<PAGE>
As filed with the SEC on July 31, 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. 23 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [x]
ACT OF 1940
Excelsior Tax-Exempt Funds, Inc.: Amendment No. 25 [x]
(Exact Name of Registrant as Specified in Charter)
73 Tremont Street
Boston, Massachusetts 02108-3913
(Address of Principal Executive Offices)
Registrant's Telephone Number: (800) 446-1012
W. Bruce McConnel, III
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
It is proposed that this post-effective amendment will become effective (check
appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
--------------------------
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 and 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...... Financial Highlights;
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/...... .19% .21% .28% .20%
12b-1 Fees................................ None None None None
Other Operating Expenses
Administrative Servicing Fee/2/.......... .06% .04% .02% .05%
Other Expenses........................... .22% .22% .22% .22%
---- ---- ---- ----
Total Operating Expenses (after fee
waivers)/2/.............................. .47% .47% .52% .47%
==== ==== ==== ====
</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 .53%, .51%, .54% and
.52% 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...................................... $ 5 $15 $26 $59
Government Money Fund........................... 5 15 26 59
Treasury Money Fund............................. 5 17 29 65
Tax-Exempt Money Fund........................... 5 15 26 59
</TABLE>
The foregoing expense summary and example are intended to assist the investor
in understanding the costs and expenses that an investor in Shares of the Funds
will bear directly or indirectly. The expense summary sets forth advisory and
other expenses payable with respect to Shares of the Funds for the fiscal year
ended March 31, 1997. For more complete descriptions of the Funds' operating
expenses, see "Management of the Funds" in this Prospectus and the financial
statements and notes incorporated by reference in the Statement of Additional
Information.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
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 $ 1.00
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Income From
Investment
Operations
Net Investment
Income......... 0.04888 0.05336 0.04494 0.02780 0.03234 0.05165 0.07589 0.08454 0.07698 0.06260
Net Gains or
(Losses) on
Securities
(both realized
and
unrealized).... 0.00000 0.00000 0.00002 0.00000 0.00000 0.00017 0.00001 0.00000 0.00000 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total From
Investment
Operations..... 0.04888 0.05336 0.04496 0.02780 0.03234 0.05182 0.07590 0.08454 0.07698 0.06260
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less
Distributions
Dividends From
Net Investment
Income......... (0.04888) (0.05336) (0.04496) (0.02780) (0.03234) (0.05165) (0.07589) (0.08454) (0.07698) (0.06260)
Distributions
From Net
Realized Gain
on Investments. 0.00000 0.00000 0.00000 0.00000 0.00000 (0.00019) 0.00000 0.00000 0.00000 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total
Distributions.. (0.04888) (0.05336) (0.04496) (0.02780) (0.03234) (0.05184) (0.07589) (0.08454) (0.07698) (0.06260)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Total Return..... 5.00% 5.47% 4.59% 2.82% 3.25% 5.19% 7.64% 8.71% 7.76% 6.28%
Ratios/Supplemental
Data
Net Assets, End
of Period
(in millions).. $ 498.07 $ 394.29 $ 824.58 $ 736.08 $ 784.02 $ 574.27 $ 471.32 $ 432.37 $ 369.69 $ 321.27
Ratio of Net
Operating
Expenses to
Average Net
Assets......... 0.47% 0.50% 0.49% 0.51% 0.51% 0.51% 0.52% 0.55% 0.56% 0.55%
Ratio of Gross
Operating
Expenses to
Average Net
Assets/1/...... 0.53% 0.53% 0.52% 0.51% 0.51% 0.51% 0.52% 0.55% 0.56% 0.55%
Ratio of Net
Income to
Average Net
Assets......... 4.89% 5.40% 4.49% 2.78% 3.21% 5.11% 7.56% 8.42% 7.71% 6.25%
</TABLE>
- -------
NOTES:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
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 $ 1.00
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Income From
Investment
Operations
Net Investment
Income......... 0.04862 0.05296 0.04397 0.02736 0.03205 0.05069 0.07379 0.08379 0.07498 0.06111
Net Gains or
(Losses) on
Securities
(both realized
and
unrealized).... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00002 0.00008 0.00000 0.00000 (0.00002)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total From
Investment
Operations..... 0.04862 0.05296 0.04397 0.02736 0.03205 0.05071 0.07387 0.08379 0.07498 0.06109
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less
Distributions
Dividends From
Net Investment
Income......... (0.04862) (0.05296) (0.04397) (0.02736) (0.03205) (0.05069) (0.07379) (0.08379) (0.07498) (0.06111)
Distributions
From Net
Realized Gain
on Investments. 0.00000 0.00000 0.00000 0.00000 0.00000 (0.00005) (0.00005) (0.00001) 0.00000 (0.00023)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total
Distributions.. (0.04862) (0.05296) (0.04397) (0.02736) (0.03205) (0.05074) (0.07384) (0.08380) (0.07498) (0.06134)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Total Return..... 4.97% 5.43% 4.49% 2.77% 3.20% 5.09% 7.31% 8.30% 7.49% 6.44%
Ratios/Supplemental
Data
Net Assets, End
of Period
(in millions).. $ 533.83 $ 461.47 $ 725.77 $1,034.91 $ 710.49 $ 740.69 $ 700.22 $ 392.02 $ 241.13 $ 198.32
Ratio of Net
Operating
Expenses to
Average Net
Assets......... 0.47% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.57% 0.57% 0.56%
Ratio of Gross
Operating
Expenses to
Average Net
Assets/1/...... 0.51% 0.53% 0.53% 0.50% 0.50% 0.50% 0.50% 0.57% 0.57% 0.56%
Ratio of Net
Income to
Average Net
Assets......... 4.86% 5.36% 4.38% 2.74% 3.20% 5.09% 7.31% 8.30% 7.49% 6.10%
</TABLE>
- -------
NOTES:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
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 $ 1.00
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Income From
Investment
Operations
Net Investment
Income......... 0.03050 0.03362 0.02825 0.01938 0.02395 0.03849 0.05292 0.05808 0.05348 0.04572
Net Gains or
(Losses) on
Securities
(both realized
and
unrealized).... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 (0.00001) 0.00000 0.00000 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total From
Investment
Operations..... 0.03050 0.03362 0.02825 0.01938 0.02395 0.03849 0.05291 0.05808 0.05348 0.04572
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less
Distributions
Dividends From
Net Investment
Income......... (0.03050) (0.03362) (0.02825) (0.01938) (0.02395) (0.03849) (0.05292) (0.05808) (0.05348) (0.04572)
Distributions
From Net
Realized Gain
on Investments. 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total
Distributions.. (0.03050) (0.03362) (0.02825) (0.01938) (0.02395) (0.03849) (0.05292) (0.05808) (0.05348) (0.04572)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Total Return..... 3.09% 3.41% 2.86% 1.96% 2.42% 3.92% 5.42% 5.97% 5.48% 4.67%
Ratios/Supplemental
Data
Net Assets, End
of Period
(in millions).. $1,069.69 $ 966.71 $ 814.89 $ 694.58 $ 659.33 $ 666.35 $ 662.34 $ 600.06 $ 525.30 $ 580.98
Ratio of Net
Operating
Expenses to
Average Net
Assets......... 0.47% 0.49% 0.49% 0.52% 0.52% 0.52% 0.53% 0.55% 0.53% 0.52%
Ratio of Gross
Operating
Expenses to
Average Net
Assets/1/...... 0.52% 0.53% 0.52% 0.52% 0.52% 0.52% 0.53% 0.55% 0.53% 0.52%
Ratio of Net
Income to
Average Net
Assets......... 3.05% 3.35% 2.85% 1.94% 2.39% 3.84% 5.28% 5.79% 5.33% 4.58%
</TABLE>
- -------
NOTES:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
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 $ 1.00
--------- --------- --------- --------- --------- --------- ---------
Income From Investment
Operations
Net Investment Income. 0.04676 0.05043 0.04165 0.02590 0.02987 0.04731 0.00782
Net Gains or (Losses)
on Securities (both
realized and
unrealized).......... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00036 0.00001
--------- --------- --------- --------- --------- --------- ---------
Total From Investment
Operations........... 0.04676 0.05043 0.04165 0.02590 0.02987 0.04767 0.00783
--------- --------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net
Investment Income.... (0.04676) (0.05043) (0.04165) (0.02590) (0.02987) (0.04731) (0.00782)
Distributions From Net
Realized Gain on
Investments.......... 0.00000 0.00000 0.00000 0.00000 (0.00030) (0.00011) 0.00000
--------- --------- --------- --------- --------- --------- ---------
Total Distributions... (0.04676) (0.05043) (0.04165) (0.02590) (0.03017) (0.04742) (0.00782)
--------- --------- --------- --------- --------- --------- ---------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= =========
Total Return............ 4.78% 5.16% 4.25% 2.62% 3.06% 4.85% 0.78%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions). $ 349.09 $ 258.17 $ 196.93 $ 254.68 $ 227.79 $ 172.29 $ 110.37
Ratio of Net Operating
Expenses to Average
Net Assets........... 0.52% 0.55% 0.55% 0.58% 0.58% 0.52% 0.09%/2/
Ratio of Gross
Operating Expenses to
Average Net
Assets/3/............ 0.54% 0.57% 0.57% 0.58% 0.58% 0.57% 0.60%/2/
Ratio of Net Income to
Average Net Assets... 4.68% 5.03% 4.09% 2.59% 2.97% 4.60% 5.98%/2/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was February 13, 1991.
2. Annualized.
3. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
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.
9
<PAGE>
Securities issued or guaranteed by the U.S. Government have historically in-
volved little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns shares of a Fund.
As stated above, the Treasury Money Fund will purchase primarily direct obli-
gations of the U.S. Treasury and obligations of those agencies or 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
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<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."
BORROWING AND REVERSE REPURCHASE AGREEMENTS
Each Fund may borrow funds, in an amount up to 10% of the value of its total
assets, for temporary or emergency purposes, such as meeting larger than an-
ticipated redemption requests, and not for leverage. Each Fund may also agree
to sell portfolio securities to financial institutions such as banks and bro-
ker-dealers and to repurchase them at a mutually agreed date and price (a "re-
verse repurchase agreement"). The SEC views reverse repurchase agreements as a
form of borrowing. At the time a Fund enters into a reverse repurchase agree-
ment, it will place in a segregated custodial account liquid assets having a
value equal to the repurchase price, including accrued interest. Reverse re-
purchase agreements involve the risk that the market value of the securities
sold by a Fund may decline below the repurchase price of those securities.
ILLIQUID SECURITIES
No Fund will knowingly invest more than 10% of the value of its net assets in
securities that are illiquid. Each Fund may purchase securities which are not
registered under the Securities Act of 1933 (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
13
<PAGE>
regard to this 5% limitation; notwithstanding the foregoing restriction, each
Fund may invest without regard to the 5% limitation in Government Securities
(as defined in the 1940 Act) and as otherwise permitted in accordance with
Rule 2a-7 under the 1940 Act or any successor rule; and
2. Borrow money except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing. (This borrowing provision is included solely to fa-
cilitate the orderly sale of portfolio securities to accommodate abnormally
heavy redemption requests and is not for leverage purposes.) A Fund will not
purchase portfolio securities while borrowings in excess of 5% of its total
assets are outstanding.
The Treasury Money Fund may not:
Purchase securities other than obligations issued or guaranteed by the U.S.
Treasury or an agency or in strumentality of the U.S. Government and securities
issued by investment companies that invest in such obligations.
* * *
If a percentage limitation is satisfied at the time of investment, a later in-
crease or decrease in such percentage resulting from a change in value of a
Fund's portfolio securities will not constitute a violation of such limitation.
In Investment Limitation No. 1 above: (a) a security is considered to be is-
sued by the governmental entity or entities whose assets and revenues back the
security, or, with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, such non-governmental user;
(b) in certain circumstances, the guarantor of a guaranteed security may also
be considered to be an issuer in connection with such guarantee; and (c) secu-
rities issued or guaranteed as to principal or interest by the United States,
or by a person controlled or supervised by and acting as an instrumentality of
the Government of the United States, or any certificate of deposit for any of
the foregoing, are deemed to be Government Securities.
The Funds are subject to additional investment limitations which are deemed
matters of their fundamental policies and, as such, may not be changed without
a requisite shareholder vote. Among such limitations are a prohibition on con-
centrating investments in a particular industry or group of industries and a
policy of limiting investments in illiquid securities to 10% of a Fund's net
assets. For a full description of the Funds' additional fundamental investment
limitations, see the Statement of Additional Information.
PRICING OF SHARES
The net asset value of each Fund is determined and the Shares of each Fund are
priced for purchases and redemptions as of 1:00 p.m. (Eastern Time) and the
close of regular trading hours on the New York Stock Exchange (the "Exchange"),
currently 4:00 p.m. (Eastern Time). Net asset value and pricing for each Fund
are determined on each day the Exchange and the Investment Adviser are open for
trading ("Business Day"). Currently, the holidays which the Funds observe are
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Me-
morial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas. Net
asset value per Share for purposes of pricing sales and redemptions is calcu-
lated by dividing the value of all securities and other assets belonging to a
Fund, less the liabilities charged to the Fund, by the number of its outstand-
ing Shares. The assets in each Fund are valued by the Funds' administrators
based upon the amortized cost method.
14
<PAGE>
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are continuously offered for sale by the Companies' spon-
sor and distributor, Edgewood Services, Inc. (the "Distributor"), a wholly-
owned subsidiary of Federated Investors. The Distributor is a registered
broker/dealer. Its principal business address is Clearing Operations, P.O. Box
897, Pittsburgh, PA 15230-0897.
At various times the Distributor may implement programs under which a deal-
er's sales force may be eligible to win nominal awards for certain sales ef-
forts or under which the Distributor will make payments to any dealer that
sponsors sales contests or recognition programs conforming to criteria estab-
lished by the Distributor, or that participates in sales programs sponsored by
the Distributor. The Distributor in its discretion may also from time to time,
pursuant to objective criteria established by the Distributor, pay fees to
qualifying dealers for certain services or activities which are primarily in-
tended to result in sales of Shares of the Funds. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by the
Distributor out of its own assets and not out of the assets of the Funds.
In addition, the Distributor may offer to pay a fee from its own assets to
financial institutions 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.
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."
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<PAGE>
Customers wishing to purchase Shares through their Shareholder Organization
should contact such entity directly for appropriate instructions. (For a list
of Shareholder Organizations in your area, call (800) 446-1012.) An investor
purchasing Shares through a registered investment adviser or certified finan-
cial planner may incur transaction charges in connection with such purchases.
Such investors should contact their registered investment adviser or certified
financial planner for further information on transaction fees. Investors may
also purchase Shares directly from the Distributor in accordance with proce-
dures described below under "Purchase Procedures."
PURCHASE PROCEDURES
General
Direct Investors may purchase Shares by completing the Application for pur-
chase of Shares accompanying this Prospectus and mailing it, together with a
check payable to Excelsior Funds, to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
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.
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<PAGE>
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).
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
17
<PAGE>
redemption proceeds of $500 or more to the shareholder of record at his or her
address of record. Institutional Investors may also have their Shares redeemed
by wire by instructing CGFSC by telephone at (800) 446-1012 or by terminal ac-
cess. 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 de-
ducted 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.
Investors may request that Shares be redeemed and redemption proceeds wired
on the same day if telephone redemption instructions are received by 1:00 p.m.
(Eastern Time) on the day of redemption. Shares redeemed and wired on the same
day will not receive the dividend declared on the day of redemption. Redemp-
tion requests made after 1:00 p.m. (Eastern Time) will receive the dividend
declared on the day of redemption, and redemption proceeds will be wired the
following Business Day. To request redemption of Shares by wire, Direct In-
vestors should call CGFSC at (800) 446-1012 (from overseas, call (617) 557-
8280).
In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, a Direct Investor must send a written request to the Companies, c/o
CGFSC, at the address listed above under "Redemption by Mail." Such request
must be signed by the Direct Investor, with signatures guaranteed (see "Re-
demption by Mail" above, for details regarding signature guarantees). Further
documentation may be requested.
CGFSC and the Distributor reserve the right to refuse a wire or telephone re-
demption if it is believed advisable to do so. Procedures for redeeming Shares
by wire or telephone may be modified or terminated at any time by the Compa-
nies, CGFSC or the Distributor. THE COMPANIES, CGFSC AND THE DISTRIBUTOR WILL
NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING UPON TELE-
PHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING
TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, THE COMPANIES WILL USE
SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE IN-
STRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
During periods of substantial economic or market change, telephone redemp-
tions may be difficult to complete. If an Investor is unable to contact CGFSC
by telephone, the Investor may also deliver the redemption request to CGFSC in
writing at the address noted above under "How to Purchase and Redeem Shares--
Redemption by Mail."
Redemption by Check
Except as described in "Investor Programs" below, Direct Investors in the
Funds may redeem Shares, without charge, by check drawn on the Direct Invest-
or's particular Fund account. Checks may be made payable to the order of any
person or organization designated by the Direct Investor and must be for
amounts of $500 or more. Direct Investors will continue to earn dividends on
the Shares to be redeemed until the check clears at The Chase Manhattan Bank.
Checks are supplied free of charge, and additional checks are sent to Direct
Investors upon request. Checks will be sent only to the registered owner at
the address of record. Direct Investors who want the option of redeeming
Shares by check must indicate this in the Application for purchase of Shares
and must submit a signature card with signatures guaranteed with such Applica-
tion. The signature card is included in the Application for the purchase of
Shares contained in this Prospectus. In order to arrange for redemption by
check after an account has been opened, a written request must be sent to the
Companies, c/o CGFSC, at the address listed above under "Redemption by Mail"
and must be accompanied by a signature card with signatures guaranteed (see
"Redemption by Mail" above, for details regarding signature guarantees).
18
<PAGE>
Stop payment instructions with respect to checks may be given to the Compa-
nies by calling (800) 446-1012 (from overseas, call (617) 557-8280). If there
are insufficient Shares in the Direct Investor's account with the Fund to
cover the amount of the redemption check, the check will be returned marked
"insufficient funds," and CGFSC will charge a fee of $25.00 to the account.
Checks may not be used to close an account.
If any portion of the Shares to be redeemed represents an investment made by
personal check, the Companies and CGFSC reserve the right not to honor the re-
demption until CGFSC is reasonably satisfied that the check has been collected
in accordance with the applicable banking regulations which may take up to 15
days. A Direct Investor who anticipates the need for more immediate access to
his or her investment should purchase Shares by Federal funds or bank wire or
by certified or cashier's check. Banks normally impose a charge in connection
with the use of bank wires, as well as certified checks, cashier's checks and
Federal funds. If a Direct Investor's purchase check is not collected, the
purchase will be cancelled and CGFSC will charge a fee of $25.00 to the Direct
Investor's account.
Other Redemption Information
Except as provided in "Investor Programs" below, Investors may be required to
redeem Shares in a Fund upon 60 days' written notice if due to investor re-
demptions the balance in the particular account with respect to the Fund re-
mains below $500. If a Customer has agreed with a particular Shareholder Or-
ganization to maintain a minimum balance in his or her account at the institu-
tion with respect to Shares of a Fund, and the balance in such account falls
below that minimum, the Customer may be obliged by the Shareholder Organiza-
tion to redeem all or part of his or her Shares to the extent necessary to
maintain the required minimum balance.
The Companies may also redeem Shares involuntarily or make payment for re-
demption in securities if it appears appropriate to do so in light of the Com-
panies' responsibilities under the 1940 Act.
EFFECTIVE TIME OF PURCHASES AND REDEMPTIONS
Purchase orders for Shares 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 12 diversified portfolios:
19
<PAGE>
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
and delivery of secure hydrocarbon and other energy sources;
Value and Restructuring Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their restructuring or redeploy-
ment of assets and operations in order to become more competitive or profit-
able;
Small Cap Fund, a fund seeking long-term capital appreciation by investing
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
20
<PAGE>
California Tax-Exempt Income Fund, a non-diversified fund designed to pro-
vide California investors with as high a level of current interest income ex-
empt from Federal and, to the extent possible, California state personal in-
come taxes as is consistent with relative stability of principal; this fund
invests primarily in California municipal obligations and has a dollar-
weighted average portfolio maturity of three to ten years.
Excelsior Institutional Trust currently offers Trust Shares in the following
investment portfolios:
Optimum Growth Fund, a fund seeking superior, risk-adjusted total return
through investments in a diversified portfolio of equity securities whose
growth prospects, in the opinion of its investment adviser, appear to exceed
that of the overall market; and
Value Equity Fund, a fund seeking long-term capital appreciation through in-
vestments in a diversified portfolio of equity securities whose market value,
in the opinion of its investment adviser, appears to be undervalued relative
to the marketplace.
An exchange involves a redemption of all or a portion of the Shares in a Fund
and the investment of the redemption proceeds in shares of another portfolio of
the Companies or Excelsior Institutional Trust. The redemption will be made at
the per Share net asset value of the Shares being redeemed next determined af-
ter the exchange request is received. 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 receipt of the exchange request in good order.
Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in a Fund. For further
information regarding exchange privileges, shareholders should call (800) 446-
1012 (from overseas, call (617) 557-8280). Investors exercising the exchange
privilege with the other portfolios of the Companies or Excelsior Institutional
Trust should request and review the prospectuses of such funds. Such prospec-
tuses may be obtained by calling the numbers listed above. In order to prevent
abuse of this privilege to the disadvantage of other shareholders, Excelsior
Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust reserve the
right to limit the number of exchange requests of Investors and Customers of
Shareholder Organizations to no more than six per year. The Companies may mod-
ify or terminate the exchange program at any time upon 60 days' written notice
to shareholders, and may reject any exchange request. THE COMPANIES, EXCELSIOR
INSTITUTIONAL TRUST, CGFSC AND THE DISTRIBUTOR ARE NOT RESPONSIBLE FOR THE AU-
THENTICITY OF EXCHANGE REQUESTS RECEIVED BY TELEPHONE THAT ARE REASONABLY BE-
LIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE
GENUINE, THE COMPANIES AND EXCELSIOR INSTITUTIONAL TRUST WILL USE SUCH PROCE-
DURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS AND
REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
SYSTEMATIC WITHDRAWAL PLAN
An Investor who owns Shares of a Fund with a value of $10,000 or more may es-
tablish a Systematic Withdrawal Plan. The Investor may request a declining-bal-
ance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an investor must complete 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.
21
<PAGE>
RETIREMENT PLANS
Shares are available for purchase by Investors in connection with the follow-
ing tax-deferred prototype retirement plans offered by United States Trust
Company of New York:
IRAs (including "rollovers" from existing retirement plans) for individuals
and their spouses;
Profit Sharing and Money-Purchase Plans for corporations and self-employed
individuals and their partners to benefit themselves and their employees; and
Keogh Plans for self-employed individuals.
Investors investing in the Funds pursuant to Profit Sharing and Money-Pur-
chase Plans and Keogh Plans are not subject to the minimum investment and
forced redemption provisions described above. The minimum initial investment
for IRAs is $250 per Fund and the minimum subsequent investment is $50 per
Fund. Detailed information concerning eligibility, service fees and other mat-
ters related to these plans can be obtained by calling (800) 446-1012 (from
overseas, call (617) 557-8280). Customers of Shareholder Organizations may
purchase Shares of the Funds pursuant to retirement plans if such plans are
offered by their Shareholder Organizations.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits Investors to purchase Shares (mini-
mum of $50 per Fund per transaction) at regular intervals selected by the In-
vestor. The minimum initial investment for an Automatic Investment Program ac-
count is $50 per Fund. Provided the Investor's financial institution allows
automatic withdrawals, Shares are purchased by transferring funds from an In-
vestor's checking, bank money market or NOW account designated by the Invest-
or. At the Investor's option, the account designated will be debited in the
specified amount, and Shares will be purchased, once a month, on either the
first or fifteenth day, or twice a month, on both days.
To establish an Automatic Investment account, an Investor must complete the
Supplemental Application contained in this Prospectus and mail it to CGFSC. An
Investor may cancel his participation in this Program or change the amount of
purchase at any time by mailing written notification to CGFSC, P.O. Box 2798,
Boston, MA 02208-2798 and notification will be effective three Business Days
following receipt. The Companies may modify or terminate this privilege at any
time or charge a service fee, although no such fee currently is contemplated.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Funds is declared daily as a dividend to the
persons who are shareholders of the respective Funds immediately after the
1:00 p.m. pricing of Shares on the day of declaration. All such dividends are
paid within ten days after the end of each month or within seven days after
the redemption of all of a shareholder's Shares of a Fund. For dividend pur-
poses, a Fund's investment income is reduced by accrued expenses directly at-
tributable to that Fund and the general expenses of the particular Company
prorated to that Fund on the basis of its relative net assets. Net realized
capital gains, if any, are distributed at least annually.
All dividends and distributions paid on Shares held of record by the Invest-
ment Adviser and its affiliates or correspondent banks will be paid in cash.
Direct and Institutional Investors and Customers of other Shareholder Organi-
zations will receive dividends and distributions in additional Shares of the
Fund on which the dividend is paid or the distribution made (as determined on
the payable date), unless they have requested in writing (received by CGFSC at
the 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
23
<PAGE>
those Shares will be disallowed to the extent of the exempt-interest dividend.
STATE AND LOCAL
The Treasury Money Fund is structured to provide shareholders, to the extent
permissible by Federal and state law, with income that is exempt or excluded
from taxation at the state and local level. Most states--by statute, judicial
decision or administrative action--have taken the position that dividends of a
regulated investment company such as the Treasury Money Fund that are attrib-
utable to interest on obligations of the U.S. Treasury and certain U.S. Gov-
ernment agencies and instrumentalities (including those authorized for pur-
chase by the Fund) are the functional equivalent of interest from such obliga-
tions and are, therefore, exempt from state and local income taxes. As a re-
sult, substantially all dividends paid by the Treasury Money Fund to share-
holders residing in those states will be exempt or excluded from state income
tax.
Nevertheless in some jurisdictions, exempt-interest dividends and other dis-
tributions paid by the Tax-Exempt Money Fund may be taxable to shareholders
under state or local law as dividend income, even though all or a portion of
such distributions is derived from interest on tax-exempt obligations which,
if realized directly, would be exempt from such income taxes.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situa-
tions. Shareholders will be advised annually as to the Federal income tax con-
sequences of distributions made each year.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of the
Companies' Boards of Directors. The Statement of Additional Information con-
tains the names of and general background information concerning the Compa-
nies' directors.
INVESTMENT ADVISER
United States Trust Company of New York ("U.S. Trust New York") and U.S.
Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively with
U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as the
Investment Adviser to the Funds. U.S. Trust New York is a state-chartered bank
and trust company and a member bank of the Federal Reserve System and is one
of the twelve members of the New York Clearing House Association. U.S. Trust
Connecticut is a Connecticut state bank and trust company. U.S. Trust New York
and U.S. Trust Connecticut are wholly-owned subsidiaries of U.S. Trust Corpo-
ration, a registered bank holding company.
The Investment Adviser provides trust and banking services to individuals,
corporations, and institutions both nationally and internationally, including
investment management, estate and trust administration, financial planning,
corporate trust and agency banking, and personal and corporate banking. On De-
cember 31, 1996, the Asset Management Groups of U.S. Trust New York and U.S.
Trust Connecticut had approximately $53 billion in aggregate assets under man-
agement. U.S. Trust New York has its principal offices at 114 W. 47th Street,
New York, New York 10036. U.S. Trust Connecticut has its principal offices at
225 High Ridge Road, East Building, Stamford, Connecticut 06905.
The Investment Adviser manages each Fund, makes decisions with respect to and
places orders for all purchases and sales of its portfolio securities, and
maintains records relating to such purchases and sales. For the services pro-
vided and expenses assumed pursuant to its Investment Advisory Agreements, the
Investment
24
<PAGE>
Adviser is entitled to a fee, computed daily and paid monthly, at the annual
rate of .25% of the average daily net assets of each of the Money, Government
Money and Tax-Exempt Money Funds. For the services provided and expenses as-
sumed with respect to the Treasury Money Fund, the Investment Adviser is enti-
tled to a fee, computed daily and paid monthly, at the annual rate of .30% of
the Fund's average daily net assets.
Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the Funds pursuant to advisory agreements substantially similar to the Invest-
ment Advisory Agreements currently in effect for the Funds. For the fiscal
year ended March 31, 1997, U.S. Trust New York received an advisory fee at the
effective annual rates of .19%, .21%, .28% and .20% of the average daily net
assets of the Money, Government Money, Treasury Money and Tax-Exempt Money
Funds, respectively. For the same period, U.S. Trust New York waived advisory
fees at the effective annual rates of .06%, .04%, .02% and .05% of the average
daily net assets of the Money, Government Money, Treasury Money and Tax-Exempt
Funds, respectively.
From time to time, the Investment Adviser may voluntarily waive all or a
portion of the advisory fees payable to it by a Fund, which waiver may be ter-
minated at any time. See "Management of the Funds--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 .154% 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
25
<PAGE>
.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 re-
demption requests; transmitting and receiving funds in connection with Cus-
tomer orders to purchase, exchange or redeem Shares; and providing periodic
statements. Under the terms of the Servicing Agreement, Service Organizations
will be required to provide to Customers a schedule of any fees that they may
charge in connection with a Customer's investment. Until further notice, the
Investment Adviser and Administrators have voluntarily agreed to waive fees
payable by a Fund in an amount equal to administrative service fees payable by
that Fund.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a regis-
tered, open-end investment company continuously engaged in the issuance of its
shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Shares of the Funds, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks gen-
erally from acting as investment adviser, transfer agent, or custodian to such
an investment company, or from purchasing shares of such company for and upon
the order of customers. The Investment Adviser, CGFSC and certain Shareholder
Organizations may be subject to such banking laws and regulations. State secu-
rities laws may differ from the interpretations of Federal law discussed in
this paragraph and banks and financial institutions may be required to regis-
ter as dealers pursuant to state law.
Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Investment Adviser and such
Shareholder Organizations might be required to alter materially or discontinue
the investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Funds' method of operations would
affect their net asset values per Share or result in financial loss to any
shareholder.
DESCRIPTION OF CAPITAL STOCK
Excelsior Fund (formerly UST Master Funds, Inc.) was organized as a Maryland
corporation on August 2, 1984. Currently, Excelsior Fund has authorized capi-
tal of 35 billion shares of Common Stock, $.001 par value per share, classi-
fied into 40 series of shares representing interests in 20 investment portfo-
lios. Excelsior Fund's Charter authorizes the Board of Directors to classify
or reclassify any class of shares of Excelsior Fund into one or more classes
or series. Shares of Class A, Class B and Class G represent interests in the
Money Fund, Government Money Fund and Treasury Money Fund Funds, respectively.
Excelsior Tax-Exempt Fund (formerly UST Master Tax-Exempt Funds, Inc.) was
organized as a Maryland corporation on August 8, 1984. Currently, Excelsior
Tax-Exempt Fund has authorized capital of 14 billion shares of Common Stock,
$.001 par value per share, classified into 6 classes of shares representing 6
investment portfolios currently being offered. Excelsior Tax-Exempt Fund's
Charter authorizes the Board of Directors to classify or reclassify any class
of shares of Excelsior Tax-Exempt Fund into one or more classes or series.
Shares of Class A Common Stock represent interests in the Tax-Exempt Money
Fund's Shares.
Each Share represents an equal proportionate interest in the particular Fund
with other shares of the same class, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to such Fund as
are declared in the discretion of the particular Company's Board of Directors.
26
<PAGE>
Shareholders are entitled to one vote for each full share held, and frac-
tional votes for fractional shares held, and will vote in the aggregate and
not by class, except as otherwise expressly required by law.
Certificates for Shares will not be issued unless expressly requested in
writing to CGFSC and will not be issued for fractional Shares.
As of July 14, 1997, U.S. Trust and its affiliates held of record substan-
tially all of the Companies' outstanding shares as agent or custodian for
their customers, but did not own such shares beneficially because they did not
have voting or investment discretion with respect to such shares.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase"), a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Funds' assets. Communi-
cations to the custodian should be directed to Chase, Mutual Funds Service Di-
vision, 3 Chase MetroTech Center, 8th Floor, Brooklyn, NY 11245.
U.S. Trust New York serves as the Funds' transfer and dividend disbursing
agent. U.S. Trust New York has also entered into a sub-transfer agency ar-
rangement with CGFSC, 73 Tremont Street, Boston, Massachusetts 02108-3913,
pursuant to which CGFSC provides certain transfer agent, dividend disbursement
and registrar services to the Funds.
YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
yields of the Funds may be quoted and compared to those of other mutual funds
with similar investment objectives and to other relevant indexes or to
rankings prepared by independent services or other financial or industry pub-
lications that monitor the performance of mutual funds. For example, the
yields of the Funds may be compared to the applicable averages compiled by
Donoghue's Money Fund Report, a widely recognized independent publication that
monitors the performance of money market funds. The yields of the taxable
Funds may also be compared to the average yields reported by the Bank Rate
Monitor for money market deposit accounts offered by the 50 leading banks and
thrift institutions in the top five standard metropolitan statistical areas.
Yield data as reported in national financial publications including, but not
limited to, Money Magazine, Forbes, Barron's, The Wall Street Journal and The
New York Times, or in publications of a local or regional nature, may also be
used in comparing the Funds' yields.
