meeting in person or by proxy.
Inquiries regarding the Fund may be directed to the Distributor at the address
listed under "Distributor."
25
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) and mail to: FOR OVERNIGHT DELIVERY: send to:
UST Master Funds UST Master Funds
c/o Mutual Funds Service Company c/o Mutual Funds Service Company--
P.O. Box 2798 Transfer Agent
Boston, MA 02208-2798 73 Tremont Street
Boston, MA 02108-3913
Please enclose with the Application(s) your check made payable to the "UST
Master Funds" in the amount of your investment.
For direct wire purchases please refer to the section of the Prospectus enti-
tled "How to Purchase and Redeem Shares--Purchase Procedures."
MINIMUM INVESTMENTS:
Except as provided in the Prospectus, the minimum initial investment is $500;
subsequent investments must be in the minimum amount of $50. 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 organiza-
tions, 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 transfer agent at (800) 446-1012 between 9:00 a.m.
and 5:00 p.m. (Eastern Time).
26
<PAGE>
[LOGO OF UST MUTUAL FUNDS SERVICE COMPANY
MASTER FUNDS CLIENT SERVICES
APPEARS HERE] P.O. Box 2798
Boston, MA 02208-2798
(800) 446-1012 NEW ACCOUNT APPLICATION
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION
-----------------------------------------------------------------------------
[_] Individual [_] Joint Tenants [_] Trust [_] Gift/Transfer to Minor
[_] Other ______________
Note: Joint tenant registration will be as "joint tenants
with right of survivorship" unless otherwise specified. Trust
registrations should specify name of the trust, trustee(s),
beneficiary(ies), and the date of the trust instrument.
Registration for Uniform Gifts/Transfers to Minors should be
in the name of one custodian and one minor and include the
state under which the custodianship is created (using the
minor's Social Security Number ("SSN")). For IRA accounts a
different application is required.
------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
Indentification #
( )
------------------------------ -----------------------------
Name Telephone #
------------------------------
Address
[_] U.S. Citizen
------------------------------ [_] Other (specify)____________
City/State/Zip
-----------------------------------------------------------------------------
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 PER
FUND AND $50 PER FUND, RESPECTIVELY. MAKE CHECKS PAYABLE TO "UST MASTER
FUNDS.")
-----------------------------------------------------------------------------
Initial Investment
[_] NY Intermediate-Term
Tax-Exempt Fund $ ___________810
Initial Investment
[_] Other _____________________ $ ___________
Total Initial Investment: $ ___________
NOTE: If investing by wire, you must obtain a Bank Wire Control Number. To
do so, please call (800) 446-1012 and ask for the Wire Desk.
A. BY MAIL: Enclosed is a check in the amount of $ ____ payable to "UST
Master Funds."
B. BY WIRE: A bank wire in the amount of $ ____ has been sent to the Fund
from
------------------ ---------------------
Name of Bank Wire Control Number
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------
TELEPHONE EXCHANGE AND REDEMPTION
[_] I/We appoint MFSC as my/our agent to act upon instructions received by
telephone in order to effect the telephone exchange and redemption
privileges. I/We hereby ratify any instructions given pursuant to this
authorization and agree that Master Fund, Master Tax-Exempt Fund, MFSC and
their directors, officers and employees will not be liable for any loss,
liability, cost or expense for acting upon instructions believed to be
genuine and in accordance with the procedures described in the then current
Prospectus. To the extent that Master Fund and Master Tax-Exempt Fund fail
to use reasonable procedures as a basis for their belief, they or their
service contractors may be liable for instructions that prove to be
fraudulent or unauthorized.
I/We further acknowledge that it is my/our responsibility to read the
Prospectus of any Fund into which I/we exchange.
[_] I/We do not wish to have the ability to exercise telephone redemption
and exchange privileges. I/We further understand that all exchange and
redemption requests must be in writing.
SPECIAL PURCHASE AND REDEMPTION PLANS
I/We have completed and attached the Supplemental Application for:
[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan
AUTHORITY TO TRANSMIT REDEMPTION PROCEEDS TO PRE-DESIGNATED ACCOUNT.
