EXCELSIOR TAX EXEMPT FUNDS INC, 485APOS, 1997-05-30

EXCELSIOR TAX EXEMPT FUNDS INC
485APOS, 1997-05-30

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<PAGE>

As filed with the SEC on May 30, 1997

Excelsior Tax-Exempt Funds, Inc. - Registration Nos. 2-93068; 811-4101

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]

Excelsior Tax-Exempt Funds, Inc: Post-Effective Amendment No. 22 [x]

and

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

Excelsior Tax-Exempt Funds, Inc.: Amendment No. 24 [x]

(Exact Name of Registrant as Specified in Charter)

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

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

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

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

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

If appropriate, check the following box:

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

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

The Registrant has registered an indefinite number of securities under the
Securities Act of 1933 pursuant to Rule 24f-2. The Rule 24f-2 Notice for the
Registrant's fiscal year ended March 31, 1997 was filed on May 29, 1997.
<PAGE>

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

EXCELSIOR FUNDS, INC.
(Money Fund, Government Money Fund, Treasury Money Fund)

EXCELSIOR TAX-EXEMPT FUNDS, INC.
(Tax-Exempt Money Fund)

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

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

2. Synopsis.................................. Expense Summary

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

4. General Description of Registrant......... Investment Objective and
Policies; Portfolio
Instruments and Other
Investment Information;
Investment Limitations;
Description of Capital
Stock

5. Management of the Fund.................... Management of the Funds;
Custodian and Transfer
Agent
5A. Management's Discussion of Fund
Performance.............................. Not Applicable

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

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

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

9. Pending Legal Proceedings................. Inapplicable
<PAGE>

[LOGO] EXCELSIOR
Management Investment Companies FUNDS INC.
TAX-EXEMPT 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)
Tax-Exempt Money 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 Ex-
celsior Funds, Inc. ("Excelsior Fund") (formerly UST Master Funds, Inc.) and
the Tax-Exempt Money Fund, a diversified portfolio offered by Excelsior Tax-Ex-
empt Funds, Inc. ("Excelsior Tax-Exempt Fund") (formerly UST Master Tax-Exempt
Funds, Inc.). Excelsior Fund and Excelsior Tax-Exempt Fund (collectively the
"Companies") are open-end, management investment companies. Each portfolio (in-
dividually, a "Fund" and collectively, the "Funds") has its own investment ob-
jective and policies:

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

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

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

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

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

This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1996 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, U.S. TRUST, ITS PARENT OR AFFILIATES AND THE SHARES ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY OR OBLIGATIONS OF OR OTHERWISE SUP-
PORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. THE FUNDS SEEK TO
MAINTAIN THEIR NET ASSET VALUE PER SHARE AT $1.00 FOR PURPOSES OF PURCHASES AND
REDEMPTIONS, ALTHOUGH THERE CAN BE NO ASSURANCE THAT THEY WILL DO SO ON A CON-
TINUOUS BASIS. INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.

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

August 1, 1997

<PAGE>

EXPENSE SUMMARY

<TABLE>
<CAPTION>
GOVERNMENT TREASURY TAX-EXEMPT
MONEY MONEY MONEY MONEY
FUND FUND FUND FUND
----- ---------- -------- ----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
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/...... --% --% --% --%
12b-1 Fees................................ None None None None
Other Operating Expenses
Administrative Servicing Fee/2/.......... --% --% --% --%
Other Expenses........................... --% --% --% --%
---- ---- ---- ----
Total Operating Expenses (after fee
waivers)/2/.............................. --% --% --% --%
==== ==== ==== ====
</TABLE>
- -------

1. The Funds' sub-transfer agent imposes a direct $8.00 charge on each wire re-
demption by noninstitutional (i.e. individual) investors which is not re-
flected in the 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 Fees" would be .25%, .25%,
.30% and .25% and "Total Operating Expenses" would be %, %, % and %
for the Money, Government Money, Treasury Money and Tax-Exempt Money 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...................................... $ $ $ $
Government Money Fund...........................
Treasury Money Fund.............................
Tax-Exempt Money Fund...........................
</TABLE>

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

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

3
<PAGE>

FINANCIAL HIGHLIGHTS

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

MONEY FUND

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

4
<PAGE>

GOVERNMENT MONEY FUND

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

5
<PAGE>

TAX-EXEMPT MONEY FUND

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

6
<PAGE>

TREASURY MONEY FUND

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

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 average portfolio maturity not exceeding 90 days.

MONEY FUND

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

GOVERNMENT MONEY FUND

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

TREASURY MONEY FUND

The Treasury Money Fund's investment objective is to seek current income with
liquidity and stability of principal. The Fund invests primarily in direct ob-
ligations of the U.S. Treasury with remaining maturities of 13 months or less,
such as Treasury bills and notes. Under normal market conditions, the Fund will
invest at least 65% of its total assets in direct U.S. Treasury obligations.
The Fund may also from time to time invest in obligations with remaining matu-
rities of 13 months or less issued or guaranteed as to principal and interest
by certain agencies or instrumentalities of the U.S. Government, such as the
Farm Credit System Financial Assistance Corporation, Federal Financing Bank,
General Services Administration, Federal Home Loan Banks, Farm Credit System,
Tennessee Valley Authority and the Student Loan Marketing Association. Income
on direct investments in U.S. Treasury securities and obligations of the afore-
mentioned agencies and instrumentalities is generally not subject to state and
local income taxes by reason of Federal law. In addition, the Fund's dividends
from income that is attributable to such investments will also be exempt in
most states from state and local income taxes. Shareholders in a particular
state should determine through consultation with their own tax advisors whether
and to what extent dividends payable by the Treasury Money Fund from its in-
vestments will be considered by the state to have retained exempt status, and
whether the Fund's capital gain and other income, if any, when distributed will
be subject to the state's income tax. See "Taxes--State and Local." The Trea-
sury Money Fund will not enter into repurchase agreements.

TAX-EXEMPT MONEY FUND

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

8
<PAGE>

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

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

The Tax-Exempt Money Fund invests in Municipal Securities which are determined
by the Investment Adviser to present minimal credit risks. As a matter of fun-
damental policy, except during temporary defensive periods, the Fund will main-
tain at least 80% of its assets in tax-exempt obligations. (This policy may not
be changed with respect to the Fund without the vote of the holders of a major-
ity of its outstanding Shares). However, from time to time on a temporary de-
fensive basis due to market conditions, the Tax-Exempt Money Fund may hold
uninvested cash reserves or invest in taxable obligations in such proportions
as, in the opinion of the Investment Adviser, prevailing market or economic
conditions may warrant. Uninvested cash reserves will not earn income. Should
the Fund invest in taxable obligations, it would purchase: (i) obligations of
the U.S. Treasury; (ii) obligations of agencies and instrumentalities of the
U.S. Government; (iii) money market instruments such as certificates of depos-
it, commercial paper, and bankers' acceptances; (iv) repurchase agreements col-
lateralized by U.S. Government obligations or other money market instruments;
or (v) securities issued by other investment companies that invest in high-
quality, short-term securities.

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

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

PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION

GOVERNMENT OBLIGATIONS

Government obligations acquired by the Money, Government Money, Treasury Money
and Tax-Exempt Money Funds include obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities. Such investments may include
obligations issued by the Farm Credit System Financial Assistance Corporation,
the Federal Financing Bank, the General Services Administration, Federal Home
Loan Banks, the Tennessee Valley Authority and the Student Loan Marketing Asso-
ciation. Obligations of certain agencies and instrumentalities of the U.S. Gov-
ernment are supported by the full faith and credit of the U.S. Treasury; others
are supported by the right of the issuer to borrow from the Treasury; others
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would pro-
vide financial support to U.S. Government-sponsored instrumentalities if it is
not obligated to do so by law. Obligations of such instrumentalities will be
purchased only when the Investment Adviser believes that the credit risk with
respect to the instrumentality is minimal.

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<PAGE>

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

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

MONEY MARKET INSTRUMENTS

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

Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"),
or by a savings and loan association or savings bank which is insured by the
Savings Association Insurance Fund of FDIC. Bank obligations acquired by the
Money Fund may also include U.S. dollar-denominated obligations of foreign
branches of U.S. banks and obligations of domestic branches of foreign banks.
Investments in bank obligations are limited to the obligations of financial
institutions having more than $2 billion in total assets at the time of pur-
chase. Investments in bank obligations of foreign branches of domestic finan-
cial institutions or of domestic branches of foreign banks are limited so that
no more than 5% of the value of the Fund's total assets may be invested in any
one branch, and that no more than 20% of the Fund's total assets at the time
of purchase may be invested in the aggregate in such obligations. Investments
in non-negotiable time deposits are limited to no more than 5% of the value of
a Fund's total assets at time of purchase, and are further subject to the
overall 10% limit on illiquid securities described below under "Illiquid Secu-
rities."

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

VARIABLE AND FLOATING RATE INSTRUMENTS

Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instru-
ment purchased by a Fund, the Fund may, from time to time as specified in the
instrument, demand payment of the principal of the instrument or may resell
the instrument to a third party. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if
the issuer defaulted on its payment obligation or during periods that the Fund
is not entitled to exercise its demand rights, and the Fund could, for this or
other reasons, suffer a loss with respect to such instrument. Any security
which cannot be disposed of within seven days without taking a reduced price
will be considered an illiquid security

10
<PAGE>

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

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

QUALITY OF INVESTMENTS

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

REPURCHASE AGREEMENTS

The Money, Government Money and Tax-Exempt Money Funds may agree to purchase
portfolio securities subject to the seller's agreement to repurchase them at a
mutually agreed upon date and price ("repurchase agreements"). A Fund will en-
ter into repurchase agreements only with financial institutions that are
deemed to be creditworthy by the Investment Adviser, pursuant to guidelines
established by the Boards of Directors. No Fund will enter into repurchase
agree ments with the Investment Adviser or any of its affiliates. Repurchase
agreements with remaining maturities in excess of seven days will be consid-
ered illiquid securities and will be subject to the 10% limit described below
under "Illiquid Securities."

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

SECURITIES LENDING

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

INVESTMENT COMPANY SECURITIES

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

11
<PAGE>

high-quality, short-term securities and which determine their net asset value
per share based on the amortized cost or penny-rounding method. The Tax-Exempt
Money Fund will invest in securities of investment companies only if such com-
panies invest primarily in high-quality, short-term Municipal Securities. The
Government Money and Treasury Money Funds intend to limit their acquisition of
shares of other investment companies to those companies which are themselves
permitted to invest only in securities which may be acquired by the respective
Funds. Securities of other investment companies will be acquired by a Fund
within the limits prescribed by the Investment Company Act of 1940 (the "1940
Act"). Each Fund currently intends to limit its investments so that, as deter-
mined 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 in-
vestment 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 opera-
tions, as a shareholder of another investment company, a Fund would bear its
pro rata portion of the other investment company's advisory fees and other ex-
penses. As such, the Fund's shareholders would indirectly bear the expenses of
the Fund and the other investment company, some or all of which would be du-
plicative. Any change by the Funds in the future with respect to their poli-
cies concerning investments in securities issued by other investment companies
will be made only in accordance with the requirements of the 1940 Act.

TYPES OF MUNICIPAL SECURITIES

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

The Tax-Exempt Money Fund's portfolio may also include "moral obligation" se-
curities, which are normally issued by special-purpose public authorities. If
the issuer of moral obligation securities is unable to meet its debt service
obligations from current revenues, it may draw on a reserve fund the restora-
tion of which is a moral commitment but not a legal obligation of the state or
municipality which created the issuer. There is no limitation on the amount of
moral obligation securities that may be held by the Fund.

The Tax-Exempt Money Fund may also purchase custodial receipts evidencing the
right to receive either the principal amount or the periodic interest payments
or both with respect to specific underlying Municipal Securities. In general,
such "stripped" Municipal Securities are offered at a substantial discount in
relation to the principal and/or interest payments which the holders of the
receipt will receive. To the extent that such discount does not produce a
yield to maturity for the investor that exceeds the original tax-exempt yield
on the underlying Municipal Security, such yield will be exempt from Federal
income tax for such investor to the same extent as interest on the underlying
Municipal Security. The Tax-Exempt Money Fund intends to purchase custodial
receipts and "stripped" Municipal Securities only when the yield thereon will
be, as described above, exempt from Federal income tax to the same extent as
interest on the underlying Municipal Securities. "Stripped" Municipal Securi-
ties are considered illiquid securities subject to the 10% limit described be-
low under "Illiquid Securities."

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<PAGE>

WHEN-ISSUED AND FORWARD TRANSACTIONS AND STAND-BY COMMITMENTS

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

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

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.

INVESTMENT LIMITATIONS

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

No Fund may:

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

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

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<PAGE>

The Treasury Money Fund may not:

Purchase securities other than obligations issued or guaranteed by the U.S.
Treasury or an agency or in strumentality of the U.S. Government and securi-
ties 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 as to principal or interest by the United
States, or by a person controlled or supervised by and acting as an instrumen-
tality of the Government of the United States, or any certificate of deposit
for any of the foregoing, are deemed to be Government Securities.

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

HOW TO PURCHASE AND REDEEM SHARES

DISTRIBUTOR

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

At various times the Distributor may implement programs under which a deal-
er's sales force may be eligible to win nominal awards for certain sales ef-
forts or under which the Distributor will make payments to any dealer that
sponsors sales contests or recognition programs conforming to criteria estab-
lished by the Distributor, or that participates in sales programs sponsored by
the Distributor. The Distributor in its discretion may also from time to time,
pursuant to objective criteria established by the Distributor, pay fees to
qualifying dealers for certain services or activities which are primarily in-
tended to result in sales of Shares of the Funds. If any such program is made
available to any

dealer, it will be made available to all dealers on the

14
<PAGE>

same terms and conditions. Payments made under such programs will be made by
the Distributor out of its own assets and not out of the assets of the Funds.