Each Fund may advertise its Shares' seven-day yield which refers to the in-
come generated over a particular seven-day period identified in the advertise-
ment by an investment in the Fund. This income is annualized, i.e., the income
during a particular week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The Funds may also ad-
vertise the "effective yields" of Shares which are calculated similarly but,
when annualized, income is assumed to be reinvested, thereby making the effec-
tive yields slightly higher because of the compounding effect of the assumed
reinvestment.
In addition, the Tax-Exempt Money Fund may from time to time advertise the
"tax-equivalent yields" of Shares to demonstrate the level of taxable yield
necessary to produce an after-tax yield equivalent to that achieved by the
Fund. This yield is computed by increasing the yields of the Fund's Shares
(calculated as above) by the amount necessary to reflect the payment of Fed-
eral income taxes at a stated tax rate.
Yields will fluctuate and any quotation of yield should not be considered as
representative of a Fund's future performance. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Funds with
bank deposits, savings accounts and similar investment alternatives which of-
ten provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that yield is gen-
27
<PAGE>
erally a function of the kind and quality of the instruments held in a portfo-
lio, portfolio maturity, operating expenses, and market conditions. Any fees
charged by Shareholder Organizations with respect to accounts of Customers
that have invested in Shares will not be included in calculations of yield.
MISCELLANEOUS
Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds'
independent auditors.
The staff of the SEC has expressed the view that the use of this combined
Prospectus for the Funds may subject the Funds to liability for losses arising
out of
any statement or omission regarding a particular Fund. The Companies do not
believe, however, that such risk is significant under the circumstances.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of a Company or a particular Fund means, with respect to the
approval of an investment advisory agreement or a change in a fundamental in-
vestment policy, the affirmative vote of the lesser of (a) more than 50% of
the outstanding Shares of such Company or such Fund, or (b) 67% or more of the
Shares of such Company or such Fund present at a meeting if more than 50% of
the outstand- ing Shares of such Company or such Fund are represented at the
meeting in person or by proxy.
Inquiries regarding any of the Funds may be directed to the Distributor at
the address listed under "Distributor."
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.
[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 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, 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.
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>
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
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.
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
----
_________________ ______________ ____ [_] Money Fund [_] Tax-Exempt Money
Last Name First M.I. Fund
_________________ ______________ ____ [_] Government [_] Treasury
Last Name First M.I. Money Fund Money Fund
By signing this Signature Card, the undersigned agree(s) that
check writing privileges will be subject to the instructions
and rules of Excelsior Fund, Excelsior Tax-Exempt Fund and
Chase, as now in effect and as amended from time to time, as
they pertain to the use of redemption checks.
(Please use black ink) [_] Check here if both signatures
required on checks.
[_] Check here if only one signature
required on checks.
_____________________________________ If neither box is checked, all checks
Signature will require both signatures.
_____________________________________
Joint Signature
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
<PAGE>
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........... Financial Highlights;
Performance and Yield
Information
4. General Description of Registrant......... Prospectus Summary;
Investment Objectives and
Policies; Portfolio
Instruments and Other
Investment Information;
Investment Limitations;
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.
Each of the Funds is sponsored and distributed by Edgewood Services, Inc. and
advised by United States Trust Company of New York and U.S. Trust Company of
Connecticut (collectively, the "Investment Adviser" or "U.S. Trust").
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information, dated August 1, 1997, and containing additional information about
the Funds, has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to 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.
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>
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 $1.6 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/........ .23% .29% .43%
12b-1 Fees.................................. None None None
Other Operating Expenses
Administrative Servicing Fee/2/........... .07% .06% .07%
Other Expenses............................ .28% .23% .24%
---- ---- ----
Total Operating Expenses (after fee
waivers)/2/................................ .58% .58% .74%
==== ==== ====
</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 .65%, .64% and .81%
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................................. $ 6 $19 $32 $73
Intermediate-Term Fund.......................... 6 19 32 73
Long-Term Fund.................................. 8 24 41 92
</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.
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...................... $ 7.05 $ 6.96 $ 6.99 $ 7.07 $ 7.00
------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income...... 0.26 0.28 0.25 0.21 0.05
Net Gains or (Losses) on
Securities (both realized
and unrealized)........... (0.01) 0.09 (0.02) (0.03) 0.07
------ ------ ------ ------ ------
Total From Investment
Operations................ 0.25 0.37 0.23 0.18 0.12
------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income......... (0.27) (0.28) (0.25) (0.21) (0.05)
Distributions From Net
Realized Gain on
Investments............... 0.00 0.00 (0.01) (0.05) 0.00
------ ------ ------ ------ ------
Total Distributions........ (0.27) (0.28) (0.26) (0.26) (0.05)
------ ------ ------ ------ ------
Net Asset Value, End of
Period...................... $ 7.03 $ 7.05 $ 6.96 $ 6.99 $ 7.07
====== ====== ====== ====== ======
Total Return/2/.............. 3.55% 5.42% 3.45% 2.55% 1.65%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)............. $41.08 $42.97 $48.19 $57.73 $28.60
Ratio of Net Operating
Expenses to Average Net
Assets.................... 0.58% 0.58% 0.59% 0.59% 0.60%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/................. 0.65% 0.64% 0.61% 0.60% 0.84%/3/
Ratio of Net Income to
Average Net Assets........ 3.73% 4.05% 3.60% 2.94% 2.80%/3/
Portfolio Turnover Rate.... 87% 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 February 14, 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.... $ 9.12 $ 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 0.40 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)........... 0.00 0.32 0.16 (0.09) 0.59 0.19 0.16 0.15 (0.17) (0.11)
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total From Investment
Operations............ 0.40 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..... (0.41) (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) (0.00) (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 0.00 (0.25) 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total Distributions.... (0.41) (0.40) (0.37) (0.85) (0.72) (0.56) (0.56) (0.57) (0.55) (0.62)
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Net Asset Value, End of
Period................. $ 9.11 $ 9.12 $ 8.80 $ 8.64 $ 9.24 $ 8.95 $ 8.83 $ 8.67 $ 8.52 $ 8.69
======= ======= ======= ======= ======= ======= ======= ====== ====== ======
Total Return/1/......... 4.58% 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).. $244.05 $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............ 0.58% 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/. 0.64% 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.... 4.56% 4.44% 4.28% 3.74% 4.57% 5.48% 6.47% 6.48% 6.43% 6.44%
Portfolio Turnover
Rate.................. 28.0% 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 February 14, 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.... $ 9.53 $ 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.. 0.46 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)........... 0.03 0.39 0.50 (0.12) 0.99 0.30 0.33 0.38 0.32 0.26
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total From Investment
Operations............ 0.49 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) (0.46) (0.43) (0.42) (0.46) (0.51) (0.54) (0.55) (0.53) (0.54)
Distributions From Net
Realized Gain on
Investments........... (0.13) (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 0.00 (0.27) 0.00 0.00 0.00 0.00 0.00 0.00
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions.... (0.59) (0.60) (0.53) (1.19) (0.94) (0.71) (0.59) (0.86) (0.73) (0.89)
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $ 9.43 $ 9.53 $ 9.27 $ 8.87 $ 9.76 $ 9.25 $ 9.15 $ 8.87 $ 8.80 $ 8.68
======= ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return/1/......... 5.47% 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).. $107.93 $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............ 0.74% 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/. 0.81% 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.... 4.80% 4.85% 4.86% 4.25% 4.73% 5.52% 6.01% 5.99% 6.14% 6.37%
Portfolio Turnover
Rate.................. 125.0% 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 February 14, 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 by Fitch
Information Services, Inc. ("Fitch"), or "Baa" or higher by Moody's Investors
Service, Inc. ("Moody's"), 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) 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, or "F-3" or
higher by Fitch; and (3) commercial paper rated "Prime-3" or higher by Moody's,
or "A-3" or higher by S&P, or "F-3" or higher by Fitch. Securities rated "BBB"
by S&P and Fitch 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 securities. If not rated, securities pur-
chased by the Funds will be of comparable quality to the above ratings as de-
termined by the Investment 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.
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.
9
<PAGE>
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 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 obli-
gation 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
10
<PAGE>
equal to the market value of the securities underlying such contract (less any
margin or deposit), which amount must be at least equal to the market price at
which the short position was established. Asset segregation requirements are
not applicable when a Fund "covers" a futures 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.
Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation, or by a
savings and loan association or savings bank which is insured by the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation. In-
vestments in time deposits are limited to no more than 5% of the value of a
Fund's total assets at time of purchase.
Investments by the Funds in commercial paper will consist of issues that are
rated "A-2" or better by S&P or "Prime-2" or better by Moody's. In addition,
each Fund may acquire unrated commercial paper that is determined by the In-
vestment Adviser at the time of purchase to be of comparable quality to rated
instruments that may be acquired by the particular Fund.
Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular 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."
11
<PAGE>
The seller under a repurchase agreement will be required to maintain the value
of the obligations subject to the agreement at not less than the repurchase
price. Default or bankruptcy of the seller would, however, expose a Fund to
possible delay in connection with the disposition of the underlying securities
or loss to the extent that proceeds from a sale of the underlying securities
were less than the repurchase price under the agreement. Income on the repur-
chase agreements will be taxable.
INVESTMENT COMPANY SECURITIES
The Funds may also invest in securities issued by other investment companies
which invest in high-quality, short-term securities and which determine their
net asset value per share based on the amortized cost or penny-rounding method.
In addition to the advisory fees and other expenses a Fund bears directly in
connection with its own operations, as a shareholder of another investment com-
pany, a Fund would bear its pro rata portion of the other investment company's
advisory fees and other expenses. As such, the Fund's shareholders would indi-
rectly bear the expenses of the Fund and the other investment company, some or
all of which would be duplicative. Such securities will be acquired by the
Funds within the limits prescribed by the Investment Company Act of 1940 (the
"1940 Act") which include, subject to certain exceptions, a prohibition against
a Fund investing more than 10% of the value of its total assets in such securi-
ties.
WHEN-ISSUED AND FORWARD TRANSACTIONS AND STAND-BY COMMITMENTS
Each of the Funds may purchase eligible securities on a "when-issued" basis
and may purchase or sell securities on a "forward commitment" basis. These
transactions involve a commitment by a Fund to purchase or sell particular se-
curities with payment and delivery taking place in the future, beyond the nor-
mal settlement date, at a stated price and yield. Securities purchased on a
"forward commitment" or "when-issued" basis are recorded as an asset and are
subject to changes in value based upon changes in the general level of interest
rates. It is expected that forward commitments and "when-issued" purchases will
not exceed 25% of the value of a Fund's total assets absent unusual market con-
ditions, and that the length of such commitments will not exceed 45 days. The
Funds do not intend to engage in "when-issued" purchases and forward commit-
ments for speculative purposes, but only in furtherance of their investment
objectives.
In addition, the Funds may acquire "stand-by commitments" with respect to Mu-
nicipal Obligations held by them. Under a "stand-by commitment," a dealer
agrees to purchase at a Fund's option specified Municipal Obligations at a
specified price. The Funds will acquire "stand-by commitments" solely to facil-
itate portfolio liquidity and do not intend to exercise their rights thereunder
for trading purposes. "Stand-by commitments" acquired by a Fund would be valued
at zero in determining the Fund's net asset value.
BORROWING AND REVERSE REPURCHASE AGREEMENTS
Each Fund may borrow funds, in an amount up to 10% of the value of its total
assets, for temporary or emergency purposes, such as meeting larger than antic-
ipated redemption requests, and not for leverage. Each Fund may also agree to
sell portfolio securities to financial institutions such as banks and broker-
dealers and to repurchase them at a mutually agreed date and price (a "reverse
repurchase agreement"). The SEC views reverse repurchase agreements as a form
of borrowing. At the time a Fund enters into a reverse repurchase agreement, it
will place in a segregated custodial account liquid assets having a value equal
to the repurchase price, including accrued interest. Reverse repurchase agree-
ments involve the risk that the market value of the securities sold by a Fund
may decline below the repurchase price of those securities.
ILLIQUID SECURITIES
No Fund will knowingly invest more than 10% of the value of its net assets in
securities that are illiquid. Each Fund may purchase securities which are not
registered under the Securities Act of 1933 (the "Act")
12
<PAGE>
but which can be sold to "qualified institutional buyers" in accordance with
Rule 144A under the Act. Any such security will not be considered illiquid so
long as it is determined by the adviser, acting under guidelines approved and
monitored by the Board, that an adequate trading market exists for that securi-
ty. This investment practice could have the effect of increasing the level of
illiquidity in a Fund during any period that qualified institutional buyers be-
come uninterested in purchasing these restricted securities.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment immediately after its acquisition if
the Investment Adviser believes that such a disposition is consistent with a
Fund's investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold the investments. A high rate
of portfolio turnover may involve correspondingly greater transaction costs,
which must be borne directly by a Fund and ultimately by its share-
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:
13
<PAGE>
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.
In Investment Limitation No. 1 above: (a) a security is considered to be is-
sued by the governmental entity or entities whose assets and revenues back the
security, or, with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, such non-governmental user;
(b) in certain circumstances, the guarantor of a guaranteed security may also
be considered to be an issuer in connection with such guarantee; and (c) secu-
rities issued or guaranteed by the United States Government, its agencies or
instrumentalities (including securities backed by the full faith and credit of
the United States) are deemed to be U.S. Government obligations.
The Short-Term Tax-Exempt Securities Fund may not knowingly invest more than
10% of the value of its net assets in securities which may be illiquid in light
of legal or contractual restrictions on resale or the absence of readily avail-
able market quotations. This investment policy may be changed by Excelsior Tax-
Exempt Fund's Board of Directors upon reasonable notice to shareholders.
The Intermediate-Term Tax-Exempt and Long-Term Tax-Exempt Funds will not in-
vest more than 25% of the value of their respective total assets in domestic
bank obligations.
With respect to all investment policies, if a percentage limitation is satis-
fied at the time of investment, a later increase or decrease in such percentage
resulting from a change in the value of a Fund's portfolio securities will not
constitute a violation of such limitation.
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, Thanksgiving Day and Christmas. Net asset value
per share for purposes of pricing sales and redemptions is calculated by divid-
ing 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
14
<PAGE>
asked prices. 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. Re-
stricted securities and other assets are valued at fair value pursuant to
guidelines adopted by the Board of Directors.
The Funds' Administrators have undertaken to price the securities in the
Funds' portfolios and may use one or more pricing services to value certain
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 Distributor is a regis-
tered broker/dealer. Its principal business address is Clearing Operations,
P.O. Box 897, Pittsburgh, PA 15230-0897.
At various times the Distributor may implement programs under which a deal-
er's sales force may be eligible to win nominal awards for certain sales ef-
forts or under which the Distributor will make payments to any dealer that
sponsors sales contests or recognition programs conforming to criteria estab-
lished by the Distributor, or that participates in sales programs sponsored by
the Distributor. The Distributor in its discretion may also from time to time,
pursuant to objective criteria established by the Distributor, pay fees to
qualifying dealers for certain services or activities which are primarily in-
tended to result in sales of Shares of the Funds. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by the
Distributor out of its own assets and not out of the assets of the Funds.
In addition, the Distributor may offer to pay a fee from its own assets to
financial institutions 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 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
15
<PAGE>
Shareholder Organization and the Distributor. Confirmations of all such Cus-
tomer purchases and redemptions will be sent by CGFSC to the particular Share-
holder Organization. As an alternative, a Shareholder Organization may elect to
establish its Customers' accounts of record with CGFSC. In this event, even if
the Shareholder Organization continues to place its Customers' purchase and re-
demption orders with the Funds, CGFSC will send confirmations of such transac-
tions and periodic account statements directly to Customers.
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 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 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 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.
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<PAGE>
Other Purchase Information
Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500 per Fund. The minimum subse-
quent investment for both types of investors is $50 per Fund. Customers may
agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may charge a Customer's account fees for 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
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 wir-
ing redemption payments to Shareholder Organizations or Institutional Invest-
ors is imposed by Excelsior Tax-Exempt Fund, although Shareholder Organiza-
tions may charge a Customer's account for wiring redemption proceeds. Informa-
tion relating 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 trans-
action charges in connection with such redemptions. Such investors should con-
tact their registered investment adviser 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 indi-
vidual 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
executed stock power) and must be submitted to CGFSC together with the redemp-
tion request. A redemption request for an amount in excess of $50,000 per ac-
count, or for any amount if the proceeds are to be sent elsewhere than the ad-
dress of record, must be accompanied by signature guarantees from any eligible
guarantor institution approved by CGFSC in accordance with its Standards, Pro-
cedures and Guidelines for the Acceptance of Signature Guarantees ("Signature
Guarantee Guidelines"). Eligible guarantor institutions generally include
banks, broker/dealers, credit unions, national securities exchanges, regis-
tered securities associations, clearing agencies and savings associations. All
eligible guarantor institutions must participate in the Securities Transfer
Agents Medallion Program ("STAMP") in order to be approved by CGFSC pursuant
to the Signature Guarantee Guidelines. Copies of the Signature Guarantee
Guidelines and information on STAMP can be obtained from CGFSC at (800) 446-
1012 or at the address given above. CGFSC may require additional supporting
documents for redemptions made by corporations, executors, administrators,
trustees and guardians. A redemption request will not be deemed to be properly
received until CGFSC receives all re-
17
<PAGE>
quired documents in proper form. Payment for Shares redeemed 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
Investor's account at any commercial bank in the United States. Direct Invest-
ors who are shareholders of record may also redeem Shares by instructing CGFSC
by telephone to mail a check for redemption proceeds of $500 or more to the
shareholder of record at his or her address of record. Institutional Investors
may also redeem Shares by instructing CGFSC by telephone at (800) 446-1012 or
by terminal access. Only redemptions of $500 or more will be wired to a Direct
Investor's account. 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.
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 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
18
<PAGE>
the balance in such account falls below that minimum, the Customer may be
obliged by the Shareholder Organization to redeem all or part of his or her
Shares to the extent necessary to maintain the required minimum balance.
GENERAL
Purchase and redemption orders for Shares which are received and accepted
prior to the close of regular trading hours on the Exchange (currently 4:00
p.m., Eastern Time) on any Business Day are priced according to the net asset
value determined on that day. Purchase orders received and accepted after the
close of regular trading hours on the Exchange are priced at the net asset
value per Share determined on the next Business Day.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Investors and Customers of Shareholder Organizations may, after appropriate
prior authorization and without an exchange fee imposed by Excelsior 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-Exempt Fund or
Excelsior Funds, Inc. ("Excelsior Fund"), or for Trust Shares of Excelsior In-
stitutional Trust, provided that such other shares may legally be sold in the
state of the Investor's residence.
Excelsior Fund currently offers fifteen investment portfolios as follows:
Money Fund, a money market fund seeking as high a level of current income as
is consistent with liquidity and stability of principal through investments
in high-quality money market instruments maturing within 13 months;
Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaranteed by the U.S. Govern-
ment, its agencies and instrumentalities and repurchase agreements collater-
alized by such obligations;
Treasury Money Fund, a money market fund seeking current income generally
exempt from state and local income taxes through investments in direct short-
term obligations issued by the U.S. Treasury and certain agencies or instru-
mentalities of the U.S. Government;
Short-Term Government Securities Fund, a fund seeking a high level of cur-
rent income by investing principally in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agree-
ments collateralized by such obligations, and having a dollar-weighted aver-
age portfolio maturity of 1 to 3 years;
Intermediate-Term Managed Income Fund, a fund seeking a high level of cur-
rent interest income by investing principally in investment grade or better
debt obligations and money market instruments, and having a dollar-weighted
average portfolio maturity of 3 to 10 years;
Managed Income Fund, a fund seeking higher current income through invest-
ments in investment grade debt obligations, U.S. Government obligations and
money market instruments;
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;
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<PAGE>
Value and Restructuring Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their restructuring or redeploy-
ment of assets and operations in order to become more competitive or profit-
able;
Small Cap Fund, a fund seeking long-term capital appreciation by investing
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 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 the following
investment portfolios:
Optimum Growth Fund, a fund seeking superior, risk-adjusted total return
through investments in a diversified portfolio of equity securities whose
growth prospects, in the opinion of its investment adviser, appear to exceed
that of the overall market; and
Value Equity Fund, a fund seeking long-term capital appreciation through in-
vestments in a diversified portfolio of equity securities whose market value,
in the opinion of its investment adviser, appears to be undervalued relative
to the marketplace.
An exchange involves a redemption of all or a portion of the Shares in a Fund
and the investment of the redemption proceeds in shares of another portfolio
of 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 be-
ing 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 receipt of the exchange re-
quest in good order.
Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in a Fund. For further
information regarding exchange privileges, shareholders should call (800) 446-
1012 (from overseas, call (617) 557-8280). Investors exercising the exchange
privilege with the other portfolios of Excelsior Tax-Ex-
20
<PAGE>
empt Fund, Excelsior 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 Or-
ganizations to no more than six per year. Excelsior Tax-Exempt Fund may modify
or terminate the exchange program at any time upon 60 days' written notice to
shareholders, and may reject any exchange request. EXCELSIOR TAX-EXEMPT FUND,
EXCELSIOR FUND, EXCELSIOR INSTITUTIONAL TRUST, CGFSC AND THE DISTRIBUTOR ARE
NOT RESPONSIBLE FOR THE AUTHENTICITY OF EXCHANGE REQUESTS RECEIVED BY TELE-
PHONE THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM
THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCELSIOR TAX-EXEMPT FUND, EXCELSIOR
FUND AND EXCELSIOR INSTITUTIONAL TRUST WILL USE SUCH PROCEDURES AS ARE CONSID-
ERED REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS AND REQUESTING INFOR-
MATION AS TO ACCOUNT REGISTRATION.
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 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 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 (mini-
mum of $50 per Fund per transaction) at regular intervals selected by the In-
vest- 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 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.
The Automatic Investment Program is one means by which an Investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time mar-
ket performance, a fixed dollar amount is invested in Shares at predetermined
intervals. This may help Investors to reduce their average cost per Share be-
cause the agreed upon fixed investment amount allows more Shares to be pur-
chased during periods of lower Share prices and fewer Shares during periods of
higher prices. In order to be effective, Dollar Cost Averaging should usually
be followed on a sustained, consistent basis. Investors should be aware, how-
ever, that Shares bought using Dollar Cost Averaging are purchased without re-
gard to their price on the day of investment or to market trends. In addition,
while Investors may find Dollar Cost Averaging to be beneficial, it will not
prevent a loss if an Investor ultimately redeems his Shares at a price which
is lower than their purchase price.
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<PAGE>
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.
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 tax-
able year. In general, a Fund's investment company taxable income will be its
taxable income (including interest) subject to certain adjustments and exclud-
ing 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 re-
ceived deduction for corporations.
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,
exclu-
22
<PAGE>
sion would be disallowed. (See Statement of Additional Information under "Ad-
ditional 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.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by a Fund on December 31 of such
year in the event such dividends are actually paid during January of the fol-
lowing year.
An investor considering buying Shares of a Fund on or just before the record
date of a 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.
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 or her tax ba-
sis for such Shares for the purpose of determining gain or loss on a redemp-
tion, transfer or exchange of such Shares. However, if the shareholder ef-
fected 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 re-
duction 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.
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.
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<PAGE>
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
United States Trust Company of New York ("U.S. Trust New York") and U.S.
Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively with
U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as the
Investment Adviser to the Funds. U.S. Trust New York is a state-chartered bank
and trust company and a member bank of the Federal Reserve System and is one
of the twelve members of the New York Clearing House Association. U.S. Trust
Connecticut is a Connecticut state bank and trust company. U.S. Trust New York
and U.S. Trust Connecticut are wholly-owned subsidiaries of U.S. Trust Corpo-
ration, a registered bank holding company.
The Investment Adviser provides trust and banking services to individuals,
corporations, and institutions both nationally and internationally, including
investment management, estate and trust administration, financial planning,
corporate trust and agency banking, and personal and corporate banking. On De-
cember 31, 1996, the Asset Management Groups of U.S. Trust New York and U.S.
Trust Connecticut had approximately $53 billion in aggregate assets under man-
agement. U.S. Trust New York has its principal offices at 114 W. 47th Street,
New York, New York 10036. U.S. Trust Connecticut has its principal offices at
225 High Ridge Road, East Building, Stamford, Connecticut 06905.
The Investment Adviser manages each Fund, makes decisions with respect to and
places orders for all purchases and sales of its portfolio securities, and
maintains records relating to such purchases and sales.
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 Long-Term Fund's portfo-
lio manager since 1986 and the Short-Term and Intermediate-Term Funds' portfo-
lio 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 .23%, .29% and .43% 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 .07%, .06% and .07% of the aver-
24
<PAGE>
age 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 .154%, .154% and .152% 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 rate of .002% of the average daily net assets of the Long-Term 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, 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
25
<PAGE>
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 held, and will vote in the aggregate and
not by class, except as otherwise expressly required by law.
Certificates for Shares will not be issued unless expressly requested in
writing to CGFSC and will not be issued for fractional Shares.
As of July 14, 1997, U.S. Trust and its affiliates held of record substan-
tially all of Excelsior Tax-Exempt Fund's outstanding shares as agent or cus-
todian for their customers, but did not own such shares beneficially because
they did not have voting or investment discretion with respect to such shares.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase"), a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Funds' assets. Communi-
cations to the custodian should be directed to Chase, Mutual Funds Service Di-
vision, 3 Chase MetroTech Center, 8th Floor, Brooklyn, NY 11245.
26
<PAGE>
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 per-
formance of mutual funds.
Performance and yield data as reported in national financial publications, in-
cluding but not limited to Money Magazine, Forbes, Barron's, The Wall Street
Journal and The New York Times, or in publications of a local or regional na-
ture, may also be used in comparing the performance and yields of the Funds.
Each Fund may advertise its effective yield which is calculated by dividing
its average daily net investment income per Share during a 30-day (or one
month) base period identified in the advertisement by its net exact value per
Share on the last day of the period, and annualizing the result on a semiannual
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 computed by
increasing the yield of the Fund's Shares (calculated as above) by the amount
necessary to reflect the payment of Federal income taxes at a stated tax rate.
From time to time, each Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure re-
flects the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring pe-
riod. Average total return figures will be given for the most recent one-year
period and may be given for other periods as well (such as from the commence-
ment of a Fund's operations, or on a year-by-year basis). Each Fund may also
use aggregate total return figures for various periods, representing the cumu-
lative change in the value of an investment in the Fund for the specific peri-
od. Both methods of calculating total return assume that dividends and capital
gain distributions made by a Fund during the period are reinvested in Fund
Shares.
Performance and yields will fluctuate and any quotation of performance and
yield should not be considered as representative of a Fund's future perfor-
mance. Since yields fluctuate, yield data cannot necessarily be used to compare
an investment in the Funds with bank deposits, savings accounts and similar in-
vestment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that the performance
and yield are generally functions of the kind and quality of the instruments
held in a portfolio, portfolio maturity, operating expenses, and market condi-
tions. Any fees charged by the Shareholder Organizations with respect to ac-
counts of Customers that have invested in Shares will not be included in calcu-
lations of yield and performance.
MISCELLANEOUS
Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds' in-
dependent auditors.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of Excelsior Tax-
27
<PAGE>
Exempt Fund or a particular Fund means, with respect to the approval of an in-
vestment 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
P.O. Box 2798 Company--Sub-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
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
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.
<TABLE>
<S> <C>
-------------------------------------------------- ----------------------------------------------------
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.).
- --------------------------------------------------------------------------------
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>
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
CHASE GLOBAL FUNDS SERVICES COMPANY SUPPLEMENTAL
LOGO 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 of [_] U.S. [_] Other ____ City, State, Zip Code __________
[_] 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 Recipient ________________________________
check payable Street Address ___________________________
to: (To be City, State, Zip Code ____________________
completed only
if redemption
proceeds to be
paid to other
than account
holder of record
or mailed to
address other
than address of
record)
NOTE: If recipient of checks is not the registered shareholder, signature(s)
below must be guaranteed. A corporation, trust or partnership must also
submit a "Corporate Resolution" (or "Certification of Partnership")
indicating the names and titles of officers authorized to act on its behalf.
- --------------------------------------------------------------------------------
AGREEMENT AND SIGNATURES
- --------------------------------------------------------------------------------
The investor(s) certifies and agrees that the certifications, authorizations,
directions and restrictions contained herein will continue until CGFSC
receives written notice of any change or revocation. Any change in these
instructions must be in writing with all signatures guaranteed (if
applicable).
Date ______________________
X X
------------------------------- -----------------------------
Signature Signature
------------------------------- -----------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)
X X
------------------------------- -----------------------------
Signature Signature
------------------------------- -----------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)
*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
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........... Financial Highlights;
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.
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>
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/......................... .47%
12b-1 Fees................................................... None
Other Operating Expenses
Administrative Servicing Fee/2/............................. .03%
Other Expenses.............................................. .22%
----
Total Operating Expenses (after fee waivers)/2/.............. .72%
====
</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 Fees" would be .50% and "To-
tal Operating Expenses" would be .75% 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...... $7 $23 $40 $89
</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.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a Share outstanding throughout
each period and other performance information derived from the financial state-
ments included in 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.... $ 8.44 $ 8.24 $ 8.18 $ 8.61 $ 8.31 $ 8.20 $ 8.00
------- ------ ------ ------- ------ ------ ------
Income From Investment
Operations
Net Investment Income. 0.36 0.35 0.33 0.31 0.34 0.41 0.39
Net Gains or (Losses)
on Securities (both
realized and
unrealized).......... 0.01 0.20 0.15 (0.13) 0.41 0.19 0.20
------- ------ ------ ------- ------ ------ ------
Total From Investment
Operations........... 0.37 0.55 0.48 0.18 0.75 0.60 0.59
------- ------ ------ ------- ------ ------ ------
Less Distributions
Dividends From Net
Investment Income.... (0.36) (0.35) (0.33) (0.31) (0.34) (0.41) (0.39)
Distributions From Net
Realized Gain on
Investments.......... 0.00 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 0.00 (0.08) 0.00 0.00 0.00
------- ------ ------ ------- ------ ------ ------
Total Distributions... (0.36) (0.35) (0.42) (0.61) (0.45) (0.49) (0.39)
------- ------ ------ ------- ------ ------ ------
Net Asset Value, End of
Period................. $ 8.45 $ 8.44 $ 8.24 $ 8.18 $ 8.61 $ 8.31 $ 8.20
======= ====== ====== ======= ====== ====== ======
Total Return/2/......... 4.46% 6.77% 6.05% 1.87% 9.27% 7.42% 7.54%
Ratios/Supplemental Data
Net Assets, End of
Period
(in millions)........ $102.25 $96.41 $87.16 $107.49 $88.25 $52.24 $25.88
Ratio of Net Operating
Expenses to Average
Net Assets........... 0.72% 0.75% 0.78% 0.87% 0.89% 0.88% 0.86%/3/
Ratio of Gross
Operating Expenses to
Average Net
Assets/4/............ 0.75% 0.77% 0.80% 0.87% 0.89% 0.88% 0.86%/3/
Ratio of Net Income to
Average Net Assets... 4.25% 4.15% 4.06% 3.55% 3.94% 4.82% 5.72%/3/
Portfolio Turnover
Rate................. 89.0% 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 February 14, 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 by
Fitch Information Services, Inc. ("Fitch"), or "Baa" or higher by Moody's In-
vestors Service, Inc. ("Moody's"), in the case of bonds (or, in certain in-
stances, bonds with lower ratings if they are determined by the Investment Ad-
viser 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, or "F-3" or higher by Fitch, in the case of notes; and (3) "A-3" or
higher by S&P, or "Prime-3" or higher by Moody's, or "F-3" or higher by Fitch,
in the case of commercial paper. Securities rated "BBB" by S&P and Fitch 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 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 discus-
sion of Moody's and S&P's rating categories is contained 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.
BORROWING AND REVERSE REPURCHASE AGREEMENTS
The Fund may borrow funds, in an amount up to 10% of the value of its total
assets, for temporary or emergency purposes, such as meeting larger than an-
ticipated redemption requests, and not for leverage. The Fund may also agree
to sell portfolio securities to financial institutions such as banks and bro-
ker-dealers and to repurchase them at a mutually agreed date and price (a "re-
verse repurchase agreement"). The SEC views reverse repurchase agreements as a
form of borrowing. At the time the Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account, liquid assets hav-
ing a value equal to the repurchase price, including accrued interest. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the repurchase price of those securities.
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
issuers.
Although the Fund does not presently intend to do so on a regular basis, it
may invest more than 25% of its assets in Municipal Obligations the interest
on which is paid solely from revenues on similar projects if such investment
is deemed necessary or appropriate by the Investment Adviser. To the extent
that the Fund's assets are concentrated in Municipal Obligations payable from
revenues on similar projects, the Fund will be subject to the particular risks
presented
8
<PAGE>
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 outstanding debt obligations. In recent
years, several different issues of municipal 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 Obli-
gations to be issued with yields relatively lower, and after issuance, to
trade in the market at prices relatively higher, than comparably rated munici-
pal obligations issued by other jurisdictions. A recurrence of the financial
difficulties previously experienced by certain issuers 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 is-
suers of New York Municipal Obligations. Although as of the date of this Pro-
spectus, no issuers of New York Municipal Obligations are in default with re-
spect to the payment of their municipal obligations, the occurrence of any
such default could affect adversely the market values and marketability of all
New York Municipal Obligations and, consequently, the net asset 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 In-
vestment Adviser will review the proceedings relating to the issuance of Mu-
nicipal 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. 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
9
<PAGE>
that the Fund may enter into futures contracts 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 possession of the U.S. Government; the District
of Columbia; or any of their authorities, agencies, instrumentalities, or po-
litical sub-divisions.