I/We hereby authorize MFSC to act upon instructions received by telephone to
withdraw $500 or more from my/our account in the UST Master Funds and to
wire the amount withdrawn to the following commercial bank account. I/We
understand that MFSC charges an $8.00 fee for each wire redemption, which
will be deducted from the proceeds of the redemption.
Title on Bank Account*____________________________________________________
Name of Bank _____________________________________________________________
Bank A.B.A. Number____________________ Account Number ____________________
Bank Address _____________________________________________________________
City/State/Zip ___________________________________________________________
(attach voided check here)
A corporation, trust or partnership must also submit a "Corporate
Resolution" (or "Certificate of Partnership") indicating the names and
titles of officers authorized to act on its behalf.
* TITLE ON BANK AND FUND ACCOUNT MUST BE IDENTICAL.
<PAGE>
------------------------------------------------------------------
RIGHTS OF ACCUMULATION
------------------------------------------------------------------
To qualify for Rights of Accumulation, you must complete this
section, listing all of your accounts including those in your
spouse's name, joint accounts and accounts held for your
minor children. If you need more space, please attach a
separate sheet.
[_] I/We qualify for the Rights of Accumulation sales charge
discount described in the Prospectus and Statement of
Additional Information.
[_] I/We own shares of more than one Fund distributed by
Edgewood Services, Inc. Listed below are the numbers of
each of my/our Shareholder Accounts.
[_] The registration of some of my/our shares differs from that
shown on this application. Listed below are the account
number(s) and full registration(s) in each case.
LIST OF OTHER UST MASTER FUND ACCOUNTS:
______________________ _______________________________________
______________________ _______________________________________
______________________ _______________________________________
ACCOUNT NUMBER ACCOUNT REGISTRATIONS
------------------------------------------------------------------
LETTER OF INTENT
------------------------------------------------------------------
[_] I agree to the Letter of Intent provisions set forth in
the Prospectus. Although I am not obligated to purchase, and
Master Tax-Exempt Fund is not obligated to sell, I intend to
invest, over a 13-month period beginning on , 19 , an
aggregate amount in Eligible Funds of Master Fund and Master
Tax-Exempt Fund at least equal to (check appropriate box):
[_] $50,000 [_] $100,000 [_] $250,000 [_] $500,000
[_] $1,000,000 [_] $2,000,000
By signing this application, I hereby authorize MFSC to re-
deem an appropriate number of shares held in escrow to pay
any additional sales loads payable in the event that I do not
fulfill the terms of this Letter of Intent.
------------------------------------------------------------------
AGREEMENTS AND SIGNATURES
------------------------------------------------------------------
By signing this application, I/we hereby certify under
penalty of perjury that the information on this application
is complete and correct and that as required by Federal law:
[_] I/We certify that (1) the number(s) shown on this form
is/are the correct taxpayer identification number(s) and (2)
I/we are not subject to backup withholding either because
I/we have not been notified by the Internal Revenue Service
that I/we are subject to backup withholding, or the IRS has
notified me/us that I am/we are no longer subject to backup
withholding. (NOTE: IF ANY OR ALL OF PART 2 IS NOT TRUE,
PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
[_] If no taxpayer identification number ("TIN") or SSN has
been provided above, I/we have applied, or intend to apply,
to the IRS or the Social Security Administration for a TIN or
a SSN, and I/we understand that if I/we do not provide this
number to MFSC within 60 days of the date of this
application, or if I/we fail to furnish my/our correct SSN or
TIN, I/we may be subject to a penalty and a 31% backup
withholding on distributions and redemption proceeds. (Please
provide this number on Form W-9. You may request the form by
calling MFSC at the number listed above).
I/We represent that I am/we are of legal age and capacity to
purchase shares of the UST Master Funds. I/We have received,
read and carefully reviewed a copy of the appropriate Fund's
current Prospectus and agree to its terms and by signing
below I/we acknowledge that neither the Fund nor the
Distributor is a bank and that Fund Shares are not deposits
or obligations of, or guaranteed or endorsed by, United
States Trust Company of New York, its parent and affiliates
and the Shares are not federally insured by, guaranteed by,
obligations of or otherwise supported by the U.S. Government,
the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other governmental agency; and that an
investment in the Fund involves investment risks, including
possible loss of principal amount invested..