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

PURCHASE OF SHARES

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

Shares may be purchased directly by individuals ("Direct Investors") or by
institutions ("Institutional Investors" and, collectively with Direct Invest-
ors, "Investors"). Shares may also be purchased by customers ("Customers") of
the Investment Adviser, its affiliates and correspondent banks, and other in-
stitutions ("Shareholder Organizations") that have entered into shareholder
servicing agreements with one of the Companies. 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 Chase Global Funds Services Company
("CGFSC"), the Funds' sub-transfer agent, in accordance with the procedures
agreed to by the Shareholder Organization and the Distributor. Confirmations
of all such Customer purchases and redemptions will be sent by CGFSC to the
particular Shareholder Organization. As an alternative, a Shareholder Organi-
zation may elect to establish its Customers' accounts of record with CGFSC. In
this event, even if the Shareholder Organization continues to place its Cus-
tomers' purchase and redemption orders with the Funds, CGFSC will send confir-
mations of such transactions and periodic account statements directly to Cus-
tomers. A Shareholder Organization may also elect to establish its Customers
as record holders.

The Companies enter into shareholder servicing agreements with Shareholder
Organizations which agree to provide their Customers various shareholder ad-
ministrative services with respect to their Shares (hereinafter referred 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."

PURCHASE PROCEDURES

General

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

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

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

Purchases by Wire

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

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

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

Other Purchase Information

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

REDEMPTION PROCEDURES

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

16
<PAGE>

Redemption by Mail

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

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

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

Redemption by Wire or Telephone

Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do so, may redeem Shares by instructing CGFSC by
wire or telephone to wire the redemption proceeds directly to the Direct In-
vestor's account at any commercial bank in the United States. Direct Investors
who are shareholders of record may also redeem Shares by instructing CGFSC by
telephone to mail a check for redemption proceeds of $500 or more to the share-
holder of record at his or her address of record. Institutional Investors may
also have their Shares redeemed by wire by instructing CGFSC by telephone at
(800) 446-1012 or by terminal access. Only redemptions of $500 or more will be
wired to a Direct Investor's account. An $8.00 fee for each wire redemption by
a Direct Investor is deducted by CGFSC 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 CGFSC.

Investors may request that Shares be redeemed and redemption proceeds wired on
the same day if telephone redemption instructions are received by 1:00 p.m.
(Eastern Time) on the day of redemption. Shares redeemed and wired on the same
day will not receive the dividend declared on the day of redemption. 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 CGFSC at (800) 446-1012 (from overseas, call (617) 557-8280).

17
<PAGE>

to the Companies, c/o CGFSC, at the address listed above under "Redemption by
Mail." Such request must be signed by the Direct Investor, with signatures
guaranteed (see "Redemption by Mail" above, for details regarding signature
guarantees). Further documentation may be requested.

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

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

Redemption by Check

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

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

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

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

Other Redemption Information

Except as provided in "Investor Programs" below, Investors may be required to
redeem Shares in a Fund upon 60 days' written notice if due to investor redemp-

18
<PAGE>

tions the balance in the particular account with respect to the Fund remains
below $500. If a Customer has agreed with a particular Shareholder Organiza-
tion 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.

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

EFFECTIVE TIME OF PURCHASES AND REDEMPTIONS

Purchase orders for Shares which are received 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 CGFSC 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
receiving dividends the following day. Purchase orders for Shares made by Di-
rect Investors are not effective until the amount to be invested has been con-
verted 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 Compa-
nies may not require that amounts invested by Shareholder Organizations on be-
half of their Customers or by Institutional Investors be converted into Fed-
eral funds. Redemption orders are executed at the net asset value per Share
next determined after receipt of the order.

INVESTOR PROGRAMS

EXCHANGE PRIVILEGE

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

Excelsior Fund currently offers, in addition to the Money Fund, Government
Money Fund and Treasury Money Fund, Shares in 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;

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

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

19
<PAGE>

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;

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

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;

Small Cap Fund, a fund seeking long-term capital appreciation by investing
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;

Latin America 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.

Excelsior Tax-Exempt Fund currently offers, in addition to the Tax-Exempt
Money Fund, five 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;

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 state and New York City income
taxes; this fund in vests primarily in New York municipal obligations and has
a dollar-weighted average portfolio maturity of three to ten years; and

California Tax-Exempt Income Fund, a non-diversified fund designed to pro-
vide California investors

20
<PAGE>

with as high a level of current interest income exempt from Federal and, to
the extent possible, California state personal income taxes as is consistent
with relative stability of principal; this fund invests primarily in Califor-
nia municipal obligations and has a dollar-weighted average portfolio matu-
rity of three to ten years.

Excelsior Institutional Trust currently offers Trust Shares in four invest-
ment portfolios as follows:

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

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

International Equity Fund, a fund seeking to provide long-term capital ap-
preciation through investment in a diversified portfolio of marketable for-
eign securities; and

Balanced Fund, a fund seeking to provide a high total return from a diversi-
fied portfolio of equity and fixed income securities.

An exchange involves a redemption of all or a portion of the Shares in a Fund
and the investment of the redemption proceeds in shares of another portfolio
of the Companies or Excelsior Institutional Trust. The redemption will be made
at the per Share net asset value of the Shares being redeemed next determined
after 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 next
determined 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 or Excelsior Institu-
tional Trust should request and review the prospectuses of such funds. Such
prospectuses may be obtained by calling the numbers listed above. In order to
prevent abuse of this privilege to the disadvantage of other shareholders, Ex-
celsior Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust re-
serve the right to limit the number of exchange requests of Investors and Cus-
tomers of Shareholder Organizations to no more than six per year. The Compa-
nies may modify or terminate the exchange program at any time upon 60 days'
written notice to shareholders, and may reject any exchange request. THE COM-
PANIES, EXCELSIOR INSTITUTIONAL TRUST, CGFSC AND THE DISTRIBUTOR ARE NOT RE-
SPONSIBLE FOR THE AUTHENTICITY OF EXCHANGE REQUESTS RECEIVED BY TELEPHONE THAT
ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM THAT TELEPHONE
INSTRUCTIONS ARE GENUINE, THE COMPANIES AND EXCELSIOR INSTITUTIONAL TRUST WILL
USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE
INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.

SYSTEMATIC WITHDRAWAL PLAN

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

Shareholder Organizations may, at their discretion, establish similar system-
atic withdrawal plans with re-

21
<PAGE>

spect to the Shares held by their Customers. Information about such plans and
the applicable procedures may be obtained by Customers directly from their
institutions.

RETIREMENT PLANS

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

AUTOMATIC INVESTMENT PROGRAM

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

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

DIVIDENDS AND DISTRIBUTIONS

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

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

22
<PAGE>

TAXES

FEDERAL

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

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

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

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

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

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

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

23
<PAGE>

STATE AND LOCAL

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

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

MISCELLANEOUS

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

MANAGEMENT OF THE FUNDS

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

INVESTMENT ADVISER

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

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

The Investment Adviser manages each Fund, makes decisions with respect to and
places orders for all purchases and sales of its portfolio securities, and
maintains records relating to such purchases and sales. For the services pro-
vided and expenses assumed pursuant to its Investment Advisory Agreements, the
Investment Adviser is entitled to a fee, computed daily and paid monthly, at
the annual rate of .25% of the average daily net assets of each of the Money,
Government Money and Tax-Exempt Money Funds. For the services provided and ex-
penses assumed with respect to the Treasury Money Fund, the Investment Adviser
is entitled to a fee, computed daily and paid monthly, at the

24
<PAGE>

annual rate of .30% of the Fund's average daily net assets.

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

From time to time, the Investment Adviser may voluntarily waive all or a
portion of the advisory fees payable to it by a Fund, which waiver may be

terminated at any time. See "Management of the Funds--Service Organizations"
for additional information on fee waivers.

ADMINISTRATORS

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

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

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

Prior to May 16, 1997, CGFSC, Federated Administrative Services and U.S.
Trust New York served as the Funds' administrators pursuant to an administra-
tion agreement substantially similar to the administration agreement currently
in effect for the Funds. For the fiscal year ended March 31, 1997, the Admin-
istrators received an aggregate administration fee at the effective annual
rate of % of the average daily net assets of each of the Funds, and waived
administration fees at the effective annual rate of % of the average daily
net assets of each of the Funds.

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 admin-
istrative services provided to Customers, a Fund will pay the Service Organi-
zation 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 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 redemp-

25
<PAGE>

tion requests; transmitting and receiving funds in connection with Customer or-
ders to purchase, exchange or redeem Shares; and providing periodic statements.
Under 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, CGFSC and certain Shareholder Orga-
nizations may be subject to such banking laws and regulations. State securities
laws may differ from the interpretations of Federal law discussed in this para-
graph and banks and financial institutions may be required to register as deal-
ers pursuant to state law.

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

DESCRIPTION OF CAPITAL STOCK

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

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

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

Shareholders are entitled to one vote for each full share held, and 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 CGFSC and will not be issued for fractional Shares.

As of July , 1997, U.S. Trust and its affiliates held sole or shared voting
or investment power with respect to more than 50% of each Company's outstanding
shares on behalf of their customers.

26
<PAGE>

CUSTODIAN AND TRANSFER AGENT

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

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

YIELD INFORMATION

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

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

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

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

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

MISCELLANEOUS

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

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

27
<PAGE>

The Companies do not believe, however, that such risk is significant under the
circumstances.

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

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

28
<PAGE>

INSTRUCTIONS FOR NEW ACCOUNT APPLICATION

OPENING YOUR ACCOUNT:

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

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

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

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

MINIMUM INVESTMENTS:

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

REDEMPTIONS:

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

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

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

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

QUESTIONS:

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

29
<PAGE>

[LOGO] EXCELSIOR
FUNDS INC.
TAX-EMEMPT FUNDS, INC

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

. AN INDIVIDUAL, the individual must sign the Card.

. JOINT ACCOUNT, both individuals must sign the Card.

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

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

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

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

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

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

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

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

X ___________________________ Date __________________________
Owner Signature

X ___________________________ Date __________________________
Co-Owner Signature

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

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

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

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

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

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

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

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

CHASE GLOBAL FUNDS SERVICES COMPANY SUPPLEMENTAL
CLIENT SERVICES APPLICATION
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 Excelsior 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 CGFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable net asset value determined
on that day.

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

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

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

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

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

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

X ________________ ________ X __________________ ___________
Signature Date Signature Date

<PAGE>

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

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

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

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

Amount of each check ($100 minimum) $ _______________________

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

Recipient ________________________________

Street Address ___________________________

City, State, Zip Code ____________________

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

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

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

Date ______________________

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

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

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

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

*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
Tax-Exempt Money 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
INVESTMENT LIMITATIONS.................................................... 13
PRICING OF SHARES......................................................... 14
HOW TO PURCHASE AND REDEEM SHARES......................................... 14
Distributor.............................................................. 14
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......................................................... 22
Automatic Investment Program............................................. 22
DIVIDENDS AND DISTRIBUTIONS............................................... 22
TAXES..................................................................... 23
Federal.................................................................. 23
State and Local.......................................................... 24
Miscellaneous............................................................ 24
MANAGEMENT OF THE FUNDS................................................... 24
Investment Adviser....................................................... 24
Administrators........................................................... 25
Service Organizations.................................................... 25
Banking Laws............................................................. 26
DESCRIPTION OF CAPITAL STOCK.............................................. 26
CUSTODIAN AND TRANSFER AGENT.............................................. 27
YIELD INFORMATION......................................................... 27
MISCELLANEOUS............................................................. 27
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION.................................. 29
</TABLE>

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

USTMMP897

[LOGO] EXCELSIOR
FUNDS INC.

TAX-EXEMPT FUNDS, INC.

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

Prospectus

August 1, 1997
<PAGE>

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

AVAILABLE THROUGH THE GINTEL GROUP

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

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

August 1, 1997
<PAGE>

TABLE OF CONTENTS

USTMMP897
MONEY FUND

GOVERNMENT MONEY FUND

EXCELSIOR FUNDS, INC.
AVAILABLE THROUGH THE GINTEL GROUP

PROSPECTUS

AUGUST 1, 1997

TREASURY MONEY FUND

TAX-EXEMPT MONEY FUND

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

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

TOLL FREE
(800) 344-3092
GINTEL
<PAGE>

CHECK WRITING SIGNATURE CARD EXCELSIOR FUNDS, INC.

MONEY FUND AND GOVERNMENT MONEY FUND

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

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

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

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

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

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

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

(Please use black ink)

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

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

EXCELSIOR FUNDS, INC.
<PAGE>

CHECK WRITING SIGNATURE CARD EXCELSIOR FUNDS, INC.

EXCELSIOR TAX-EXEMPT FUNDS, INC.

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

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

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

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

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

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

<PAGE>

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

EXCELSIOR TAX-EXEMPT FUNDS, INC.
(Short-Term Tax-Exempt Securities Fund,
Intermediate-Term Tax-Exempt Fund,
Long-Term Tax-Exempt Fund)

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

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

2. Synopsis.................................. Expense Summary

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

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

5. Management of the Fund.................... Management of the Funds;
Custodian and Transfer
Agent
5A. Management's Discussion of Fund
Performance.............................. Not Applicable

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

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

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

9. Pending Legal Proceedings................. Inapplicable
<PAGE>

[LOGO]
EXCELSIOR
TAX-EXEMPT FUNDS INC.

A Management Investment Company

- --------------------------------------------------------------------------------
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 Excelsior Tax-Exempt Funds, Inc. ("Excelsior Tax-Exempt Fund") (for-
merly UST Master Tax-Exempt Funds, Inc.), 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 referred
to as the "Short-Term Fund") will invest substantially all of its assets in Mu-
nicipal Obligations (as defined below) and will ordinarily have a dollar-
weighted average 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 consis-
tent with relative stability of principal. The Fund (hereinafter referred to as
the "Intermediate-Term Fund") will invest substantially all of its assets in
Municipal Obligations and will ordinarily have a dollar-weighted average port-
folio 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 pres-
ervation 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.

This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information, dated August 1, 1997, and containing additional information about
the Funds, has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to Excelsior 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, U.S. TRUST, ITS PARENT AND AFFILIATES AND THE SHARES ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED
BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.