* * *
For purposes of Investment Limitation No. 1 above: (a) a security is consid-
ered to be issued by the governmental entity or entities whose assets and reve-
nues 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 guaran-
tee; 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 Fund will not knowingly invest more than 10% of the value of its net as-
sets in illiquid securities, including repurchase agreements with remaining ma-
turities 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 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, 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 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
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.
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 Fund. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by the
Distributor out of its own assets and not out of the assets of the Fund.
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 Share-
11
<PAGE>
holder Organization. As an alternative, a Shareholder Organization may elect to
establish its Customers' accounts of record with CGFSC. In this event, even if
the Shareholder Organization continues to place its Customers' purchase and re-
demption orders with the Fund, CGFSC will send confirmations of such transac-
tions and periodic account statements directly to Customers.
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 from the Distributor in accordance with proce-
dures described below under "Purchase Procedures."
PURCHASE PROCEDURES
General
Direct Investors may purchase Shares by completing the Application for pur-
chase of Shares accompanying this Prospectus and mailing it, together with a
check payable to Excelsior Funds, to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
Subsequent investments in an existing account in 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)
Investors making initial investments by wire must promptly complete the Appli-
cation accompanying this Prospectus and forward it to CGFSC. Redemptions by -
Investors will not be processed until the completed Application for purchase of
Shares has been received by CGFSC and accepted by the Distributor. Investors
making subsequent investments by wire should follow the above instructions.
12
<PAGE>
Other Purchase Information
Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500. 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
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
13
<PAGE>
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
Investor's account at any commercial bank in the United States. Direct Invest-
ors who are shareholders of record may also redeem Shares by instructing CGFSC
by telephone to mail a check for redemption proceeds of $500 or more to the
shareholder of record at his or her address of record. Institutional Investors
may also redeem Shares by instructing CGFSC by telephone at (800) 446-1012 or
by terminal access. Only redemptions of $500 or more will be wired to a Direct
Investor's account. 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 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.
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.
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
14
<PAGE>
Customer may be obliged by the Shareholder Organization to redeem all or part
of his or her Shares to the extent necessary to maintain the required minimum
balance.
GENERAL
Purchase and redemption orders for Shares which are received and accepted
prior to the close of regular trading hours on the Exchange (currently 4:00
p.m., Eastern Time) on any Business Day are priced according to the net asset
value determined on that day. Purchase orders received and accepted after the
close of regular trading hours on the Exchange are priced at the net asset
value per Share determined on the next Business Day.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Investors and Customers of Shareholder Organizations may, after appropriate
prior authorization and without an exchange fee imposed by Excelsior 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:
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;
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 in municipal
obligations and having a dollar-weighted average portfolio maturity of 10 to
30 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 Fund currently offers fifteen investment portfolios:
Money Fund, a money market fund seeking as high a level of current income as
is consistent with liquidity and stability of principal through investments
in high-quality money market instruments maturing within 13 months;
Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaran-teed 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;
15
<PAGE>
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 benefiting from the availability, development
and delivery of secure hydrocarbon and other energy sources;
Value and Restructuring Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their restructuring or redeploy-
ment of assets and operations in order to become more competitive or profit-
able;
Small Cap Fund, a fund seeking long-term capital appreciation by investing
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 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 the following
investment portfolios:
Optimum Growth Fund, a fund seeking superior, risk-adjusted total return
through investments in a diversified portfolio of equity securities whose
growth prospects, in the opinion of its investment adviser, appear to exceed
that of the overall market and;
Value Equity Fund, a fund seeking long-term capital appreciation through in-
vestments in a diversified portfolio of equity securities whose market value,
in the opinion of its investment adviser, appears to be undervalued relative
to the marketplace.
An exchange involves a redemption of all or a portion of the Shares in 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 receipt of the exchange
request in good order.
Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in the Fund. For fur-
ther information regarding exchange privileges, shareholders
16
<PAGE>
should call (800) 446-1012 (from overseas, call (617) 557-8280). Investors ex-
ercising the exchange privilege with the other portfolios of Excelsior Tax-Ex-
empt Fund, Excelsior 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 Or-
ganizations to no more than six per year. Excelsior Tax-Exempt Fund may modify
or terminate the exchange program at any time upon 60 days' written notice to
shareholders, and may reject any exchange request. EXCELSIOR TAX-EXEMPT FUND,
EXCELSIOR FUND, EXCELSIOR INSTITUTIONAL TRUST, CGFSC AND THE DISTRIBUTOR ARE
NOT RESPONSIBLE FOR THE AUTHENTICITY OF EXCHANGE REQUESTS RECEIVED BY TELE-
PHONE THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM
THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCELSIOR TAX-EXEMPT FUND, EXCELSIOR
FUND AND EXCELSIOR INSTITUTIONAL TRUST WILL USE SUCH PROCEDURES AS ARE CONSID-
ERED REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS AND REQUESTING INFOR-
MATION AS TO ACCOUNT REGISTRATION.
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).
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 (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.
The Automatic Investment Program is one means by which an Investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time mar-
ket performance, a fixed dollar amount is invested in Shares at predetermined
intervals. This may help Investors to reduce their average cost per Share be-
cause the agreed upon fixed investment amount allows more Shares to be pur-
chased during periods of lower Share prices and fewer Shares during periods of
higher prices. In order to be effective, Dollar Cost Averaging should usually
be followed on a sustained, consistent basis. Investors should be aware, how-
ever, that Shares bought using Dollar Cost Averaging are purchased without re-
gard to their price on the day of investment
17
<PAGE>
or to market trends. In addition, while Investors may find Dollar Cost Averag-
ing to be beneficial, it will not prevent a loss if an Investor ultimately re-
deems 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
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.")
If the Fund should hold certain private activity bonds issued after August 7,
1986, shareholders must include, as an item of tax preference, the portion of
dividends paid by the Fund that is attributable to interest on such bonds in
their Federal alternative minimum taxable income for purposes of determining
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 bank and trust company. U.S. Trust New York
and U.S. Trust Connecticut are wholly-owned subsidiaries of U.S. Trust Corpo-
ration, a registered bank holding company.
The Investment Adviser provides trust and banking services to individuals,
corporations, and institutions both nationally and internationally, including
investment management, estate and trust administration, financial planning,
corporate trust and agency banking, and personal and corporate banking. On De-
cember 31, 1996, the Asset Management Groups of U.S. Trust New York and U.S.
Trust Connecticut had approximately $53 billion in aggregate assets under man-
agement. U.S. Trust New York has its principal offices at 114 W. 47th Street,
New York, New York 10036. U.S. Trust Connecticut has its principal offices at
225 High Ridge Road, East Building, Stamford, Connecticut 06905.
The Investment Adviser manages 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.
For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreement, the Investment Adviser is entitled to be paid a fee, com-
puted daily and paid monthly, at the annual rate of .50% of the average daily
net assets of the Fund.
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 .47% 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 .03% 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
CGFSC, Federated Administrative Services and U.S. Trust Connecticut serve as
the Fund's administrators
20
<PAGE>
(the "Administrators") and provide it with general administrative and opera-
tional assistance. The Administrators also serve as administrators to the
other portfolios of Excelsior Tax-Exempt Fund and of all the portfolios of Ex-
celsior 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, Excel-
sior Fund and Excelsior Institutional Trust (except the international portfo-
lios 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 (ex-
cluding the international portfolios of Excelsior Fund and Excelsior Institu-
tional 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 .154% 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
21
<PAGE>
company, or from purchasing shares of such company for and upon the order of
customers. The Investment Adviser, CGFSC and certain Shareholder Organizations
may be subject to such banking laws and regulations. State securities laws may
differ from the interpretations of Federal law discussed in this paragraph and
banks and financial institutions may be required to register as dealers pursu-
ant 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.
As of July 14, 1997, U.S. Trust and its affiliates held of record substan-
tially all of Excelsior Tax-Exempt Fund's outstanding shares as agent or cus-
todian for their customers, but did not own such shares beneficially because
they did not have voting or investment discretion with respect to such shares.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase"), a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the 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.
22
<PAGE>
Performance and yield data as reported in national financial publications,
including but not limited to Money Magazine, Forbes, Barron's, The Wall Street
Journal and The New York Times, or in publications of a local or regional na-
ture, may also be used in comparing the performance and yields of the 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
P.O. Box 2798 c/o Chase Global Funds Services Company--
Boston, MA 02208-2798 Sub-Transfer Agent
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:
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).
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
---------------------------
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
( )
------------------------------ -----------------------------
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 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 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
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
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 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)
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...................................................... 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........... Financial Highlights;
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 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.
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.
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>
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/............................... 0%
12b-1 Fees......................................................... None
Other Operating Expenses........................................... .50
------
Administrative Servicing Fee/2/................................... .40
Other Expenses (after expense reimbursements)/2/.................. .10
-----
Total Operating Expenses (after fee waivers)/2/.................... .50%
======
</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 or reimburse expenses, which waivers or
reimbursements may be terminated at any time. Until further notice, the In-
vestment Adviser and/or Administrators intend to voluntarily waive fees in
an amount equal to the Administrative Servicing Fee; and to further waive
fees and reimburse expenses to the extent necessary for the Fund to maintain
an annual expense ratio of not more than .50%. Without such fee waivers and
expense reimbursements, "Advisory Fees" would be .50%, "Other Expenses"
would be .63% and "Total Operating Expenses" would be 1.53% 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>
California Tax-Exempt Income Fund............... $5 $16 $28 $63
</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.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a Share outstanding throughout
each period and other performance information derived from the financial state-
ments included in 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.
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1997/1/
-----------------
<S> <C>
Net Asset Value, Beginning
of Period................ $ 7.00
------
Income From Investment
Operations:
Net Investment Income... 0.12
Net Gains on Securities
(both realized and
unrealized)............ (0.05)
------
Total From Investment
Operations............. 0.07
------
Less Distributions:
Dividends From Net
Investment Income...... (0.12)
------
Net Asset Value, End of
Period................... $ 6.95
======
Total Return/2/........... 1.05%/3/
Ratios/Supplemental Data:
Net Assets, End of
Period (in millions)... $13.23
Ratio of Net Operating
Expenses to Average Net
Assets................. 0.66%/4/
Ratio of Gross Operating
Expenses to Average Net
Assets/5/.............. 1.53%/4/
Ratio of Net Income to
Average Net Assets..... 3.69%/4/
Portfolio Turnover Rate. 7%/4/
</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 February 14, 1997.
3. Not annualized.
4. Annualized.
5. 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 by
Fitch Information Services, Inc. ("Fitch"), or "Baa" or higher by Moody's In-
vestors Service, Inc. ("Moody's"), in the case of bonds (or, in certain in-
stances, bonds with lower ratings if they are determined by the Investment Ad-
viser or Sub-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 vari-
able rate notes) by Moody's, or "F-3" or higher by Fitch, in the case of notes;
and (3) "A-3" or higher by S&P, or "Prime-3" or higher by Moody's, or "F-3" or
higher by Fitch, in the case of commercial paper. Securities rated "BBB" by S&P
and Fitch or "Baa" by Moody's are generally considered to be investment grade,
although they have speculative characteristics and are more sensitive to eco-
nomic change than higher rated securities. If not rated, Municipal Obligations
purchased by the Fund will be of
4
<PAGE>
comparable quality to the above ratings as determined by the Investment Ad-
viser or Sub-Adviser under the supervision of the Board of Directors. A dis-
cussion of Moody's and S&P's rating categories is contained in Appendix A to
the Statement of Additional Information.
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 on such investments described 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 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
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 and 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 to attempt to reduce risks
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
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 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.
BORROWING AND REVERSE REPURCHASE AGREEMENTS
The Fund may borrow funds, in an amount up to 10% of the value of its total
assets, for temporary or emergency purposes, such as meeting larger than an-
ticipated redemption requests, and not for leverage. The Fund may also agree
to sell portfolio securities to financial institutions such as banks and bro-
ker-dealers and to repurchase them at a mutually agreed date and price (a "re-
verse repurchase agreement"). The SEC views reverse repurchase agreements as a
form of borrowing. At the time the Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets hav-
ing a value equal to the repurchase price, including accrued interest. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the repurchase price of those securities.
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.
8
<PAGE>
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.
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").
9
<PAGE>
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 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; 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, 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 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
10
<PAGE>
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 circumstances, 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 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
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.
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 Fund. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by the
Distributor out of its own assets and not out of the assets of the Fund.
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
11
<PAGE>
to hold of record Shares for its Customers and to record beneficial ownership
of Shares on the account statements provided by it to its Customers. If it does
so, it is the Shareholder Organization's responsibility to transmit to the Dis-
tributor all purchase orders for its Customers and to transmit, on a timely ba-
sis, payment for such orders to 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 Shareholder Organization may
elect to establish its Customers' accounts of record with CGFSC. In this event,
even if the Shareholder Organization continues to place its Customers' purchase
and redemption orders with the Fund, CGFSC will send confirmations of such
transactions and periodic account statements directly to Customers.
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
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)
12
<PAGE>
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. 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
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-
13
<PAGE>
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 guard-
ians. 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
Investor's account at any commercial bank in the United States. Direct Invest-
ors who are shareholders of record may also redeem Shares by instructing CGFSC
by telephone to mail a check for redemption proceeds of $500 or more to the
shareholder of record at his or her address of record. Institutional Investors
may also redeem Shares by instructing CGFSC by telephone at (800) 446-1012 or
by terminal access. Only redemptions of $500 or more will be wired to a Direct
Investor's account. 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 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.
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.
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."
14
<PAGE>
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
Purchase and redemption orders for Shares which are received and accepted
prior to the close of regular trading hours on the Exchange (currently 4:00
p.m., Eastern Time) on any Business Day are priced according to the net asset
value determined on that day. Purchase orders received and accepted after the
close of regular trading hours on the Exchange are priced at the net asset
value per Share determined on the next Business Day.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Investors and Customers of Shareholder Organizations may, after appropriate
prior authorization and 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:
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;
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 in municipal
obligations and having a dollar-weighted average portfolio maturity of 10 to
30 years; and
New York Intermediate-Term Tax-Exempt Fund, a non-diversified fund designed
to provide New York investors with a high level of current 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.
Excelsior Fund currently offers fifteen investment portfolios:
Money Fund, a money market fund seeking as high a level of current income as
is consistent with liquidity and stability of principal through investments
in high-quality money market instruments maturing within 13 months;
Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaranteed by the U.S. Govern-
ment, its agencies and instrumentalities and repurchase agreements collater-
alized by such obligations;
15
<PAGE>
Treasury Money Fund, a money market fund seeking current income generally
exempt from state and local income taxes through investments in direct short-
term obligations issued by the U.S. Treasury and certain agencies or instru-
mentalities of the U.S. Government;
Short-Term Government Securities Fund, a fund seeking a high level of cur-
rent income by investing principally in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agree-
ments collateralized by such obligations, and having a dollar-weighted aver-
age portfolio maturity of 1 to 3 years;
Intermediate-Term Managed Income Fund, a fund seeking a high level of cur-
rent interest income by investing principally in investment grade or better
debt obligations and money market instruments, and having a dollar-weighted
average portfolio maturity of 3 to 10 years;
Managed Income Fund, a fund seeking higher current income through invest-
ments in investment grade debt obligations, U.S. Government obligations and
money market instruments;
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;
Value and Restructuring Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their restructuring or redeploy-
ment of assets and operations in order to become more competitive or profit-
able;
Small Cap Fund, a fund seeking long-term capital appreciation by investing
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 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 the following
investment portfolios:
Optimum Growth Fund, a fund seeking superior, risk-adjusted total return
through investments in a diversified portfolio of equity securities whose
growth prospects, in the opinion of its investment adviser, appear to exceed
that of the overall market; and
Value Equity Fund, a fund seeking long-term capital appreciation through in-
vestments in a diversified portfolio of equity securities whose market value,
in the opinion of its investment adviser, appears to be undervalued relative
to the marketplace.
An exchange involves a redemption of all or a portion of the Shares in 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
16
<PAGE>
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 receipt of the exchange re-
quest in good order.
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, Excel-
sior Fund or Excelsior Institutional Trust should request and review the pro-
spectuses of such Funds. Such prospectuses may be obtained by calling the tele-
phone numbers listed above. In order to prevent abuse of this privilege to the
disadvantage of other shareholders, Excelsior Fund, Excelsior Tax-Exempt Fund
and Excelsior Institutional Trust reserve the right to limit the number of ex-
change requests of Investors and Customers of Shareholder Organizations to no
more than six per year. Excelsior Tax-Exempt Fund may modify or terminate the
exchange program at any time upon 60 days' written notice to shareholders, and
may reject any exchange request. 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 the Fund with a value of $10,000 or more may
establish a Systematic Withdrawal Plan. The Investor may request a declining-
balance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an investor must complete the Supplemental Applica-
tion contained in this Prospectus and mail it to 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 transaction) at regular intervals selected by the Investor. The min-
imum initial investment for an Automatic Investment Program account is $50.
Provided the Investor's financial institution allows automatic withdrawals,
Shares are purchased by transferring funds from an Investor's checking, bank
money market or NOW account designated by the Investor. At the Investor's op-
tion, the account designated will be debited in the specified amount, and
Shares will be purchased, once a month, on either the first or fifteenth day,
or twice a month, on both days.
The Automatic Investment Program is one means by which an Investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time market
performance, a fixed dollar amount is invested in Shares at predetermined in-
tervals. This may help
17
<PAGE>
Investors 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
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>
If the Fund should hold certain private activity bonds issued after August 7,
1986, shareholders must include, as an item of tax preference, the portion of
dividends paid by the Fund that is attributable to interest on such bonds in
their Federal alternative minimum taxable income for purposes of determining
liability (if any) for the 26% to 28% alternative minimum tax applicable to
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.
CALIFORNIA
If, at the close of each quarter of its taxable year, at least 50% of the
value of the Fund's total assets consists of California Municipal Obligations
and certain Federal obligations, the Fund will be qualified to pay dividends
exempt from California state personal income tax to its shareholders. The div-
idends exempt from that tax will be those that come from interest attributable
to California Municipal Obligations and certain Federal obligations. (Such ex-
emption may not apply, however, to investors who are "substantial users" or
"related persons" with respect to facilities financed by portfolio securities
held by the Fund. Additional tax information regarding "substantial users" and
"related persons" can be found in the Statement of Additional Information.)
With respect to shareholders subject to California state franchise tax or Cal-
ifornia state corporate income tax, dividends may still be taxed as ordinary
or capital gain dividends, despite the personal income tax exemption. Divi-
dends derived from
19
<PAGE>
taxable interest or from capital gains (whether received in cash or in addi-
tional shares) will be subject to California state personal income tax.
Distributions of net investment income may be subject to state or local taxes
other than the California state personal income tax under state or local law,
even though all or a part of those distributions may come from interest on
tax-exempt obligations that, if received directly by shareholders, would be
exempt from such taxes.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations generally
affecting the Fund and its shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Fund should
consult their tax advisers with specific reference to their own tax situa-
tions. Shareholders will be advised at least annually as to the Federal and
California 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 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 AND SUB-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 bank and trust company. U.S. Trust New York
and U.S. Trust Connecticut are wholly-owned subsidiaries of U.S. Trust Corpo-
ration, a registered bank holding company.
The Investment Adviser provides trust and banking services to individuals,
corporations, and institutions both nationally and internationally, including
investment management, estate and trust administration, financial planning,
corporate trust and agency banking, and personal and corporate banking. On De-
cember 31, 1996, the Asset Management Groups of U.S. Trust New York and U.S.
Trust Connecticut had approximately $53 billion in aggregate assets under man-
agement. U.S. Trust New York has its principal offices at 114 W. 47th Street,
New York, New York 10036. U.S. Trust Connecticut has its principal offices at
225 High Ridge Road, East Building, Stamford, CT 06905.
United States Trust Company of California (the "Sub-Adviser") provides sub-
advisory services to the Fund. The Sub-Adviser is a national bank and a whol-
ly-owned subsidiary of U.S. Trust Corporation. The Sub-Adviser has its princi-
pal offices at 515 South Flower Street, Los Angeles, CA 90071.
The Sub-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, Lois G. Ingham, C.F.A., is the person primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Ms. Ingham, a Senior Vice President and Director of Fixed Income Investments,
has been with U.S. Trust Company of California since 1990 and has managed the
Fund since its inception.
For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreement, the Investment Adviser is entitled to be paid a fee, com-
puted daily and paid monthly, at the annual rate of .50% of the average daily
net assets of the Fund. The Sub-
20
<PAGE>
Adviser is entitled to receive from the Investment Adviser an annual fee, com-
puted and paid monthly, at the annual rate of .50% of the average daily net
assets of the Fund.
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 period
from October 1, 1996 (commencement of operations) through March 31, 1997, U.S.
Trust New York received its advisory fee with respect to the Fund. For the
same period, U.S. Trust New York waived advisory fees at the effective annual
rate of .50% of the Fund's average daily net assets, and reimbursed expenses
at the effective annual rate of .37% of the Fund's average daily net assets.
For the same period, U.S. Trust New York paid the Sub-Adviser a sub-advisory
fee at the effective annual rate of 0% of the Fund's average daily net assets,
and the Sub-Adviser waived sub-advisory fees at the effective annual rate of
.50% of the Fund's average daily net assets.
From time to time, the Investment Adviser and the Sub-Adviser may voluntarily
waive all or a portion of the advisory and sub-advisory fees payable by the
Fund and U.S. Trust, respectively, which waivers may be terminated at any
time. See "Management of the Fund--Service Organizations" for additional in-
formation on fee waivers.
ADMINISTRATORS
CGFSC, Federated Administrative Services and U.S. Trust Connecticut serve as
the Fund's administrators (the "Administrators") and provide it with general
administrative and operational assistance. The Administrators also serve as
administrators to the other portfolios of Excelsior Tax-Exempt Fund and all of
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 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 de-
termined 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 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 period from October 1, 1996 (commencement of
operations) through March 31, 1997, CGFSC, Federated Administrative Services
and U.S. Trust New York received an aggregate administration fee at the effec-
tive annual rate of .151% 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
sup-
21
<PAGE>
port services to its Customers beneficially owning Shares. As a consideration
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, the Sub-Adviser, CGFSC and
certain Shareholder Organizations may be subject to such banking laws and reg-
ulations. 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, the Sub-Adviser or other Shareholder
Organizations in connection with purchases of Fund Shares, the Investment Ad-
viser, the Sub-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 re-
sult 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 E represent interests in
the California Tax-Exempt Income 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.
As of July 14, 1997, U.S. Trust and its affiliates held of record substan-
tially all of Excelsior Tax-Exempt
22
<PAGE>
Fund's outstanding shares as agent or custodian for their customers, but did
not own such shares beneficially because they did not have voting or invest-
ment discretion with respect to such shares.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase"), a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the 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.
EXPENSES
Except as noted below, the Investment Adviser, the Sub-Adviser and the Admin-
istrators will bear all expenses in connection with the performance of their
advisory, sub-advisory and administrative services. The Fund will bear the ex-
penses incurred in its operations. Such expenses include taxes; interest;
fees, including the Fund's portion of the fees paid to Excelsior Tax-Exempt
Fund's directors and officers who are not affiliated with the Distributor or
the Administrators; SEC fees; state securities qualification fees; costs of
preparing and printing prospectuses for regulatory purposes and for distribu-
tion to shareholders; advisory and administration fees; charges of the custo-
dian, transfer agent and dividend disbursing agent; certain insurance premi-
ums; outside auditing and legal expenses; cost of independent pricing servic-
es; costs of shareholder reports and meetings; and any extraordinary expenses.
The Fund also pays for any brokerage fees and commissions in connection with
the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the per-
formance and yields of the Fund may be quoted and compared to those of other
mutual funds with similar investment objectives and to other relevant indexes
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
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 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 and California 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
23
<PAGE>
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, rep-
resenting the cumulative change in the value of an investment in the Fund for
the specific period. Both methods of calculating total return assume that div-
idends and capital gain distributions made by a Fund during the period are re-
invested in Fund Shares.
Performance and yields will fluctuate and any quotation of performance and
yield should not be consid- ered as representative of the Fund's future per-
formance. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in the Fund with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance and yield are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any fees charged by Shareholder Organizations with respect
to accounts of 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 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."
24
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) FOR OVERNIGHT DELIVERY: send to:
and mail to:
Excelsior Funds Excelsior Funds
c/o Chase Global Funds Services c/o Chase Global Funds Services Company--
Company Sub-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; subsequent investments must be in the minimum amount of $50. Investments
may be made in excess of these minimums.
REDEMPTIONS:
Shares can be redeemed in any amount and at any time in accordance with pro-
cedures described in the Prospectus. In the case of shares recently purchased
by check, redemption proceeds will not be made available until the transfer
agent is reasonably assured that the check has been collected in accordance
with applicable banking regulations.
Certain legal documents will be required from corporations or other 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).
25
<PAGE>
[LOGO] 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
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
( )
------------------------------ -----------------------------
Address Telephone #
------------------------------ [_] U.S. Citizen [_] Other
City/State/Zip Code (specify)
-----------------------------------------------------------------------------
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 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
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 Title on Bank Account*_________
directors, trustees, officers Name of Bank __________________
and employees will not be Bank A.B.A. Number Account
liable for any loss, Number ________________________
liability, cost or expense Bank Address __________________
for acting upon instructions City/State/Zip Code ___________
believed to be genuine and (attach voided check here)
in accordance with the
procedures described in the A corporation, trust or
then current Prospectus. To partnership must also submit a
the extent that Excelsior "Corporate Resolution" (or
Fund, Excelsior Tax-Exempt "Certificate of Partnership")
Fund and Excelsior indicating the names and
Institutional Trust fail to titles of officers authorized
use reasonable procedures as to act on its behalf.
a basis for their belief, * TITLE ON BANK AND FUND
they or their service ACCOUNT MUST BE IDENTICAL.
contractors may be liable
for instructions that prove
to be fraudulent or
unauthorized.
I/We further acknowledge
that it is my/our
responsibility to read the
Prospectus of any Fund into
which I/we exchange.
[_] I/We do not wish to have
the ability to exercise
telephone redemption and
exchange privileges. I/We
further understand that all
exchange and redemption
requests must be in writing.
SPECIAL PURCHASE AND
REDEMPTION PLANS
I/We have completed and
attached the Supplemental
Application for:
[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan
<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 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
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
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...................................................... 3
INVESTMENT OBJECTIVE AND POLICIES......................................... 4
General.................................................................. 4
Quality of Investments................................................... 4
Types of Municipal Obligations........................................... 5
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION.................... 5
Variable and Floating Rate Instruments................................... 5
When-Issued and Forward Transactions and Stand-By Commitments............ 6
Eligible Taxable Obligations............................................. 6
Illiquid Securities...................................................... 8
Portfolio Turnover....................................................... 8
Risk Factors............................................................. 8
INVESTMENT LIMITATIONS.................................................... 9
PRICING OF SHARES......................................................... 10
HOW TO PURCHASE AND REDEEM SHARES......................................... 11
Distributor.............................................................. 11
Purchase of Shares....................................................... 11
Purchase Procedures...................................................... 12
Redemption Procedures.................................................... 13
Redemption by Mail....................................................... 13
General.................................................................. 14
INVESTOR PROGRAMS......................................................... 15
Exchange Privilege....................................................... 15
Systematic Withdrawal Plan............................................... 17
Automatic Investment Program............................................. 17
DIVIDENDS AND DISTRIBUTIONS............................................... 18
TAXES..................................................................... 18
Federal.................................................................. 18
California............................................................... 19
Miscellaneous............................................................ 20
MANAGEMENT OF THE FUND.................................................... 20
Investment Adviser and Sub-Adviser....................................... 20
Administrators........................................................... 21
Service Organizations.................................................... 22
Banking Laws............................................................. 22
DESCRIPTION OF CAPITAL STOCK.............................................. 22
CUSTODIAN AND TRANSFER AGENT.............................................. 23
EXPENSES.................................................................. 23
PERFORMANCE AND YIELD INFORMATION......................................... 23
MISCELLANEOUS............................................................. 24
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION.................................. 25
</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.
[LOGO] EXCELSIOR
TAX-EXEMPT FUNDS INC.
CALIFORNIA TAX-EXEMPT
INCOME FUND
Prospectus August 1, 1997
<PAGE>
EXCELSIOR FUNDS, INC.
Money Fund
Government Money Fund
Treasury Money Fund
EXCELSIOR TAX-EXEMPT FUNDS, INC.
Tax-Exempt Money Fund
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1997
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectus for the Money Fund, Government Money
Fund and Treasury Money Fund of Excelsior Funds, Inc. ("Excelsior Fund") and the
Tax-Exempt Money Fund of Excelsior Tax-Exempt Funds, Inc. ("Excelsior Tax-Exempt
Fund") dated August 1, 1997 (the "Prospectus"). Much of the information
contained in this Statement of Additional Information expands upon the subjects
discussed in the Prospectus. No investment in shares of the portfolios
described herein ("Shares") should be made without reading the Prospectus. A
copy of the Prospectus may be obtained by writing Excelsior Funds c/o Chase
Global Funds Services Company, 73 Tremont Street, Boston, MA 02108-3913 or by
calling (800) 446-1012.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES.................... 1
Additional Information on Portfolio Instruments.. 1
Additional Investment Limitations................ 6
NET ASSET VALUE AND NET INCOME........................ 9
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION........ 10
INVESTOR PROGRAMS..................................... 12
Systematic Withdrawal Plan....................... 12
Exchange Privilege............................... 13
Other Investor Programs.......................... 14
DESCRIPTION OF CAPITAL STOCK.......................... 14
MANAGEMENT OF THE FUNDS............................... 16
Directors and Officers........................... 16
Investment Advisory and
Administration Agreements...................... 21
Service Organizations............................ 23
Expenses......................................... 25
Custodian and Transfer Agent..................... 25
PORTFOLIO TRANSACTIONS................................ 26
INDEPENDENT AUDITORS.................................. 28
COUNSEL............................................... 29
ADDITIONAL INFORMATION CONCERNING TAXES............... 29
Generally........................................ 29
Tax-Exempt Money Fund............................ 30
YIELD INFORMATION..................................... 31
MISCELLANEOUS......................................... 32
FINANCIAL STATEMENTS.................................. 33
APPENDIX A............................................ A-1
</TABLE>
(i)
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
This Statement of Additional Information contains additional
information with respect to the Money Fund, Government Money Fund and Treasury
Money Fund of Excelsior Fund (collectively, the "Taxable Funds") and the Tax-
Exempt Money Fund of Excelsior Tax-Exempt Fund (the portfolios are referred to
individually as a "Fund" and collectively as the "Funds"; Excelsior Fund and
Excelsior Tax-Exempt Fund are referred to individually as a "Company" and
collectively as the "Companies").
The investment objective of the Money Fund and the Government Money
Fund is to seek as high a level of current income as is consistent with
liquidity and stability of prin cipal. The Money Fund generally invests in
money market instruments; the Government Money Fund generally invests in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and in repurchase agreements collateralized by such
obligations. The investment objective of the Treasury Money Fund is to seek
current income consistent with liquidity and stability of principal. The
Treasury Money Fund invests primarily in direct short-term obligations issued by
the U.S. Treasury and certain agencies or instrumentalities of the U.S.
Government with a view toward providing dividend income that is generally
considered exempt from state and local income taxes. The investment objective
of the Tax-Exempt Money Fund is to seek a moderate level of current interest
income exempt from Federal income taxes consistent with stability of principal.
The Tax-Exempt Money Fund invests substantially all of its assets in high-
quality Municipal Securities (as defined in the Prospectus) and, except during
temporary defensive periods, maintains at least 80% of its assets in tax-exempt
obligations. All Funds invest in instruments that generally have remaining
maturities of not more than 13 months. The following policies supplement the
Funds' investment policies as set forth in the Prospectus.
Additional Information on Portfolio Instruments
- -----------------------------------------------
Variable and Floating Rate Instruments
--------------------------------------
With respect to variable and floating rate instruments described in
the Prospectus, United States Trust Company of New York ("U.S. Trust New York")
and U.S. Trust Company of Connecticut ("U.S. Trust Connecticut" and,
collectively, with U.S. Trust New York, the "Investment Adviser" or "U.S.
Trust") will consider the earning power, cash flows and other liquidity ratios
of the issuers of such instruments and will continuously monitor their financial
ability to meet payment on demand. In determining dollar-weighted average
portfolio maturity and whether a variable or floating rate instrument has a
remaining maturity of 13 months or less, the maturity of each instrument
<PAGE>
will be computed in accordance with guidelines established by the Securities and
Exchange Commission (the "SEC").
Repurchase Agreements
---------------------
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement). Securities subject to
repurchase agreements are held by the Funds' custodian (or sub-custodian) or in
the Federal Reserve/Treasury Money book-entry system. Repurchase agreements are
considered loans by a Fund under the Investment Company Act of 1940 (the "1940
Act").
Securities Lending
------------------
When the Money Fund or Government Money Fund lends its portfolio
securities, it continues to receive interest or dividends on the securities lent
and may simultaneously earn interest on the investment of the cash loan
collateral, which will be invested in readily marketable, high-quality, short-
term obligations. Although voting rights, or rights to consent, attendant to
securities lent pass to the borrower, such loans may be called at any time and
will be called so that the securities may be voted by a Fund if a material event
affecting the investment is to occur.