X ___________________________ Date __________________________
Owner Signature
X ___________________________ Date __________________________
Co-Owner Signature
Sign exactly as name(s) of registered owner(s) appear(s) above
(including legal title if signing for a corporation, trust
custodial account, etc.).
------------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
------------------------------------------------------------------
We hereby submit this application for the purchase of shares
in accordance with the terms of our selling agreement with
Edgewood Services, Inc., and with the Prospectus and
Statement of Additional Information of each Fund purchased.
We agree to notify MFSC of any purchases made under the
Letter of Intent or Rights of Accumulation.
----------------------------- -------------------------------
Investment Dealer's Name Source of Business Code
----------------------------- -------------------------------
Main Office Address Branch Number
----------------------------- -------------------------------
Representative's Number Representative's Name
----------------------------- -------------------------------
Branch Address Telephone
----------------------------- -------------------------------
Investment Dealer's Title
Authorized Signature
<PAGE>
[LOGO OF UST MUTUAL FUNDS SERVICE COMPANY
MASTER FUNDS CLIENT SERVICES SUPPLEMENTAL APPLICATION
APPEARS HERE] P.O. Box 2798 SPECIAL INVESTMENT AND
Boston, MA 02208-2798 WITHDRAWAL OPTIONS
(800) 446-1012
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
-----------------------------------------------------------------------------
Fund Name __________________ Account Number _________________
Owner Name _________________ Social Security or Taxpayer ID
Street Address _____________ Number _________________________
Resident City, State, Zip Code __________
of [_] U.S. [_] Other ____ [_] Check here if this is a change of address
-----------------------------------------------------------------------------
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
-----------------------------------------------------------------------------
A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked: All dividends are to be [_] reinvested
[_] paid in cash
All capital gains are to be [_] reinvested
[_] paid in cash
B. PAYMENT ORDER: Complete only if distribution checks are to be payable
to another party. Make distribution checks payable to:
Name of Your Bank ______________
Name _______________________ Bank Account Number ____________
Address ____________________ Address of Bank ________________
City, State, Zip Code ________________________________________
C. DISTRIBUTIONS REINVESTED-CROSS FUNDS: Permits all distributions from
one Fund to be automatically reinvested into another identically-
registered UST Master Fund. (NOTE: You may NOT open a new Fund account
with this option.) Transfer all distributions earned:
From: ______________________ Account No. ____________________
(Fund)
To: ________________________ Account No. ____________________
(Fund)
-----------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN [_] YES [_] NO
-----------------------------------------------------------------------------
I/We hereby authorize MFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable public offering price
determined on that day.
[_] Monthly on the 1st day [_] Monthly on the 15th day [_] Monthly on both
the 1st and 15th
days
Amount of each debit (minimum $50 per Fund) $ ________________
NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
------------------------------------------------------------------------------
------------------------------------------------------------------------------
UST MASTER FUNDS
CLIENT SERVICES AUTOMATIC INVESTMENT PLAN
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
BANK AUTHORIZATION
-----------------------------------------------------------------------------
----------------------- ------------------------ --------------------------
Bank Name Bank Address Bank Account Number
I/We authorize you, the above named bank, to debit my/our account for
amounts drawn by MFSC, acting as my agent for the purchase of Fund shares.
I/We agree that your rights in respect to each withdrawal shall be the same
as if it were a check drawn upon you and signed by me/us. This authority
shall remain in effect until revoked in writing and received by you. I/We
agree that you shall incur no liability when honoring debits, except a loss
due to payments drawn against insufficient funds. I/We further agree that
you will incur no liability to me if you dishonor any such withdrawal. This
will be so even though such dishonor results in the cancellation of that
purchase.
---------------------------- --------------------------------
Account Holder's Name Joint Account Holder's Name
X ---------------- --------- X ------------------ -----------
Signature Date Signature Date
<PAGE>
--------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN [_] YES [_] NO NOT AVAILABLE FOR IRA'S
--------------------------------------------------------------------------------
AVAILABLE TO SHAREHOLDERS WITH ACCOUNT BALANCES OF $10,000 OR MORE.