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

August 1, 1997
<PAGE>

PROSPECTUS SUMMARY

EXCELSIOR TAX-EXEMPT FUNDS, INC. is an investment company offering various
diversified and non-diversified investment portfolios with differing objec-
tives and policies. Founded in 1984, Excelsior Tax-Exempt Fund currently of-
fers six Funds with combined assets of approximately $ billion. See "De-
scription of Capital Stock."

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

INVESTMENT OBJECTIVES AND POLICIES: Generally, each Fund is a diversified
investment 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 net asset value. Ex-
celsior Tax-Exempt Fund does not impose a sales load on purchases of Shares.
See "How to Purchase and Redeem Shares."

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

HOW TO REDEEM: Redemptions may be requested directly from Excelsior Tax-Ex-
empt Fund by mail, wire or telephone. Investors investing through another in-
stitution 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 mar-
kets and fluctuations in interest rates. The prices of fixed-income securities
generally 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 di-
rectly by a Fund and ultimately by its shareholders. Investment in the Funds
should not be considered a complete investment program. See "Investment Objec-
tives and Policies" 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)............. None None None
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/........ -- -- % -- %
12b-1 Fees.................................. None None None
Other Operating Expenses
Administrative Servicing Fee/2/........... -- % -- % -- %
Other Expenses............................ -- % -- % -- %
---- ---- ----
Total Operating Expenses (after fee
waivers)/2/................................ -- % -- % -- %
==== ==== ====
</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 %, % and % 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................................. $ $ $ $
Intermediate-Term Fund..........................
Long-Term Fund..................................
</TABLE>

4
<PAGE>

FINANCIAL HIGHLIGHTS

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

SHORT-TERM TAX-EXEMPT SECURITIES FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------------- ------- ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $ 6.96 $ 6.99 $ 7.07 $ 7.00
---- ------- ------- ------ ------
Income From Investment
Operations
Net Investment Income...... 0.28 0.25 0.21 0.05
Net Gains or (Losses) on
Securities (both realized
and unrealized)........... 0.09 (0.02) (0.03) 0.07
---- ------- ------- ------ ------
Total From Investment
Operations................ 0.37 0.23 0.18 0.12
---- ------- ------- ------ ------
Less Distributions
Dividends From Net
Investment Income......... (0.28) (0.25) (0.21) (0.05)
Distributions From Net
Realized Gain on
Investments............... 0.00 (0.01) (0.05) 0.00
---- ------- ------- ------ ------
Total Distributions........ (0.28) (0.26) (0.26) (0.05)
---- ------- ------- ------ ------
Net Asset Value, End of
Period...................... $ 7.05 $ 6.96 $ 6.99 $ 7.07
==== ======= ======= ====== ======
Total Return/2/.............. 5.42% 3.45% 2.55% 1.65%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)............. $ 42.97 $ 48.19 $57.73 $28.60
Ratio of Net Operating
Expenses to Average Net
Assets.................... 0.58% 0.59% 0.59% 0.60%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/................. 0.64% 0.61% 0.60% 0.84%/3/
Ratio of Net Income to
Average Net Assets........ 4.05% 3.60% 2.94% 2.80%/3/
Portfolio Turnover Rate.... 124% 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 prior to March 1, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by adviser and administrators.

5
<PAGE>

INTERMEDIATE-TERM TAX-EXEMPT FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ------- ------- ------- ------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 8.80 $ 8.64 $ 9.24 $ 8.95 $ 8.83 $ 8.67 $ 8.52 $ 8.69 $ 8.87
--- ------- ------- ------- ------- ------- ------- ------ ------ ------
Income From Investment
Operations.............
Net Investment Income.. 0.40 0.37 0.34 0.42 0.49 0.56 0.57 0.55 0.55
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 0.32 0.16 (0.09) 0.59 0.19 0.16 0.15 (0.17) (0.11)
--- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total From Investment
Operations............ 0.72 0.53 0.25 1.01 0.68 0.72 0.72 0.38 0.44
--- ------- ------- ------- ------- ------- ------- ------ ------ ------
Less Distributions
Dividends From Net
Investment Income..... (0.40) (0.37) (0.34) (0.42) (0.49) (0.56) (0.57) (0.55) (0.55)
Distributions From Net
Realized Gain on
Investments........... (0.00) (0.00) (0.26) (0.30) (0.07) 0.00 0.00 0.00 (0.07)
Distributions in Excess
of Net Realized Gain
on Investments........ 0.00 0.00 (0.25) 0.00 0.00 0.00 0.00 0.00 0.00
--- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total Distributions.... (0.40) (0.37) (0.85) (0.72) (0.56) (0.56) (0.57) (0.55) (0.62)
--- ------- ------- ------- ------- ------- ------- ------ ------ ------
Net Asset Value, End of
Period................. $ 9.12 $ 8.80 $ 8.64 $ 9.24 $ 8.95 $ 8.83 $ 8.67 $ 8.52 $ 8.69
=== ======= ======= ======= ======= ======= ======= ====== ====== ======
Total Return/1/......... 8.30% 6.34% 2.58% 11.70% 7.95% 8.64% 8.58% 4.49% 5.37%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $255.18 $234.99 $298.26 $285.32 $223.20 $122.62 $90.73 $58.29 $53.70
Ratio of Net Operating
Expenses to Average
Net Assets............ 0.60% 0.61% 0.64% 0.64% 0.64% 0.66% 0.69% 0.68% 0.70%
Ratio of Gross
Operating Expenses to
Average Net Assets/2/. 0.65% 0.64% 0.64% 0.64% 0.64% 0.66% 0.69% 0.68% 0.70%
Ratio of Net Income to
Average Net Assets.... 4.44% 4.28% 3.74% 4.57% 5.48% 6.47% 6.48% 6.43% 6.44%
Portfolio Turnover
Rate.................. 50.0% 362.0% 379.0% 429.0% 276.0% 216.0% 154.0% 256.0% 290.0%
</TABLE>
- -------
NOTES:
1. Total return data does not reflect the sales load payable on purchases of
Shares prior to March 1, 1997.
2. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by adviser and administrators.

6
<PAGE>

LONG-TERM TAX-EXEMPT FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $9.27 $ 8.87 $ 9.76 $ 9.25 $ 9.15 $ 8.87 $ 8.80 $ 8.68 $ 8.77
--- ------ ------ ------ ------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income.. 0.47 0.43 0.42 0.46 0.51 0.54 0.55 0.53 0.54
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 0.39 0.50 (0.12) 0.99 0.30 0.33 0.38 0.32 0.26
--- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total From Investment
Operations............ 0.86 0.93 0.30 1.45 0.81 0.87 0.93 0.85 0.80
--- ------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income..... (0.46) (0.43) (0.42) (0.46) (0.51) (0.54) (0.55) (0.53) (0.54)
Distributions From Net
Realized Gain on
Investments........... (0.14) (0.10) (0.50) (0.48) (0.20) (0.05) (0.31) (0.20) (0.35)
Distributions in Excess
of Net Realized Gain
on Investments........ 0.00 0.00 (0.27) 0.00 0.00 0.00 0.00 0.00 0.00
--- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions.... (0.60) (0.53) (1.19) (0.94) (0.71) (0.59) (0.86) (0.73) (0.89)
--- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $9.53 $ 9.27 $ 8.87 $ 9.76 $ 9.25 $ 9.15 $ 8.87 $ 8.80 $ 8.68
=== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return/1/......... 9.35% 11.01% 2.38% 16.35% 9.19% 10.11% 10.67% 10.14% 10.15%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $91.06 $78.88 $82.15 $85.52 $62.73 $38.04 $36.16 $19.73 $ 8.84
Ratio of Net Operating
Expenses to Average
Net Assets............ 0.77% 0.80% 0.85% 0.86% 0.85% 0.86% 0.92% 0.76% 0.85%
Ratio of Gross
Operating Expenses to
Average Net Assets/2/. 0.82% 0.83% 0.86% 0.86% 0.85% 0.86% 0.92% 0.87% 1.18%
Ratio of Net Income to
Average Net Assets.... 4.85% 4.86% 4.25% 4.73% 5.52% 6.01% 5.99% 6.14% 6.37%
Portfolio Turnover
Rate.................. 185.0% 214.0% 252.0% 300.0% 218.0% 197.0% 437.0% 550.0% 668.0%
</TABLE>
- -------
NOTES:
1. Total return data does not reflect the sales load payable on purchases of
Shares prior to March 1, 1997.
2. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by adviser and administrators.

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 warrant. Uninvested cash
reserves will not earn income.

8
<PAGE>

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 depos-
it, commercial paper, and bankers' acceptances; (iv) repurchase agreements col-
lateralized by U.S. Government obligations or other money market instruments;
(v) municipal bond index futures and interest rate futures contracts; or (vi)
securities issued by other investment companies that invest in high quality,
short-term securities.

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) bonds
rated "BBB" or higher by Standard & Poor's Ratings Group ("S&P") or "Baa" or
higher by Moody's Investors Service, Inc. ("Moody's"), or, in certain instanc-
es, bonds with lower ratings if they are determined by the Investment Adviser
to be comparable to BBB/Baa-rated issues; (2) notes rated "MIG-3" or higher
("VMIG-3" or higher in the case of variable rate notes) by Moody's or "SP-3" or
higher by S&P; and (3) commercial paper rated "Prime-3" or higher by Moody's or
"A-3" or higher by S&P. Securities rated "BBB" by S&P or "Baa" by Moody's are
generally considered to be investment grade, although they have speculative
characteristics and are more sensitive to economic change than higher rated se-
curities. 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 discussion 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 special-purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt

9
<PAGE>

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 re-
ceive either the principal amount or the periodic interest payments or both
with respect to specific underlying Municipal Obligations. In general, such
"stripped" Municipal Obligations are offered at a substantial discount in re-
lation to the principal and/or interest payments which the holders of the re-
ceipt will receive. To the extent that such discount does not produce a yield
to maturity for the investor that exceeds the original tax-exempt yield on the
underlying Municipal Obligation, such yield will be exempt from Federal income
tax for such investor to the same extent as interest on the underlying Munici-
pal Obligation. 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 Obliga-
tions. "Stripped" Municipal Obligations are considered illiquid securities
subject to the limit described below under "Illiquid Securities." Each Fund
will limit its investments in interest-only and principal-only Municipal Obli-
gations 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 index assigns values daily to the municipal bonds included in the index
based on the independent assessment of dealer-to-dealer municipal bond bro-
kers. A municipal bond index futures contract represents a firm commitment by
which two parties agree to take or make delivery of an amount equal to a spec-
ified 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 index is made.

The Funds may enter into contracts for the future delivery of fixed-income
securities commonly known as interest rate futures contracts. Interest rate
futures contracts are similar to the municipal bond index futures contracts
except 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 Com-
mission ("CFTC") and the Securities and Exchange Commission ("SEC"). As of the
date of this Prospectus, each Fund intends to limit its hedging transactions
in futures contracts so that, immediately after any such transaction, the ag-
gregate initial margin that is required to be posted by the Fund under the
rules of the exchange on which the futures contract is traded does not exceed
5% of the Fund's total assets, after taking into account any unrealized prof-
its and unrealized losses on the Fund's open contracts.

When investing in futures contracts, the Funds must satisfy certain asset
segregation requirements to ensure that the use of futures is unleveraged.
When a Fund takes a long position in a futures contract, it must maintain a
segregated account containing liquid assets equal to the purchase price of the
contract, less any margin or deposit. When a Fund takes a short position in a
futures contract, the Fund must maintain a segregated account containing liq-
uid assets in an amount equal to the market value of the securities underlying
such contract (less any margin or deposit), which amount must be at least
equal to the market price at which the short position was established. Asset
segrega-

10
<PAGE>

tion 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
particular time. Consequently, a Fund may realize a loss on a futures transac-
tion 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 po-
sition 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 re-
maining maturities of 13 months or less.

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

Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instru-
ment purchased by a Fund, the Fund may, from time to time as specified in the
instrument, demand payment of the principal of the instrument or may resell
the instrument to a third party. The absence of an active secondary market,
however, could make it difficult for the Fund to dispose of the instrument if
the issuer defaulted on its payment obligation or during periods that the Fund
is not entitled to exercise its demand rights, and the Fund could, for this or
other reasons, suffer a loss with respect to such instrument. Any security
which cannot be disposed of within seven days without taking a reduced price
will be considered an illiquid security subject to the 10% limitation dis-
cussed below under "Illiquid Securities."

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
agreements only with financial institutions such as banks or broker/dealers
which are deemed to be creditworthy by the Investment Adviser under guidelines
approved by Excelsior Tax-Exempt Fund's Board of Directors. No Fund will enter
into repurchase agreements with the Investment Adviser or its affiliates. Re-
purchase agreements with remaining maturities in excess of seven days will be
considered illiquid securities subject to the 10% limit described below under
"Illiquid Securities."

The seller under a repurchase agreement will be required to maintain the
value of the obligations subject to the agreement at not less than the repur-
chase price. Default or bankruptcy of the seller would, however,

11
<PAGE>

expose a Fund to possible delay in connection with the disposition of the un-
derlying securities or loss to the extent that proceeds from a sale of the un-
derlying 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 meth-
od. In addition to the advisory fees and other expenses a Fund bears directly
in connection with its own operations, as a shareholder of another investment
company, a Fund would bear its pro rata portion of the other investment
company's advisory fees and other expenses. As such, the Fund's shareholders
would indirectly bear the expenses of the Fund and the other investment compa-
ny, some or all of which would be duplicative. Such securities will be ac-
quired by the Funds within the limits prescribed by the Investment Company Act
of 1940 (the "1940 Act") which include, subject to certain exceptions, a pro-
hibition against a Fund investing more than 10% of the value of its total as-
sets in such securities.