When-Issued and Forward Transactions
------------------------------------
When a Fund agrees to purchase securities on a "when-issued" or
"forward commitment" basis, the custodian will set aside cash or liquid
portfolio securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to satisfy
a purchase commitment and, in such case, the Fund may be required subsequently
to place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. Because a Fund will set aside cash or liquid assets to
satisfy its purchase commitments in the manner described, the Fund's liquidity
and ability to manage its portfolio might be affected in the event its forward
commitments or commitments to purchase "when-issued" securities ever exceed 25%
of the value of its assets.
A Fund will purchase securities on a "when-issued" or "forward
commitment" basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment
-2-
<PAGE>
strategy, however, a Fund may dispose of or renegotiate a commitment after it is
entered into, and may sell securities it has committed to purchase before those
securities are delivered to the Fund on the settlement date. In these cases,
the Fund may realize a taxable capital gain or loss.
When a Fund engages in "when-issued" or "forward commitment"
transactions, it relies on the other party to consummate the trade. Failure of
such other party to do so may result in the Funds incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a "when-issued" purchase
or a forward commitment to purchase securities and any subsequent fluctuations
in their market value are taken into account when determining the market value
of a Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
Stand-By Commitments
--------------------
The Tax-Exempt Money Fund may acquire "stand-by commit ments" with
respect to Municipal Securities held by it. Under a "stand-by commitment," a
dealer or bank agrees to purchase from the Tax-Exempt Money Fund, at the Fund's
option, specified Municipal Securities at a specified price. The amount payable
to the Fund upon its exercise of a "stand-by commitment" is normally (i) the
Fund's acquisition cost of the Municipal Securities (excluding any accrued
interest which the Fund paid on their acquisition), less any amortized market
premium or plus any amortized market or original issue discount during the
period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period. "Stand-by
commitments" are exercisable by the Tax-Exempt Money Fund at any time before the
maturity of the underlying Municipal Securities, and may be sold, transferred or
assigned by the Fund only with the underlying instruments.
The Tax-Exempt Money Fund expects that "stand-by commitments" will
generally be available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Fund may pay for a
"stand-by commitment" either separately in cash or by paying a higher price for
securities which are acquired subject to the commitment (thus reducing the yield
to maturity otherwise available for the same securities). Where the Tax-Exempt
Money Fund has paid any consideration directly or indirectly for a "stand-by
commitment," its cost will be reflected as unrealized depreciation for the
period during which the commitment was held by the Fund.
-3-
<PAGE>
The Tax-Exempt Money Fund intends to enter into "stand-by commitments"
only with banks and broker/dealers which, in the Investment Adviser's opinion,
present minimal credit risks. In evaluating the creditworthiness of the issuer
of a "stand-by commitment," the Investment Adviser will review periodically the
issuer's assets, liabilities, contingent claims and other relevant financial
information.
Municipal Securities
--------------------
The Tax-Exempt Money Fund invests primarily in Municipal Securities as
defined in the Prospectus. Municipal Securities include debt obligations issued
by governmental entities to obtain funds for various public purposes, including
the construction of a wide range of public facilities, the refunding of
outstanding obligations, the payment of general operating expenses, and the
extension of loans to public institutions and facilities. Private activity
bonds that are issued by or on behalf of public authorities to finance various
privately operated facilities are included within the term "Municipal
Securities" only if the interest paid thereon is exempt from regular Federal
income tax and not treated as a specific tax preference item under the Federal
alternative minimum tax.
The two principal classifications of Municipal Secur ities are
"general obligations" and "revenue" issues, but the Tax-Exempt Money Fund's
portfolio may also include "moral obliga tion" issues, which are normally issued
by special-purpose authorities. There are, of course, variations in the quality
of Municipal Securities, both within a particular classification and between
classifications, and the yields on Municipal Securities depend upon a variety of
factors, including general money market conditions, the financial condition of
the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard
& Poor's Ratings Group ("S&P") described in the Prospectus and Appendix hereto
represent their opinion as to the quality of Municipal Securities. It should be
emphasized that these ratings are general and are not absolute standards of
quality, and Municipal Securities with the same maturity, interest rate, and
rating may have different yields while Municipal Securities of the same maturity
and interest rate with different ratings may have the same yield. Subsequent to
its purchase by the Fund, an issue of Municipal Securities may cease to be
rated, or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Investment Adviser will consider such an event in
determining whether the Tax-Exempt Money Fund should continue to hold the
obligation.
-4-
<PAGE>
The payment of principal and interest on most securi ties purchased by
the Tax-Exempt Money Fund will depend upon the ability of the issuers to meet
their obligations. Each state, the District of Columbia, each of their
political subdivisions, agencies, instrumentalities and authorities, and each
multistate agency of which a state is a member, is a separate "issuer" as that
term is used in this Statement of Additional Information and the Prospectus.
The non-governmental user of facilities financed by private activity bonds is
also considered to be an "issuer." An issuer's obligations under its Municipal
Securities are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by Federal or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. The power or ability of an issuer to
meet its obligations for the payment of interest on and principal of its
Municipal Securities may be materially adversely affected by litigation or other
conditions.
Private activity bonds are or have been issued to obtain funds to
provide, among other things, privately operated housing facilities, pollution
control facilities, convention or trade show facilities, mass transit, airport,
port or parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
Among other instruments, the Tax-Exempt Money Fund may purchase short-
term General Obligation Notes, Tax Anticipation Notes, Bond Anticipation Notes,
Revenue Anticipation Notes, Tax-Exempt Commercial Paper, Construction Loan Notes
and other forms of short-term loans. Such instruments are issued with a short-
term maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, the Fund may invest in long-term
tax-exempt instruments, such as municipal bonds and private activity bonds, to
the extent consistent with the maturity restrictions applicable to it.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the Federal income tax exemption for
interest on Municipal Securities. For example, under the Tax Reform Act of
1986, interest on certain private activity bonds must be included in an
-5-
<PAGE>
investor's Federal alternative minimum taxable income, and corporate investors
must treat all tax-exempt interest as an item of tax preference. Excelsior Tax-
Exempt Fund cannot, of course, predict what legislation may be proposed in the
future regarding the income tax status of interest on Municipal Securities, or
which proposals, if any, might be enacted. Such proposals, while pending or if
enacted, might materially adversely affect the availability of Municipal
Securities for investment by the Tax-Exempt Money Fund and the liquidity and
value of its portfolio. In such an event, Excelsior Tax-Exempt Fund would re-
evaluate the Fund's investment objective and policies and consider possible
changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Secur ities and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither Excelsior
Tax-Exempt Fund nor the Investment Adviser will review the proceedings relating
to the issuance of Municipal Securities or the basis for such opinions.
Miscellaneous
-------------
The Funds may not invest in oil, gas, or mineral leases.
Additional Investment Limitations
- ---------------------------------
In addition to the investment limitations set forth in the
Prospectus, the Funds are subject to the investment limitations enumerated
below, which may be changed with respect to a particular Fund only by a vote of
the holders of a majority of such Fund's outstanding Shares (as defined under
"Miscellaneous" in the Prospectus).
No Fund may:
1. Purchase securities on margin, make short sales of securities, or
maintain a short position;
2. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except insofar as the Taxable Funds might be deemed to
be underwriters upon disposition of certain portfolio securities acquired within
the limitation on purchases of restricted securities; and except to the extent
that purchase by the Tax-Exempt Money Fund of Municipal Securities or other
securities directly from the issuer thereof in accordance with the Fund's
investment objective, policies and limitations may be deemed to be underwriting;
-6-
<PAGE>
3. Purchase or sell real estate, except that each Taxable Fund may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate; and except that the
Tax-Exempt Money Fund may invest in Municipal Securities secured by real estate
or interests therein;
4. Purchase or sell commodities or commodity con tracts, or invest in
oil, gas, or other mineral exploration or development programs;
5. Invest in or sell puts, calls, straddles, spreads, or any
combination thereof; and
6. Issue any senior securities, except insofar as any borrowing in
accordance with a Fund's investment limitations might be considered to be the
issuance of a senior security.
In addition, the Money, Government Money and Treasury Money Funds may
not:
7. Make loans, except that (i) each Fund may purchase or hold debt
securities in accordance with its investment objective and policies, and the
Money Fund and the Government Money Fund may enter into repurchase agreements
with respect to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and (ii) the Money Fund and the Government Money
Fund may lend portfolio securities in an amount not exceeding 30% of their total
assets;
8. Invest in bank obligations having remaining maturities in excess
of one year, except that securities subject to repurchase agreements may bear
longer maturities;
9. Invest in companies for the purpose of exercising management or
control;
10. Invest more than 5% of a Funds's total assets in securities issued
by companies which, together with any pre decessor, have been in continuous
operation for fewer than three years;
11. Purchase foreign securities; except the Money Fund may purchase
certificates of deposit, bankers' acceptances, or other similar obligations
issued by domestic branches of foreign banks and foreign branches of U.S. banks
in an amount not to exceed 20% of its total net assets;
12. Acquire any other investment company or investment company
security, except in connection with a merger,
-7-
<PAGE>
consolidation, reorganization, or acquisition of assets or where otherwise
permitted by the Investment Company Act of 1940;
13. Invest in obligations of foreign branches of financial
institutions or in domestic branches of foreign banks, if immediately after such
purchase (i) more than 5% of the value of a Fund's total assets would be
invested in obligations of any one foreign branch of the financial institution
or domestic branch of a foreign bank; or (ii) more than 20% of its total assets
would be invested in foreign branches of financial institutions or in domestic
branches of foreign banks;
14. Purchase any securities which would cause more than 25% of the
value of a Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
securities issued or guaranteed by the U.S. Government or domestic bank
obligations, and (b) neither all finance companies, as a group, nor all utility
companies, as a group, are considered a single industry for purposes of this
policy; and
15. Knowingly invest more than 10% of the value of a Fund's total
assets in illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, restricted securities, and other securities
for which market quotations are not readily available.
In addition, the Tax-Exempt Money Fund may not:
16. Make loans, except that the Fund may purchase or hold debt
obligations in accordance with its investment objec tive, policies, and
limitations;
17. Invest in industrial revenue bonds where the payment of principal
and interest are the responsibility of a company (including its predecessors)
with less than three years of continuous operation;
18. Knowingly invest more than 10% of the value of its total assets
in securities which may be illiquid in light of legal or contractual
restrictions on resale or the absence of readily available market quotations;
19. Purchase any securities which would cause more than 25% of the
value of its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that there is no limitation with respect to
domestic bank obligations or securities issued or guaranteed by the United
States; any state or territory; any possession of the
-8-
<PAGE>
U.S. Government; the District of Columbia; or any of their authorities,
agencies, instrumentalities, or political subdivisions; and
20. Purchase securities of other investment companies (except as part
of a merger, consolidation or reorganization or purchase of assets approved by
the Fund's shareholders), provided that the Fund may purchase shares of any
registered, open-end investment company, if immediately after any such purchase,
the Fund does not (a) own more than 3% of the outstanding voting stock of any
one investment company, (b) invest more than 5% of the value of its total assets
in the securities of any one investment company, or (c) invest more than 10% of
the value of its total assets in the aggregate in securities of investment
companies.
* * *
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
of a Fund's portfolio securities will not constitute a violation of such
limitation.
For the purpose of Investment Limitation No. 3, the prohibition of
purchases of real estate includes acquisition of limited partnership interests
in partnerships formed with a view toward investing in real estate, but does not
prohibit purchases of shares in real estate investment trusts.
Notwithstanding Investment Limitations Nos. 15 and 18 above, the
Companies intend to limit the Funds' investments in illiquid securities to 10%
of each Fund's net (rather than total) assets.
Notwithstanding the proviso in Investment Limitation No. 19, to the
extent that the Tax-Exempt Money Fund has invested more than 20% of the value of
its assets in taxable securities on a temporary defensive basis, the industry
diversification limitation in Investment Limitation No. 19 shall apply to
taxable securities issued or guaranteed by any state, territory, or possession
of the U.S. Government; the District of Columbia; or any of their authorities,
agencies, instrumentalities, or political subdivisions.
NET ASSET VALUE AND NET INCOME
------------------------------
The Companies use the amortized cost method of valua tion to value
Shares in the Funds. Pursuant to this method, a security is valued at its cost
initially, and thereafter a constant amortization to maturity of any discount or
premium is
-9-
<PAGE>
assumed, regardless of the impact of fluctuating interest rates on the market
value of the security. This method may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund
involved would receive if it sold the security. The market value of portfolio
securities held by the Funds can be expected to vary inversely with changes in
prevailing interest rates.
The Funds invest only in high-quality instruments and maintain a
dollar-weighted average portfolio maturity appropriate to their objective of
maintaining a constant net asset value per Share. The Funds will not purchase
any security deemed to have a remaining maturity of more than 13 months within
the meaning of the 1940 Act or maintain a dollar-weighted average portfolio
maturity which exceeds 90 days. The Companies' Boards of Directors have
established procedures that are intended to stabilize the net asset value per
Share of each Fund for purposes of sales and redemptions at $1.00. These
procedures include the determination, at such intervals as the Boards deem
appropriate, of the extent, if any, to which the net asset value per Share of a
Fund calculated by using available market quotations deviates from $1.00 per
Share. In the event such deviation exceeds one half of one percent, the Boards
of Directors will promptly consider what action, if any, should be initiated.
If the Boards of Directors believe that the extent of any deviation from a
Fund's $1.00 amortized cost price per Share may result in material dilution or
other unfair results to new or existing investors, they will take appropriate
steps to eliminate or reduce, to the extent reasonably practicable, any such
dilution or unfair results. These steps may include selling portfolio
instruments prior to maturity; shortening the average portfolio maturity;
withholding or reducing dividends; redeeming Shares in kind; reducing the number
of the Fund's outstanding Shares without monetary consideration; or utilizing a
net asset value per share determined by using available market quotations.
Net income of each of the Funds for dividend purposes consists of (i)
interest accrued and discount earned on a Fund's assets, less (ii) amortization
of market premium on such assets, accrued expenses directly attributable to the
Fund, and the general expenses or the expenses common to more than one portfolio
of a Company (e.g., administrative, legal, accounting, and directors' fees)
prorated to each portfolio of the Company on the basis of their relative net
assets.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares are continuously offered for sale by Edgewood Services, Inc.
(the "Distributor"), a wholly-owned subsidiary of Federated Investors, and the
Distributor has agreed to use appropriate efforts to solicit all purchase
orders. As described
-10-
<PAGE>
in the Prospectus, Shares may be sold to customers ("Customers") of the
Investment Adviser, its affiliates and correspondent banks, and qualified banks,
savings and loan associations, broker/dealers and other institutions
("Shareholder Organizations") that have entered into servicing agreements with
one of the Companies. Shares are also offered for sale to institutional
investors ("Institutional Investors") and to members of the general public
("Direct Investors", and collectively with Institutional Investors,
"Investors"). Different types of Customer accounts at Shareholder Organizations
may be used to purchase Shares, including eligible agency and trust accounts.
In addition, Shareholder Organizations may automatically "sweep" a Customer's
account not less frequently than weekly and invest amounts in excess of a
minimum balance agreed to by the Shareholder Organization and its Customer in
Shares of the Fund selected by the Customer. Investors purchasing Shares may
include officers, directors, or employees of the particular Shareholder
Organization.
As stated in the Prospectus, no sales charge is imposed by the
Companies on purchases of Shares. In addition, no sales load is charged on the
reinvestment of dividends or distributions or in connection with certain Share
exchanges as described in the Prospectus under "Investor Programs--Exchange
Privilege."
As described in the Prospectus, Direct Investors may redeem Shares by
writing a check. Checks to redeem Shares are drawn on the Companies' accounts
at [The Chase Manhattan Bank ("Chase")]. Direct Investors will be subject to
the same rules and regulations that Chase applies to checking accounts and will
have the same rights and duties with respect to stop-payment orders, "stale"
checks, unauthorized signatures, collection of deposits, alterations and
unauthorized endorsements as bank checking account customers do under the New
York Uniform Commercial Code. When a check is presented to Chase for payment,
Chase, as the shareholder's agent, will cause the Fund from which the redemption
is requested to redeem sufficient Shares in the shareholder's account to cover
the amount of the check.
The Companies may suspend the right of redemption or postpone the date
of payment for Shares for more than 7 days during any period when (a) trading on
the New York Stock Exchange (the "Exchange") is restricted by applicable rules
and regulations of the SEC; (b) the Exchange is closed for other than customary
weekend and holiday closings; (c) the SEC has by order permitted such
suspension; or (d) an emergency exists as determined by the SEC.
In the event that Shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such Shares an amount that is
more or less than his original
-11-
<PAGE>
investment due to changes in the market prices of that Fund's portfolio
securities.
Each Company reserves the right to honor any request for redemption or
repurchase of a Fund's Shares by making payment in whole or in part in
securities chosen by the Company and valued in the same way as they would be
valued for purposes of computing a Fund's net asset value. If payment is made
in securities, a shareholder may incur transaction costs in converting these
securities into cash. Such redemptions in kind will be governed by Rule 18f-1
under the 1940 Act so that a Fund is obligated to redeem its Shares solely in
cash up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder of a Fund.
Under limited circumstances, the Companies may accept securities as
payment for Shares. Securities acquired in this manner will be limited to
securities issued in transactions involving a bona fide reorganization or
---------
statutory merger, or will be limited to other securities (except for municipal
debt securities issued by state political subdivisions or their agencies or
instrumentalities) that: (a) meet the investment objective and policies of any
Fund acquiring such securities; (b) are acquired for investment and not for
resale; (c) are liquid securities that are not restricted as to transfer either
by law or liquidity of market; and (d) have a value that is readily
ascertainable (and not established only by evaluation procedures) as evidenced
by a listing on the American Stock Exchange, New York Stock Exchange or NASDAQ,
or as evidenced by their status as U.S. Government securities, bank certificates
of deposit, banker's acceptances, corporate and other debt securities that are
actively traded, money market securities and other similar securities with a
readily ascertainable value.
INVESTOR PROGRAMS
-----------------
Systematic Withdrawal Plan
- --------------------------
An Investor who owns Shares with a value of $10,000 or more may begin
a Systematic Withdrawal Plan. The withdrawal can be on a monthly, quarterly,
semiannual or annual basis. There are four options for such systematic
withdrawals. The Investor may request:
(1) A fixed-dollar withdrawal;
(2) A fixed-share withdrawal;
(3) A fixed-percentage withdrawal (based on the current value of the
account); or
-12-
<PAGE>
(4) A declining-balance withdrawal.
Prior to participating in a Systematic Withdrawal Plan, the Investor must
deposit any outstanding certificates for Shares with Chase Global Funds Services
Company, the Funds' sub-transfer agent. Under this Plan, dividends and
distributions are automatically reinvested in additional Shares. Amounts paid
to Investors under this Plan should not be considered as income. Withdrawal
payments represent proceeds from the sale of Shares, and there will be a
reduction of the shareholder's equity in the Fund involved if the amount of the
withdrawal payments exceeds the dividends paid on the Shares. This in turn may
result in a complete depletion of the shareholder's investment. An Investor may
not participate in a program of systematic investing in a Fund while at the same
time participating in the Systematic Withdrawal Plan with respect to an account
in that Fund.
Exchange Privilege
- ------------------
Investors and Customers of Shareholder Organizations may exchange
Shares having a value of at least $500 for Shares of any other portfolio of the
Companies or for Trust Shares of Excelsior Institutional Trust. Shares may be
exchanged by wire, telephone or mail and must be made to accounts of identical
registration. There is no exchange fee imposed by the Companies or Excelsior
Institutional Trust. In order to prevent abuse of this privilege to the
disadvantage of other shareholders, the Companies and Excelsior Institutional
Trust reserve the right to limit the number of exchange requests of Investors
and Customers of Shareholder Organizations to no more than six per year. The
Companies may modify or terminate the exchange program at any time upon 60 days'
written notice to shareholders, and may reject any exchange request.
For Federal income tax purposes, exchanges are treated as sales on
which the shareholder will realize a gain or loss, depending upon whether the
value of the Shares to be given up in exchange is more or less than the basis in
such Shares at the time of the exchange. Generally, a shareholder may include
sales loads incurred upon the purchase of Shares in his or her tax basis for
such Shares for the purpose of determining gain or loss on a redemption,
transfer or exchange of such Shares. However, if the shareholder effected an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and was able to reduce the sales load previously applicable
to the new shares (by virtue of the Companies' exchange privilege), the amount
equal to such reduction may not be included in the tax basis of the
shareholder's exchanged Shares but may be included (subject to the limitation)
in the tax basis of the new shares.
-13-
<PAGE>
Other Investor Programs
- -----------------------
As discussed in the Prospectus, Shares of the Funds may be purchased
in connection with the Automatic Investment Program. Shares of the Money,
Government Money and Treasury Money Funds may also be purchased in connection
with certain Retirement Programs.
DESCRIPTION OF CAPITAL STOCK
----------------------------
Excelsior Fund's Charter authorizes its Board of Direc tors to issue
up to 35 billion full and fractional shares of capital stock; and Excelsior Tax-
Exempt Fund's Charter authorizes its Board of Directors to issue up to 14
billion full and fractional shares of capital stock. Both Charters authorize
the respective Boards of Directors to classify or reclassify any unissued shares
of the respective Companies into one or more additional classes or series by
setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. The
Prospectus describes the classes of shares into which the Companies' authorized
capital is currently classified.
Shares have no preemptive rights and only such con version or exchange
rights as the Boards of Directors may grant in their discretion. When issued
for payment as described in the Prospectus, Shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of a Fund,
shareholders of that Fund are entitled to receive the assets available for
distribution belonging to that Fund and a proportionate distribution, based upon
the relative asset values of the portfolios of the Company involved, of any
general assets of that Company not belonging to any particular portfolio of that
Company which are available for distribution. In the event of a liquidation or
dissolution of either Company, shareholders of such Company will be entitled to
the same distribution process.
Shareholders of the Companies are entitled to one vote for each full
share held, and fractional votes for fractional shares held, and will vote in
the aggregate and not by class, except as otherwise required by the 1940 Act or
other applicable law or when the matter to be voted upon affects only the
interests of the shareholders of a particular class. Voting rights are not
cumulative and, accordingly, the holders of more than 50% of a Company's
aggregate outstanding shares may elect all of that Company's directors,
regardless of the votes of other shareholders.
-14-
<PAGE>
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as each Company shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each portfolio affected by the matter. A portfolio is affected by a matter
unless it is clear that the interests of each portfolio in the matter are
substantially identical or that the matter does not affect any interest of the
portfolio. Under the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a portfolio only if approved by a majority of the outstanding
shares of such portfolio. However, the Rule also provides that the ratification
of the appointment of independent public accountants, the approval of principal
underwriting contracts, and the election of directors may be effectively acted
upon by shareholders of each Company voting without regard to class.
The Companies' Charters authorize the Boards of Directors, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding Shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding Shares to be
redeemed at their net asset value; or (c) combine the assets belonging to a Fund
with the assets belonging to another portfolio of the Company involved, if the
Board of Directors reasonably determines that such combination will not have a
material adverse effect on shareholders of any portfolio participating in such
combination, and, in connection therewith, to cause all outstanding shares of
any portfolio to be redeemed at their net asset value or converted into shares
of another class of the Company's capital stock at net asset value. The
exercise of such authority by the Boards of Directors will be subject to the
provisions of the 1940 Act, and the Boards of Directors will not take any action
described in this paragraph unless the proposed action has been disclosed in
writing to the particular Fund's shareholders at least 30 days prior thereto.
Notwithstanding any provision of Maryland law requiring a greater vote
of a Company's Common Stock (or of the Shares of a Fund voting separately as a
class) in connection with any corporate action, unless otherwise provided by law
(for example, by Rule 18f-2, discussed above) or by the Company's Charter, each
Company may take or authorize such action upon the favorable vote
-15-
<PAGE>
of the holders of more than 50% of its outstanding Common Stock voting without
regard to class.
MANAGEMENT OF THE FUNDS
-----------------------
Directors and Officers
- ----------------------
The directors and executive officers of the Companies, their
addresses, ages, principal occupations during the past five years, and other
affiliations are as follows:
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address the Companies Other Affiliations
- ---------------- ------------- ----------------------------
<S> <C> <C>
Frederick S. Wonham/1/ Chairman of the Retired; Director of
238 June Road Board, President Excelsior Fund and Excelsior
Stamford, CT 06903 and Treasurer Tax-Exempt (since 1995);
Age: 66 Trustee of Excelsior Funds and Excelsior Institutional Trust
(since 1995); Vice Chairman of U.S.
Trust Corporation and U.S. Trust
Company of New York (from February 1990
until September
1995); Chairman, U.S. Trust Company of
Connecticut (from
March 1993 to May 1997).
Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior Fund and Excelsior Apt. 10-H
Tax-Exempt (since 1984); Director of UST Master
New York, NY 10021 Variable Series, Inc.
Age: 71 (from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995); Director, Royal Life Insurance
Co. of New York (since 1991).
Rodman L. Drake Director Director, Excelsior Fund
485 Park Avenue and Excelsior Tax-Exempt
New York, NY 10022 Fund (since 1996); Trustee,
Age: 54 Excelsior Institutional
Trust and Excelsior Funds
(since 1994); Director,
Parsons Brinkerhoff, Inc. (engineering
firm) (since 1995); Director, Parsons
Brinkerhoff Energy Services
</TABLE>
- ----------
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
-16-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address the Companies Other Affiliations
- ---------------- ------------- ----------------------------
<S> <C> <C>
Inc. (since 1996); President, Mandrake
Group (investment and consulting firm)
(since 1994); Director, Hyperion Total
Return Fund, Inc. and four other funds
for which Hyperion Capital Management,
Inc. serves as investment adviser
(since 1991); Co-Chairman, KMR Power
Corporation (power plants) (from 1993
to 1996); Director, The Latin American
Growth Fund (since 1993); Member of
Advisory Board, Argentina Private
Equity Fund L.P. (from 1992 to 1996)
and Garantia L.P. (Brazil) (from 1993
to 1996); and Director, Mueller
Industries, Inc. (from 1992 to 1994).
Joseph H. Dugan Director Retired; Director of
913 Franklin Lakes Road Excelsior Fund and
Franklin Lakes, NJ 07417 Excelsior Tax-Exempt (since
Age: 72 1984); Director of UST Master
Variable Series, Inc.
(from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995).
Wolfe J. Frankl Director Retired; Director of
2320 Cumberland Road Excelsior Fund and Excelsior
Charlottesville, VA 22901 Tax-Exempt (since 1986);
Age: 76 Director of UST Master
Variable Series, Inc. (from 1994 to
June 1997); Trustee of Excelsior
Institutional Trust (since 1995);
Director, Deutsche Bank Financial, Inc.
(since 1989); Director, The Harbus
Corporation (since 1951); Trustee, HSBC
Funds Trust and HSBC Mutual Funds Trust
(since 1988).
W. Wallace McDowell, Jr. Director Director, Excelsior Fund
c/o Prospect Capital and Excelsior Tax-Exempt
Corp. Fund (since 1996); Trustee,
43 Arch Street Excelsior Institutional Trust
Greenwich, CT 06830 and Excelsior Funds
Age: 60 (since 1994); Private Investor
(since 1994); Managing Director,
Morgan Lewis Githens & Ahn (from 1991
to 1994); and Director, U.S.
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address the Companies Other Affiliations
- ---------------- ------------- ----------------------------
<S> <C> <C>
Homecare Corporation (since 1992),
Grossmans, Inc. (from 1993 to 1996),
Children's Discovery Centers (since
1984), ITI Technologies, Inc. (since
1992) and Jack Morton Productions
(since 1987).
Jonathan Piel Director Director, Excelsior Fund and
558 E. 87th Street Excelsior Tax-Exempt Fund
New York, NY 10128 (since 1996); Trustee, Excelsior
Age: 58 Institutional Trust and
Excelsior Funds (since 1994);
President, Scientific American, Inc.
(from 1984 to 1986); Vice President and
Editor, Scientific American, Inc. (from
1986 to 1994); Director, Group for The
South Fork, Bridgehampton, New York
(since 1993); and Member, Advisory
Committee, Knight Journalism
Fellowships, Massachusetts Institute of
Technology (since 1984).
Robert A. Robinson Director Director of Excelsior Fund
Church Pension Fund and Excelsior Tax-Exempt
800 Second Avenue (since 1997); Director of UST
New York, NY 10017 Master Variable Series, Inc.
Age: 71 (from 1994 to June 1997);
Trustee of Excelsior Institutional Trust
(since 1995); President Emeritus, The
Church Pension Fund and its affiliated
companies (since 1966); Trustee, H.B.
and F.H. Bugher Foundation and Director
of its wholly owned subsidiaries --
Rosiclear Lead and Flourspar Mining Co.
and The Pigmy Corporation (since 1984);
Director, Morehouse Publishing Co.
(since 1974); Trustee, HSBC Funds Trust
and HSBC Mutual Funds Trust (since
1982); Director, Infinity Funds, Inc.
(since 1995).
Alfred C. Tannachion/1/ Director Retired; Director of Excelsior Fund and
6549 Pine Meadows Drive Excelsior Tax-Exempt
Spring Hill, FL 34606 (since 1985); Chairman
Age: 71 of the Board, President and Treasurer
of UST Master Variable
</TABLE>
- ----------
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
-18-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address the Companies Other Affiliations
- ---------------- ------------- ----------------------------
<S> <C> <C>
Series, Inc. (from 1994 to June 1997);
Trustee of Excelsior Institutional
Trust (since 1995).
W. Bruce McConnel, III Secretary Partner of the law firm of Drinker
Philadelphia National Biddle & Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 54
Gregory Sackos Assistant Second Vice President, Senior
Chase Global Funds Secretary Manager of Blue Sky Compliance
Services Company and Financial Reporting, Chase
73 Tremont Street Global Funds Services Company
Boston, MA 02108-3913 (March 1997 to present); Second
Age: 32 Vice President, Senior Manager of
John M. Corcoran Assistant Vice President, Director of
Chase Global Funds Treasurer Administration, Client Group,
Services Company Chase Global Funds Services
73 Tremont Street Company (since July 1996);
Boston, MA 02108-3913 Second Vice President, Manager
Age: 32 of Administration, Chase Global
Funds Services Company (from
October 1993 to July 1996); Audit
Manager, Ernst & Young LLP (from August
1987 to September 1993).
</TABLE>
Each director receives an annual fee of $9,000 with respect to each
Company plus a per-Company meeting fee of $1,500 for each meeting attended and
is reimbursed for expenses incurred in attending meetings. The Chairman of the
Board is entitled to receive an additional $5,000 per annum with respect to each
Company for services in such capacity. Drinker Biddle & Reath LLP, of which Mr.
McConnel is a partner, receives legal fees as counsel to the Companies. The
employees of Chase Global Funds Services Company do not receive any compensation
from the Companies for acting as officers of the Companies. No person who is
currently an officer, director or employee of the Investment Adviser serves as
an officer, director or employee of the Companies. As of July __, 1997, the
directors and officers of each Company as a group owned beneficially less than
1% of the outstanding Shares of each Fund of the Company, and less than 1%
-19-
<PAGE>
of the outstanding Shares of all Funds of the Company in the aggregate.
The following chart provides certain information about the fees
received by the Companies' directors in the most recently completed fiscal year.
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued as from Excelsior Fund
Aggregate Part of and Fund
Name of Compensation from Fund Complex* Paid
Person/Position each Company Expenses to Directors
- ----------------------------- ----------------- -------- -------------------
<S> <C> <C> <C>
Donald L. Campbell $27,000 None $31,750 (4)**
Director
Rodman L. Drake*** $ 7,500 None $12,250 (4)**
Director
Joseph H. Dugan $30,000 None $35,000 (4)**
Director
Wolfe J. Frankl $30,000 None $35,000 (4)**
Director
W. Wallace McDowell, Jr.*** $ 4,500 None $ 9,250 (4)**
Director
Jonathan Piel*** $ 7,500 None $12,500 (4)**
Director
Robert A. Robinson $30,000 None $35,000 (4)**
Director
Alfred C. Tannachion**** $40,000 None $45,000 (4)**
Director
Frederick S. Wonham**** $30,000 None $35,000 (4)**
Chairman of the Board,
President and Treasurer
</TABLE>
- ---------------------------
/*/ The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt
Fund, UST Master Variable Series, Inc., Excelsior Funds and Excelsior
Institutional Trust.
/**/ Number of investment companies in the Fund Complex for which director
serves as director or trustee.
/***/ Messrs. Drake, McDowell and Piel were elected to the Board of
Excelsior Fund and Excelsior Tax-Exempt Fund on December 9, 1996.
-20-
<PAGE>
/****/ Mr. Tannachion served as Excelsior Fund's Chairman of the Board,
President and Treasurer until February 13, 1997. On that date Mr.
Wonham was elected to serve as Excelsior Fund's Chairman of the Board,
President and Treasurer.
Investment Advisory and Administration Agreements
- -------------------------------------------------
United States Trust Company of New York ("U.S. Trust New York") and
U.S. Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively
with U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as
Investment Adviser to the Funds. In the Investment Advisory Agreements, U.S.