I/We hereby authorize MFSC to redeem the necessary number of shares from
my/our UST Master Fund Account on the designated dates in order to make the
following periodic payments:
[_] Monthly on the 24th day [_] Quarterly on the 24th day of
January, April, July and October
[_] Other______
(This request for participation in the Plan must be received by the 18th day
of the month in which you wish withdrawals to begin.)
Amount of each check ($100 minimum) $______________________
Please make check payable to: Recipient ________________________
(To be completed only if redemption
proceeds to be paid to other than Street Address ___________________
account holder of record or mailed
to address other than address of City, State, Zip Code ____________
record)
NOTE: If recipient of checks is not the registered shareholder, signature(s)
----
below must be guaranteed. A corporation, trust or partnership must also submit
a "Corporate Resolution" (or "Certification of Partnership") indicating the
names and titles of officers authorized to act on its behalf.
--------------------------------------------------------------------------------
AGREEMENT AND SIGNATURES
--------------------------------------------------------------------------------
The investor(s) certifies and agrees that the certifications, authorizations,
directions and restrictions contained herein will continue until MFSC receives
written notice of any change or revocation. Any change in these instructions
must be in writing with all signatures guaranteed (if applicable).
Date ______________________
X X
--------------------------------------- -------------------------------------
Signature Signature
--------------------------------------- -------------------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)
X X
--------------------------------------- -------------------------------------
Signature Signature
--------------------------------------- -------------------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)
*ELIGIBLE GUARANTORS: An Eligible Guarantor institution is a bank, trust
company, broker, dealer, municipal or government securities broker or dealer,
credit union, national securities exchange, registered securities association,
clearing agency or savings association, provided that such institution is a
participant in STAMP, the Securities Transfer Agents Medallion Program.
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY........................................................... 2
FINANCIAL HIGHLIGHTS...................................................... 3
INVESTMENT OBJECTIVE AND POLICIES......................................... 4
General.................................................................. 4
Quality of Investments................................................... 4
Types of Municipal Obligations........................................... 5
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION.................... 5
Variable and Floating Rate Instruments................................... 5
When-Issued and Forward Transactions and Stand-By Commitments............ 6
Eligible Taxable Obligations............................................. 6
Illiquid Securities...................................................... 8
Portfolio Turnover....................................................... 8
Risk Factors............................................................. 8
INVESTMENT LIMITATIONS.................................................... 9
PRICING OF SHARES......................................................... 10
HOW TO PURCHASE AND REDEEM SHARES......................................... 11
Distributor.............................................................. 11
Purchase of Shares....................................................... 11
Public Offering Price.................................................... 11
Purchase Procedures...................................................... 14
Redemption Procedures.................................................... 14
Redemption by Mail....................................................... 15
General.................................................................. 16
INVESTOR PROGRAMS......................................................... 16
Exchange Privilege....................................................... 16
Systematic Withdrawal Plan............................................... 19
Automatic Investment Program............................................. 19
DIVIDENDS AND DISTRIBUTIONS............................................... 20
TAXES..................................................................... 20
Federal.................................................................. 20
New York................................................................. 21
Miscellaneous............................................................ 21
MANAGEMENT OF THE FUND.................................................... 21
Investment Adviser....................................................... 21
Administrators........................................................... 22
Service Organizations.................................................... 23
Banking Laws............................................................. 23
DESCRIPTION OF CAPITAL STOCK.............................................. 23
CUSTODIAN AND TRANSFER AGENT.............................................. 24
EXPENSES.................................................................. 24
PERFORMANCE AND YIELD INFORMATION......................................... 24
MISCELLANEOUS............................................................. 25
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION.................................. 26
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR THE FUND'S STATEMENT OF ADDI-
TIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
USTNYXP895
[LOGO OF UST MASTER TAX-EXEMPT
FUNDS, INC. APPEARS HERE]
MASTER TAX-EXEMPT FUNDS, INC.
NEW YORK INTERMEDIATE-
TERM TAX-EXEMPT FUND
Prospectus August 1, 1995