WHEN-ISSUED AND FORWARD TRANSACTIONS AND STAND-BY COMMITMENTS

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

In addition, the 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 fa-
cilitate portfolio liquidity and do not intend to exercise their rights there-
under 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 deter-
mined by the adviser, acting under guidelines approved and monitored by the
Board, that an adequate trading market exists for that security. This invest-
ment practice could have the effect of increasing the level of illiquidity in
a Fund during any period that qualified institutional buyers become uninter-
ested 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 circum-
stances bearing on the desirability of continuing to hold the investments. A
high rate of portfolio turnover may involve correspondingly greater transac-
tion costs, which must be borne directly by a Fund and ultimately by its
share-

12
<PAGE>

holders. Portfolio turnover will not be a limiting factor in making portfolio
decisions. High portfolio turnover may result in the realization of substantial
net capital gains. To the extent that net short-term capital gains are real-
ized, any distributions resulting from such gains are considered ordinary in-
come for Federal income tax purposes. (See "Financial Highlights" and "Taxes--
Federal.")

INVESTMENT LIMITATIONS

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

A Fund may not:

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

13
<PAGE>

with such guarantee; and (c) securities issued or guaranteed by the United
States Government, its agencies or instrumentalities (including securities
backed by the full faith and credit of the United States) are deemed to be
U.S. Government obligations.

The Short-Term 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 Excel-
sior Tax-Exempt Fund's Board of Directors upon reasonable notice to sharehold-
ers.

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 percent-
age resulting from a change in the value of a Fund's portfolio securities will
not constitute a violation of such limitation.

PRICING OF SHARES

The net asset value of each Fund's Shares is determined and priced for pur-
chases and redemptions at the close of regular trading hours on the New York
Stock Exchange (the "Exchange"), currently 4:00 p.m. (Eastern Time). Net asset
value and pricing for each Fund's Shares are determined on each day the Ex-
change and the Investment Adviser are open for trading ("Business Day"). Cur-
rently, the holidays which Excelsior Tax-Exempt Fund observes are New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas. Net asset value per share for purposes of pricing sales and 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 Excelsior Tax-Exempt Fund's Board of Directors. Absent unusual cir-
cumstances, portfolio securities maturing in 60 days or less are normally val-
ued at amortized cost. The net asset value of Shares in the Funds will fluctu-
ate 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 securi-
ties 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
portfolio securities in the Funds where the prices provided are believed to
reflect the fair market value of such securities. The methods used by the
pricing services and the valuations so established will be reviewed by the ad-
ministrators under the general supervision of the Board of Directors.

HOW TO PURCHASE AND REDEEM SHARES

DISTRIBUTOR

Shares in each Fund are continuously offered for sale by Excelsior Tax-Exempt
Fund's sponsor and distributor, Edgewood Services, Inc. (the "Distributor"), a
wholly-owned subsidiary of Federated Investors. The

14
<PAGE>

Distributor is a registered broker/dealer. Its principal business address is
Clearing Operations, P.O. Box 897, Pittsburgh, PA 15230-0897.

PURCHASE OF SHARES

Shares in each Fund are sold at their net asset value per Share next computed
after a purchase order is received by Excelsior Tax-Exempt Fund's sub-transfer
agent. The Distributor has established several procedures for purchasing
Shares in order to accommodate different types of investors.

Shares may be purchased directly by individuals ("Direct Investors") or by
institutions ("Institutional Investors" and, collectively with Direct Invest-
ors, "Investors"). Shares may also be purchased by customers ("Customers") of
the Investment Adviser, its affiliates and correspondent banks, and other in-
stitutions ("Shareholder Organizations") that have entered into shareholder
servicing agreements with Excelsior Tax-Exempt Fund. A Shareholder Organiza-
tion may elect to hold of record Shares for its Customers and to record bene-
ficial ownership of Shares on the account statements provided by it to its
Customers. If it does so, it is the Shareholder Organization's responsibility
to transmit to the Distributor all purchase orders for its Customers and to
transmit, on a timely basis, payment for such orders to Chase Global Funds
Services Company ("CGFSC"), the Funds' sub-transfer agent, in accordance with
the procedures agreed to by the Shareholder Organization and the Distributor.
Confirmations of all such Customer purchases and redemptions will be sent by
CGFSC to the particular Shareholder Organization. As an alternative, a Share-
holder Organization may elect to establish its Customers' accounts of record
with CGFSC. In this event, even if the Shareholder Organization continues to
place its Customers' purchase and redemption orders with the Funds, CGFSC will
send confirmations of such transactions and periodic account statements di-
rectly to Customers. A Shareholder Organization may also elect to establish
its Customers as record holders.

Excelsior Tax-Exempt Fund enters into shareholder servicing agreements with
Shareholder Organizations which agree to provide their Customers various
shareholder administrative services with respect to their Shares (hereinafter
referred 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."

15
<PAGE>

(800) 446-1012.) An investor purchasing Shares through a registered investment
adviser or certified financial planner may incur transaction charges in con-
nection 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 Dis-
tributor from the Distributor in accordance with procedures described below
under "Purchase Procedures."

PURCHASE PROCEDURES

General

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

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

Purchases by Wire

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

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

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

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 and other cash management services provided. Excelsior 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

16
<PAGE>

governing their accounts at the Shareholder Organizations. It is the responsi-
bility of the Shareholder Organizations to transmit redemption orders to CGFSC
and credit such Customer accounts with the redemption proceeds on a timely ba-
sis. Redemption orders for Institutional Investors must be transmitted to CGFSC
by telephone at (800) 446-1012 or by terminal access. No charge for wiring re-
demption payments to Shareholder Organizations or Institutional Investors is
imposed by Excelsior 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 CGFSC).

Redemption by Mail

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

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

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

Redemption by Wire or Telephone

17
<PAGE>

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 CGFSC from the proceeds of the redemption. The redemption pro-
ceeds for Direct Investors must be paid to the same bank and account as desig-
nated on the Application or in written instructions subsequently received by
CGFSC.

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

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

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

Other Redemption Information

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

GENERAL

Purchase and redemption orders for Shares which are received 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.

18
<PAGE>

INVESTOR PROGRAMS

EXCHANGE PRIVILEGE

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

Excelsior Fund currently offers 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;

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;

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

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;

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;

19
<PAGE>

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;

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

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

Excelsior Tax-Exempt Fund currently offers, in addition to the Funds, three
other portfolios as follows:

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

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; and

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

Excelsior Institutional Trust currently offers Trust Shares in four invest-
ment portfolios:

International Equity Fund, a fund seeking to provide long-term capital ap-
preciation through investment in a diversified portfolio of marketable for-
eign securities; and

Balanced Fund, a fund seeking to provide a high total return from a diversi-
fied portfolio of equity and fixed income securities.

20
<PAGE>

An exchange involves a redemption of all or a portion of the Shares in a Fund
and the investment of the redemption proceeds in shares of another portfolio of
Excelsior Tax-Exempt Fund, Excelsior Fund or Excelsior Institutional Trust. The
redemption will be made at the per Share net asset value of the Shares being
redeemed next determined after the exchange request is received. The shares of
the portfolio to be acquired will be purchased at the per share net asset value
of those shares next determined 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 Excelsior Tax-Exempt Fund, Excelsior
Fund or Excelsior Institutional Trust should request and review the prospec-
tuses of such funds. Such prospectuses may be obtained by calling the telephone
numbers listed above. In order to prevent abuse of this privilege to the disad-
vantage of other shareholders, Excelsior Fund, Excelsior Tax-Exempt Fund and
Excelsior Institutional Trust reserve the right to limit the number of exchange
requests of Investors and Customers of Shareholder Organizations to no more
than six per year. Excelsior Tax-Exempt Fund may modify or terminate the ex-
change program at any time upon 60 days' written notice to shareholders, and
may reject any exchange request. EXCELSIOR TAX-EXEMPT FUND, EXCELSIOR FUND, EX-
CELSIOR INSTITUTIONAL TRUST, CGFSC AND THE DISTRIBUTOR ARE NOT RESPONSIBLE FOR
THE AUTHENTICITY OF EXCHANGE REQUESTS RECEIVED BY TELEPHONE THAT ARE REASONABLY
BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS
ARE GENUINE, EXCELSIOR TAX-EXEMPT FUND, EXCELSIOR FUND AND EXCELSIOR INSTITU-
TIONAL TRUST WILL USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING
RECORDING 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 a Fund with a value of $10,000 or more may es-
tablish a Systematic Withdrawal Plan. The Investor may request a declining-bal-
ance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an investor must complete the Supplemental Applica-
tion contained in this Prospectus and mail it to CGFSC at the address given
above. Further information on establishing a Systematic Withdrawal Plan may be
obtained by calling (800) 446-1012 (from overseas, call (617) 557-8280).

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 Invest-
or. 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

21
<PAGE>

making investments. Instead of trying to time market performance, a fixed dol-
lar amount is invested in Shares at predetermined intervals. This may help In-
vestors to reduce their average cost per share because the agreed upon fixed
investment amount allows more Shares to be purchased during periods of lower
share prices and fewer Shares during periods of higher prices. In order to be
effective, Dollar Cost Averaging should usually be followed on a sustained,
consistent basis. Investors should be aware, 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 Dol-
lar Cost Averaging to be beneficial, it will not prevent a loss if an Investor
ultimately redeems his Shares at a price which is lower than their purchase
price.

To establish an Automatic Investment account permitting Investors to use the
Dollar Cost Averaging investment method described above, an Investor must com-
plete the Supplemental Application contained in this Prospectus and mail it to
CGFSC. An Investor may cancel his participation in this Program or change the
amount of purchase at any time by mailing written notification to CGFSC, P.O.
Box 2798, Boston, MA 02208-2798 and notification will be effective three Busi-
ness Days following receipt. Excelsior 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.

DIVIDENDS AND DISTRIBUTIONS

Each Fund's net income for dividend purposes consists of (i) all accrued in-
come, whether taxable or tax-exempt, plus discount earned on the Fund's as-
sets, less (ii) amortization of premium on such assets, accrued expenses di-
rectly attributable to the Fund, and the general expenses or the expenses com-
mon to more than one Fund (e.g., legal, administrative, accounting, and Direc-
tors' fees) of Excelsior 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 busi-
ness on the day of declaration. All such dividends are paid within ten days
after the end of each month or within seven days after the redemption of all
of a shareholder's Shares of a Fund. Net realized capital gains are distrib-
uted at least annually.

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

TAXES

FEDERAL

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

22
<PAGE>

any), net of certain deductions for each taxable year. In general, a Fund's
investment company taxable income will be its taxable income (including inter-
est) 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 deduction for corpora-
tions.

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 tax-
able income, if any. Some dividends derived from exempt-interest income ("ex-
empt-interest 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, ex-
clusion 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 de-
termining liability (if any) for the 26% to 28% alternative minimum tax appli-
cable to 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 under
the Federal alternative minimum tax. The environmental tax applicable to cor-
porations is imposed at the rate of .12% on the excess of the corporation's
modified Federal alternative minimum taxable income over $2 million. Share-
holders receiving Social Security benefits should note that all exempt-inter-
est dividends will be taken into account in determining the taxability of such
benefits.

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.

Distribution by a Fund of the excess of its net long-term capital gain over
its net short-term capital loss is taxable to shareholders as long-term capi-
tal gain, regardless of how long the shareholder has held the Shares and
whether such gains are received in cash or reinvested in additional Shares.

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

23
<PAGE>

Shares. However, if the shareholder effected an exchange of such Shares for
Shares of another Fund within 90 days of the purchase and was able to reduce
the sales charges previously applicable to the new Shares (by virtue of the
exchange privilege), the amount equal to reduction may not be included in the
tax basis of the shareholder's exchanged Shares for the purpose of determining
gain or loss, but may be included (subject to the limitation) in the tax basis
of the new Shares.

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

STATE AND LOCAL

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 conse-
quences from those of the Federal income tax law described above.

MANAGEMENT OF THE FUNDS

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

INVESTMENT ADVISER

The Short-Term, Intermediate-Term and Long-Term Funds' portfolio manager,
Kenneth J. McAlley, is the person primarily responsible for the day-to-day
management 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

24
<PAGE>

Long-Term Fund's portfolio manager since 1986 and the Short-Term and Interme-
diate-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.

Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the Funds pursuant to advisory agreements substantially similar to the Invest-
ment Advisory Agreements currently in effect for the Funds. For the fiscal
year ended March 31, 1997, U.S. Trust New York received an advisory fee at the
effective annual rates of %, % and % of the average daily net assets
of the Short-Term, Intermediate-Term and Long-Term Funds, respectively. For
the same period, U.S. Trust New York waived advisory fees at the effective an-
nual rates of %, % and % of the average daily net assets of the
Short-Term, Intermediate-Term and Long-Term Funds, respectively.

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

ADMINISTRATORS

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

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

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

Prior to May 16, 1997, CGFSC, Federated Administrative Services and U.S.
Trust New York served as the Funds' administrators pursuant to an administra-
tion agreement substantially similar to the administration agreement currently
in effect for the Funds. For the fiscal year ended March 31, 1997, CGFSC, Fed-
erated Administrative Services and U.S. Trust New York received an aggregate
administration fee at the effective annual rates of %, % and % of
the average daily net assets of the Short-Term, Intermediate-Term and Long-
Term Funds, respectively, and waived administration fees at the effective an-
nual rates of %, % and % of the average daily net assets of such respec-
tive Funds.

25
<PAGE>

SERVICE ORGANIZATIONS

Excelsior Tax-Exempt Fund will enter into an agreement ("Servicing Agree-
ment") with each Service Organization requiring it to provide administrative
support services to its Customers beneficially owning Shares. As a considera-
tion 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 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 connec-
tion with Customer orders to purchase, exchange or redeem Shares; and provid-
ing 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 regis-
tered, open-end investment company continuously engaged in the issuance of its
shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Shares of the Funds, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks gen-
erally from acting as investment adviser, transfer agent, or custodian to such
an investment company, or from purchasing shares of such company for and upon
the order of customers. The Investment Adviser, CGFSC and certain Shareholder
Organizations may be subject to such banking laws and regulations. State secu-
rities laws may differ from the interpretations of Federal law discussed in
this paragraph and banks and financial institutions may be required to regis-
ter as dealers pursuant to state law.