Trust has agreed to provide the services described in the Prospectus. The
Investment Adviser has also agreed to pay all expenses incurred by it in
connection with its activities under the respective agreements other than the
cost of securities, including brokerage commissions, if any, purchased for the
Funds. See "Expenses" in the Prospectus.
Prior to May 16, 1997, U.S. Trust New York served as investment
adviser to the Funds pursuant to advisory agreements substantially similar to
the Investment Advisory Agreements currently in effect for the Funds.
For the fiscal year ended March 31, 1995, Excelsior Fund paid U.S.
Trust New York $1,781,897, $1,665,344 and $674,259 with respect to the Money,
Government Money and Treasury Money Funds, respectively. For the same period,
Excelsior Tax-Exempt Fund paid U.S. Trust New York $1,698,879 with respect to
the Tax-Exempt Money Fund. For the fiscal year ended March 31, 1995, the U.S.
Trust New York waived fees totalling $204,060, $173,321, $45,366 and $236,867
with respect to the Money, Government Money, Treasury Money and Tax-Exempt Money
Funds, respectively.
For the fiscal year ended March 31, 1996, Excelsior Fund paid U.S.
Trust New York $1,291,496, $1,224,338 and $621,988 with respect to the Money,
Government Money and Treasury Money Funds, respectively. For the same period,
Excelsior Tax-Exempt Fund paid U.S. Trust New York $1,745,649 with respect to
the Tax-Exempt Money Fund. For the fiscal year ended March 31, 1996, U.S. Trust
New York waived fees totalling $227,463, $172,140, $46,887 and $353,419 with
respect to the Money, Government Money, Treasury Money and Tax-Exempt Money
Funds, respectively.
For the fiscal year ended March 31, 1997, Excelsior Fund paid U.S.
Trust New York $81,101, $1,136,936 and $828,277 with respect to the Money,
Government Money and Treasury Money Funds, respectively. For the same period,
Excelsior Tax-
-21-
<PAGE>
Exempt Fund paid U.S. Trust New York $1,891,333 with respect to the Tax-Exempt
Money Fund. For the fiscal year ended March 31, 1997, U.S. Trust New York waived
fees totalling $215,132, $183,979, $79,008 and $502,764 with respect to the
Money, Government Money, Treasury Money and Tax-Exempt Money Funds,
respectively.
The Investment Advisory Agreements provide that the Investment Adviser
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Funds in connection with the performance of such agreements,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for advisory services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment Adviser
in the performance of its duties or from reckless disregard by it of its duties
and obligations thereunder. In addition, the Investment Adviser has undertaken
in the Investment Advisory Agreements to maintain its policy and practice of
conducting its Asset Management Group independently of its Banking Group.
Chase Global Funds Services Company ("CGFSC"), Federated
Administrative Services, an affiliate of the Distributor, and U.S. Trust
Connecticut (the "Administrators") serve as the Funds' administrators. Under
the Administration Agreements, the Administrators have agreed to maintain office
facilities for the Funds, furnish the Funds with statistical and research data,
clerical, accounting and bookkeeping services, and certain other services
required by the Funds, and to compute the net asset value, net income, "exempt-
interest dividends," and realized capital gains or losses, if any, of the
respective Funds. The Administrators prepare semiannual reports to the
Securities and Exchange Commission, prepare Federal and state tax returns,
prepare filings with state securities commissions, arrange for and bear the cost
of processing Share purchase and redemption orders, maintain the Funds'
financial accounts and records, and generally assist in the Funds' operations.
Prior to May 16, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York served as the Funds' administrators pursuant to an
administrative agreement substantially similar to the Administration Agreements
currently in effect for the Funds. Prior to August 1, 1995, administrative
services were provided to the Funds by CGFSC and Concord Holding Corporation
(collectively, the "former administrators") under administration agreements
having substantially the same terms as the Administration Agreements currently
in effect.
For the fiscal year ended March 31, 1995, Excelsior Fund paid the
former administrators $1,223,349, $1,131,530 and $369,056 in the aggregate with
respect to the Money Fund,
-22-
<PAGE>
Government Money Fund and Treasury Money Fund, respectively. For the same
period, Excelsior Tax-Exempt Fund paid the former administrators $1,193,896 in
the aggregate with respect to the Tax-Exempt Money Fund. For the fiscal year
ended March 31, 1995, the former administrators waived fees totalling $1,087 and
$351 with respect to the Government Money and Treasury Money Funds,
respectively.
For the period April 1, 1995 through July 31, 1995, Excelsior Fund
paid the former administrators $450,305, $403,443 and $107,685 in the aggregate
with respect to the Money Fund, Government Money Fund and Treasury Money Fund,
respectively. For the same period, Excelsior Tax-Exempt Fund paid the former
administrators $407,281 in the aggregate with respect to the Tax-Exempt Money
Fund. For the period April 1, 1995 through July 31, 1995, the former
administrators waived fees totalling $135 with respect to the Government Money
Fund.
For the period August 1, 1995 through March 31, 1996, Excelsior Fund
paid CGFSC, Federated Administrative Services and U.S. Trust New York $487,151,
$457,681, and $236,672 in the aggregate with respect to the Money Fund,
Government Money Fund and Treasury Money Fund, respectively. For the same
period, Excelsior Tax-Exempt Fund paid CGFSC, Federated Administrative Services
and U.S. Trust New York $889,555 in the aggregate with respect to the Tax-Exempt
Money Fund. For the period August 1, 1995 through March 31, 1996, CGFSC,
Federated Administrative Services and U.S. Trust New York waived fees totalling
$705 with respect to the Government Money Fund.
For the fiscal year ended March 31, 1997, Excelsior Fund paid CGFSC,
Federated Administrative Services and U.S. Trust New York $1,117,782, $1,269,925
and $701,603 in the aggregate with respect to the Money Fund, Government Money
Fund and Treasury Money Fund, respectively. For the same period, Excelsior Tax-
Exempt Fund paid CGFSC, Federated Administrative Services and U.S. Trust New
York $2,362,137 in the aggregate with respect to the Tax-Exempt Money Fund. For
the fiscal year ended March 31, 1997, CGFSC, Federated Administrative Services
and U.S. Trust New York waived fees totalling $8, $961, $0 and $0 with respect
to the Money, Government Money, Treasury Money and Tax-Exempt Money Funds,
respectively.
Service Organizations
- ---------------------
As stated in the Prospectus, the Companies will enter into agreements
with Service Organizations. Such shareholder servicing agreements will require
the Service Organizations to provide shareholder administrative services to
their Customers who beneficially own Shares in consideration for a Fund's
payment (on an annualized basis) of up to .40% of the average daily net
-23-
<PAGE>
assets of the Fund's Shares beneficially owned by Customers of the Service
Organization. Such services with respect to a Fund may include: (a) assisting
Customers in designating and changing dividend options, account designations and
addresses; (b) providing necessary personnel and facilities to establish and
maintain certain shareholder accounts and records, as may reasonably be
requested from time to time by the Companies; (c) assisting in processing
purchases, exchange and redemption transactions; (d) arranging for the wiring of
funds; (e) transmitting and receiving funds in connection with Customer orders
to purchase, exchange or redeem Shares; (f) verifying and guaranteeing Customer
signatures in connection with redemption orders, transfers among and changes in
Customer-designated accounts; (g) providing periodic statements showing a
Customer's account balances and, to the extent practicable, integrating of such
information with information concerning other client transactions otherwise
effected with or through the Service Organization; (h) furnishing on behalf of
the Companies' distributor (either separately or on an integrated basis with
other reports sent to a Customer by the Service Organization) periodic
statements and confirmations of all purchases, exchanges and redemptions of
Shares in a Customer's account required by applicable federal or state law; (i)
transmitting proxy statements, annual reports, updating prospectuses and other
communications from the Companies to Customers; (j) receiving, tabulating and
transmitting to the Companies proxies executed by Customers with respect to
annual and special meetings of shareholders of the Companies; (k) providing
reports (at least monthly, but more frequently if so requested by the Companies'
distributor) containing state-by-state listings of the principal residences of
the beneficial owners of the Shares; and (l) providing or arranging for the
provision of such other related services as the Companies or a Customer may
reasonably request.
The Companies' agreements with Service Organizations are governed by
Administrative Services Plans (the "Plans") adopted by the Companies. Pursuant
to the Plans, each Company's Board of Directors will review, at least quarterly,
a written report of the amounts expended under the Company's agreements with
Service Organizations and the purposes for which the expenditures were made. In
addition, the arrangements with Service Organizations will be approved annually
by a majority of each Company's directors, including a majority of the directors
who are not "interested persons" of the Company as defined in the 1940 Act and
have no direct or indirect financial interest in such arrangements (the
"Disinterested Directors").
Any material amendment to a Company's arrangements with Service
Organizations must be approved by a majority of the Company's Board of Directors
(including a majority of the Disinterested Directors). So long as the
Companies' arrangements
-24-
<PAGE>
with Service Organizations are in effect, the selection and nomination of the
members of the Companies' Boards of Directors who are not "interested persons"
(as defined in the 1940 Act) of the Companies will be committed to the
discretion of such non-interested Directors.
For the fiscal years ended March 31, 1997, 1996 and 1995, payments to
Service Organizations totalled $215,140, $227,463 and $204,060; $184,235,
$172,980 and $174,408; $79,008, $46,887 and $45,717; and $502,764, $353,419 and
$236,867 with respect to the Money, Government Money, Treasury Money and Tax-
Exempt Money Funds, respectively. Of these respective amounts, $215,090,
$227,463 and $203,572; $182,579, $168,064 and $171,257; $79,008, $46,887 and
$44,596; and $502,764, $353,419 and $236,399 were paid to affiliates of U.S.
Trust with respect to the Money, Government Money, Treasury Money and Tax-Exempt
Money Funds, respectively.
Expenses
- --------
Except as otherwise noted, the Investment Adviser and the
Administrators bear all expenses in connection with the performance of their
services. The Funds bear the expenses incurred in their operations. Expenses of
the Funds include taxes; interest; fees (including fees paid to the Companies'
Directors and officers who are not affiliated with the Distributor or the
Administrators); SEC fees; state securities qualification fees, costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to shareholders; advisory, administration and administrative servicing fees,
charges of the custodian, transfer agent, and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; costs of shareholder
reports and meetings; and any extraordinary expenses. The Funds also pay any
brokerage fees and commissions in connection with the purchase of portfolio
securities.
Custodian and Transfer Agent
- ----------------------------
The Chase Manhattan Bank ("Chase") serves as custodian of the Funds'
assets. Under the custodian agreements, Chase has agreed to (i) maintain a
separate account or accounts in the name of the Funds; (ii) make receipts and
disbursements of money on behalf of the Funds; (iii) collect and receive all
income and other payments and distributions on account of the Funds' portfolio
securities; (iv) respond to correspondence from securities brokers and others
relating to its duties; (v) maintain certain financial accounts and records; and
(vi) make periodic reports to the Companies' Boards of Directors concerning the
Funds' operations. Chase may, at its own expense, open and
-25-
<PAGE>
maintain custody accounts with respect to the Funds with other banks or trust
companies, provided that Chase shall remain liable for the performance of all
its custodial duties under the Custodian Agreements, notwithstanding any
delegation.
U.S. Trust New York serves as the Funds' transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust New York has agreed to (i) issue
and redeem Shares; (ii) address and mail all communications by the Funds to
their shareholders, including reports to shareholders, dividend and distribution
notices, and proxy materials for its meetings of shareholders; (iii) respond to
correspondence by shareholders and others relating to its duties; (iv) maintain
shareholder accounts; and (v) make periodic reports to the Companies concerning
each Fund's operations. For its transfer agency, dividend disbursing, and
subaccounting services, U.S. Trust New York is entitled to receive $15.00 per
annum per account and subaccount. In addition, U.S. Trust New York is entitled
to be reimbursed for its out-of-pocket expenses for the cost of forms, postage,
processing purchase and redemption orders, handling of proxies, and other
similar expenses in connection with the above services.
U.S. Trust New York may, at its own expense, delegate its transfer
agency obligations to another transfer agent registered or qualified under
applicable law, provided that U.S. Trust New York shall remain liable for the
performance of all of its transfer agency duties under the Transfer Agency
Agreements, notwithstanding any delegation. Pursuant to this provision in the
agreement, U.S. Trust New York has entered into a sub-transfer agency
arrangement with CGFSC, an affiliate of Chase, with respect to accounts of
shareholders who are not Customers of U.S. Trust New York. For the services
provided by CGFSC, U.S. Trust New York has agreed to pay CGFSC $15.00 per annum
per account or subaccount plus out-of-pocket expenses. CGFSC receives no fee
directly from the Companies for any of its sub-transfer agency services.
PORTFOLIO TRANSACTIONS
----------------------
Subject to the general control of the Companies' Boards of Directors,
the Investment Adviser is responsible
for, makes decisions with respect to, and places orders for all purchases and
sales of all portfolio securities of each of the Funds.
The Funds do not intend to seek profits from short-term trading.
Their annual portfolio turnover will be relatively high, but brokerage
commissions are not normally paid on money market instruments, and portfolio
turnover is not expected to have a material effect on the net income of the
Funds.
-26-
<PAGE>
Securities purchased and sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
With respect to over-the-counter transactions, the Funds, where possible, will
deal directly with the dealers who make a market in the securities involved,
except in those circumstances where better prices and execution are available
elsewhere.
The Investment Advisory Agreements between the Companies and the
Investment Adviser provide that, in executing portfolio transactions and
selecting brokers or dealers, the Investment Adviser will seek to obtain the
best net price and the most favorable execution. The Investment Adviser shall
consider factors it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and whether such broker or dealer is selling
shares of the Companies, and the reasonableness of the commission, if any, for
the specific transaction and on a continuing basis.
In addition, the Investment Advisory Agreements authorize the
Investment Adviser, to the extent permitted by law and subject to the review of
the Companies' Boards of Directors from time to time with respect to the extent
and continuation of the policy, to cause the Funds to pay a broker which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker for effecting the same transaction, provided
that the Investment Adviser determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker, viewed in terms of either that particular transaction
or the overall responsibilities of the Investment Adviser to the accounts as to
which it exercises investment discretion. Such brokerage and research services
might consist of reports and statistics on specific companies or industries,
general summaries of groups of stocks and their comparative earnings, or broad
overviews of the stock market and the economy.
Supplementary research information so received is in addition to and
not in lieu of services required to be performed by the Investment Adviser and
does not reduce the investment advisory fees payable by the Funds. Such
information may be useful to the Investment Adviser in serving the Funds and
other clients and, conversely, supplemental information obtained by the
placement of business of other clients may be useful to the Investment Adviser
in carrying out its obligations to the Funds.
-27-
<PAGE>
Portfolio securities will not be purchased from or sold to the
Investment Adviser, the Distributor, or any affiliated person of either of them
(as such term is defined in the 1940 Act) acting as principal, except to the
extent permitted by the Securities and Exchange Commission.
Investment decisions for the Funds are made indepen dently from those
for other investment companies, common trust funds and other types of funds
managed by the Investment Adviser. Such other investment companies and funds
may also invest in the same securities as the Funds. When a purchase or sale of
the same security is made at substantially the same time on behalf of the Funds
and another investment company or common trust fund, the transaction will be
averaged as to price, and available investments allocated as to amount, in a
manner which the Investment Adviser believes to be equitable to the Funds and
such other investment company or common trust fund. In some instances, this
investment procedure may adversely affect the price paid or received by the
Funds or the size of the position obtained by the Funds. To the extent
permitted by law, the Investment Adviser may aggregate the securities to be sold
or purchased for the Funds with those to be sold or purchased for other
investment companies or common trust funds in order to obtain best execution.
The Companies are required to identify any securities of their regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their
parents held by the Companies as of the close of their most recent fiscal year.
As of March 31, 1997, the following Funds held the following securities of
Excelsior Fund's or Excelsior Tax-Exempt Fund's regular brokers or dealers or
their parents: (a) the Money Fund held the following securities: repurchase
agreement with Dillon Read & Co., Inc. in the principal amount of $13,804,749,
and commercial paper of Bear Stearns Co., Inc. in the principal amount of
$15,000,000; and (b) the Government Money Fund held the following security:
repurchase agreement with Dillon Read & Co., Inc. in the principal amount of
$14,127,127. Dillon Read & Co., Inc. and Bear Stearns Co., Inc. are considered
to be regular brokers or dealers of Excelsior Fund. As of March 31, 1997,
Excelsior Tax-Exempt Fund held no securities of Excelsior Tax-Exempt Fund's
regular brokers or dealers or their parents.
INDEPENDENT AUDITORS
--------------------
Ernst & Young LLP, independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of the Companies. The Funds' Financial Highlights
included in the Prospectus and the financial statements for the period ended
March 31, 1997 incorporated by reference in this Statement of Additional
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<PAGE>
Information have been audited by Ernst & Young LLP for the periods included in
their reports thereon which appear therein.
COUNSEL
-------
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of the
Companies, is a partner), located at 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107, is counsel to the Companies, and will pass upon the legality
of the Shares offered by the Prospectus.
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
Generally
- ---------
The following supplements the tax information contained in the
Prospectus.
Each of the Funds is treated as a separate corporate entity under the
Internal Revenue Code of 1986, as amended (the "Code"), and intends to qualify
as a regulated investment company. If, for any reason, a Fund does not qualify
for a taxable year for the special Federal tax treatment afforded regulated
investment companies, such Fund would be subject to Federal tax on all of its
taxable income at regular corporate rates, without any deduction for
distributions to shareholders. In such event, dividend distributions (whether
or not derived from interest on Municipal Securities) would be taxable as
ordinary income to shareholders to the extent of the Fund's current and
accumulated earnings and profits and would be eligible for the dividends
received deduction in the case of corporate shareholders.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). The Funds intend to make sufficient
distributions or deemed distributions of their ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends paid to shareholders who have failed
to provide a correct tax identification number in the manner required, who are
subject to withholding by the Internal Revenue Service for failure properly to
include on their return payments of taxable interest or dividends, or who have
failed to certify to the Fund when
-29-
<PAGE>
required to do so either that they are not subject to backup withholding or that
they are "exempt recipients."
Tax-Exempt Money Fund
- ---------------------
The Tax-Exempt Money Fund is not intended to constitute a balanced
investment program and is not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Tax-Exempt Money Fund would not be suitable for tax-
exempt institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and individual retirement accounts
because such plans and accounts are generally tax-exempt and, therefore, not
only would not gain any additional benefit from the Tax-Exempt Money Fund
dividends being tax-exempt, but such dividends would be ultimately taxable to
the beneficiaries when distributed to them. In addition, the Tax-Exempt Money
Fund may not be an appropriate investment for entities which are "substantial
users" of facilities financed by private activity bonds or "related persons"
thereof. "Substantial user" is defined under the Treasury Regulations to include
a non-exempt person who regularly uses a part of such facilities in his trade or
business and whose gross revenues derived with respect to the facilities
financed by the issuance of bonds are more than 5% of the total revenues derived
by all users of such facilities, who occupies more than 5% of the usable area of
such facilities or for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include certain
related natural persons, affiliated corporations, a partnership and its partners
and an S Corporation and its shareholders.
In order for the Tax-Exempt Money Fund to pay exempt-interest
dividends for any taxable year, at least 50% of the aggregate value of the
Fund's portfolio must consist of exempt-interest obligations at the close of
each quarter of its taxable year. Within 60 days after the close of the taxable
year, the Tax-Exempt Money Fund will notify its shareholders of the portion of
the dividends paid by the Fund which constitutes an exempt-interest dividend
with respect to such taxable year. However, the aggregate amount of dividends
so designated by the Tax-Exempt Money Fund cannot exceed the excess of the
amount of interest exempt from tax under Section 103 of the Code received by the
Tax-Exempt Money Fund during the taxable year over any amounts disallowed as
deductions under Sections 265 and 171(a)(2) of the Code. The percentage of
total dividends paid by the Tax-Exempt Money Fund with respect to any taxable
year which qualifies as exempt-interest dividends will be the same for all
shareholders receiving dividends from the Tax-Exempt Money Fund for such year.
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<PAGE>
Interest on indebtedness incurred by a shareholder to purchase or
carry the Tax-Exempt Money Fund's Shares generally is not deductible for Federal
income tax purposes.
Excelsior Tax-Exempt Fund intends to distribute to shareholders of the
Tax-Exempt Money Fund any investment company taxable income earned by the Tax-
Exempt Money Fund for each taxable year. In general, the Tax-Exempt Money
Fund's investment company taxable income will be its taxable income (including
taxable interest and short-term capital gains) subject to certain adjustments
and excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year. Such distributions
will be taxable to the shareholders as ordinary income (whether paid in cash or
additional Shares).
* * *
The foregoing discussion is based on Federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action. Shareholders are advised to consult their tax advisers concerning their
specific situations and the application of state and local taxes.
YIELD INFORMATION
-----------------
The standardized annualized seven-day yields for the Shares of the
Funds are computed separately by determining the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account in the Fund
involved, having a balance of one Share at the beginning of the period, dividing
the net change in account value by the value of the account at the beginning of
the period to obtain the base period return, and multiplying the base period
return by (365/7). The net change in the value of an account in each of the
Funds includes the value of additional Shares purchased with dividends from the
original Share and dividends declared on both the original Share and any such
additional Shares, net of all fees that are charged to all shareholder accounts
and to the particular series of Shares in proportion to the length of the base
period, other than nonrecurring account or any sales charges. For any account
fees that vary with the size of the account, the amount of fees charged is
computed with respect to the Fund's mean (or median) account size. The capital
changes to be excluded from the calculation of the net change in account value
are realized gains and losses from the sale of securities and unrealized
appreciation and depreciation. In addition, each Fund may use effective
compound yield quotations for its Shares computed by adding 1 to the
unannualized base period return (calculated as
-31-
<PAGE>
described above), raising the sums to a power equal to 365 divided by 7, and
subtracting 1 from the results.
From time to time, in advertisements, sales literature or in reports
to shareholders, the yields of each Money Market Fund's Shares may be quoted and
compared to those of other mutual funds with similar investment objectives and
to stock or other relevant indices. For example, the yield of such a Fund's
Shares may be compared to the Donoghue's Money Fund average, which is an average
compiled by Donoghue's MONEY FUND REPORT of Holliston, MA 01746, a widely
recognized independent publication that monitors the performance of money market
funds, or to the data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service that monitors the performance of mutual funds.
Advertisements, sales literature or reports to shareholders may from time to
time also include a discussion and analysis of each Fund's performance,
including without limitation, those factors, strategies and techniques that,
together with market conditions and events, materially affected each Fund's
performance.
The current yields for the Funds' Shares may be obtained by calling
(800) 446-1012. For the seven-day period ended March 31, 1997, the annualized
yields for Shares of the Money Fund, Government Money Fund, Treasury Money Fund
and Tax-Exempt Money Fund were 5.26%, 5.24%, 4.70% and 2.99%, respectively, and
the effective yields for Shares of such respective Funds were 5.39%, 5.38%,
4.81% and 3.03%.
The "tax-equivalent" yield of the Tax-Exempt Money Fund is computed
by: (a) dividing the portion of the yield (calculated as above) that is exempt
from Federal income tax by one minus a stated Federal income tax rate and (b)
adding that figure to that portion, if any of the yield that is not exempt from
Federal income tax. Tax-equivalent yields assume the payment of Federal income
taxes at a rate of 31%.
Based on the foregoing calculation, the annualized tax-equivalent
yield of the Tax-Exempt Money Fund for the seven-day period ended March 31, 1997
was ____%.
MISCELLANEOUS
-------------
As used in the Prospectus, "assets belonging to a Fund" means the
consideration received upon the issuance of Shares in the Fund, together with
all income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of the Company involved not belonging to a particular portfolio of that
Company. In determining the net
-32-
<PAGE>
asset value of a Fund's Shares, assets belonging to the Fund are charged with
the direct liabilities in respect of that Fund and with a share of the general
liabilities of the Company involved which are normally allocated in proportion
to the relative asset values of the Company's portfolios at the time of
allocation. Subject to the provisions of the Companies' Charters,
determinations by the Boards of Directors as to the direct and allocable
liabilities, and the allocable portion of any general assets with respect to a
particular Fund, are conclusive.
As of July __, 1997, U.S. Trust and is 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.
As of July __, 1997, the name, address and percentage ownership of
each person, in addition to U.S. Trust, that beneficially owned 5% or more of
the outstanding shares of a Fund were as follows: ____________________.
FINANCIAL STATEMENTS
--------------------
The audited financial statements and notes thereto in the Companies'
Annual Reports to Shareholders for the fiscal year ended March 31, 1997 (the
"1997 Annual Reports") for the fixed income and tax-exempt fixed income
portfolios are incorporated in this Statement of Additional Information by
reference. No other parts of the 1997 Annual Reports are incorporated by
reference herein. The financial statements included in the 1997 Annual Reports
for the Money, Government Money, Treasury Money and Tax-Exempt Money Funds have
been audited by the Companies' independent auditors, Ernst & Young LLP, whose
reports thereon also appear in the 1997 Annual Reports and are incorporated
herein by reference. Such financial statements have been incorporated herein in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing. Additional copies of the 1997 Annual Reports may be
obtained at no charge by telephoning CGFSC at the telephone number appearing on
the front page of this Statement of Additional Information.
-33-
<PAGE>
APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
"B" - Issues are regarded as having only a speculative capacity for
timely payment.
"C" - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
"D" - Issues are in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuers or related supporting institutions have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well established access to a
range of financial markets and assured sources of alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuers or related supporting institutions have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is
maintained.
"Prime-3" - Issuers or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one
A-3
<PAGE>
year or less which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations which posses a particularly strong credit feature
are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a good capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which
are currently in default.
A-4
<PAGE>
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
A-5
<PAGE>
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are
A-6
<PAGE>
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be revised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.
A-7
<PAGE>
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong
A-8
<PAGE>
as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are
not significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "BBB" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of
A-9
<PAGE>
principal and interest is adequate, although adverse changes in business,
economic or financial conditions are more likely to lead to increased investment
risk than for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating below
"AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of
A-10
<PAGE>
principal and interest. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
A-11
<PAGE>
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
EXCELSIOR FUNDS, INC.
Short-Term Government Securities Fund
Intermediate-Term Managed Income Fund
Managed Income Fund
EXCELSIOR TAX-EXEMPT FUNDS, INC.
Short-Term Tax-Exempt Securities Fund
Intermediate-Term Tax-Exempt Fund
Long-Term Tax-Exempt Fund
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1997
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectuses for the Short-Term Government
Securities Fund, Intermediate-Term Managed Income Fund and Managed Income Fund
of Excelsior Funds, Inc. ("Excelsior Fund") and Short-Term Tax-Exempt Securities
Fund, Intermediate-Term Tax-Exempt Fund and Long-Term Tax-Exempt Fund of
Excelsior Tax-Exempt Funds, Inc. ("Excelsior Tax-Exempt Fund") dated August 1,
1997, respectively (the "Fixed-Income Funds Prospectus" and the "Tax-Exempt
Funds Prospectus", respectively; together, the "Prospectuses"). Much of the
information contained in this Statement of Additional Information expands upon
the subjects discussed in the Prospectuses. No investment in shares of the
portfolios described herein ("Shares") should be made without reading the
Prospectuses. A copy of each Prospectus may be obtained by writing Excelsior
Funds c/o Chase Global Funds Services Company, 73 Tremont Street, Boston, MA
02108-3913 or by calling (800) 446-1012.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
INVESTMENT OBJECTIVES AND POLICIES...................... 1
Additional Information on Portfolio Instruments.... 1
Additional Investment Limitations.................. 8
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.......... 11
INVESTOR PROGRAMS....................................... 14
Systematic Withdrawal Plan......................... 14
Exchange Privilege................................. 14
Other Investor Programs............................ 15
DESCRIPTION OF CAPITAL STOCK............................ 15
MANAGEMENT OF THE FUNDS................................. 17
Directors and Officers............................. 17
Investment Advisory and Administration Agreements.. 23
Service Organizations.............................. 26
Expenses........................................... 27
Custodian and Transfer Agent....................... 27
PORTFOLIO TRANSACTIONS.................................. 28
INDEPENDENT AUDITORS.................................... 31
COUNSEL................................................. 31
ADDITIONAL INFORMATION CONCERNING TAXES................. 31
Generally.......................................... 31
Tax-Exempt Funds................................... 32
Taxation of Certain Financial Instruments.......... 33
PERFORMANCE AND YIELD INFORMATION....................... 35
Yields and Performance............................. 35
MISCELLANEOUS........................................... 39
FINANCIAL STATEMENTS.................................... 40
APPENDIX A A-1
</TABLE>
i
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
This Statement of Additional Information contains additional
information with respect to the Short-Term Tax-Exempt Securities Fund,
Intermediate-Term Tax-Exempt Fund and Long-Term Tax-Exempt Fund (collectively,
the "Tax-Exempt Funds") of Excelsior Tax-Exempt Fund and the Short-Term
Government Securities Fund, Intermediate-Term Managed Income Fund and Managed
Income Fund of Excelsior Fund (collectively, the "Fixed-Income Funds"). The
portfolios are referred to individually as a "Fund" and collectively as the
"Funds"; Excelsior Tax-Exempt Fund and Excelsior Fund are referred to
individually as a "Company" and collectively as the "Companies".
For ease of reference, the various Funds are referred to as follows:
Short-Term Tax-Exempt Securities Fund as "Short-Term Tax-Exempt Fund";
Intermediate-Term Tax-Exempt Fund as "IT Tax-Exempt Fund"; Long-Term Tax-Exempt
Fund as "LT Tax-Exempt Fund", Short-Term Government Securities Fund as "ST
Government Fund", and Intermediate-Term Managed Income Fund as "IT Income Fund".
The following policies and disclosures supplement the Funds'
investment objectives and policies as set forth in the Prospectuses.
Additional Information on Portfolio Instruments
- -----------------------------------------------
Municipal Obligations
---------------------
The Tax-Exempt Funds invest substantially all of their assets in
Municipal Obligations as defined in the Prospectus. Municipal Obligations
include debt obligations issued by governmental entities to obtain funds for
various public purposes, including the construction of a wide range of public
facilities, the refunding of outstanding obligations, the payment of general
operating expenses, and the extension of loans to public institutions and
facilities. Private activity bonds that are issued by or on behalf of public
authorities to finance various privately operated facilities are included within
the term "Municipal Obligations" only if the interest paid thereon is exempt
from regular Federal income tax and not treated as a specific tax preference
item under the Federal alternative minimum tax.
The two principal classifications of Municipal Obligations are
"general obligation" and "revenue" issues, but the Tax-Exempt Funds' portfolios
may include "moral obligation" issues, which are normally issued by special-
purpose authorities. There are, of course, variations in the quality of
Municipal Obligations, both within a particular classification and between
<PAGE>
classifications, and the yields on Municipal Obligations depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard
& Poor's Ratings Group ("S&P") described in the Prospectus and Appendix A hereto
represent their opinion as to the quality of Municipal Obligations. It should
be emphasized that these ratings are general and are not absolute standards of
quality, and Municipal Obligations with the same maturity, interest rate, and
rating may have different yields while Municipal Obligations of the same
maturity and interest rate with different ratings may have the same yield.
Subsequent to its purchase by a Fund, an issue of Municipal Obligations may
cease to be rated, or its rating may be reduced below the minimum rating
required for purchase by that Fund. United States Trust Company of New York
("U.S. Trust New York") and U.S. Trust Company of Connecticut ("U.S. Trust
Connecticut" and, collectively, with U.S. Trust New York, the "Investment
Adviser" or "U.S. Trust"), will consider such an event in determining whether a
Fund should continue to hold the obligation.
The payment of principal and interest on most securities purchased by
the Tax-Exempt Funds will depend upon the ability of the issuers to meet their
obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities, and each multistate
agency of which a state is a member, is a separate "issuer" as that term is used
in this Statement of Additional Information and the Prospectus. The non-
governmental user of facilities financed by private activity bonds is also
considered to be an "issuer." An issuer's obligations under its Municipal
Obligations are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by Federal or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. The power or ability of an issuer to
meet its obligations for the payment of interest on and principal of its
Municipal Obligations may be materially adversely affected by litigation or
other conditions.
Private activity bonds are or have been issued to obtain funds to
provide, among other things, privately operated housing facilities, pollution
control facilities, convention or trade show facilities, mass transit, airport,
port or parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial
-2-
<PAGE>
facilities. State and local governments are authorized in most states to issue
private activity bonds for such purposes in order to encourage corporations to
locate within their communities. The principal and interest on these
obligations may be payable from the general revenues of the users of such
facilities.
Among other instruments, the Tax-Exempt Funds may purchase short-term
General Obligation Notes, Tax Anticipation Notes, Bond Anticipation Notes,
Revenue Anticipation Notes, Tax-Exempt Commercial Paper, Construction Loan Notes
and other forms of short-term loans. Such instruments are issued with a short-
term maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, each Fund may invest in long-term
tax-exempt instruments, such as municipal bonds and private activity bonds, to
the extent consistent with the maturity restrictions applicable to it.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the Federal income tax exemption for
interest on Municipal Obligations. For example, under the Tax Reform Act of
1986, as amended, interest on certain private activity bonds must be included in
an investor's alternative minimum taxable income, and corporate investors must
treat all tax-exempt interest as an item of tax preference. Excelsior Tax-
Exempt Fund cannot, of course, predict what legislation may be proposed in the
future regarding the income tax status of interest on Municipal Obligations, or
which proposals, if any, might be enacted. Such proposals, while pending or if
enacted, might materially adversely affect the availability of Municipal
Obligations for investment by the Tax-Exempt Funds and the liquidity and value
of their portfolios. In such an event, Excelsior Tax-Exempt Fund would
reevaluate the Funds' investment objectives and policies and consider possible
changes in their structure or possible dissolution.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither Excelsior
Tax-Exempt Fund nor the Investment Adviser will review the proceedings relating
to the issuance of Municipal Obligations or the basis for such opinions.
The IT Income and Managed Income Funds may, when deemed appropriate by
the Investment Adviser in light of the Funds' investment objective, also invest
in Municipal Obligations. Although yields on municipal obligations can
generally be expected under normal market conditions to be lower than yields on
corporate and U.S. Government obligations, from time to time municipal
securities have outperformed, on a total return basis, comparable corporate and
Federal debt obligations as a result of prevailing economic, regulatory or other
circumstances.
-3-
<PAGE>
Dividends paid by the IT Income and Managed Income Funds that are derived from
interest on municipal securities would be taxable to the Funds' shareholders for
Federal income tax purposes.
Insured Municipal Obligations
-----------------------------
The Tax-Exempt Funds may purchase Municipal Obligations which are
insured as to timely payment of principal and interest at the time of purchase.
The insurance policies will usually be obtained by the issuer of the bond at the
time of its original issuance. Bonds of this type will be acquired only if at
the time of purchase they satisfy quality requirements generally applicable to
Municipal Obligations as described in the Prospectus. Although insurance
coverage for the Municipal Obligations held by the Tax-Exempt Funds reduces
credit risk by insuring that the Funds will receive timely payment of principal
and interest, it does not protect against market fluctuations caused by changes
in interest rates and other factors. Each Tax-Exempt Fund may invest more than
25% of its net assets in Municipal Obligations covered by insurance policies.
Repurchase Agreements
---------------------
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement). Securities subject to
repurchase agreements are held by the Funds' custodian (or sub-custodian) or in
the Federal Reserve/ Treasury book-entry system. Repurchase agreements are
considered loans by a Fund under the Investment Company Act of 1940 (the "1940
Act").
Securities Lending
------------------
When the ST Government Fund, IT Income Fund and Managed Income Fund
lend their portfolio securities, they continue to receive interest or dividends
on the securities lent and may simultaneously earn interest on the investment of
the cash loan collateral, which will be invested in readily marketable, high-
quality, short-term obligations. Although voting rights, or rights to consent,
attendant to securities lent pass to the borrower, such loans may be called at
any time and will be called so that the securities may be voted by the pertinent
Fund if a material event affecting the investment is to occur.
Government Obligations
----------------------
Examples of the types of U.S. Government obligations that may be held
by the Funds include, in addition to U.S. Treasury Bills, the obligations of
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the
Federal
-4-
<PAGE>
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks and Maritime Administration.
When-Issued and Forward Transactions
------------------------------------
When a Fund agrees to purchase securities on a "when-issued" or
forward commitment basis, the custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment and, in such case, the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. Because a Fund will set aside cash or liquid assets to
satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be affected in the event its forward
commitments or commitments to purchase "when-issued" securities ever exceeded
25% of the value of its assets.
A Fund will purchase securities on a "when-issued" or forward
commitment basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, a Fund may dispose
of or renegotiate a commitment after it is entered into, and may sell securities
it has committed to purchase before those securities are delivered to the Fund
on the settlement date. In these cases, the Fund may realize a taxable capital
gain or loss.
When a Fund engages in "when-issued" or forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such other party to do so may result in the Fund incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a "when-issued" purchase
or a forward commitment to purchase securities and any subsequent fluctuations
in their market value are taken into account when determining the market value
of a Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
-5-
<PAGE>
Stand-By Commitments
--------------------
The Managed Income and IT Income Funds and the Tax-Exempt Funds may
acquire "stand-by commitments" with respect to Municipal Obligations held by
them. Under a "stand-by commitment," a dealer or bank agrees to purchase from a
Fund, at the Fund's option, specified Municipal Obligations at a specified
price. The amount payable to a Fund upon its exercise of a "stand-by
commitment" is normally (i) the Fund's acquisition cost of the Municipal
Obligations (excluding any accrued interest which the Fund paid on their
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Fund owned the securities, plus
(ii) all interest accrued on the securities since the last interest payment date
during that period. "Stand-by commitments" are exercisable by a Fund at any
time before the maturity of the underlying Municipal Obligations, and may be
sold, transferred or assigned by the Fund only with the underlying instruments.
The Managed Income and IT Income Funds and the Tax-Exempt Funds expect
that "stand-by commitments" will generally be available without the payment of
any direct or indirect consideration. However, if necessary or advisable, a
Fund may pay for a "stand-by commitment" either separately in cash or by paying
a higher price for securities which are acquired subject to the commitment (thus
reducing the yield to maturity otherwise available for the same securities).
Where a Fund has paid any consideration directly or indirectly for a "stand-by
commitment," its cost will be reflected as unrealized depreciation for the
period during which the commitment was held by the Fund.
The Managed Income and IT Income Funds and the Tax-Exempt Funds intend
to enter into "stand-by commitments" only with banks and broker/dealers which,
in the Investment Adviser's opinion, present minimal credit risks. In evaluating
the creditworthiness of the issuer of a "stand-by commitment," the Investment
Adviser will review periodically the issuer's assets, liabilities, contingent
claims and other relevant financial information.
Commercial Paper
----------------
Investments by the Funds in commercial paper will consist of issues
that are rated "A-2" or better by S&P or "Prime-2" or better by Moody's. In
addition, each Fund may acquire unrated commercial paper that is determined by
the Investment Adviser at the time of purchase to be of comparable quality to
rated instruments that may be acquired by the particular Fund. Each Fund will
generally limit its investments in such unrated commercial paper to 5% of its
total assets.
-6-
<PAGE>
Futures Contracts
-----------------
Each Fund may invest in futures contracts (interest rate futures
contracts or municipal bond index futures contracts, as applicable). Futures
contracts will not be entered into for speculative purposes, but to hedge risks
associated with a Fund's securities investments. Positions in futures contracts
may be closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may
not be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, a Fund may be
required to make delivery of the instruments underlying futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on a Fund's ability to effectively hedge.
Successful use of futures by a Fund is also subject to the Investment
Adviser's ability to correctly predict movements in the direction of the market.
For example, if a Fund has hedged against the possibility of a decline in the
market adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value of
its securities which it has hedged because it will have approximately equal
offsetting losses in its futures positions. In addition, in some situations, if
a Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. A Fund may
have to sell securities at a time when it may be disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may
-7-
<PAGE>
result in losses in excess of the amount invested in the contract.
Utilization of futures transactions by a Fund involves the risk of
loss by a Fund of margin deposits in the event of bankruptcy of a broker with
whom the Fund has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Additional Investment Limitations
- ---------------------------------
In addition to the investment limitations disclosed in the Prospectus,
the Funds are subject to the investment limitations enumerated below.
Fundamental investment limitations may be changed with respect to a Fund only by
a vote of the holders of a majority of such Fund's outstanding Shares (as
defined under "Miscellaneous" in the Prospectuses). However, investment
limitations which are "operating policies" with respect to a Fund may be changed
by Excelsior Fund's or Excelsior Tax-Exempt Fund's Board of Directors upon
reasonable notice to investors.
The following investment limitations are fundamental with respect to
each Fund. No Fund may:
1. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except to the extent that the purchase of Municipal
Obligations or other securities directly from the issuer thereof in accordance
with the Tax-
-8-
<PAGE>
Exempt Funds' investment objectives, policies, and limitations may be deemed to
be underwriting; and except insofar as the Managed Income Fund might be deemed
to be an underwriter upon disposition of certain portfolio securities acquired
within the limitation on purchases of restricted securities;
2. Purchase or sell real estate, except that each Tax-Exempt Fund may
invest in Municipal Obligations secured by real estate or interests therein, and
the Managed Income and Intermediate-Term Managed Income Funds may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate; and
3. Issue any senior securities, except insofar as any borrowing by
each Fund in accordance with its investment limitations might be considered to
be the issuance of a senior security; provided that each Fund may enter into
futures contracts and futures options.
The following investment limitations are fundamental with respect to
the IT Tax-Exempt, LT Tax-Exempt and Managed Income Funds, but are operating
policies with respect to the Short-Term Tax-Exempt, ST Government and IT Income
Funds. The Funds may not:
4. Purchase securities on margin, make short sales of securities, or
maintain a short position; provided that each Fund may enter into futures
contracts and futures options; and
5. Write or sell puts, calls, straddles, spreads, or combinations
thereof; provided that each Fund may enter into futures contracts and futures
options.
The following investment limitation is fundamental with respect to
each Tax-Exempt Fund. A Tax-Exempt Fund may not:
6. Make loans, except that each Tax-Exempt Fund may purchase or hold
debt obligations in accordance with its investment objective, policies, and
limitations.
The following investment limitations are fundamental with respect to
the IT Tax-Exempt and LT Tax-Exempt Funds, but are operating policies with
respect to the Short-Term Tax-Exempt Fund. A Tax-Exempt Fund may not:
7. Invest in industrial revenue bonds where the payment of principal
and interest are the responsibility of a company (including its predecessors)
with less than three years of continuous operation; and
8. Purchase securities of other investment companies (except as part
of a merger, consolidation or reorganization or
-9-
<PAGE>
purchase of assets approved by the Fund's shareholders), provided that a Fund
may purchase shares of any registered, open-end investment company, if
immediately after any such purchase, the Fund does not (a) own more than 3% of
the outstanding voting stock of any one investment company, (b) invest more than
5% of the value of its total assets in the securities of any one investment
company, or (c) invest more than 10% of the value of its total assets in the
aggregate in securities of investment companies.
The following investment limitations are fundamental with respect to
the Managed Income Fund, but are operating policies with respect to the IT
Income and ST Government Funds.
A Fixed-Income Fund may not:
9. Invest in companies for the purpose of exercising management or
control;
10. Invest more than 5% of its total assets in securities issued by
companies which, together with any predecessor, have been in continuous
operation for fewer than three years;
11. Purchase foreign securities; provided that subject to the limit
described below, the IT Income and Managed Income Funds may purchase (a) dollar-
denominated debt obligations issued by foreign issuers, including foreign
corporations and governments, by U.S. corporations outside the United States in
an amount not to exceed 25% of its total assets at time of purchase; and (b)
certificates of deposit, bankers' acceptances, or other similar obligations
issued by domestic branches of foreign banks, or foreign branches of U.S. banks,
in an amount not to exceed 20% of its total net assets; and
12. Acquire any other investment company or investment company
security, except in connection with a merger, consolidation, reorganization, or
acquisition of assets or where otherwise permitted by the 1940 Act.
The following investment limitation is fundamental with respect to the
IT Tax-Exempt, LT Tax-Exempt and Managed Income Funds. The IT Tax-Exempt, LT
Tax-Exempt and Managed Income Funds may not:
13. Purchase or sell commodity futures contracts, or invest in oil,
gas, or mineral exploration or development programs; provided that the Funds may
enter into futures contracts and futures options.
The following investment limitation is fundamental with respect to the
Short-Term Tax-Exempt, ST Government and IT Income
-10-
<PAGE>
Funds. The Short-Term Tax-Exempt, ST Government and IT Income Funds may not:
14. Purchase or sell commodities or commodity futures contracts, or
invest in oil, gas, or mineral exploration or development programs; provided
that the Funds may enter into futures contracts and futures options.
* * *
For the purpose of Investment Limitation No. 2, the prohibition of
purchases of real estate includes acquisition of limited partnership interests
in partnerships formed with a view toward investing in real estate, but does not
prohibit purchases of shares in real estate investment trusts. The Funds do not
currently intend to invest in real estate investment trusts.
In addition to the above investment limitations, Excelsior Fund
currently intends to limit the IT Income and Managed Income Funds' investments
in warrants so that, valued at the lower of cost or market value, they do not
exceed 5% of a Fund's net assets. Included within that amount, but not to
exceed 2% of the value of the IT Income or Managed Income Fund's net assets, may
be warrants which are not listed on the New York or American Stock Exchange.
For the purpose of this limitation, warrants acquired by the IT Income or
Managed Income Fund in units or attached to securities will be deemed to be
without value.
The IT Tax-Exempt, LT Tax-Exempt and Managed Income Funds may not
purchase or sell commodities.
The Funds' transactions in futures contracts and futures options
(including the margin posted by the Funds in connection with such transactions)
are excluded from the Funds' prohibitions: against the purchase of securities
on margin, short sales of securities and the maintenance of a short position;
the issuance of senior securities; writing or selling puts, calls, straddles,
spreads, or combinations thereof; and the mortgage, pledge or hypothecation of
the Funds' assets.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
of a Fund's portfolio securities will not constitute a violation of such
limitation.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares are continuously offered for sale by Edgewood Services, Inc.
(the "Distributor"), a wholly-owned subsidiary of Federated Investors, and the
Distributor has agreed to use
-11-
<PAGE>
appropriate efforts to solicit all purchase orders. As described in the
Prospectus, Shares may be sold to customers ("Customers") of the Investment
Adviser, its affiliates and correspondent banks, and qualified banks, savings
and loan associations, broker/dealers and other institutions ("Shareholder
Organizations") that have entered into servicing agreements with one of the
Companies. Shares are also offered for sale to institutional investors
("Institutional Investors") and to members of the general public ("Direct
Investors", and collectively with "Institutional Investors", "Investors").
Different types of Customer accounts at the Shareholder Organizations may be
used to purchase Shares, including eligible agency and trust accounts. In
addition, Shareholder Organizations may automatically "sweep" a Customer's
account not less frequently than weekly and invest amounts in excess of a
minimum balance agreed to by the Shareholder Organization and its Customer in
Shares of the Fund selected by the Customer. Investors purchasing Shares may
include officers, directors, or employees of the particular Shareholder
Organization.
Shares of the Funds are offered for sale at their net asset value per
Share next computed after a purchase order is received by the Companies' sub-
transfer agent.
Prior to March 1, 1997, Shares of the Funds were offered for sale with
a maximum sales charge of 4.50%. For the fiscal years ended March 31, 1997,
1996 and 1995, total sales charges paid by shareholders with respect to the IT
Tax-Exempt Fund were $314, $1,621 and $17,776, respectively; with respect to the
LT Tax-Exempt Fund were $8,085, $15,633 and $4,088, respectively; and with
respect to the Managed Income Fund were $2,072, $727 and $973, respectively. Of
these respective amounts, UST Distributors, Inc., the Funds' former distributor,
retained $341 and $431 with respect to the IT Tax-Exempt Fund; $1,972 and $3,188
with respect to the LT Tax-Exempt Fund; and $653 and $973 with respect to the
Managed Income Fund for the period from April 1, 1995 through July 31, 1995, and
the fiscal year ended March 31, 1995. Edgewood Services, Inc., the distributor,
retained none of the foregoing sales charges with respect to the IT Tax-Exempt,
LT Tax-Exempt and Managed Income Funds for the fiscal year ended March 31, 1997,
and for the period from August 1, 1995 through March 31, 1996.
Total sales charges paid by shareholders of the Short-Term Tax-Exempt, ST
Government and IT Income Funds for the fiscal years ended March 31, 1997, 1996
and 1995 were $292, $1,523 and $20; $0, $0 and $1; and $0, $299 and $815,
respectively. Of these respective amounts, UST Distributors, Inc., the Funds'
former distributor, retained $1,523 and $20 with respect to the Short-Term Tax-
Exempt Fund; $0 and $1 with respect to the ST Government Fund; and $20 and $815
with respect to the IT Income Fund for the period from April 1, 1995 through
July 31, 1995, and the fiscal year ended March 31, 1995. Edgewood
-12-
<PAGE>
Services, Inc. retained none of the foregoing sales charges with respect to the
Short-Term Tax-Exempt, ST Government and IT Income Funds for the fiscal year
ended March 31, 1997, and for the period August 1, 1995 through March 31, 1996.
The balance was paid to selling dealers.
The Companies may suspend the right of redemption or postpone the date of
payment for Shares for more than seven days during any period when (a) trading
on the New York Stock Exchange (the "Exchange") is restricted by applicable
rules and regulations of the Securities and Exchange Commission (the "SEC"); (b)
the Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC.
In the event that Shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such Shares an amount that is
more or less than his original investment due to changes in the market prices of
that Fund's portfolio securities.
Each Company reserves the right to honor any request for redemption or
repurchase of a Fund's Shares by making payment in whole or in part in
securities chosen by the Company and valued in the same way as they would be
valued for purposes of computing a Fund's net asset value. If payment is made
in securities, a shareholder may incur transaction costs in converting these
securities into cash. Such redemptions in kind will be governed by Rule 18f-1
under the 1940 Act so that a Fund is obligated to redeem its Shares solely in
cash up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder of a Fund.
Under limited circumstances, the Companies may accept securities as
payment for Shares. Securities acquired in this manner will be limited to
securities issued in transactions involving a bona fide reorganization or
---------
statutory merger, or will be limited to other securities (except for municipal
debt securities issued by state political subdivisions or their agencies or
instrumentalities) that: (a) meet the investment objective and policies of any
Fund acquiring such securities; (b) are acquired for investment and not for
resale; (c) are liquid securities that are not restricted as to transfer either
by law or liquidity of market; and (d) have a value that is readily
ascertainable (and not established only by evaluation procedures) as evidenced
by a listing on the American Stock Exchange, New York Stock Exchange or NASDAQ,
or as evidenced by their status as U.S. Government securities, bank certificates
of deposit, banker's acceptances, corporate and other debt securities that are
actively traded, money market securities and other similar securities with a
readily ascertainable value.
-13-
<PAGE>
INVESTOR PROGRAMS
-----------------
Systematic Withdrawal Plan
- --------------------------
An Investor who owns Shares with a value of $10,000 or more may begin
a Systematic Withdrawal Plan. The withdrawal can be on a monthly, quarterly,
semiannual or annual basis. There are four options for such systematic
withdrawals. The Investor may request:
(1) A fixed-dollar withdrawal;
(2) A fixed-share withdrawal;
(3) A fixed-percentage withdrawal (based on the current value of the
account); or
(4) A declining-balance withdrawal.
Prior to participating in a Systematic Withdrawal Plan, the Investor must
deposit any outstanding certificates for Shares with Chase Global Funds Services
Company, the Funds' sub-transfer agent. Under this Plan, dividends and
distributions are automatically reinvested in additional Shares. Amounts paid
to Investors under this Plan should not be considered as income. Withdrawal
payments represent proceeds from the sale of Shares, and there will be a
reduction of the shareholder's equity in the Fund involved if the amount of the
withdrawal payments exceeds the dividends and distributions paid on the Shares
and the appreciation of the Investor's investment in the Fund. This in turn may
result in a complete depletion of the shareholder's investment. An Investor may
not participate in a program of systematic investing in a Fund while at the same
time participating in the Systematic Withdrawal Plan with respect to an account
in that Fund.
Exchange Privilege
- ------------------
Investors and Customers of Shareholder Organizations may exchange
Shares having a value of at least $500 for Shares of any other portfolio of the
Companies or for Trust Shares of Excelsior Institutional Trust. Shares may be
exchanged by wire, telephone or mail and must be made to accounts of identical
registration. There is no exchange fee imposed by the Companies or Excelsior
Institutional Trust. In order to prevent abuse of this privilege to the
disadvantage of other shareholders, the Companies and Excelsior Institutional
Trust reserve the right to limit the number of exchange requests of Investors
and Customers of Shareholder Organizations to no more than six per year. The
Companies may modify or terminate the exchange program at any
-14-
<PAGE>
time upon 60 days' written notice to shareholders, and may reject any exchange
request.
For Federal income tax purposes, exchanges are treated as sales on
which the shareholder will realize a gain or loss, depending upon whether the
value of the Shares to be given up in exchange is more or less than the basis in
such Shares at the time of the exchange. Generally, a shareholder may include
sales loads incurred upon the purchase of Shares in his or her tax basis for
such Shares for the purpose of determining gain or loss on a redemption,
transfer or exchange of such Shares. However, if the shareholder effected an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and was able to reduce the sales load previously applicable
to the new shares (by virtue of the Companies' exchange privilege), the amount
equal to such reduction may not be included in the tax basis of the
shareholder's exchanged Shares but may be included (subject to the limitation)
in the tax basis of the new shares.
Other Investor Programs
- -----------------------
As described in the Prospectuses, Shares of the Funds may be purchased
in connection with the Automatic Investment Program. Shares of the Managed
Income, IT Income and ST Government Funds may also be purchased in connection
with certain Retirement Programs.
DESCRIPTION OF CAPITAL STOCK
----------------------------
Excelsior Fund's Charter authorizes its Board of Directors to issue up
to thirty-five billion full and fractional shares of capital stock; Excelsior
Tax-Exempt Fund's Charter authorizes its Board of Directors to issue up to
fourteen billion full and fractional shares of capital stock. Both Charters
authorize the respective Boards of Directors to classify or reclassify any
unissued shares of the respective Companies into one or more additional classes
or series by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. The Prospectuses describe the classes of shares into which the
Companies' authorized capital is currently classified.
Shares have no preemptive rights and only such conversion or exchange
rights as the Boards of Directors may grant in their discretion. When issued
for payment as described in the Prospectuses, Shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of a Fund,
shareholders of that Fund are entitled to receive the assets available for
distribution belonging to that Fund and a
-15-
<PAGE>
proportionate distribution, based upon the relative asset values of the
portfolios of the Company involved, of any general assets of that Company not
belonging to any particular portfolio of that Company which are available for
distribution. In the event of a liquidation or dissolution of either Company,
shareholders of such Company will be entitled to the same distribution process.
Shareholders of the Companies are entitled to one vote for each full
share held, and fractional votes for fractional shares held, and will vote in
the aggregate and not by class, except as otherwise required by the 1940 Act or
other applicable law or when the matter to be voted upon affects only the
interests of the shareholders of a particular class. Voting rights are not
cumulative and, accordingly, the holders of more than 50% of the aggregate of a
Company's outstanding shares may elect all of that Company's directors,
regardless of the votes of other shareholders.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as each Company shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each portfolio affected by the matter. A portfolio is affected by a matter
unless it is clear that the interests of each portfolio in the matter are
substantially identical or that the matter does not affect any interest of the
portfolio. Under the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a portfolio only if approved by a majority of the outstanding
shares of such portfolio. However, the Rule also provides that the ratification
of the appointment of independent public accountants, the approval of principal
underwriting contracts, and the election of directors may be effectively acted
upon by shareholders of each Company voting without regard to class.
The Companies' Charters authorize the Boards of Directors, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding Shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding Shares to be
redeemed at their net asset value; or (c) combine the assets belonging to a Fund
with the assets belonging to another portfolio of the Company involved, if the
Board of Directors reasonably determines that such combination will not have a
-16-
<PAGE>
material adverse effect on shareholders of any portfolio participating in such
combination, and, in connection therewith, to cause all outstanding shares of
any portfolio to be redeemed at their net asset value or converted into shares
of another class of the Company's capital stock at net asset value. The
exercise of such authority by the Boards of Directors will be subject to the
provisions of the 1940 Act, and the Boards of Directors will not take any action
described in this paragraph unless the proposed action has been disclosed in
writing to the particular Fund's shareholders at least 30 days prior thereto.
Notwithstanding any provision of Maryland law requiring a greater vote
of the Companies' Common Stock (or of the Shares of a Fund voting separately as
a class) in connection with any corporate action, unless otherwise provided by
law (for example, by Rule 18f-2, discussed above) or by the Companies' Charters,
the Companies may take or authorize such action upon the favorable vote of the
holders of more than 50% of the outstanding Common Stock of the particular
Company voting without regard to class.
MANAGEMENT OF THE FUNDS
-----------------------
Directors and Officers
- ----------------------
The directors and executive officers of the Companies, their
addresses, ages, principal occupations during the past five years, and other
affiliations are as follows:
<TABLE>
<CAPTION>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Companies Other Affiliations
- ---------------- --------- -----------------------
<S> <C> <C>
Frederick S. Wonham/1/ Chairman of the Retired; Director of
238 June Road Board, President Excelsior Fund and Excelsior
Stamford, CT 06903 and Treasurer Tax-Exempt (since 1995);
Age: 66 Trustee of Excelsior Funds
and Excelsior Institutional Trust
(since 1995); Vice Chairman of U.S.
Trust Corporation and U.S. Trust
Company of New York (from Feburary 1990
until September
1995); Chairman, U.S. Trust Company of
Connecticut (from
March 1993 to May 1997).
</TABLE>
- ----------
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
-17-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Companies Other Affiliations
- ---------------- --------- -----------------------
<S> <C> <C>
Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior Fund and Excelsior Apt. 10-H
Tax-Exempt (since 1984); Director of UST Master
New York, NY 10021 Variable Series, Inc.
Age: 71 (from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995); Director, Royal Life Insurance
Co. of New York (since 1991).
Rodman L. Drake Director Director, Excelsior Fund
485 Park Avenue and Excelsior Tax-Exempt
New York, NY 10022 Fund (since 1996); Trustee,
Age: 54 Excelsior Institutional
Trust and Excelsior Funds
(since 1994); Director,
Parsons Brinkerhoff, Inc. (engineering
firm) (since 1995); Director, Parsons
Brinkerhoff Energy Services Inc. (since
1996); President, Mandrake Group
(investment and consulting firm) (since
1994); Director, Hyperion Total Return
Fund, Inc. and four other funds for
which Hyperion Capital Management, Inc.
serves as investment adviser (since
1991); Co-Chairman, KMR Power
Corporation (power plants) (from 1993
to 1996); Director, The Latin American
Growth Fund (since 1993); Member of
Advisory Board, Argentina Private
Equity Fund L.P. (from 1992 to 1996)
and Garantia L.P. (Brazil) (from 1993
to 1996); and Director, Mueller
Industries, Inc. (from 1992 to 1994).
Joseph H. Dugan Director Retired; Director of
913 Franklin Lakes Road Excelsior Fund and Excelsior
Franklin Lakes, NJ 07417 Tax-Exempt (since 1984);
Age: 72 Director of UST Master
Variable Series, Inc.
(from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995).
Wolfe J. Frankl Director Retired; Director of
2320 Cumberland Road Excelsior Fund and Excelsior
Charlottesville, VA 22901 Tax-Exempt (since 1986);
Age: 76 Director of UST Master
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Companies Other Affiliations
- ---------------- --------- -----------------------
<S> <C> <C>
Variable Series, Inc. (from 1994 to
June 1997); Trustee of Excelsior
Institutional Trust (since 1995);
Director, Deutsche Bank Financial, Inc.
(since 1989); Director, The Harbus
Corporation (since 1951); Trustee, HSBC
Funds Trust and HSBC Mutual Funds Trust
(since 1988).
W. Wallace Director Director, Excelsior
McDowell, Jr. and Excelsior Tax-Exempt
Fund Fund (since 1996); Trustee,
c/o Prospect Capital Excelsior Institutional Trust
Corp. and Excelsior Funds
43 Arch Street (since 1994); Private Investor
Greenwich, CT 06830 (since 1994); Managing Director,
Age: 60 Morgan Lewis Githens & Ahn (from 1991
to 1994); and Director, U.S. Homecare
Corporation (since 1992), Grossmans,
Inc. (from 1993 to 1996), Children's
Discovery Centers (since 1984), ITI
Technologies, Inc. (since 1992) and
Jack Morton Productions (since 1987).
Jonathan Piel Director Director, Excelsior Fund and
558 E. 87th Street Excelsior Tax-Exempt Fund
New York, NY 10128 (since 1996); Trustee, Excelsior
Age: 58 Institutional Trust and
Excelsior Funds (since 1994);
President, Scientific American, Inc.
(from 1984 to 1986); Vice President and
Editor, Scientific American, Inc. (from
1986 to 1994); Director, Group for The
South Fork, Bridgehampton, New York
(since 1993); and Member, Advisory
Committee, Knight Journalism
Fellowships, Massachusetts Institute of
Technology (since 1984).
Robert A. Robinson Director Director of Excelsior Fund
Church Pension Fund and Excelsior Tax-Exempt
800 Second Avenue (since 1997); Director of UST
New York, NY 10017 Master Variable Series, Inc.
Age: 71 Excelsior Institutional Trust (since
1995); President Emeritus, The
Church Pension Fund and its
affiliated companies (since 1966);
Trustee, H.B. and F.H. Bugher
wholly owned subsidiaries --
Rosiclear Lead and Flourspar Mining
Co. and The Pigmy Corporation (since
Publishing Co. (since 1974); (from
1994 to June 1997); Trustee of
Trustee, HSBC Funds Trust and HSBC
Foundation and Director of its
Mutual Funds Trust (since 1982);
1984); Director, Morehouse
Director, Infinity Funds, Inc. (since 1995).
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Companies Other Affiliations
- ---------------- --------- -----------------------
<S> <C> <C>
Alfred C. Tannachion/1/ Director Retired; Director of
6549 Pine Meadows Drive Excelsior Fund and
Spring Hill, FL 34606 Excelsior Tax-Exempt
Age: 71 (since 1985); Chairman
of the Board, President and Treasurer
of UST Master Variable Series, Inc.
(from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995).
W. Bruce McConnel, III Secretary Partner of the law firm of Drinker
Philadelphia National Biddle & Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 54
Greg Sackos Assistant Second Vice President, Senior
Chase Global Funds Secretary Manager of Blue Sky Compliance
Services Company and Financial Reporting, Chase
73 Tremont Street Global Funds Services Company
Boston, MA 02108-3913 (March 1997 to present); Second
Age: 32 Vice President, Senior Manager of
Financial Reporting, Chase Global
Funds Services Company (September
1996 to March 1997); Assistant Vice
President, Assistant Manager of
Financial Reporting, Scudder, Stevens &
Clark Inc. (October 1992 to September
1996).
John M. Corcoran Assistant Vice President, Director of
Chase Global Funds Treasurer Administration, Client Group,
Services Company Chase Global Funds Services
73 Tremont Street Company (since July 1996);
Boston, MA 02108-3913 Second Vice President, Manager
Age: 32 of Administration, Chase Global Funds
Services Company (from
October 1993 to July 1996); Audit
Manager, Ernst & Young LLP (from August
1987 to September 1993).
</TABLE>
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
-20-
<PAGE>
Each director receives an annual fee of $9,000 with respect to each
Company plus a per-Company meeting fee of $1,500 for each meeting attended and
is reimbursed for expenses incurred in attending meetings. The Chairman of the
Board is entitled to receive an additional $5,000 per annum for services in such
capacity. Drinker Biddle & Reath LLP, of which Mr. McConnel is a partner,
receives legal fees as counsel to the Companies. The employees of Chase Global
Funds Services Company do not receive any compensation from the Companies for
acting as officers of the Companies. No person who is currently an officer,
director or employee of the Investment Adviser serves as an officer, director or
employee of the Companies. As of July ___, 1997, the directors and officers of
each Company as a group owned beneficially less than 1% of the outstanding
Shares of each Fund of the Company, and less than 1% of the outstanding Shares
of all funds of the Company in the aggregate.
The following chart provides certain information about the fees
received by the Companies' directors in the most recently completed fiscal year.
-21-
<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued as from the Companies
Aggregate Part of and Fund
Name of Compensation from Fund Complex* Paid
Person/Position each Company Expenses to Directors
- ----------------------------- ----------------- -------- ------------------
<S> <C> <C> <C>
Donald L. Campbell $27,000 None $31,750 (4)**
Director
Rodman L. Drake*** $ 7,500 None $12,250 (4)**
Director
Joseph H. Dugan $30,000 None $35,000 (4)**
Director
Wolfe J. Frankl $30,000 None $35,000 (4)**
Director
W. Wallace McDowell, Jr.*** $ 4,500 None $ 9,250 (4)**
Director
Jonathan Piel*** $ 7,500 None $12,500 (4)**
Director
Robert A. Robinson $30,000 None $35,000 (4)**
Director
Alfred C. Tannachion**** $40,000 None $45,000 (4)**
Director
Frederick S. Wonham**** $30,000 None $35,000 (4)**
Chairman of the Board,
President and Treasurer
</TABLE>
- ---------------------------
/*/ The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt
Fund, UST Master Variable Series, Inc., Excelsior Funds and Excelsior
Institutional Trust.
/**/ Number of investment companies in the Fund Complex for which director
serves as director or trustee.
/***/ Messrs. Drake, McDowell and Piel were elected to the Board of
Excelsior Fund and Excelsior Tax-Exempt Fund on December 9, 1996.
/****/ Mr. Tannachion served as Excelsior Fund's Chairman of the Board,
President and Treasurer until February 13, 1997. On that date Mr.
Wonham was elected to serve as Excelsior Fund's Chairman of the Board,
President and Treasurer.
-22-
<PAGE>
Investment Advisory and Administration Agreements
- -------------------------------------------------
United States Trust Company of New York ("U.S. Trust New York") and
U.S. Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively
with U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as
Investment Adviser to the Funds. In the Investment Advisory Agreements, U.S.
Trust has agreed to provide the services described in the Prospectuses. The
Investment Adviser has also agreed to pay all expenses incurred by it in
connection with its activities under the respective agreements other than the
cost of securities, including brokerage commissions, if any, purchased for the
Funds.