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

DESCRIPTION OF CAPITAL STOCK

Excelsior Tax-Exempt Funds, Inc. (formerly UST Master Tax-Exempt Funds, Inc.)
was organized as a Maryland corporation on August 8, 1984. Currently, Excel-
sior Tax-Exempt Fund has authorized capital of 14 billion shares of Common
Stock, $.001 par value per share, classified into 6 classes of shares repre-
senting 6 investment portfolios currently being offered. Excelsior Tax-Exempt
Fund's Charter authorizes the Board of Directors to classify or reclassify any
class of shares of Excelsior Tax-Exempt Fund into one or more classes or se-
ries. 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
distributions out of the income earned on the assets belonging to such Fund as
are declared in the discretion of Excelsior Tax-Exempt Fund's Board of Direc-
tors.

Shareholders are entitled to one vote for each full Share held, and frac-
tional votes for fractional Shares

26
<PAGE>

held, and will vote in the aggregate and not by class, except as otherwise ex-
pressly required by law.

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

As of July , 1997, U.S. Trust and its affiliates held sole or shared voting
or investment power with respect to more than 50% of Excelsior Tax-Exempt
Fund's outstanding shares on behalf of their customers.

CUSTODIAN AND TRANSFER AGENT

U.S. Trust New York serves as the Funds' transfer and dividend disbursing
agent. U.S. Trust New York has entered into a sub-transfer agency arrangement
with CGFSC, 73 Tremont Street, Boston, Massachusetts 02108-3913, pursuant to
which CGFSC provides certain transfer agent, dividend disbursement and regis-
trar 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
performance of mutual funds.

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

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

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

Performance and yields will fluctuate and any quotation of performance and
yield should not be considered as representative of a Fund's future perfor-
mance. Since yields fluctuate, yield data cannot neces-

27
<PAGE>

sarily be used to compare an investment in the Funds with bank deposits, sav-
ings accounts and similar investment 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 conditions. Any fees charged by the Shareholder
Organizations with respect to accounts of Customers that have invested in
Shares will not be included in calculations of yield and performance.

MISCELLANEOUS

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

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

28
<PAGE>

INSTRUCTIONS FOR NEW ACCOUNT APPLICATION

OPENING YOUR ACCOUNT:

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

Excelsior Funds Excelsior Funds
c/o Chase Global Funds Services Company
c/o Chase Global Funds Services Compa-
P.O. Box 2798 ny--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 "Ex-
celsior Funds" in the amount of your investment.

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

MINIMUM INVESTMENTS:

REDEMPTIONS:

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

*A corporate resolution or appropriate certificate may be required.

QUESTIONS:

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

29
<PAGE>

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

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

[_] Individual [_] Joint Tenants [_] Trust

[_] Gift/Transfer to Minor [_] Other

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

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

- --------------------------------------------------------------------------------
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 PER
FUND AND $50 PER FUND, RESPECTIVELY. MAKE CHECKS PAYABLE TO "EXCELSIOR
FUNDS.")
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C> <C>
INITIAL INVESTMENT INITIAL INVESTMENT
[_] Short-Term Tax-Exempt Securities Fund $ 825 [_] Long-Term Tax-Exempt Fund $ 808
------------------ ------------------
[_] Intermediate-Term Tax-Exempt Fund $ 807 [_] Other $
------------------ -------------------- ------------------
TOTAL INITIAL INVESTMENT: $
------------------
<CAPTION>

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

---------------------------- -------------------------
Name of Bank Wire Control Number
</TABLE>

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
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TELEPHONE EXCHANGE AND REDEMPTION AUTHORITY TO TRANSMIT

[_] I/We appoint CGFSC as my/our agent to act upon instructions REDEMPTION PROCEEDS TO PRE-DESIGNATED ACCOUNT.
received by telephone in order to effect the telephone exchange I/We hereby authorize CGFSC to act upon
and redemption privileges. I/We hereby ratify any instructions instructions received by telephone to withdraw
given pursuant to this authorization and agree that Excelsior $500 or more from my/our account in the Excelsior
Fund, Excelsior Tax-Exempt Fund, Excelsior Institutional Trust, Funds and to wire the amount withdrawn to the
CGFSC and their directors, trustees, officers and employees following commercial bank account. I/We understand
will not be liable for any loss, liability, cost or expense for that CGFSC charges an $8.00 fee for each wire
acting upon instructions believed to be genuine and in redemption, which will be deducted from the
accordance with the procedures described in the then current proceeds of the redemption.
Prospectus. To the extent that Excelsior Fund, Excelsior Tax-
Exempt Fund and Excelsior Institutional Trust fail to use Title on Bank Account*___________________________
reasonable procedures as a basis for their belief, they or
their service contractors may be liable for instructions that Name of Bank ____________________________________
prove to be fraudulent or unauthorized.
Bank A.B.A. Number _________ Account Number _____
I/We further acknowledge that it is my/our responsibility to read
the Prospectus of any Fund into which I/we exchange. Bank Address ____________________________________

[_] I/We do not wish to have the ability to exercise telephone City/State/Zip Code _____________________________
redemption and exchange privileges. I/We further understand that (attach voided check here)
all exchange and redemption requests must be in writing.
A corporation, trust or partnership must also
SPECIAL PURCHASE AND REDEMPTION PLANS I/We have completed and submit a "Corporate Resolution" (or "Certificate
attached the Supplemental Application for: of Partnership") indicating the names and titles
[_] Automatic Investment Plan of officers authorized to act on its behalf.
[_] Systematic Withdrawal Plan
*TITLE ON BANK AND FUND ACCOUNT MUST BE IDENTICAL.

</TABLE>

<PAGE>

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

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

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

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

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

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

X Date
------------------------------------ ---------------------------------
Owner Signature

X Date
------------------------------------ ---------------------------------
Co-Owner Signature

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

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

-------------------------------------- -------------------------------------
Investment Dealer's Name Source of Business Code
-------------------------------------- -------------------------------------
Main Office Address Branch Number
-------------------------------------- -------------------------------------
Representative's Number Representative's Name
-------------------------------------- -------------------------------------
Branch Address Telephone
-------------------------------------- -------------------------------------
Investment Dealer's Authorized Title
Signature

<PAGE>

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

[LOGO]
EXCELSIOR
TAX-EXEMPT FUNDS INC.

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

<TABLE>

<S> <C>
Fund Name Account Number
--------------------------------------------------- ------------------------------------------
Owner Name Social Security or Taxpayer ID Number
-------------------------------------------------- -------------------
Street Address City, State, Zip Code
--------------------------------------------- -----------------------------------
Resident of [_] U.S. [_] Other [_] Check here if this is a change of address
---------------------------
</TABLE>
- --------------------------------------------------------------------------------
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend distributions will be reinvested in
additional shares unless appropriate boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash

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

Name of Your Bank
-------------------------------------------------------
Name Bank Account Number
--------------------------------------- -----------------------------------------------------
Address Address of Bank
------------------------------------ ---------------------------------------------------------
City, State, Zip Code
-------------------------------------------------------------------------------------------------

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

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

Amount of each debit (minimum $50 per Fund) $
---------------
NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------
EXCELSIOR FUNDS
CLIENT SERVICES AUTOMATIC INVESTMENT PLAN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BANK AUTHORIZATION
- --------------------------------------------------------------------------------

--------------------------------------------------- --------------------------------- ----------------------
Bank Name Bank Address Bank Account Number
</TABLE>

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

<TABLE>
<S> <C>
------------------------------------------------------- ----------------------------------------------------
Account Holder's Name Joint Account Holder's Name
X X
----------------------------------- ----------------- ----------------------------------- -----------------
Signature Date Signature Date
</TABLE>
<PAGE>

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

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

(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 CGFSC
receives written notice of any change or revocation. Any change in these
instructions must be in writing with all signatures guaranteed (if
applicable).

Date ______________________

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

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

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

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

*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.......................................... 14
INVESTOR PROGRAMS.......................................................... 19
DIVIDENDS AND DISTRIBUTIONS................................................ 22
TAXES...................................................................... 22
MANAGEMENT OF THE FUNDS.................................................... 24
DESCRIPTION OF CAPITAL STOCK............................................... 26
CUSTODIAN AND TRANSFER AGENT............................................... 27
PERFORMANCE AND YIELD INFORMATION.......................................... 27
MISCELLANEOUS.............................................................. 28
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................... 29
</TABLE>

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

USTTXXP897

[LOGO]
EXCELSIOR
TAX-EXEMPT FUNDS INC.

SHORT-TERM TAX-EXEMPT
SECURITIES FUND

INTERMEDIATE-TERM
TAX-EXEMPT FUND

LONG-TERM TAX-EXEMPT FUND

Prospectus
August 1, 1997
<PAGE>

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

EXCELSIOR TAX-EXEMPT FUNDS, INC.
(New York Intermediate-Term Tax-Exempt Fund)

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

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

2. Synopsis.................................. Background and Expense
Summary

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

4. General Description of Registrant......... Introduction; Investment
Objectives and Policies;
Portfolio Instruments and
Other Investment
Information; Investment
Limitations; Description
of Capital Stock

5. Management of the Fund.................... Management of the Fund;
Custodian and Transfer
Agent
5A. Management's Discussion of Fund
Performance Not Applicable

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

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

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

9. Pending Legal Proceedings................. Inapplicable
<PAGE>

[LOGO] EXCELSIOR
TAX-EXEMPT FUNDS, INC.

A Management Investment Company

- --------------------------------------------------------------------------------
New York Intermediate-Term Tax-Exempt Fund
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 the New York Intermediate-Term Tax-Exempt Fund (the
"Fund"), a non-diversified investment portfolio offered to investors by Excel-
sior Tax-Exempt Funds, Inc. ("Excelsior Tax-Exempt Fund") (formerly UST Master
Tax-Exempt Funds, Inc.), an open-end management 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 (as defined below).
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 maturity of 3 to 10 years.
Edgewood Services, Inc. sponsors the Fund and serves as its distributor and
United States Trust Company of New York and U.S. Trust Company of Connecticut
(collectively, the "Investment Adviser" or "U.S. Trust") serve 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, 1997 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 Excelsior 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 GUARANTEED
OR ENDORSED BY, U.S. TRUST, ITS PARENT AND AFFILIATES AND THE SHARES ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RE-
SERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.

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

August 1, 1997
<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)...................................................... None
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/......................... --%
12b-1 Fees................................................... None
Other Operating Expenses
Administrative Servicing Fee/2/............................. --%
Other Expenses.............................................. --%
----
Total Operating Expenses (after fee waivers)/2/.............. --%
====
</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 % 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...... $ $ $ $
</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 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, 1997. For more complete descriptions of the Fund's operating
expenses, see "Management of the Fund" in this Prospectus and the financial
statements and notes incorporated by reference in the Statement of Additional
Information.

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 Excelsior Tax-Exempt Fund's Annual Report to Shareholders for
the fiscal year ended March 31, 1997 (the "Financial Statements"). The informa-
tion contained in the Financial Highlights for each period has been audited by
Ernst & Young LLP, Excelsior Tax- Exempt Fund's independent auditors. The fol-
lowing table should be read in conjunction with the Financial Statements and
notes thereto. More information about the performance of the Fund is also con-
tained in the Annual Report to Shareholders, which may be obtained from Excel-
sior Tax-Exempt Fund without charge by calling the number on the front cover of
this Prospectus.

NEW YORK INTERMEDIATE-TERM TAX-EXEMPT FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991/1/
------- ------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 8.24 $ 8.18 $ 8.61 $ 8.31 $ 8.20 $ 8.00
------- ------ ------ ------- ------ ------ ------
Income From Investment
Operations
Net Investment Income. 0.35 0.33 0.31 0.34 0.41 0.39
Net Gains or (Losses)
on Securities (both
realized and
unrealized).......... 0.20 0.15 (0.13) 0.41 0.19 0.20
------- ------ ------ ------- ------ ------ ------
Total From Investment
Operations........... 0.55 0.48 0.18 0.75 0.60 0.59
------- ------ ------ ------- ------ ------ ------
Less Distributions
Dividends From Net
Investment Income.... (0.35) (0.33) (0.31) (0.34) (0.41) (0.39)
Distributions From Net
Realized Gain on
Investments.......... 0.00 (0.09) (0.22) (0.11) (0.08) 0.00
Distributions in
Excess of Net
Realized Gain on
Investments.......... 0.00 0.00 (0.08) 0.00 0.00 0.00
------- ------ ------ ------- ------ ------ ------
Total Distributions... (0.35) (0.42) (0.61) (0.45) (0.49) (0.39)
------- ------ ------ ------- ------ ------ ------
Net Asset Value, End of
Period................. $ 8.44 $ 8.24 $ 8.18 $ 8.61 $ 8.31 $ 8.20
======= ====== ====== ======= ====== ====== ======
Total Return/2/......... 6.77% 6.05% 1.87% 9.27% 7.42% 7.54%
Ratios/Supplemental Data
Net Assets, End of
Period
(in millions)........ $96.41 $87.16 $107.49 $88.25 $52.24 $25.88
Ratio of Net Operating
Expenses to Average
Net Assets........... 0.75% 0.78% 0.87% 0.89% 0.88% 0.86%/3/
Ratio of Gross
Operating Expenses to
Average Net
Assets/4/............ 0.77% 0.80% 0.87% 0.89% 0.88% 0.86%/3/
Ratio of Net Income to
Average Net Assets... 4.15% 4.06% 3.55% 3.94% 4.82% 5.72%/3/
Portfolio Turnover
Rate................. 154.0% 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 prior to March 1, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by adviser and administrators.

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 Excelsior 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 un-
der "Investment 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) "BBB" or higher by Standard & Poor's Ratings Group ("S&P") or "Baa"
or higher by Moody's Investors Service, Inc. ("Moody's"), in the case of bonds
(or, in certain instances, bonds with lower ratings if they are determined by
the Investment Adviser to be comparable to BBB/Baa-rated issues); (2) "SP-3" or
higher by S&P or "MIG-3" or higher ("VMIG-3" or higher, in the case of variable
rate notes) by Moody's, in the case of notes; and (3) "A-3" or higher by S&P or
"Prime-3" or higher by Moody's, in the case of commercial paper. Securities
rated "BBB" by S&P or "Baa" by Moody's are generally considered to be invest-
ment grade, although they have speculative characteristics and are more sensi-
tive to economic change than higher rated securities. 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 con-
tained in Appendix A to the Statement of Additional Information.