Prior to May 16, 1997, U.S. Trust New York served as investment
adviser to the Funds pursuant to an advisory agreement substantially similar to
the Investment Advisory Agreement currently in effect for the Funds.
For the fiscal year ended March 31, 1995, the particular Company paid
U.S. Trust New York advisory fees of $62,036, $142,883, $634,922, $149,283,
$801,081 and $374,134 with respect to the ST Government, IT Income, Managed
Income, Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds,
respectively. For the same period, U.S. Trust New York waived advisory fees
totalling $14,308, $8,255, $121,999, $12,322, $84,360 and advisory $26,819 with
respect to the ST Government, IT Income, Managed Income, Short-Term Tax-Exempt,
IT Tax-Exempt and LT Tax-Exempt Funds, respectively.
For the fiscal year ended March 31, 1996, the particular Company paid
U.S. Trust New York advisory fees of $46,513, $187,185, $602,962, $116,249,
$754,048 and $391,724 with respect to the ST Government, IT Income, Managed
Income, Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds,
respectively. For the same period, U.S. Trust New York waived advisory fees
totalling $20,410, $22,783, $46,807, $26,523, $117,024 and advisory $47,791 with
respect to the ST Government, IT Income, Managed Income, Short-Term Tax-Exempt,
IT Tax-Exempt and LT Tax-Exempt Funds, respectively.
For the fiscal year ended March 31, 1997, the particular Company paid
U.S. Trust New York advisory fees of $63,713, $217,254, $1,185,427, $95,564,
$741,452 and $457,137 with respect to the ST Government, IT Income, Managed
Income, Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds,
respectively. For the same period, U.S. Trust New York waived advisory fees
totalling $21,478, $35,586, $77,751, $28,208, $140,769 and $69,305 with respect
to the ST Government, IT
-23-
<PAGE>
Income, Managed Income, Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt
Funds, respectively.
The Investment Advisory Agreements provide that the Investment Adviser
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Funds in connection with the performance of such agreements,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for advisory services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment Adviser
in the performance of its duties or from reckless disregard by it of its duties
and obligations thereunder. In addition, the Investment Adviser has undertaken
in the Investment Advisory Agreement to maintain its policy and practice of
conducting its Asset Management Group independently of its Banking Group.
Chase Global Funds Services Company ("CGFSC"), Federated
Administrative Services, an affiliate of the Distributor, and U.S. Trust
Connecticut (the "Administrators") serve as the Funds' administrators. Under
the Administration Agreements, the Administrators have agreed to maintain office
facilities for the Funds, furnish the Funds with statistical and research data,
clerical, accounting and bookkeeping services, and certain other services
required by the Funds, and to compute the net asset value, net income, "exempt
interest dividends" and realized capital gains or losses, if any, of the
respective Funds. The Administrators prepare semiannual reports to the SEC,
prepare Federal and state tax returns, prepare filings with state securities
commissions, arrange for and bear the cost of processing Share purchase and
redemption orders, maintain the Funds' financial accounts and records, and
generally assist in all aspects of the Funds' operations.
Prior to May 16, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York served as the Funds' administrators pursuant to an
administrative agreement substantially similar to the Administration Agreement
currently in effect for the Funds. Prior to August 1, 1995, administrative
services were provided to the Funds by CGFSC and Concord Holding Corporation
(collectively, the "former administrators") under administration agreements
having substantially the same terms as the Administration Agreements currently
in effect.
For the fiscal year ended March 31, 1995, Excelsior Tax-Exempt Fund
paid the former administrators $82,797, $386,614 and $123,173 in the aggregate
with respect to the Short-Term Tax-Exempt Fund, IT Tax-Exempt Fund and the LT
Tax-Exempt Fund, respectively. For the same period, Excelsior Fund paid the
administrators $39,116, $66,481 and $154,370 in the aggregate with respect to
the ST Government, IT Income and Managed Income Funds, respectively. For the
same period, the former
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<PAGE>
administrators waived administration fees totalling $2,634, $19, $1,051, $356,
$3,455 and $321 with respect to the ST Government, IT Income, Managed Income,
Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds, respectively.
For the period April 1, 1995 through July 31, 1995, the Excelsior Tax-
Exempt Fund paid the former administrators $23,993, $124,638 and $41,586 in the
aggregate with respect to the Short-Term Tax-Exempt Fund, IT Tax-Exempt Fund and
the LT Tax-Exempt Fund, respectively. For the same period, Excelsior Fund paid
the former administrators $11,576, $26,526 and $43,727 in the aggregate with
respect to the ST Government, IT Income and Managed Income Funds, respectively.
For the same period, the former administrators waived administration fees
totalling $64, $543, $474, $140, $820 and $160 with respect to the ST
Government, IT Income, Managed Income, Short-Term Tax-Exempt, IT Tax-Exempt and
LT Tax-Exempt Funds, respectively.
For the period August 1, 1995 through March 31, 1996, Excelsior Tax-
Exempt Fund paid CGFSC, Federated Administrative Services and U.S. Trust New
York $33,906, $258,662 and $91,594 in the aggregate with respect to the Short-
Term Tax-Exempt Fund, IT Tax-Exempt Fund and the LT Tax-Exempt Fund,
respectively. For the same period, Excelsior Fund paid CGFSC, Federated
Administrative Services and U.S. Trust New York $38,330, $64,035 and $89,196 in
the aggregate with respect to the ST Government, IT Income and Managed Income
Funds, respectively. For the same period, CGFSC, Federated Administrative
Services and U.S. Trust New York waived administration fees totalling $30,
$1,567, $412, $15,466, $494 and $1,782 with respect to the ST Government, IT
Income, Managed Income, Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt
Funds, respectively.
For the fiscal year ended March 31, 1997, Excelsior Tax-Exempt Fund
paid CGFSC, Federated Administrative Services and U.S. Trust New York $97,345,
$646,262 and $253,504 in the aggregate with respect to the Short-Term Tax-Exempt
Fund, IT Tax-Exempt Fund and the LT Tax-Exempt Fund, respectively. For the same
period, Excelsior Fund paid CGFSC, Federated Administrative Services and U.S.
Trust New York $81,987, $175,090 and $348,102 in the aggregate with respect to
the ST Government, IT Income and Managed Income Funds, respectively. For the
same period, CGFSC, Federated Administrative Services and U.S. Trust New York
waived fees totalling $31, $2,476, $880, $15,562, $983 and $3,433 with respect
to the ST Government, IT Income, Managed Income, Short-Term Tax-Exempt, IT Tax-
Exempt and LT Tax-Exempt Funds, respectively.
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<PAGE>
Service Organizations
- ---------------------
As stated in the Prospectus, a Company will enter into agreements with
Service Organizations. Such shareholder servicing agreements will require the
Service Organizations to provide shareholder administrative services to their
Customers who beneficially own Shares in consideration for a Fund's payment (on
an annualized basis) of up to .40% of the average daily net assets of the Fund's
Shares beneficially owned by Customers of the Service Organization. Such
services may include: (a) assisting Customers in designating and changing
dividend options, account designations and addresses; (b) providing necessary
personnel and facilities to establish and maintain certain shareholder accounts
and records, as may reasonably be requested from time to time by the Companies;
(c) assisting in processing purchases, exchange and redemption transactions; (d)
arranging for the wiring of funds; (e) transmitting and receiving funds in
connection with Customer orders to purchase, exchange or redeem Shares; (f)
verifying and guaranteeing Customer signatures in connection with redemption
orders, transfers among and changes in Customer-designated accounts; (g)
providing periodic statements showing a Customer's account balances and, to the
extent practicable, integrating such information with information concerning
other client transactions otherwise effected with or through the Service
Organization; (h) furnishing on behalf of the Companies' distributor (either
separately or on an integrated basis with other reports sent to a Customer by
the Service Organization) periodic statements and confirmations of all
purchases, exchanges and redemptions of Shares in a Customer's account required
by applicable federal or state law; (i) transmitting proxy statements, annual
reports, updating prospectuses and other communications from the Companies to
Customers; (j) receiving, tabulating and transmitting to the Companies proxies
executed by Customers with respect to annual and special meetings of
shareholders of the Companies; (k) providing reports (at least monthly, but more
frequently if so requested by the Companies' distributor) containing state-by-
state listings of the principal residences of the beneficial owners of the
Shares; and (l) providing or arranging for the provision of such other related
services as the Companies or a Customer may reasonably request.
The Companies' agreements with Service Organizations are governed by
Administrative Services Plans (the "Plans") adopted by the Companies. Pursuant
to the Plans, each Company's Board of Directors will review, at least quarterly,
a written report of the amounts expended under the Company's agreements with
Service Organizations and the purposes for which the expenditures were made. In
addition, the arrangements with Service Organizations will be approved annually
by a majority of each Company's directors, including a majority of the directors
who are not "interested persons" of the Company as defined in the
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<PAGE>
1940 Act and have no direct or indirect financial interest in such arrangements
(the "Disinterested Directors").
Any material amendment to a Company's arrangements with Service
Organizations must be approved by a majority of the Company's Board of Directors
(including a majority of the Disinterested Directors). So long as the
Companies' arrangements with Service Organizations are in effect, the selection
and nomination of the members of the Companies' Boards of Directors who are not
"interested persons" (as defined in the 1940 Act) of the Companies will be
committed to the discretion of such non-interested Directors.
For the fiscal years ended March 31, 1997, 1996 and 1995, payments to
Service Organizations under the Plans totalled $28,304, $26,684 and $12,678;
$141,258, $118,114 and $87,815; $70,956, $22,586 and $27,140; $21,479, $20,504
and $4,466; $36,495, $24,893 and $439; and $78,219, $47,693 and $28,171 with
respect to the Short-Term Tax-Exempt, IT Tax-Exempt, LT Tax-Exempt, ST
Government, IT Income and Managed Income Funds, respectively. Of these
respective amounts, $28,304, $26,684 and $11,475; $139,275, $115,826 and
$74,979; $68,722, $22,586 and $25,075; $21,479, $20,504 and $3,649; $37,886,
$21,217 and $8,041; and $77,650, $46,426 and $20,247 were paid to affiliates of
U.S. Trust with respect to the Short-Term Tax-Exempt, IT Tax-Exempt, LT Tax-
Exempt, ST Government, IT Income and Managed Income Funds, respectively.
Expenses
- --------
Except as otherwise noted, the Investment Adviser and the
Administrators bear all expenses in connection with the performance of their
advisory and administrative services. The Funds bear the expenses incurred in
their operations. Expenses of the Funds include: taxes; interest; fees
(including fees paid to the Companies' Directors and officers who are not
affiliated with the Distributor or the Administrators); SEC fees; state
securities qualification fees; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to shareholders; advisory,
administration and administrative servicing fees; charges of the custodian,
transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; cost of independent pricing service; costs
of shareholder reports and meetings; and any extraordinary expenses. The Funds
also pay for any brokerage fees and commissions in connection with the purchase
of portfolio securities.
Custodian and Transfer Agent
- ----------------------------
The Chase Manhattan Bank ("Chase") serves as custodian of the Funds'
assets. Under the custodian agreements, Chase has
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<PAGE>
agreed to (i) maintain a separate account or accounts for each of the Funds;
(ii) make receipts and disbursements of money on behalf of the Funds; (iii)
collect and receive income and other payments and distributions on account of
the Funds' portfolio securities; (iv) respond to correspondence from securities
brokers and others relating to its duties; (v) maintain certain financial
accounts and records; and (vi) make periodic reports to the Companies concerning
the Funds' operations. Chase may, at its own expense, open and maintain custody
accounts with respect to the Funds with other banks or trust companies, provided
that Chase shall remain liable for the performance of all its custodial duties
under the Custodian Agreements, notwithstanding any delegation.
U.S. Trust New York serves as the Funds' transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust New York has agreed to (i) issue
and redeem Shares; (ii) address and mail all communications by the Funds to
their shareholders, including reports to shareholders, dividend and distribution
notices, and proxy materials for their meetings of shareholders; (iii) respond
to correspondence by shareholders and others relating to its duties; (iv)
maintain shareholder accounts; and (v) make periodic reports to the Companies
concerning the Funds' operations. For its transfer agency, dividend disbursing,
and subaccounting services, U.S. Trust New York is entitled to receive $15.00
per annum per account and subaccount. In addition, U.S. Trust New York is
entitled to be reimbursed for its out-of-pocket expenses for the cost of forms,
postage, processing purchase and redemption orders, handling of proxies, and
other similar expenses in connection with the above services.
U.S. Trust New York may, at its own expense, delegate its transfer
agency obligations to another transfer agent registered or qualified under
applicable law, provided that U.S. Trust New York shall remain liable for the
performance of all of its transfer agency duties under the Transfer Agency
Agreements, notwithstanding any delegation. Pursuant to this provision in the
agreements, U.S. Trust New York has entered into a sub-transfer agency
arrangement with CGFSC, an affiliate of Chase, with respect to accounts of
shareholders who are not Customers of U.S. Trust New York. For the services
provided by CGFSC, U.S. Trust New York has agreed to pay CGFSC $15.00 per annum
per account or subaccount plus out-of-pocket expenses. CGFSC receives no fee
directly from the Companies for any of its sub-transfer agency services.
PORTFOLIO TRANSACTIONS
----------------------
Subject to the general control of the Companies' Boards of Directors,
the Investment Adviser is responsible for, makes decisions with respect to and
places orders for all purchases and
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<PAGE>
sales of portfolio securities of each of the Funds. Purchases and sales of
portfolio securities will usually be principal transactions without brokerage
commissions.
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. It is expected that the Funds' turnover rates may
remain higher than those of many other investment companies with similar
investment objectives and policies. However, since brokerage commissions are
not normally paid on instruments purchased by the Funds, portfolio turnover is
not expected to have a material effect on the net income of any of the Funds.
The Funds' portfolio turnover rate may also be affected by cash requirements for
redemptions of Shares and by regulatory provisions which enable the Funds to
receive certain favorable tax treatment. Portfolio turnover will not be a
limiting factor in making portfolio decisions. See "Financial Highlights" in
the Funds' prospectuses for the Funds' portfolio turnover rates.
Securities purchased and sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or markdown. With
respect to over-the-counter transactions, the Funds, where possible, will deal
directly with dealers who make a market in the securities involved, except in
those situations where better prices and execution are available elsewhere.
The Investment Advisory Agreements between the Companies and the
Investment Adviser provide that, in executing portfolio transactions and
selecting brokers or dealers, the Investment Adviser will seek to obtain the
best net price and the most favorable execution. The Investment Adviser shall
consider factors it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and whether such broker or dealer is selling
shares of the Companies, and the reasonableness of the commission, if any, for
the specific transaction and on a continuing basis.
In addition, the Investment Advisory Agreements authorize the
Investment Adviser, to the extent permitted by law and subject to the review of
the Companies' Boards of Directors from time to time with respect to the extent
and continuation of the policy, to cause the Funds to pay a broker which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker for effecting the same
-29-
<PAGE>
transaction, provided that the Investment Adviser determines in good faith that
such commission is reasonable in relation to the value of the brokerage and
research services provided by such broker, viewed in terms of either that
particular transaction or the overall responsibilities of the Investment Adviser
to the accounts as to which it exercises investment discretion. Such brokerage
and research services might consist of reports and statistics on specific
companies or industries, general summaries of groups of stocks and their
comparative earnings, or broad overviews of the stock market and the economy.
Supplementary research information so received is in addition to and
not in lieu of services required to be performed by the Investment Adviser and
does not reduce the investment advisory fee payable by the Funds. Such
information may be useful to the Investment Adviser in serving the Funds and
other clients and, conversely, supplemental information obtained by the
placement of business of other clients may be useful to the Investment Adviser
in carrying out its obligations to the Funds.
Portfolio securities will not be purchased from or sold to the
Investment Adviser, the Distributor, or any affiliated person of either of them
(as such term is defined in the 1940 Act) acting as principal, except to the
extent permitted by the SEC.
Investment decisions for the Funds are made independently from those
for other investment companies, common trust funds and other types of funds
managed by the Investment Adviser. Such other investment companies and funds
may also invest in the same securities as the Funds. When a purchase or sale of
the same security is made at substantially the same time on behalf of the Funds
and another investment company or common trust fund, the transaction will be
averaged as to price, and available investments allocated as to amount, in a
manner which the Investment Adviser believes to be equitable to the Funds and
such other investment company or common trust fund. In some instances, this
investment procedure may adversely affect the price paid or received by the
Funds or the size of the position obtained by the Funds. To the extent
permitted by law, the Investment Adviser may aggregate the securities to be sold
or purchased for the Funds with those to be sold or purchased for other
investment companies or common trust funds in order to obtain best execution.
The Companies are required to identify any securities of their regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their
parents held by the Companies as of the close of their most recent fiscal year.
As of March 31, 1997, the following Funds held the following securities issued
by the Companies' regular brokers or dealers or their parents:
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<PAGE>
INDEPENDENT AUDITORS
--------------------
Ernst & Young LLP, independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of the Companies. The Funds' Financial Highlights
included in the Prospectuses and the financial statements for the period ended
March 31, 1997 incorporated by reference in this Statement of Additional
Information have been audited by Ernst & Young LLP for the periods included in
their reports thereon which appear therein.
COUNSEL
-------
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of the
Companies, is a partner), Philadelphia National Bank Building, 1345 Chestnut
Street, Philadelphia, Pennsylvania 19107-3496, is counsel to the Companies and
will pass upon the legality of the Shares offered by the Prospectuses.
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
Generally
- ---------
The following supplements the tax information contained in the
Prospectuses.
Each of the Funds is treated as a separate corporate entity under the
Internal Revenue Code of 1986, as amended (the "Code"), and intends to qualify
as a regulated investment company. If, for any reason, a Fund does not qualify
for a taxable year for the special Federal tax treatment afforded regulated
investment companies, such Fund would be subject to Federal tax on all of its
taxable income at regular corporate rates, without any deduction for
distributions to shareholders. In such event, dividend distributions (whether or
not derived from interest on Municipal Securities) would be taxable as ordinary
income to shareholders to the extent of the Fund's current and accumulated
earnings and profits and would be eligible for the dividends received deduction
in the case of corporate shareholders.
A Fund will designate any distribution of the excess of net long-term
capital gain over net short-term capital loss as a capital gain dividend in a
written notice mailed to shareholders within 60 days after the close of the
Fund's taxable year. Shareholders should note that, upon the sale or exchange
of Shares, if the shareholder has not held such Shares for at least six months,
any loss on the sale or exchange of those Shares will be treated as long-term
capital loss to the extent of the capital gain dividends received with respect
to the Shares.
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<PAGE>
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). Each Fund intends to make sufficient
distributions or deemed distributions of their ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, who are subject to withholding by the Internal
Revenue Service for failure properly to include on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund when
required to do so either that they are not subject to backup withholding or that
they are "exempt recipients."
Tax-Exempt Funds
- ----------------
As stated in their Prospectus, the Tax-Exempt Funds are not intended
to constitute a balanced investment program and are not designed for investors
seeking capital appreciation or maximum tax-exempt income irrespective of
fluctuations in principal. Shares of the Tax-Exempt Funds would not be suitable
for tax-exempt institutions and may not be suitable for retirement plans
qualified under Section 401 of the Code, H.R. 10 plans and individual retirement
accounts because such plans and accounts are generally tax-exempt and,
therefore, not only would not gain any additional benefit from the Tax-Exempt
Funds' dividends being tax-exempt, but such dividends would be ultimately
taxable to the beneficiaries when distributed to them. In addition, the Tax-
Exempt Funds may not be an appropriate investment for entities which are
"substantial users" of facilities financed by private activity bonds or "related
persons" thereof. "Substantial user" is defined under the Treasury Regulations
to include a non-exempt person who regularly uses a part of such facilities in
his trade or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, who occupies more than 5% of
the usable area of such facilities or for whom such facilities or a part thereof
were specifically constructed, reconstructed or acquired. "Related persons"
include certain related natural persons, affiliated corporations, a partnership
and its partners and an S corporation and its shareholders.
In order for a Tax-Exempt Fund to pay exempt-interest dividends for
any taxable year, at least 50% of the aggregate value of such Fund's portfolio
must consist of exempt-interest
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<PAGE>
obligations at the close of each quarter of its taxable year. Within 60 days
after the close of the taxable year, each of the Tax-Exempt Funds will notify
its shareholders of the portion of the dividends paid by that Fund which
constitutes an exempt-interest dividend with respect to such taxable year.
However, the aggregate amount of dividends so designated by that Fund cannot
exceed the excess of the amount of interest exempt from tax under Section 103 of
the Code received by that Fund during the taxable year over any amounts
disallowed as deductions under Sections 265 and 171(a)(2) of the Code. The
percentage of total dividends paid by each of the Tax-Exempt Funds with respect
to any taxable year which qualifies as exempt-interest dividends will be the
same for all shareholders receiving dividends from that Tax-Exempt Fund for such
year.
Interest on indebtedness incurred by a shareholder to purchase or
carry a Tax-Exempt Fund's Shares generally is not deductible for Federal income
tax purposes. In addition, if a shareholder holds Tax-Exempt Fund Shares for
six months or less, any loss on the sale or exchange of those Shares will be
disallowed to the extent of the amount of exempt-interest dividends received
with respect to the Shares. The Treasury Department, however, is authorized to
issue regulations reducing the six-month holding requirement to a period of not
less than the greater of 31 days or the period between regular dividend
distributions where the investment company regularly distributes at least 90% of
its net tax-exempt interest. No such regulations had been issued as of the date
of this Statement of Additional Information.
Taxation of Certain Financial Instruments
- -----------------------------------------
Generally, futures contracts held by the Funds at the close of their
taxable year will be treated for Federal income tax purposes as sold for their
fair market value on the last business day of such year, a process known as
"mark-to-market." Forty percent of any gain or loss resulting from such
constructive sale will be treated as short-term capital gain or loss and 60% of
such gain or loss will be treated as long-term capital gain or loss, without
regard to the length of time a Fund has held the futures contract (the "40%-60%
rule"). The amount of any capital gain or loss actually realized by a Fund in a
subsequent sale or other disposition of those futures contracts will be adjusted
to reflect any capital gain or loss taken into account by the Fund in a prior
year as a result of the constructive sale of the contracts. Futures contracts
to sell will be regarded as parts of a "mixed straddle" because their values
fluctuate inversely to the values of specific securities held by a Fund. Losses
as to futures contracts to sell will be subject to certain loss deferral rules
which limit the amount of loss currently deductible on either part of the
straddle to the amount thereof which exceeds the unrecognized gain (if any) with
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<PAGE>
respect to the other part of the straddle, and to certain wash sales
regulations. Under short sales rules, which also are applicable, the holding
period of the securities forming part of the straddle will (if they have not
been held for the long-term holding period) be deemed not to begin prior to
termination of the straddle. With respect to certain futures contracts,
deductions for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures contracts to
sell which are properly identified as such, a Fund may make an election which
will exempt (in whole or in part) those identified futures contracts from being
treated for Federal income tax purposes as sold on the last business day of the
Fund's taxable year, but gains and losses will be subject to such short sales,
wash sales and loss deferral rules, and the requirement to capitalize interest
and carrying charges. Under temporary regulations, the Fund would be allowed
(in lieu of the foregoing) to elect either (1) to offset gains or losses from
positions which are part of a mixed straddle by separately identifying each
mixed straddle to which such treatment applies, or (2) to establish a mixed
straddle account for which gains and losses would be recognized and offset on a
periodic basis during the taxable year. Under either election, the 40%-60% rule
will apply to the net gain or loss attributable to the futures contracts, but in
the case of a mixed straddle account election, not more than 50 percent of any
net gain may be treated as long term and no more than 40 percent of any net loss
may be treated as short term. Options on futures contracts generally receive
Federal tax treatment similar to that described above.
A Fund will not be treated as a regulated investment company under the
Code if 30% or more of the Fund's gross income for a taxable year is derived
from gains realized on the sale or other disposition of the following
investments held for less than three months (the "30% test"): (1) stock and
securities (as defined in section 2(a)(36) of the 1940 Act); (2) options,
futures and forward contracts other than those on foreign currencies; and (3)
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly related to the Fund's principal business of
investing in stock and securities (and options and futures with respect to
stocks and securities). Interest (including original issue discount and accrued
market discount) received by the Fund upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any other income which is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose. With respect to forward contracts, futures
contracts, options on futures contracts, and other financial instruments subject
to the mark-to-market rules described above, the Internal Revenue Service has
ruled in private letter rulings that a gain realized
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<PAGE>
from such a contract, option or financial instrument will be treated as being
derived from a security held for three months or more (regardless of the actual
period for which the contract, option or instrument is held) if the gain arises
as a result of a constructive sale under the mark-to-market rules, and will be
treated as being derived from a security held for less than three months only if
the contract, option or instrument is terminated (or transferred) during the
taxable year (other than by reason of mark-to-market) and less than three months
have elapsed between the date the contract, option or instrument is acquired and
the termination date. Increases and decreases in the value of a Fund's futures
contracts and other investments that qualify as part of a "designated hedge," as
defined in Section 851(g) of the Code, may be netted for purposes of determining
whether the 30% test is met.
* * *
The foregoing discussion is based on Federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action. Shareholders are advised to consult their tax advisers concerning their
specific situations and the application of state and local taxes.
PERFORMANCE AND YIELD INFORMATION
---------------------------------
Yields and Performance
- ----------------------
The Funds may advertise the standardized effective 30-day (or one
month) yields calculated in accordance with the method prescribed by the SEC for
mutual funds. Such yield will be calculated separately for each Fund according
to the following formula:
a-b
Yield = 2 [(-------- + 1)/to the sixth power/ - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = average daily number of Shares outstanding that were
entitled to receive dividends.
d = maximum offering price per Share on the last day of the
period.
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<PAGE>
For the purpose of determining interest earned during the period
(variable "a" in the formula), each of the Funds computes the yield to maturity
of any debt obligation held by it based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest). Such yield is then
divided by 360, and the quotient is multiplied by the market value of the
obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is in the portfolio. It is assumed in the above calculation that
each month contains 30 days. Also, the maturity of a debt obligation with a
call provision is deemed to be the next call date on which the obligation
reasonably may be expected to be called or, if none, the maturity date. Each of
the Funds calculates interest gained on tax-exempt obligations issued without
original issue discount and having a current market discount by using the coupon
rate of interest instead of the yield to maturity. In the case of tax-exempt
obligations with original issue discount, where the discount based on the
current market value exceeds the then-remaining portion of original issue
discount, the yield to maturity is the imputed rate based on the original issue
discount calculation. Conversely, where the discount based on the current
market value is less than the remaining portion of the original issue discount,
the yield to maturity is based on the market value.
Expenses accrued for the period (variable "b" in the formula) include
all recurring fees charged by each of the Funds to all shareholder accounts and
to the particular series of Shares in proportion to the length of the base
period and that Fund's mean (or median) account size. Undeclared earned income
will be subtracted from the maximum offering price per Share (variable "d" in
the formula). Based on the foregoing calculations, the effective yields for
Shares of the IT Tax-Exempt, LT Tax-Exempt, Managed Income, Short-Term Tax-
Exempt, IT Income and ST Government Funds for the 30-day period ended March 31,
1997 were ____%, ____%, ____%, ____%, ____% and ____%, respectively.
The "tax-equivalent" yield of the Short-Term Tax-Exempt, IT Tax-Exempt
and LT Tax-Exempt Funds is computed by: (a) dividing the portion of the yield
(calculated as above) that is exempt from Federal income tax by one minus a
stated Federal income tax rate and (b) adding that figure to that portion, if
any, of the yield that is not exempt from Federal income tax. Tax-equivalent
yields assume the payment of Federal income taxes at a rate of 31%. Based on
the foregoing calculations, the tax-equivalent yields of the Short-Term Tax-
Exempt, IT Tax-Exempt and LT Tax-Exempt Funds for the 30-day period ended March
31, 1997 were ____%, ____% and ____%, respectively.
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<PAGE>
Each Fund's "average annual total return" is computed by determining
the average annual compounded rate of return during specified periods that
equates the initial amount invested to the ending redeemable value of such
investment according to the following formula:
ERV /to the one divided by nth power/
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10
year (or other) periods at the end of the
applicable period (or a fractional portion
thereof).
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in
years.
Each Fund may also advertise the "aggregate total return" for its Shares,
which is computed by determining the aggregate compounded rates of return during
specified periods that likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating aggregate
total return is as follows:
ERV
Aggregate Total Return = [(------)] - 1
P
The above calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per Share existing on the reinvestment date, (2) all recurring fees charged to
all shareholder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size in the Fund during
the periods is reflected. The ending redeemable value (variable "ERV', in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
Based on the foregoing calculations, the total returns for Shares of
the Short-Term Tax-Exempt Fund, IT Tax-Exempt Fund,
-37-
<PAGE>
LT Tax-Exempt Fund, ST Government Fund, IT Income Fund and Managed Income Fund
for the one year period ended March 31, 1997 were 3.55%, 4.58%, 5.47%, 4.77%,
3.75% and 3.17%, respectively. The average annual total returns for the IT Tax-
Exempt Fund, LT Tax-Exempt Fund and Managed Income Fund for the five year period
ended March 31, 1997 were 6.65%, 8.80% and 7.16%, respectively. The average
annual total returns for the IT Tax-Exempt, LT Tax-Exempt and Managed Income
Funds for the ten year period ended March 31, 1997 were 6.81%, 9.42% and 8.57%,
respectively. The average annual total returns for the Short-Term Tax-Exempt,
IT Income and ST Government Funds for the period from their commencement of
operations (December 31, 1992) to March 31, 1997 were 3.91%, 5.51% and 4.73%,
respectively.
The Funds may also from time to time include in advertisements, sales
literature and communications to shareholders a total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately a Fund's performance with other measures of investment return. For
example, in comparing a Fund's total return with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of an index, a Fund may
calculate its aggregate total return for the period of time specified in the
advertisement, sales literature or communication by assuming the investment of
$10,000 in Shares and assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date. Percentage increases
are determined by subtracting the initial value of the investment from the
ending value and by dividing the remainder by the beginning value.
The total return and yield of a Fund may be compared to those of other
mutual funds with similar investment objectives and to other relevant indices or
to ratings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
total return and/or yield of a Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Weisenberger
Investment Company Service. Total return and yield data as reported in national
financial publications such as Money Magazine, Forbes, Barron's, The Wall Street
----- -------- ------ -------- --- ---- ------
Journal and The New York Times, or in publications of a local or regional
- ------- --- --- ---- -----
nature, may also be used in comparing the performance of a Fund.
Advertisements, sales literature or reports to shareholders may from time to
time also include a discussion and analysis of each Fund's performance,
including without limitation, those factors, strategies and technologies that
together with market conditions and events, materially affected each Fund's
performance.
-38-
<PAGE>
The Funds may also from time to time include discussions or illustrations
of the effects of compounding in advertisements. "Compounding" refers to the
fact that, if dividends or other distributions of a Fund investment are
reinvested by being paid in additional Fund shares, any future income or capital
appreciations of a Fund would increase the value, not only of the original Fund
investment, but also of the additional Fund shares received through
reinvestment. As a result, the value of the Fund investment would increase more
quickly than if dividends or other distributions had been paid in cash. The
Funds may also include discussions or illustrations of the potential investment
goals of a prospective investor, investment management techniques, policies or
investment suitability of a Fund, economic conditions, the effects of inflation
and historical performance of various asset classes, including but not limited
to, stocks, bonds and Treasury bills. From time to time advertisements, sales
literature or communications to shareholders may summarize the substance of
information contained in shareholder reports (including the investment
composition of a Fund), as well as the views of the Investment Adviser as to
current market, economy, trade and interest rate trends, legislative, regulatory
and monetary developments, investment strategies and related matters believed to
be of relevance to a Fund. The Funds may also include in advertisements charts,
graphs or drawings which illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to, stocks,
bonds, Treasury bills and Shares of a Fund. In addition, advertisement, sales
literature or shareholder communications may include a discussion of certain
attributes or benefits to be derived by an investment in a Fund. Such
advertisements or communicators may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail therein.
MISCELLANEOUS
-------------
As used in the Prospectuses, "assets belonging to a Fund" means the
consideration received upon the issuance of Shares in the Fund, together with
all income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of the Company involved not belonging to a particular portfolio of that
Company. In determining the net asset value of a Fund's Shares, assets
belonging to the Fund are charged with the direct liabilities in respect of that
Fund and with a share of the general liabilities of the Company involved which
are normally allocated in proportion to the relative asset values of the
Company's portfolios at the time of allocation. Subject to the provisions of
the Companies' Charters, determinations by the Boards of Directors as to the
direct and
-39-
<PAGE>
allocable liabilities and the allocable portion of any general assets with
respect to a particular Fund are conclusive.
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.
As of July __, 1997, the name, address and percentage ownership of
each person, in addition to U.S. Trust, that beneficially owned 5% or more of
the outstanding shares of a Fund were as follows:
FINANCIAL STATEMENTS
--------------------
The audited financial statements and notes thereto in the Companies'
Annual Reports to Shareholders for the fiscal year ended March 31, 1997 (the
"1997 Annual Reports") for the fixed income and tax-exempt fixed income
portfolios are incorporated in this Statement of Additional Information by
reference. No other parts of the 1997 Annual Reports are incorporated by
reference herein. The financial statements included in the 1997 Annual Reports
for the ST Government, IT Income, Managed Income, Short-Term Tax-Exempt, IT Tax-
Exempt and LT Tax-Exempt Funds have been audited by the Companies' independent
auditors, Ernst & Young LLP, whose reports thereon also appear in the 1997
-----------------
Annual Reports and are incorporated herein by reference. Such financial
statements have been incorporated herein in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
Additional copies of the 1997 Annual Reports may be obtained at no charge by
telephoning CGFSC at the telephone number appearing on the front page of this
Statement of Additional Information.