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. 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 fa-
cility being financed. Revenue securities may include private activity bonds.
Such bonds may be issued by or on behalf of public authorities to finance var-
ious privately operated facilities, and are not payable from the unrestricted
revenues of the issuer. As a result, the credit quality of private activity
bonds is frequently related directly to the credit standing of private corpo-
rations 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
market 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 serv-
ice obligations from current revenues, it may draw on a reserve fund, the res-
toration 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 re-
lation to the principal and/or interest payments which the holders of the re-
ceipt will receive. To the extent that such discount does not produce a yield
to maturity for the investor that exceeds the original tax-exempt yield on the
underlying Municipal Obligation, such yield will be exempt from Federal income
tax for such investor to the same extent as interest on the underlying Munici-
pal Obligation. 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 Obliga-
tions. "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 purchase 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, guarantee or commitment to lend. Although there may be no ac-
tive secondary market with respect to a particular variable or floating rate
instrument purchased by the Fund, the Fund may (at any time or during speci-
fied intervals within a prescribed period, depending upon the instrument in-
volved) 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 in-
strument in the event the issuer defaulted on its payment obligation or during
periods when the Fund is not entitled to exercise its

5
<PAGE>

demand rights. In such cases, the Fund could suffer a loss with respect to the
instruments. Any security which cannot be disposed of within seven days with-
out taking a reduced price will be considered an illiquid security subject to
the 10% limitation discussed below under "Illiquid Securities."

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 transac-
tions involve a commitment by the Fund to purchase or sell particular Munici-
pal Obligations with payment and delivery taking place in the future, beyond
the normal settlement date, at a stated price and yield. Securities purchased
on a "forward commitment" or "when-issued" basis are recorded as an asset and
are subject to changes in value based upon changes in the general level of in-
terest rates. The Fund expects that its forward commitments and "when-issued"
purchases will not exceed 25% of the value of its total assets absent unusual
market 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 for-
ward commitments for speculative purposes but only in furtherance of its in-
vestment objective.

The Fund may also acquire "stand-by commitments" with respect to Municipal
Obligations 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 facili-
tate portfolio liquidity and does not intend to exercise its rights thereunder
for trading purposes. "Stand-by commitments" acquired by the Fund will be val-
ued 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, interest rate futures contracts, investment company
securities and repurchase agreements 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
index assigns values daily to the municipal bonds included in the index based
on the independent assessment of dealer-to-dealer municipal bond brokers. A
municipal bond index futures contract represents a firm commitment by which
two parties 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 contract 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
except 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 specula-
tion, 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 in-
herent in the management of the Fund. The Fund will engage in futures con-
tracts only to the extent permitted by the Commodity Futures Trading

6
<PAGE>

Commission ("CFTC") and the Securities and Exchange Commission ("SEC"). When
investing in futures contracts, the Funds must satisfy certain asset segrega-
tion 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 segre-
gated account containing liquid assets equal to the purchase price of the con-
tract, less any margin or deposit. When a Fund takes a short position in a
futures contract, the Fund must maintain a segregated account containing liq-
uid assets in an amount equal to the market value of the securities underlying
such contract (less any margin or deposit), which amount must be at least
equal to the market price at which the short position was established. Asset
segregation requirements are not applicable when 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 transactions in futures
contracts so that, immediately after any such transaction, the aggregate ini-
tial 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
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 in-
come 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
asset 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
company, 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 ac-
quired by the Fund within the limits prescribed by the Investment Company Act
of 1940 (the "1940 Act") which include, subject to certain exceptions, a pro-
hibition 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
Adviser, pursuant to guidelines established by Excelsior Tax-Exempt Fund's
Board of Directors. The Fund will not enter into repurchase agreements with
the Investment Adviser or any of its affiliates. Repurchase agreements with
remaining maturities in excess of seven days will be considered to be illiquid
securities and will be subject to the 10% limit described in Investment Limi-
tation 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
repurchase 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
determined by the Investment Adviser, acting under guidelines approved and
monitored by the Board, that an adequate trading market exists for that secu-
rity. This investment practice could have the effect of increasing the level
of illiquidity in the Fund during any period that qualified institutional buy-
ers become 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
realized, any distributions resulting from such gains are considered ordinary
income for Federal income tax purposes. (See "Financial Highlights" and "Tax-
es--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-di-
versification 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-diversified portfolio typically is dependent upon the performance of a
smaller number of securities relative to the number of securities held in a
diversified portfolio. The Fund's assumption of large positions in the obliga-
tions of a small number of issuers will affect the value of the Fund's portfo-
lio 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 is-
suers.

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
revenues on similar projects, the Fund will be subject to the particular risks
presented 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 contin-
uing 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
bank obligations and securities issued or guaranteed by the United States;
any state or territory; any posses-

9
<PAGE>

sion of the U.S. Government; the District of Columbia; or any of their au-
thorities, agencies, instrumentalities, or political 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 Excelsior Tax-Exempt Fund's Board of Directors. Absent unusual circumstanc-
es, portfolio securities maturing in 60 days or less are normally valued at
amortized 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
portfolio 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 Excelsior Tax-Exempt Fund's Board of Directors.

HOW TO PURCHASE AND REDEEM SHARES

DISTRIBUTOR

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

10
<PAGE>

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

PURCHASE OF SHARES

Shares in the Fund are sold at their net asset value per Share next computed
after a purchase order is received by Excelsior Tax-Exempt Fund's sub-transfer
agent. The Distributor has established several procedures for purchasing
Shares in order to accommodate different types of investors.

Shares may be purchased directly by individuals ("Direct Investors") or by
institutions ("Institutional Investors" and, collectively with Direct Invest-
ors, "Investors"). Shares may also be purchased by customers ("Customers") of
the Investment Adviser, its affiliates and correspondent banks, and other in-
stitutions ("Shareholder Organizations") that have entered into shareholder
servicing agreements with Excelsior Tax-Exempt Fund. A Shareholder Organiza-
tion may elect to hold of record Shares for its Customers and to record bene-
ficial ownership of Shares on the account statements provided by it to its
Customers. If it does so, it is the Shareholder Organization's responsibility
to transmit to the Distributor all purchase orders for its Customers and to
transmit, on a timely basis, payment for such orders to Chase Global Funds
Services Company ("CGFSC"), the 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
CGFSC to the particular Shareholder Organization. As an alternative, a Share-
holder Organization may elect to establish its Customers' accounts of record
with CGFSC. In this event, even if the Shareholder Organization continues to
place its Customers' purchase and redemption orders with the Fund, CGFSC will
send confirmations of such transactions and periodic account statements di-
rectly to Customers. A Shareholder Organization may also elect to establish
its Customers as record holders.

Excelsior Tax-Exempt Fund enters into shareholder servicing agreements with
Shareholder Organizations which agree to provide their Customers various
shareholder administrative services with respect to their Shares (hereinafter
referred 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."

11
<PAGE>

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 ac-
cordance with procedures described below under "Purchase Procedures."

PURCHASE PROCEDURES

General

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

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

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

Purchases by Wire

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

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

Other Purchase Information

Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500. 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. Excelsior 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 CGFSC and
credit such Customer accounts with the redemption proceeds on a timely basis.
Redemption orders for Institutional Investors must be transmitted to CGFSC by

12
<PAGE>

telephone at (800) 446-1012 or by terminal access. No charge for wiring redemp-
tion payments to Shareholder Organizations or Institutional Investors is im-
posed by Excelsior 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 CGFSC).

REDEMPTION BY MAIL

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

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

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

Redemption by Wire or Telephone

Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do so, may redeem Shares by instructing CGFSC by
wire or telephone to wire the redemption proceeds directly to the Direct In-
vestor's account at any commercial bank in the United States. Direct Investors
who are shareholders of record may also redeem Shares by instructing CGFSC by
telephone to mail a check for redemption proceeds of $500 or more to the share-
holder of record at his or her address of record. Institutional Investors may
also redeem Shares by instructing CGFSC by telephone at (800) 446-1012 or by
terminal access. Only redemptions of $500 or more will be wired to a Direct In-
vestor's account. An $8.00 fee for each wire redemption by a Direct Investor is
deducted by CGFSC 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 CGFSC.

13
<PAGE>

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

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

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 re-
spect 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 re-
quired minimum balance.

GENERAL

INVESTOR PROGRAMS

EXCHANGE PRIVILEGE

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

Excelsior Tax-Exempt Fund currently offers, in addition to the Fund, five
other portfolios:

14
<PAGE>

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; and

Excelsior Fund currently offers twenty investment portfolios:

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 guaran-teed by the U.S. Govern-
ment, its agencies and instrumentalities and repurchase agreements collater-
alized by such obligations;

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;

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

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, develop-

15
<PAGE>

ers and suppliers of goods and services which enhance service and manufactur-
ing productivity or companies that are most effective at obtaining and apply-
ing productivity enhancement developments;

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;

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

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

Excelsior Institutional Trust currently offers Trust Shares in four invest-
ment portfolios as follows:

International Equity Fund, a fund seeking to provide long-term capital ap-
preciation through investment in a diversified portfolio of marketable for-
eign securities; and

Balanced Fund, a fund seeking to provide a high total return from a diversi-
fied portfolio of equity and fixed income securities.

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 port-
folio of Excelsior Tax-Exempt Fund, Excelsior Fund or Excelsior Institutional
Trust. The redemption will be made at the per Share net asset value of the
Shares being redeemed next determined after the exchange request is received.
The shares of the portfolio to be acquired will be purchased at the per share
net asset value of those shares next determined after acceptance of the ex-
change request.

16
<PAGE>

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 Excelsior Tax-Exempt Fund, Ex-
celsior Fund or Excelsior Institutional Trust should request and review the
prospectuses of such Funds. Such prospectuses may be obtained by calling the
telephone numbers listed above. In order to prevent abuse of this privilege to
the disadvantage of other shareholders, Excelsior Fund, Excelsior Tax-Exempt
Fund and Excelsior Institutional Trust reserve the right to limit the number
of exchange requests of Investors and Customers of Shareholder Organizations
to no more than six per year. Excelsior Tax-Exempt Fund may modify or termi-
nate the exchange program at any time upon 60 days' written notice to share-
holders, and may reject any exchange request. EXCELSIOR TAX-EXEMPT FUND, EX-
CELSIOR FUND, EXCELSIOR INSTITUTIONAL TRUST, CGFSC AND THE DISTRIBUTOR ARE NOT
RESPONSIBLE FOR THE AUTHENTICITY OF EXCHANGE REQUESTS RECEIVED BY TELEPHONE
THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM THAT TEL-
EPHONE INSTRUCTIONS ARE GENUINE, EXCELSIOR TAX-EXEMPT FUND, EXCELSIOR FUND AND
EXCELSIOR INSTITUTIONAL TRUST WILL USE SUCH PROCEDURES AS ARE CONSIDERED REA-
SONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS 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. Be-
fore making 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 Appli-
cation contained in this Prospectus and mail it to CGFSC at the address given
above. Further information on es-tablishing a Systematic Withdrawal Plan may
be obtained by calling (800) 446-1012 (from overseas, call (617) 557-8280).

AUTOMATIC INVESTMENT PROGRAM

The Automatic Investment Program permits Investors to purchase Shares (mini-
mum of $50 per transaction) at regular intervals selected by the Investor. The
minimum 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.

17
<PAGE>

basis. Investors should be aware, however, that Shares bought using Dollar
Cost Averaging are purchased without regard to their price on the day of in-
vestment 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 ul-
timately redeems his Shares at a price which is lower than their purchase
price.

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 as-
sets, less (ii) amortization of premium on such assets, accrued expenses di-
rectly attributable to the Fund, and the general expenses or the expenses com-
mon to more than one Fund (e.g., legal, administrative, accounting, and Direc-
tors' fees) of Excelsior 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 CGFSC
at Excelsior Tax-Exempt Fund's address prior to the payment date) to receive
dividends and distributions in cash. Reinvested dividends and distributions
receive the same tax treatment as those paid in cash.

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
accordance 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
income under Section 103(a) of the Code, unless under the circumstances appli-
cable to the particular shareholder, exclusion would be disallowed. (See
Statement of Additional Information--"Additional Information Concerning Tax-
es.")

18
<PAGE>

liability (if any) for the 26% to 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax ap-
plicable to corporations. Corporate shareholders also must take all exempt-in-
terest 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
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 of a taxable dividend should be aware that the amount of the forthcoming
dividend payment, although in effect a return of capital, will be taxable to
him.

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. If a shareholder holds Shares for six months or less
and during that time receives an exempt-interest dividend on those Shares, any
loss recognized on the sale or exchange of those Shares will be disallowed to
the extent of the exempt-interest dividend. Generally, a shareholder may in-
clude sales charges incurred upon the purchase of Shares in his tax basis for
such Shares for the purpose of determining gain or loss on a redemption,
transfer or exchange of such Shares. However, if the shareholder effected an
exchange of such Shares for shares of another portfolio within 90 days of the
purchase and was able to reduce the sales charges previously applicable to the
new shares (by virtue of the exchange privilege), the amount equal to reduc-
tion may not be included in the tax basis of the shareholder's exchanged
Shares for the purpose of determining gain or loss, but may be included (sub-
ject to the limitation) in the tax basis of the new shares.

NEW YORK

Exempt-interest dividends (as defined for Federal income tax purposes) de-
rived from interest on New York Municipal Obligations (as defined above) will
be exempt from New York state and New York City personal income taxes (but not
corporate franchise taxes), provided the interest on such obligations is and
continues to be exempt from applicable Federal, New York state and New York
City income taxes. To the extent that investors are subject to state and local
taxes outside of New York State and New York City, distributions by the Fund
may be taxable income for purposes thereof. Dividends and distributions de-
rived from income (including capital gains on all New York Municipal Obliga-
tions) other than interest on the New York Municipal Obligations described
above are not exempt from New York State and New York City taxes. A percentage
of the interest on indebtedness incurred or continued by a shareholder to pur-
chase 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

19
<PAGE>

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
Excelsior Tax-Exempt Fund's Board of Directors. The Statement of Additional
Information contains the names of and general background information
concerning Excelsior Tax-Exempt Fund's directors.

INVESTMENT ADVISER

United States Trust Company of New York ("U.S. Trust New York") and U.S.
Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively with
U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as the
Investment Adviser to the Fund. U.S. Trust New York is a state-chartered bank
and trust company and a member bank of the Federal Reserve System and is one
of the twelve members of the New York Clearing House Association. U.S. Trust
Connecticut is a Connecticut state-chartered limited purpose trust company.
U.S. Trust New York and U.S. Trust Connecticut are wholly-owned subsidiaries
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 portfolio manager, Kenneth J. McAlley, is the person primarily re-
sponsible for the day-to-day management of the Fund's investment portfolio.
Mr. McAlley, Executive Vice President and Manager of the Fixed Income Invest-
ment Division of U.S. Trust, has been with U.S. Trust since 1980 and has been
the Fund's portfolio manager since 1995.

Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the Fund pursuant to an advisory agreement substantially similar to the In-
vestment Advisory Agreement currently in effect for the Fund. For the fiscal
year ended March 31, 1997, U.S. Trust New York received an advisory fee at the
effective annual rate of % of the Fund's average daily net assets. For the
same period, U.S. Trust New York waived advisory fees at the effective annual
rate of % of the Fund's average daily net assets.

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

ADMINISTRATORS

20
<PAGE>

folios of Excelsior Fund and Excelsior Institutional Trust, which are also ad-
vised by the Investment Adviser and its affiliates and distributed by the Dis-
tributor. For the services provided to all portfolios of Excelsior Tax-Exempt
Fund, Excelsior Fund and Excelsior Institutional Trust (except the interna-
tional portfolios of Excelsior Fund and Excelsior Institutional Trust), the
Administrators are entitled jointly to annual fees, computed daily and paid
monthly, based on the combined aggregate average daily net assets of the three
companies (excluding the international portfolios of Excelsior Fund and Excel-
sior Institutional Trust) as follows:

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

Administration fees payable to the Administrators by each portfolio of Excel-
sior Tax-Exempt Fund, Excelsior Fund and Excelsior Institutional Trust are al-
located in proportion to their relative average daily net assets at the time
of determination. From time to time, the Administrators may waive (either vol-
untarily 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.

Prior to May 16, 1997, CGFSC, Federated Administrative Services and U.S.
Trust New York served as the Fund's administrators pursuant to an administra-
tion agreement substantially similar to the administration agreement currently
in effect for the Fund. For the fiscal year ended March 31, 1997, CGFSC, Fed-
erated Administrative Services and U.S. Trust New York received an aggregate
administration fee at the effective annual rate of % of the average daily net
assets of the Fund, and waived administration fees at the effective annual
rate of % of the average daily net assets of the Fund.

SERVICE ORGANIZATIONS

Excelsior Tax-Exempt Fund will enter into an agreement ("Servicing Agree-
ment") with each Service Organization requiring it to provide administrative
support services to its Customers beneficially owning Shares. As a considera-
tion for the administrative services provided to Customers, the 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 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 Organizations," may include assisting in processing purchase,
exchange and redemption requests; transmitting and receiving funds in connec-
tion with Customer orders to purchase, exchange or redeem Shares; and provid-
ing 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 investments. Until fur-
ther notice, the Investment 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 regis-
tered, open-end investment company continuously engaged in the issuance of its
shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Shares of the Fund, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks gen-
erally from acting as investment adviser, transfer agent, or custodian to such
an investment company, or from purchasing shares of such company for and upon
the order of customers. The Investment Adviser, CGFSC and certain Shareholder
Organizations may be subject to such banking laws and regula-

21
<PAGE>

tions. State securities laws may differ from the interpretations of Federal
law discussed in this paragraph and banks and financial institutions may be
required to register as dealers pursuant to state law.

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
affect its net asset value per Share or result in financial loss to any
shareholder.

DESCRIPTION OF CAPITAL STOCK

Excelsior Tax-Exempt Fund was organized as a Maryland corporation on August
8, 1984. Currently, Excelsior Tax-Exempt Fund has authorized capital of 14
billion shares of Common Stock, $.001 par value per share, classified into 6
classes of shares representing 6 investment portfolios currently being of-
fered. Excelsior Tax-Exempt Fund's Charter authorizes the Board of Directors
to classify or reclassify any class of shares of Excelsior Tax-Exempt Fund
into one or more classes or series. Shares of Class D represent interests in
the New York Intermediate-Term Tax-Exempt Fund.

Each Share represents an equal proportionate interest in the Fund and is en-
titled to such dividends and distributions out of the income earned on the as-
sets belonging to the Fund as are declared in the discretion of Excelsior Tax-
Exempt Fund's Board of Directors.

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

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

CUSTODIAN AND TRANSFER AGENT

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

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

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
performance of mutual funds.

Performance and yield data as reported in national financial publications,
including but not limited to Money Magazine, Forbes, Barron's, The Wall Street
Journal

22
<PAGE>

and The New York Times, or in publications of a local or regional nature, 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 net asset value per
Share on the last day of the period, and annualizing the result on a semi-an-
nual basis.

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 af-
ter-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
reflects 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 measur-
ing period. Average total return figures will be given for the most recent
one-year period and may be given for other periods as well (such as from the
commencement 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 cumulative change in the value of an investment in the Fund for the spe-
cific period. Both methods of calculating total return assume that dividends
and capital gain distributions made by a Fund during the period are reinvested
in Fund Shares.

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

As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of Excelsior Tax-Exempt Fund or the Fund means, with respect
to the approval of an investment advisory agreement or a change in a fundamen-
tal investment policy, the affirmative vote of the lesser of (a) more than 50%
of the outstanding shares of Excelsior Tax-Exempt Fund or the Fund, or (b) 67%
or more of the shares of Excelsior Tax-Exempt Fund or the Fund present at a
meeting if more than 50% of the outstanding shares of Excelsior 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 ad-
dress listed under "Distributor."

23
<PAGE>

INSTRUCTIONS FOR NEW ACCOUNT APPLICATION

OPENING YOUR ACCOUNT:

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

Excelsior Funds Excelsior Funds
c/o Chase Global Funds Services Company
c/o Chase Global Funds Services 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 "Ex-
celsior Funds" in the amount of your investment.

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

MINIMUM INVESTMENTS:

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

REDEMPTIONS:

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

QUESTIONS:

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

24
<PAGE>

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

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

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

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

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

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

------------------------------ [_] U.S. Citizen [_] Other (specify)
City/State/Zip Code
--------------------
-----------------------------------------------------------------------------
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 PER
FUND AND $50 PER FUND, RESPECTIVELY. MAKE CHECKS PAYABLE TO "EXCELSIOR
FUNDS.")
-----------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INITIAL INVESTMENT INITIAL INVESTMENT
[_] NY Intermediate-Term
Tax-Exempt Fund $ ____________ 810 [_] Other _________ $ ____________

TOTAL INITIAL INVESTMENT: $ ___________
</TABLE>

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

X ___________________________ Date __________________________
Owner Signature

X ___________________________ Date __________________________
Co-Owner Signature

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

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

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

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

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

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

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

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

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

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

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:

From: ______________________ Account No. ____________________
(Fund)

To: ________________________ Account No. ____________________
(Fund)
-----------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN [_] YES [_] NO
-----------------------------------------------------------------------------

I/We hereby authorize CGFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable net asset value determined
on that day.
[_] Monthly on the 1st day [_] Monthly on the 15th day [_] Monthly on both
the 1st and 15th days
Amount of each debit (minimum $50 per Fund) $ ________________________
NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
-----------------------------------------------------------------------------
EXCELSIOR FUNDS
CLIENT SERVICES AUTOMATIC INVESTMENT PLAN
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
BANK AUTHORIZATION
-----------------------------------------------------------------------------

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

____________________________ ________________________________
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
- --------------------------------------------------------------------

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

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

Date
--------------------------

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

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

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

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

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......................................... 10
Distributor.............................................................. 10
Purchase of Shares....................................................... 11
Purchase Procedures...................................................... 12
Redemption Procedures.................................................... 12
Redemption by Mail....................................................... 13
General.................................................................. 14
INVESTOR PROGRAMS......................................................... 14
Exchange Privilege....................................................... 14
Systematic Withdrawal Plan............................................... 17
Automatic Investment Program............................................. 17
DIVIDENDS AND DISTRIBUTIONS............................................... 18
TAXES..................................................................... 18
Federal.................................................................. 18
New York................................................................. 19
Miscellaneous............................................................ 19
MANAGEMENT OF THE FUND.................................................... 20
Investment Adviser....................................................... 20
Administrators........................................................... 20
Service Organizations.................................................... 21
Banking Laws............................................................. 21
DESCRIPTION OF CAPITAL STOCK.............................................. 22
CUSTODIAN AND TRANSFER AGENT.............................................. 22
PERFORMANCE AND YIELD INFORMATION......................................... 22
MISCELLANEOUS............................................................. 23
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION.................................. 24
</TABLE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR THE FUND'S STATEMENT OF ADDITIONAL
INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTA-
TIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DIS-
TRIBUTOR. 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.

USTNYXP897

[LOGO] EXCELSIOR
TAX-EXEMPT FUNDS, INC.

NEW YORK INTERMEDIATE-
TERM TAX-EXEMPT FUND

Prospectus August 1, 1997
<PAGE>

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

EXCELSIOR TAX-EXEMPT FUNDS, INC.
(California Tax-Exempt Income Fund)

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

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

2. Synopsis.................................. Expense Summary

3. Condensed Financial Information........... Not Applicable

4. General Description of Registrant......... Investment Objective and
Policies; Portfolio
Instruments and Other
Investment Information;
Investment Limitations;
Description of Capital
Stock

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

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

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

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

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

9. Pending Legal Proceedings................. Not Applicable
<PAGE>

[LOGO] EXCELSIOR
TAX-EXEMPT FUNDS INC.

A Management Investment Company

- --------------------------------------------------------------------------------
California Tax-Exempt For initial purchase information, current
Income Fund 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 the California Tax-Exempt Income Fund (the "Fund"), a
non-diversified investment portfolio offered to investors by Excelsior Tax-Ex-
empt Funds, Inc. ("Excelsior Tax-Exempt Fund") (formerly UST Master Tax-Exempt
Funds, Inc.), an open-end management investment company.

CALIFORNIA TAX-EXEMPT INCOME FUND'S investment objective is to provide Cali-
fornia investors with as high a level of current interest income exempt from
Federal income tax and, to the extent possible, from California state personal
income tax 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
California Municipal Obligations (as defined below). Although the Fund has no
restrictions as to the minimum or maximum maturity of any individual security
it may hold, it will generally have a dollar-weighted average portfolio matu-
rity of 3 to 10 years.

Edgewood Services, Inc. sponsors the Fund and serves as its distributor.
United States Trust Company of New York and U.S. Trust Company of Connecticut
(collectively, the "Investment Adviser" or "U.S. Trust") serve as the Fund's
investment adviser and United States Trust Company of California (the "Sub-Ad-
viser") serves as the Fund's sub-adviser.

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

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

August 1, 1997
<PAGE>

EXPENSE SUMMARY

<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT
INCOME FUND
------------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load ............................................... None
Sales Load on Reinvested Dividends.................................. None
Deferred Sales Load................................................. None
Redemption Fees/1/.................................................. None
Exchange Fee........................................................ None
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
Advisory Fees (after fee waivers)/2/................................ --%
12b-1 Fees.......................................................... None
Other Operating Expenses............................................ --
------
Administrative Servicing Fee/2/.................................... --
Other Expenses..................................................... --
-----
Total Operating Expenses (after fee waivers)/2/..................... --%
======
</TABLE>
- -------

1. The Fund's sub-transfer agent imposes a direct $8.00 charge on each wire re-
demption by noninstitutional (i.e. individual) investors which is not re-
flected in the estimated expense ratios presented herein. Shareholder orga-
nizations may charge their customers transaction fees in connection with re-
demptions. 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 % 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
------ -------
<S> <C> <C>
California Tax-Exempt Income Fund................................ $-- $--
</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 Fund
will bear directly or indirectly. The expense summary sets forth estimated ad-
visory and other expenses payable with respect to Shares of the Fund for the
current fiscal year. For more complete descriptions of the Fund's operating ex-
penses, see "Management of the Fund" in this Prospectus.

2
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1997/1/
-----------------
<S> <C>
Net Asset Value, Beginning
of Period................ $
------
Income From Investment
Operations:
Net Investment Income...
Net Gains on Securities
(both realized and
unrealized)............
------
Total From Investment
Operations.............
------
Less Distributions:
Dividends From Net
Investment Income......
------
Net Asset Value, End of
Period................... $
======
Total Return.............. %/2/
Ratios/Supplemental Data:
Net Assets, End of
Period (in millions)... $
Ratio of Net Operating
Expenses to Average Net
Assets................. %/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/.............. %/3/
Ratio of Net Investment
Income to Average Net
Assets................. %/3/
Portfolio Turnover Rate. %/3/
</TABLE>
- -------

NOTES

1. Inception date of the Fund was October 1, 1996.

2. Total return does not reflect the sales load payable on purchases of Shares
prior to March 1, 1997.

3. Annualized.

4. Expense ratio before waiver of fees and reimbursement of expenses by adviser
and administrators.

3
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The Investment Adviser and the Sub-Adviser will use their best efforts to
achieve the Fund's investment objective although its achievement cannot be as-
sured. The Fund's investment objective and, except as indicated otherwise, the
policies described below may be changed by Excelsior Tax-Exempt Fund's Board of
Directors without a vote of the Fund's shareholders. Certain investment limita-
tions which cannot be changed without the requisite vote of the shareholders
are set forth below under "Investment Limitations."

GENERAL

The Fund is a non-diversified investment portfolio whose investment objective
is to provide California investors with as high a level of current interest in-
come exempt from Federal income tax and, to the extent possible, from Califor-
nia state personal income tax as is consistent with the preservation of capital
and relative stability of principal. To accomplish this goal, the Fund antici-
pates that it will invest primarily in California Municipal Obligations as de-
fined below. Although the Fund has no restrictions as to the minimum or maximum
maturity of any individual security that it may hold, under normal market con-
ditions 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 California and other states, territories
and possessions of the United States, the District of Columbia and their re-
spective authorities, agencies, instrumentalities and political sub-divisions,
the interest from which is, in the opinion of bond counsel to the issuer, ex-
empt 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
California, its political sub-divisions, authorities, agencies, instrumentali-
ties and corporations, and certain other governmental issuers, the interest
from which is, in the opinion of bond counsel to the issuer, exempt from Fed-
eral and California personal income taxes ("California Municipal Obligations").
In general, the Fund anticipates that dividends derived from interest on Munic-
ipal Obligations other than California Municipal Obligations will be exempt
from regular Federal income tax but may be subject to California personal in-
come taxes. Dividends paid by the Fund may be subject to local taxes regardless
of their source. 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 limitation 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) "BBB" or higher by Standard & Poor's Ratings Group ("S&P") or "Baa"
or higher by Moody's Investors Service, Inc. ("Moody's"), in the case of bonds
(or, in certain instances, bonds with lower ratings if they are determined by
the Investment Adviser or Sub-Adviser to be comparable to BBB/Baa-rated is-
sues); (2) "SP-3" or higher by S&P or "MIG-3" or higher ("VMIG-3" or higher, in
the case of variable rate notes) by Moody's, in the case of notes; and (3) "A-
3" or higher by S&P or "Prime-3" or higher by Moody's, in the case of commer-
cial paper. Securities rated "BBB" by S&P or "Baa" by Moody's are generally
considered to be investment grade, although they have speculative characteris-
tics and are more sensitive to economic change than higher rated securities. If
not rated, Municipal Obligations purchased by the Fund will be of comparable
quality to the above ratings as determined by the

4
<PAGE>

Investment Adviser or Sub-Adviser under the supervision of the Board of Direc-
tors. A discussion of Moody's and S&P's rating categories is contained in Ap-
pendix A to the Statement of Additional Information.

TYPES OF MUNICIPAL OBLIGATIONS

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 or Sub-Adviser's determination that their
quality at the time of purchase is comparable to at least the minimum ratings
set forth above. In some cases the Fund may require that the issuer's obliga-
tion to pay the principal be backed by an unconditional and irrevocable bank
letter or line of credit, guarantee or commitment to lend. Although there may
be no active secondary market with respect to a particular variable or float-
ing rate instrument purchased by the Fund, the Fund may (at any time or during
specified intervals within a prescribed period, depending upon the instrument
involved) demand payment in full of the principal and may resell the instru-
ment to a third party. The absence of an active

5
<PAGE>

secondary market, however, could make it difficult for the Fund to dispose of
a variable or floating rate instrument in the event the issuer defaulted on
its payment obligation or during periods when the Fund is not entitled to ex-
ercise its demand rights. In such cases, the Fund could suffer a loss with re-
spect to the instruments. Any security which cannot be disposed of within
seven days without taking a reduced price will be considered an illiquid secu-
rity subject to the 10% limitation discussed below under "Illiquid Securi-
ties."

WHEN-ISSUED AND FORWARD TRANSACTIONS AND STAND-BY COMMITMENTS

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 and interest rate futures contracts, investment company securities and
repurchase agreements are described below.

Futures Contracts

6
<PAGE>

inherent in the management of the Fund. The Fund will engage in futures con-
tracts only to the extent permitted by the Commodity Futures Trading Commis-
sion ("CFTC") and the Securities and Exchange Commission ("SEC"). When invest-
ing in futures contracts, the Funds must satisfy certain asset segregation re-
quirements to ensure that the use of futures is unleveraged. When a Fund takes
a long position in a futures contract, it must maintain a segregated account
containing liquid assets equal to the purchase price of the contract, less any
margin or deposit. When a Fund takes a short position in a futures contract,
the Fund must maintain a segregated account containing liquid assets in an
amount equal to the market value of the securities underlying such contract
(less any margin or deposit), which amount must be at least equal to the mar-
ket price at which the short position was established. Asset segregation re-
quirements are not applicable when the Fund "covers" a futures position gener-
ally by entering into an offsetting position. As of the date of this Prospec-
tus, the Fund intends to limit its hedging transactions 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 exceed 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 or Sub-Adviser to correctly antici-
pate 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 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 fa-
vorable movement in the price of securities which it holds or intends to pur-
chase 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 tax-
able.

Investment Company 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
Adviser or Sub-Adviser, pursuant to guidelines established by Excelsior Tax-
Exempt Fund's Board of Directors. The Fund will not enter into repurchase
agreements with the Investment Adviser, the Sub-Adviser or any of their affil-
iates. Repurchase agreements with remaining maturities in excess of seven days
will be considered to be illiquid securities and will be subject to the 10%
limit on such investments described below.

The seller under a repurchase agreement will be required to maintain the
value of the securities which

7
<PAGE>

are subject to the agreement and held by the Fund at not less than the repur-
chase price. Default or bankruptcy of the seller would, however, expose the
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.

ILLIQUID SECURITIES

The Fund will not knowingly invest more than 10% of the value of its net as-
sets in securities that are illiq- uid. 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
determined by the Investment Adviser or Sub-Adviser, acting under guidelines
approved and monitored by the Board, that an adequate trading market exists
for that security. This investment practice could have the effect of increas-
ing the level of illiquidity in the Fund during any period that qualified in-
stitutional buyers become uninterested in purchasing these restricted securi-
ties.

PORTFOLIO TURNOVER

The Fund may sell a portfolio investment immediately after its acquisition if
the Investment Adviser or Sub-Adviser believes that such a disposition is con-
sistent with the Fund's investment objective. The rate of portfolio turnover
will not be a limiting 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 re-
alization of substantial net capital gains. To the extent that net short-term
capital gains are realized, any distributions resulting from such gains are
considered ordinary income for Federal income tax purposes. (See "Taxes-- Fed-
eral").

RISK FACTORS

The Fund intends to follow the diversification standards set forth in the
1940 Act except to the extent the Investment Adviser or Sub-Adviser determines
that non-diversification is appropriate in order to maximize the percentage of
the Fund's assets that are California Municipal Obligations. The investment
return on a non-diversified portfolio typically is dependent upon the perfor-
mance of a smaller number 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 or Sub-Adviser.
To the extent that the Fund's assets are concentrated in Municipal Obligations
payable from revenues on similar projects, the Fund will be subject to the
particular risks presented by such projects to a greater extent than it would
be if its assets were not so concentrated.

The Fund's concentration in California Municipal Obligations involves certain
risks. Payment of the interest and principal of California Municipal Obliga-
tions depends on the continuing ability of their issuers to meet their obliga-
tions thereunder. Investors should consider the greater risk inherent in the
Fund's concentration in California Municipal Obligations versus the safety
that comes with a less geographically concentrated investment portfolio, and
should compare the yield available on a portfolio of California issues with
the yield of a more diversified portfolio including non-California issues be-
fore making an investment decision.

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<PAGE>

Many of the Fund's California Municipal Obligations are likely to be obliga-
tions of California governmental issuers that rely to one extent or another on
real property taxes as a source of revenue. "Proposition Thirteen" and similar
California constitutional and statutory amendments and initiatives in recent
years have restricted the ability of California taxing entities to increase
real property tax revenues. Other initiatives approved by California voters in
recent years, through limiting various other taxes, have resulted in a sub-
stantial reduction in state revenues. Decreased state revenues may result in
reductions in allocations of state revenues to local governments.

Because of the complex nature of the various initiatives mentioned above and
certain possible ambiguities and inconsistencies in their terms and the scope
of various exemptions and exceptions, as well as the impossibility of predict-
ing the level of future appropriations for state and local governmental enti-
ties, the impact of these initiatives and related measures on the ability of
California governmental issuers to pay interest or repay principal on their
obligations is difficult to determine.

In addition to the various initiatives noted above, economic factors have had
an adverse impact on the California economy. Earlier in the decade, economic
factors such as declines in tourism and rising unemployment reduced revenues
to the state government at a time when expenses of state government such as
education costs, various welfare costs and other expenses were rising. Such
economic factors adversely impacted the ability of state and local California
governmental entities to repay debt and these factors, and others that cannot
be predicted, may have an adverse impact in the future.

In December 1994, Orange County, California and its Investment Pool filed
for bankruptcy. In April 1996, the County emerged from bankruptcy after clos-
ing on a $900 million recovery bond deal. At that time, the County and its fi-
nancial advisors stated that the County had emerged from the bankruptcy with-
out any structural fiscal problems and assured that the County would not slip
back into bankruptcy. However, for many of the cities, schools and special
districts that lost money in the County's Investment Pool, repayment remains
contingent on the outcome of litigation which is pending against investment
firms and other finance professionals. Consequently, it is impossible to de-
termine the ultimate impact on these issuers of the bankruptcy and its after-
math.

Other considerations affecting the Fund's investments in California 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 Cali-
fornia Municipal Obligations, to the exemption of interest thereon from Cali-
fornia state personal income taxes) are rendered by bond counsel to the re-
spective issuers at the time of issuance. The Fund, its Investment Adviser and
its Sub-Adviser will not review the proceedings relating to the issuance of
Municipal Obligations 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. 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 in-

9
<PAGE>

cluded solely to facilitate the orderly sale of portfolio securities to ac-
commodate abnormally heavy redemption requests and is not for leverage pur-
poses.) The Fund may not purchase portfolio securities while borrowings in
excess of 5% of its total assets are outstanding; and

2. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry; provided that there is no limitation with respect to domestic
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.

* * *

The Fund will not 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 secu-
rities of such issuer, except that (a) up to 50% of the value of the Fund's as-
sets 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 secu-
rities of any one issuer; and (b) the foregoing 5% limitation does not apply to
securities issued or guaranteed by the U.S. Government, its agencies or instru-
mentalities. For purposes of this policy, (a) a security is considered to be
issued by the governmental entity or entities whose assets and revenues back
the security, or, with respect to a private activity bond that is backed only
by the assets and revenues of a non-governmental user, such non-governmental
user; (b) in certain circumstances, the guarantor of a guaranteed security may
also be considered to be an issuer in connection with such guarantee; and (c)
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. This policy
may be changed by the Board of Directors of Excelsior Tax-Exempt Fund upon 30
days' written notice to shareholders.

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

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 Exchange
and the Investment Adviser are open for business ("Business Day"). Currently,
the holidays which the Fund observes are: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas. Net asset
value per share for purposes of pricing sales and redemptions is calculated by
dividing the value of all securities and other assets allocable to the Fund,
less the liabilities charged to the Fund, by the number of outstanding 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 Excelsior Tax-Exempt Fund's Board of Directors. Absent unusual circumstanc-
es, portfolio securities maturing in 60 days or less are normally valued at am-
ortized 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

10
<PAGE>

value of the Fund's portfolio securities changes in response to changing mar-
ket 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 Excelsior Tax-Exempt Fund's Board of Directors.

HOW TO PURCHASE AND REDEEM SHARES

DISTRIBUTOR

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

PURCHASE OF SHARES

Shares may be purchased directly by individuals ("Direct Investors") or by
institutions ("Institutional Investors" and, collectively with Direct Invest-
ors, "Investors"). Shares may also be purchased by customers ("Customers") of
the Investment Adviser, its affiliates and correspondent banks, and other in-
stitutions ("Shareholder Organizations") that have entered into shareholder
servicing agreements with Excelsior Tax-Exempt Fund. A Shareholder Organiza-
tion may elect to hold of record Shares for its Customers and to record bene-
ficial ownership of Shares on the account statements provided by it to its
Customers. If it does so, it is the Shareholder Organization's responsibility
to transmit to the Distributor all purchase orders for its Customers and to
transmit, on a timely basis, payment for such orders to Chase Global Funds
Services Company ("CGFSC"), the 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
CGFSC to the particular Shareholder Organization. As an alternative, a Share-
holder Organization may elect to establish its Customers' accounts of record
with CGFSC. In this event, even if the
11
<PAGE>

Shareholder Organization continues to place its Customers' purchase and redemp-
tion orders with the Fund, CGFSC will send confirmations of such transactions
and periodic account statements directly to Customers. A Shareholder Organiza-
tion may also elect to establish its Customers as record holders.

Excelsior 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."

PURCHASE PROCEDURES

General

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

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

Purchases by Wire

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

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

Other Purchase Information

12
<PAGE>

Shareholder Organization to make a minimum purchase with respect to their ac-
counts. Depending upon the terms of the particular account, Shareholder Organi-
zations may charge a Customer's account fees for automatic investment and other
cash management services provided. Excelsior Tax-Exempt Fund reserves the right
to reject any purchase order, in whole or in part, or to waive any minimum in-
vestment 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
governing their accounts at the Shareholder Organizations. It is the responsi-
bility of the Shareholder Organizations to transmit redemption orders to CGFSC
and credit such Customer accounts with the redemption proceeds on a timely ba-
sis. Redemption orders for Institutional Investors must be transmitted to CGFSC
by telephone at (800) 446-1012 or by terminal access. No charge for wiring re-
demption payments to Shareholder Organizations or Institutional Investors is
imposed by Excelsior 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 CGFSC).

REDEMPTION BY MAIL

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

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

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

Redemption by Wire or Telephone

Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do

13
<PAGE>

so, may redeem Shares by instructing CGFSC by wire or telephone to wire the
redemption proceeds directly to the Direct Investor's account at any commer-
cial bank in the United States. Direct Investors who are shareholders of rec-
ord may also redeem Shares by instructing CGFSC by telephone to mail a check
for redemption proceeds of $500 or more to the shareholder of record at his or
her address of record. Institutional Investors may also redeem Shares by in-
structing CGFSC by telephone at (800) 446-1012 or by terminal access. Only re-
demptions 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 CGFSC
from the proceeds of the redemption. The redemption proceeds for Direct In-
vestors must be paid to the same bank and account as designated on the Appli-
cation or in written instructions subsequently received by CGFSC.

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

Other Redemption Information

GENERAL

14
<PAGE>

ing 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.