-40-
<PAGE>
APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
"B" - Issues are regarded as having only a speculative capacity for
timely payment.
"C" - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
"D" - Issues are in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuers or related supporting institutions have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well established access to a
range of financial markets and assured sources of alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuers or related supporting institutions have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
"Prime-3" - Issuers or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or
A-3
<PAGE>
interest of unsubordinated instruments having a maturity of one year or less
which are issued by United States commercial banks, thrifts and non-bank banks;
non-United States banks; and broker-dealers. The following summarizes the
ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations which posses a particularly strong credit feature
are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a good capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which
are currently in default.
A-4
<PAGE>
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
A-5
<PAGE>
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and
A-6
<PAGE>
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be revised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.
A-7
<PAGE>
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest
A-8
<PAGE>
and repay principal is very strong, although not quite as strong as bonds rated
"AAA." Because bonds rated in the "AAA" and "AA" categories are not
significantly vulnerable to foreseeable future developments, short-term debt of
these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "BBB" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
A-9
<PAGE>
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating below
"AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term
A-10
<PAGE>
debt. Such issues are regarded as having speculative characteristics regarding
the likelihood of timely payment of principal and interest. "BB" indicates the
lowest degree of speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades.
A-11
<PAGE>
Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
EXCELSIOR TAX-EXEMPT FUNDS, INC.
New York Intermediate-Term Tax-Exempt Fund
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1997
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectus for the New York Intermediate-Term
Tax-Exempt Fund (the "Fund"), an investment portfolio of Excelsior Tax-Exempt
Funds, Inc. ("Excelsior Tax-Exempt Fund") dated August 1, 1997 (the
"Prospectus"). Much of the information contained in this Statement of
Additional Information expands upon the subjects discussed in the Prospectus.
No investment in shares of the Fund ("Shares") should be made without reading
the Prospectus. A copy of the Prospectus may be obtained by writing Excelsior
Tax-Exempt Fund c/o Chase Global Funds Services Company, 73 Tremont Street,
Boston, MA 02108-3913 or by calling (800) 446-1012.
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TABLE OF CONTENTS
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INVESTMENT OBJECTIVE AND POLICIES............... 1
Additional Information on Portfolio
Instruments.............................. 1
Risk Factors Relating to
New York Municipal Obligations........... 7
Additional Investment Limitations.......... 23
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.. 24
INVESTOR PROGRAMS............................... 26
Systematic Withdrawal Plan................. 26
Exchange Privilege......................... 28
Other Investor Programs.................... 28
DESCRIPTION OF CAPITAL STOCK.................... 28
MANAGEMENT OF THE FUND.......................... 30
Directors and Officers..................... 30
Investment Advisory and Administration
Agreements............................... 37
Service Organizations...................... 38
Expenses................................... 40
Custodian and Transfer Agent............... 40
PORTFOLIO TRANSACTIONS.......................... 41
INDEPENDENT AUDITORS............................ 43
COUNSEL......................................... 44
ADDITIONAL INFORMATION CONCERNING TAXES......... 44
Federal.................................... 44
Taxation of Certain Financial Instruments.. 46
PERFORMANCE AND YIELD INFORMATION............... 48
MISCELLANEOUS................................... 51
FINANCIAL STATEMENTS............................ 52
APPENDIX A A-1
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INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to provide 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 80% of the Fund's assets will be invested in
Municipal Obligations (as defined in the Prospectus), and at least 65% of the
Fund's assets will be invested in New York Municipal Obligations (as defined in
the Prospectus). The following policies supplement the Fund's investment
objective and policies as set forth in the Prospectus.
Additional Information on Portfolio Instruments
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Municipal Obligations
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Municipal Obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to public
institutions and facilities. Private activity bonds that are issued by or on
behalf of public authorities to finance various privately operated facilities
are included within the term "Municipal Obligations" only if the interest paid
thereon is exempt from general Federal income tax and not treated as a specific
tax preference item under the Federal alternative minimum tax.
The two principal classifications of Municipal Obli gations are
"general obligation" and "revenue" issues, but the Fund's portfolio may also
include "moral obligation" issues, which are normally issued by special-purpose
authorities. There are, of course, variations in the quality of Municipal
Obligations, both within a particular classification and between
classifications, and the yields on Municipal Obligations depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard
& Poor's Ratings Group ("S&P") described in the Prospectus and Appendix A hereto
represent their opinion as to the quality of Municipal Obligations. It should
be emphasized that these ratings are general and are not absolute standards of
quality, and Municipal Obligations with the same maturity, interest rate, and
rating may have different yields while Municipal Obligations of the same
maturity and interest rate with different ratings may have the same yield.
Subsequent
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to its purchase by the Fund, an issue of Municipal Obligations may cease to be
rated, or its rating may be reduced below the minimum rating required for
purchase by the Fund. United States Trust Company of New York ("U.S. Trust New
York") and U.S. Trust Company of Connecticut ("U.S. Trust Connecticut" and,
collectively with U.S. Trust New York, "U.S. Trust" or the "Investment
Adviser"), the Fund's investment adviser ("U.S. Trust" or the "Investment
Adviser"), will consider such an event in determining whether the Fund should
continue to hold the obligation.
The payment of principal and interest on most securi ties purchased by
the Fund will depend upon the ability of the issuers to meet their obligations.
Each state, the District of Columbia, each of their political subdivisions,
agencies, instrumentalities and authorities, and each multistate agency of which
a state is a member, is a separate "issuer" as that term is used in this
Statement of Additional Information and the Fund's Prospectus. The non-
governmental user of facilities financed by private activity bonds is also
considered to be an "issuer." An issuer's obligations under its Municipal
Obligations are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by Federal or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. The power or ability of an issuer to
meet its obligations for the payment of interest on and principal of its
Municipal Obligations may be materially adversely affected by litigation or
other conditions.
Private activity bonds are issued to obtain funds to provide, among
other things, privately operated housing facil ities, pollution control
facilities, convention or trade show facilities, mass transit, airport, port or
parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the Federal income tax exemption for
interest on Municipal Obligations. For example, under the Tax Reform Act of
1986, as amended, interest on certain private activity bonds must be included in
an investor's alternative minimum taxable income, and
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corporate investors must treat all tax-exempt interest as an item of tax
preference. Excelsior Tax-Exempt Fund cannot, of course, predict what
legislation may be proposed in the future regarding the income tax status of
interest on Municipal Obligations, or which proposals, if any, might be enacted.
Such proposals, while pending or if enacted, might materially adversely affect
the availability of Municipal Obligations for investment by the Fund and the
liquidity and value of its portfolio. In such an event, the Fund would
reevaluate its investment objective and policies and consider possible changes
in its structure or possible dissolution.
Opinions relating to the validity of Municipal Obli gations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its Investment Adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
Money Market Instruments
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Certificates of deposit acquired by the Fund within the limits set
forth in the Prospectus will be those of (i)domestic branches of U.S. banks
which are members of the Federal Reserve System or are insured by the Bank
Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"), or (ii)
savings and loan associations which are insured by the Savings Association
Insurance Fund of the FDIC. (The foregoing limitation does not preclude the Fund
from acquiring Municipal Obligations which are backed by letters of credit
issued by foreign banks.)
Tax-exempt commercial paper purchased by the Fund will consist of
issues rated at the time of purchase "A-2" or higher by S&P or "Prime-2" or
better by Moody's or, if not rated, determined to be of comparable quality by
the Investment Adviser. These rating symbols are described in Appendix A
hereto.
Insured Municipal Obligations
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The Fund may purchase Municipal Obligations which are insured as to
timely payment of principal and interest at the time of purchase. The insurance
policies will usually be obtained by the issuer of the bond at the time of its
original issuance. Bonds of this type will be acquired only if at the time of
purchase they satisfy quality requirements generally applicable to Municipal
Obligations as described in the Prospectus. Although insurance coverage for the
Municipal Obligations held by the Fund reduces credit risk by insuring that the
Fund will receive timely payment of principal and interest, it does not protect
against market fluctuations caused by changes in interest rates and other
factors. The Fund may invest more
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than 25% of its net assets in Municipal Obligations covered by insurance
policies.
Repurchase Agreements
---------------------
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by the Fund plus interest negotiated
on the basis of current short-term rates (which may be more or less than the
rate on securities underlying the repurchase agreement). Securities subject to
repurchase agreements are held by the Fund's custodian (or sub-custodian) or in
the Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered loans by the Fund under the Investment Company Act of 1940 (the "1940
Act").
When-Issued and Forward Transactions
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When the Fund agrees to purchase securities on a "when-issued" or
forward commitment basis, the custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment, and, in such case, the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that the Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash. Because the Fund will set aside cash or liquid assets
to satisfy its purchase commitments in the manner described, the Fund's
liquidity and ability to manage its portfolio might be affected in the event its
forward commitments or commitments to purchase "when-issued" securities ever
exceeded 25% of the value of its assets.
The Fund will purchase securities on a "when-issued" or forward
commitment basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, the Fund may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered to
the Fund on the settlement date. In these cases, the Fund may realize a taxable
capital gain or loss.
When the Fund engages in "when-issued" or forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such other party to do so may result in the Fund incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a "when-issued" purchase
or a forward commitment to purchase securities
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and any subsequent fluctuations in their market value are taken into account
when determining the market value of the Fund starting on the day the Fund
agrees to purchase the securities. The Fund does not earn interest on the
securities it has committed to purchase until they are paid for and delivered on
the settlement date.
Stand-By Commitments
--------------------
The Fund may acquire "stand-by commitments" with respect to Municipal
Obligations held by it. Under a "stand-by commitment," a dealer or bank agrees
to purchase from the Fund, at the Fund's option, specified Municipal Obligations
at a specified price. The amount payable to the Fund upon its exercise of a
"stand-by commitment" is normally (i) the Fund's acquisition cost of the
Municipal Obligations (excluding any accrued interest which the Fund paid on
their acquisition), less any amortized market premium or plus any amortized
market or original issue discount during the period the Fund owned the
securities, plus (ii) all interest accrued on the securities since the last
interest payment date during that period. "Stand-by commitments" are
exercisable by the Fund at any time before the maturity of the underlying
Municipal Obligations, and may be sold, transferred or assigned by the Fund only
with the underlying instruments.
The Fund expects that "stand-by commitments" will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Fund may pay for a "stand-by commitment" either
separately in cash or by paying a higher price for securities which are acquired
subject to the commitment (thus reducing the yield to maturity otherwise
available for the same securities). Where the Fund has paid any consideration
directly or indirectly for a "stand-by commitment," its cost will be reflected
as unrealized depreciation for the period during which the commitment was held
by the Fund.
The Fund intends to enter into "stand-by commitments" only with banks
and broker/dealers which, in the Investment Adviser's opinion, present minimal
credit risks. In evaluating the creditworthiness of the issuer of a "stand-by
commitment," the Investment Adviser will review periodically the issuer's
assets, liabilities, contingent claims and other relevant financial information.
Futures Contracts
-----------------
The Fund may invest in interest rate futures contracts and municipal
bond index futures contracts. Futures contracts will not be entered into for
speculative purposes, but to hedge risks associated with the Fund's securities
investments.
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Positions in futures contracts may be closed out only on an exchange which
provides a secondary market for such futures. However, there can be no
assurance that a liquid secondary market will exist for any particular futures
contract at any specific time. Thus, it may not be possible to close a futures
position. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments to maintain its required margin. In
such situations, if the Fund has insufficient cash, it may have to sell
portfolio securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, the Fund may be required to make
delivery of the instruments underlying futures contracts it holds. The
inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively hedge.
Successful use of futures by the Fund is also subject to the
Investment Adviser's ability to correctly predict movements in the direction of
the market. For example, if the Fund has hedged against the possibility of a
decline in the market adversely affecting securities held by it and securities
prices increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will
approximately equal offsetting losses in its futures positions. In addition, in
some situations, if the Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sale of securities
may be, but will not necessarily be, at increased prices which reflect the
rising market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may result in losses in excess of the amount invested in the
contract.
Utilization of futures transactions by the Fund involves the risk of
loss by the Fund of margin deposits in the
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event of bankruptcy of a broker with whom the Fund has an open position in a
futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Miscellaneous
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The Fund may not invest in oil, gas, or mineral leases.
Risk Factors Relating to New York Municipal Obligations
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Some of the significant financial considerations relating to the
Fund's investments in New York Municipal Obligations are summarized below. This
summary information is not intended to be a complete description and is
principally derived from official statements relating to issues of New York
Municipal Obligations that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in those official statements have not been independently verified.
STATE ECONOMY. New York is the third most populous state in the nation and has
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a relatively high level of personal wealth. The State's economy is diverse with
a comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a very small share of the nation's
farming and mining activity. The State has a declining proportion of its
workforce engaged in manufacturing, and an increasing proportion engaged in
service industries. New York City (the "City"), which is the most populous city
in the State
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and nation and is the center of the nation's largest metropolitan area, accounts
for a large portion of the State's population and personal income.
The State has historically been one of the wealthiest states in the
nation. For decades, however, the State has grown more slowly than the nation
as a whole, gradually eroding its relative economic position.
There can be no assurance that the State economy will not experience
worse-than-predicted results in the 1997-1998 fiscal year, with corresponding
material and adverse effects on the State's projections of receipts and
disbursements.
State per capita personal income has historically been significantly
higher than the national average, although the ratio has varied substantially.
Between 1975 and 1990, total employment grew by 21.3 percent while the labor
force grew only by 15.7 percent, unemployment fell from 9.5 percent to 5.2
percent of the labor force. In 1991 and 1992, however, total employment in the
State fell by 5.5 percent. As a result, the unemployment rate rose to 8.5
percent reflecting a recession that has had a particularly strong impact on the
entire Northeast. Calendar years 1993 and 1994 saw only a partial recovery,
with the unemployment rate decreasing to 7.8 percent and 6.9 percent,
respectively. The unemployment rate for 1995 was 6.3 percent and was projected
by the Division of Budget to be 6.2 percent for 1996.
STATE BUDGET. The State Constitution requires the governor (the "Governor") to
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submit to the State legislature (the "Legislature") a balanced executive budget
which contains a complete plan of expenditures for the ensuing fiscal year and
all moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the executive budget.
The entire plan constitutes the proposed State financial plan for that fiscal
year. The Governor is required to submit to the Legislature quarterly budget
updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
The State's budget for the 1996-97 fiscal year was enacted by the
Legislature on July 13, 1996, more than three months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State operations
and other purposes, including necessary appropriations for all State-supported
debt service. The State Financial Plan for the 1996-97 fiscal year was
formulated on July 25, 1996 and was based on the State's budget as enacted by
the Legislature and signed into
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law by the Governor, as well as actual results for the first quarter of the
current fiscal year (the "1996-97 State Financial Plan").
The Governor presented his 1997-98 Executive Budget to the Legislature
on January 14, 1997. It is expected that the Governor will prepare amendments
to his Executive Budget as permitted under law. There can be no assurance that
the Legislature will enact the Executive Budget as proposed by the Governor into
law, or that the State's adopted budget projections will not differ materially
and adversely from the projections set forth therein.
The 1997-98 Executive Budget projected balance on a cash basis in the
General Fund. It reflected a continuing strategy of substantially reduced State
spending, including program restructurings, reductions in social welfare
spending, and efficiency and productivity initiatives. Total General Fund
receipts and transfers from other funds were projected to be $32.88 billion, a
decrease of $88 million from total receipts projected in the 1996-97 fiscal
year. Total General Fund disbursements and transfers to other funds were
projected to be $32.84 billion, a decrease of $56 million from spending totals
projected for the 1996-1997 fiscal year. As compared to the 1996-97 State
Financial Plan, the 1997-98 Executive Budget proposed a year-to-year decline in
General Fund spending of 0.2 percent. State funds spending (i.e., General Fund
plus other dedicated funds, with the exception of federal aid) was projected to
grow by 1.2 percent. Spending from all governmental funds (excluding transfers)
was proposed to increase by 2.2 percent from the prior fiscal year.
In the 1997-98 Executive Budget, the Governor indicated that, before
taking action to balance the 1997-98 financial plan, the budget forecast
projected an imbalance of almost $2.3 billion. Before reflecting any actions
proposed by the Governor to restrain spending, General Fund disbursements for
1997-98 were projected to grow by approximately 4 percent. This increase would
have resulted from growth in Medicaid, higher fixed costs such as pensions and
debt service, collective bargaining agreements, inflation, and the loss of non-
recurring resources that offset spending in 1996-97. General Fund receipts were
projected to fall by roughly 3 percent. This reduction would have been
attributable to modest growth in the State's economy and underlying tax base,
the loss of non-recurring revenues available in 1996-97 and implementation of
previously enacted tax reduction programs. The 1997-98 Executive Budget
proposed to close this gap primarily through a series of spending reductions and
Medicaid cost containment measures, the use of a portion of the 1996-97
projected budget surplus, and other actions, with a projected 1997-98 closing
fund balance in the General Fund of $397 million.
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The 1997-98 Executive Budget projected General Fund receipts of $33.02
billion and $33.91 billion for 1998-99 and 1999-2000, respectively. The
receipts projections were prepared on the basis of an economic forecast of a
steadily growing national economy, in an environment of low inflation and slow
employment growth. The forecast for the State's economic performance likewise
was for slow but steady economic growth. The receipt projections reflected tax
reductions proposed in the 1997-98 Executive Budget that will reduce receipts by
an estimated $798 million in 1998-99 and at $1.43 billion in 1999-2000. The
bulk of previously enacted tax reductions are annualized in 1997-98 and their
impact in the out years was largely proportional to projected growth in the
underlying tax liability.
Disbursements from the General Fund are projected at $34.60 billion in
1998-99 and $35.93 billion in 1999-2000, before assuming additional spending
efficiencies and/or additional federal revenue maximization. Assuming
implementation of proposed cost containment and other actions proposed in the
1997-98 Executive Budget, annual disbursements for fiscal years 1998-99 and
1999-2000 grow by $1.77 billion and $1.33 billion, respectively.
The Executive Budget contained projections of a potential imbalance in
the 1998-1999 fiscal year of $988 million and in the 1999-2000 fiscal year of
$1.2 billion, assuming implementation of the 1997-1998 Executive Budget
recommendations and implementation of $600 million and $800 million of
unspecified efficiency initiatives and other actions in the 1998-1999 and 1999-
2000 fiscal years, respectively. The Executive Budget stated that the assumed
unspecified efficiency initiatives and other actions for such fiscal years are
comparable with reductions over the past several years, and that the Governor
plans to make additional proposals to limit State spending in order to address
any potential remaining gap.
It is expected that the 1997-98 financial plan will reflect a
continuing strategy of substantially reduced State spending, including agency
consolidations, reductions in the State workforce, and efficiency and
productivity initiatives.
The Division of the Budget believed that the economic assumptions and
projections of receipts and disbursements accompanying the 1997-98 Executive
Budget were reasonable. However, the economic and financial condition of the
State may be affected by various financial, social, economic and political
factors. Those factors can be very complex, can vary from fiscal year to fiscal
year, and are frequently the result of actions taken not only by the State but
also by entities, such as the federal government, that are outside the State's
control. Because of the uncertainty and unpredictability of changes in
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these factors, their impact cannot be fully included in the assumptions
underlying the State's projections. There can be no assurance that the State
economy will not experience results that are worse than predicted, with
corresponding material and adverse effects on the State's financial projections.
To make progress toward addressing recurring budgetary imbalances, the
1997-98 Executive Budget proposed significant actions to align recurring
receipts and disbursements in future fiscal years. However, there can be no
assurance that the Legislature will enact the Governor's proposals or that the
State's actions will be sufficient to preserve budgetary balance or to align
recurring receipts and disbursements in either 1997-98 or in future fiscal
years. In the State's 1997-98 fiscal year and in certain recent fiscal years,
the State has failed to enact a budget prior to the beginning of the State's
fiscal year.
In addition, there has been discussion of additional tax reductions,
beyond those reflected in the State's current projections for 1997-98 and the
out years that, if enacted, could make it more difficult to achieve budget
balance over this period. In particular, modifying the State's sales tax
treatment of clothing has been discussed. The State now receives approximately
$700 million annually under the current tax statutes from taxation on clothing,
and localities receive a roughly equivalent amount.
Uncertainties with regard to both the economy and potential decisions
at the federal level add further pressure on future budget balance in New York
State. Risks to the financial plan include either a financial market or broader
economic "correction" during the period, a risk heightened by the relatively
lengthy expansions currently underway. In addition, a normal "forecast error"
of one percentage point in the expected growth rate could raise or lower
receipts by $600 million during the last year of the projection period.
Potential changes to federal tax law could alter the federal definitions of
income on which many State taxes rely. Similarly, the financial plan assumed no
significant federal disallowances or other actions which could affect State
finances.
On August 22, 1996, the President signed into law the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996. This federal
legislation fundamentally changed the programmatic and fiscal responsibilities
for administration of welfare programs at the federal, state and local levels.
The new law abolishes the federal Aid to Families with Dependent Children
program (AFDC), and creates a new Temporary Assistance to Needy Families program
(TANF) funded with a fixed federal block grant to states. The new law also
imposes (with certain exceptions) a five-year durational limit on TANF
recipients, requires that virtually all recipients be engaged in work or
community service
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activities within two years of receiving benefits, and limits assistance
provided to certain immigrants and other classes of individuals. States are
required to meet work activity participation targets for their TANF caseload;
these requirements are phased in over time. States that fail to meet these
federally mandated job participation rates, or that fail to conform with certain
other federal standards, face potential sanctions in the form of a reduced
federal block grant.
On October 16, 1996, the Governor submitted the State's TANF
implementation plan to the federal government as required under the new federal
welfare law. On December 13, 1996, the State's plan was approved by the federal
government. Legislation will be required to implement the State's TANF plan,
and the Governor has introduced legislation necessary to conform with federal
law.
States are required to comply with the new federal welfare reform law
no later than July 1, 1997. There can be no assurances that the State
Legislature will enact welfare reform proposals as submitted by the Governor and
as required under federal law.
An additional risk to the financial plan arises from the potential
impact of certain litigation now pending against the State, which could produce
adverse effects on the State's projections of receipts and disbursements.
Specifically, in the case of Tug Buster Bouchard et al. v. Wetzler, the Division
of the Budget believed that the court's decision, as interpreted by the State,
would reduce tax revenues by approximately $5 million in 1997-98 and $2 million
thereafter.
RECENT FINANCIAL RESULTS. The General Fund is the principal operating fund of
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the State and is used to account for all financial transactions, except those
required to be accounted for in another fund. It is the State's largest fund
and receives almost all State taxes and other resources not dedicated to
particular purposes.
The General Fund was projected to be balanced on a cash basis for the
1996-97 fiscal year. Total receipts and transfers from other funds were
projected to be $33.17 billion, an increase of $365 million from the prior
fiscal year. Total General Fund disbursements and transfers to other funds were
projected to be $33.12 billion for the 1996-97 fiscal year, an increase of $444
million from the total in the prior fiscal year.
The State's financial position on a GAAP (generally accepted
accounting principles) basis as of March 31, 1996 showed an accumulated deficit
in its combined governmental funds of $1.23 billion, reflecting liabilities of
$14.59 billion and assets of $13.35 billion.
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DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by which the
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State of New York may incur debt. Under the State Constitution, the State may
not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (i.e., borrowing for more than one year) unless the
----
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval
(i) in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (ii) in anticipation of the receipt of proceeds
from the sale of duly authorized but unissued general obligation bonds, by
issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of the
State of New York's authorities and public benefit corporations ("Authorities").
Payments of debt service on New York State general obligation and New York
State-guaranteed bonds and notes are legally enforceable obligations of the
State of New York.
The State employs additional long-term financing mechanisms, lease-
purchase and contractual-obligation financings, which involve obligations of
public authorities or municipalities that are State-supported but are not
general obligations of the State. Under these financing arrangements, certain
public authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State s obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a contractual-
obligation financing arrangement with the Local Government Assistance
Corporation ("LGAC") to restructure the way the State makes certain local aid
payments.
In 1990, as part of a State fiscal reform program, legislation was
enacted creating LGAC, a public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments traditionally funded
through New York State's annual seasonal borrowing. The legislation empowered
LGAC to issue its bonds and notes in an amount not in excess of $4.7 billion
(exclusive of certain refunding bonds) plus certain other amounts. Over a
period of years, the issuance of these long-term obligations, which were
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to be amortized over no more than 30 years, was expected to eliminate the need
for continued short-term seasonal borrowing. The legislation also dedicated
revenues equal to one-quarter of the four cent State sales and use tax to pay
debt service on these bonds. The legislation also imposed a cap on the annual
seasonal borrowing of the State at $4.7 billion, less net proceeds of bonds
issued by LGAC and bonds issued to provide for capitalized interest, except in
cases where the Governor and the legislative leaders have certified the need for
additional borrowing and provided a schedule for reducing it to the cap. If
borrowing above the cap was thus permitted in any fiscal year, it was required
by law to be reduced to the cap by the fourth fiscal year after the limit was
first exceeded. As of June 1995, LGAC had issued bonds to provide net proceeds
of $4.7 billion, completing the program.
On January 13, 1992, Standard & Poor's Corporation ("Standard &
Poor's") reduced its ratings on the State's general obligation bonds from A to
A- and, in addition, reduced its ratings on the State's moral obligation, lease
purchase, guaranteed and contractual obligation debt. On January 6, 1992,
Moody's Investors Service, Inc. ("Moody's") reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness.
The State had anticipated that its capital programs would be financed,
in part, by State and public authorities borrowings in 1996-97. The State had
expected to issue $411 million in general obligation bonds (including $153.6
million for purposes of redeeming outstanding bond anticipation notes) and $154
million in general obligation commercial paper. The Legislature had also
authorized the issuance of up to $101 million in certificates of participation
during the State's 1996-97 fiscal year for equipment purchases. The projection
of the State regarding its borrowings may change if circumstances require.
In November 1996 voters approved a $1.75 billion State general
obligation bond referendum to finance various environmental improvement and
remediation projects. As a result, the amount of general obligation bonds
issued during the 1996-97 fiscal year may increase above the $411 million
currently included in the 1996-97 borrowing plan to finance a portion of this
new program.
Principal and interest payments on general obligation bonds and
interest payments on bond anticipation notes were $735 million for the 1995-96
fiscal year, and were estimated to be $719 million for the 1996-97 fiscal year.
Principal and interest payments on fixed rate and variable rate bonds issued by
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LGAC were $340 million for the 1995-96 fiscal year, and were estimated to be
$323 million for 1996-97.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
LITIGATION. Certain litigation pending against New York State or its officers
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or employees could have a substantial or long-term adverse effect on New York
State finances. Among the more significant of these cases are those that
involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) action against New York
State and New York City officials alleging inadequate shelter allowances to
maintain proper housing; (4) challenges to the practice of reimbursing certain
Office of Mental Health patient care expenses from the client's Social Security
benefits; (5) alleged responsibility of New York State officials to assist in
remedying racial segre gation in the City of Yonkers; (6) challenges by
commercial insurers, employee welfare benefit plans, and health maintenance
organizations to the imposition of surcharges on inpatient hospital bills; (7)
challenges to certain aspects of petroleum business taxes; (8) action alleging
damages resulting from the failure by the State's Department of Environmental
Conservation to timely provide certain data; (9) a challenge to the
constitutionality of a State lottery game; (10) an action seeking reimbursement
from the State for certain costs arising out of the provision of pre-school
services and programs for children with handicapped conditions; and (ii)
challenges to regulations promulgated by the Superintendent of Insurance
establishing excess malpractice premium rates for the 1986-87 through 1995-96
and 1996-97 fiscal years, respectively.
Several actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which changed actuarial funding
methods for determining state and local contributions to state employee
retirement systems have been decided against the State. As a result, the
Comptroller developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal 1996-97, $193 million in fiscal 1997-98, peaking at $241 million in
fiscal 1998-99. Beginning in fiscal 2001-02, State contributions required under
the Comptroller's plan are projected to be less than that required under the
prior funding method. As a result of the United States Supreme Court decision
in the case of State of Delaware v. State of New York, on January 21, 1994, the
State
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entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's 1994-
95 fiscal year. Litigation challenging the constitutionality of the treatment of
certain moneys held in a reserve fund was settled in June 1996 and certain
amounts in a Supplemental Reserve Fund previously credited by the State against
prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances, State
programs and miscellaneous tort, real property and contract claims in which the
State is a defendant and the monetary damages sought are substantial. These
proceedings could affect adversely the financial condition of the State.
Adverse developments in these proceedings or the initiation of new proceedings
could affect the ability of the State to maintain a balanced financial plan. An
adverse decision in any of these proceedings could exceed the amount of the
reserve established in the State's financial plan for the payment of judgments
and, therefore, could affect the ability of the State to maintain a balanced
financial plan. In its audited financial statements for the fiscal year ended
March 31, 1996, the State reported its estimated liability for awarded and
anticipated unfavorable judgments to be $474 million.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
AUTHORITIES. The fiscal stability of New York State is related, in part, to the
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fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that are State-
supported or State-related. As of September 30, 1995, date of the latest data
available, there were 17 Authorities that had outstanding debt of $100 million
or more.
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The aggregate outstanding debt, including refunding bonds, of these 17
Authorities was $73.45 billion.
Authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however,
New York State has provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the Authorities for operating and
other expenses and, in fulfillment of its commit ments on moral obligation
indebtedness or otherwise, for debt service. This operating assistance is
expected to continue to be required in future years. In addition, certain
statutory arrangements provide for State local assistance payments otherwise
payable to localities to be made under certain circumstances to certain
Authorities. The State has no obligation to provide additional assistance to
localities whose local assistance payments have been paid to Authorities under
these arrangements. However, in the event that such local assistance payments
are so diverted, the affected localities could seek additional State funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State of New York
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may also be impacted by the fiscal health of its localities, particularly the
City of New York, which has required and continues to require significant
financial assistance from New York State. The City depends on State aid both to
enable the City to balance its budget and to meet its cash requirements. There
can be no assurance that there will not be reductions in State aid to the City
from amounts currently projected or that State budgets will be adopted by the
April 1 statutory deadline or that any such reductions or delays will not have
adverse effects on the City's cash flow or expenditures. In addition, the
Federal budget negotiation process could result in a reduction in or a delay in
the receipt of Federal grants which could have additional adverse effects on the
City's cash flow or revenues.
For each of the 1981 through 1996 fiscal years, the City achieved
balanced operating results as reported in accordance with then applicable GAAP.
The City was required to close substantial budget gaps in recent years in order
to maintain balanced operating results. There can be no assurance that the City
will continue to maintain a balanced operating results. There can be no
assurance that the City will continue to maintain a balanced budget as required
by State law without additional tax or other revenue increases or additional
reductions in City services or entitlement programs, which could adversely
affect the City's economic base.
In 1975, New York City suffered a fiscal crisis that impaired the
borrowing ability of both the City and New York
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State. In that year the City lost access to the public credit markets. The
City was not able to sell short-term notes to the public again until 1979.
In 1975, Standard & Poor's suspended its A rating of City bonds. This
suspension remained in effect until March 1981, at which time the City received
an investment grade rating of BBB from Standard & Poor's. On July 2, 1985,
Standard & Poor's revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. Moody's ratings of City bonds were revised in
November 1981 from B (in effect since 1977) to Ba1, in November 1983 to Baa, in
December 1985 to Baa1, in May 1988 to A and again in February 1991 to Baa1. On
July 10, 1995, Standard & Poor's downgraded its rating on the City's $23 billion
of outstanding general obligation bonds to "BBB+" from "A-", citing the City's
chronic structural budget problems and weak economic outlook. Standard & Poor's
stated that New York City's reliance on one-time revenue measures to close
annual budget gaps, a dependence on unrealized labor savings, overly optimistic
estimates of revenues and state and federal aid and the City's continued high
debt levels also contributed to its decision to lower the rating.
New York City is heavily dependent on New York State and federal
assistance to cover insufficiencies in its revenues. There can be no assurance
that in the future federal and State assistance will enable the City to make up
its budget deficits. To help alleviate the City's financial difficulties, the
Legisla ture created the Municipal Assistance Corporation ("MAC") in 1975.
Since its creation, MAC has provided, among other things, financing assistance
to the City by refunding maturing City short-term debt and transferring to the
City funds received from sales of MAC bonds and notes. MAC is authorized to
issue bonds and notes payable from certain stock transfer tax revenues, from the
City's portion of the State sales tax derived in the City and, subject to
certain prior claims, from State per capita aid otherwise payable by the State
to the City. Failure by the State to continue the imposition of such taxes, the
reduction of the rate of such taxes to rates less than those in effect on July
2, 1975, failure by the State to pay such aid revenues and the reduction of such
aid revenues below a specified level are included among the events of default in
the resolutions authoriz ing MAC's long-term debt. The occurrence of an event
of default may result in the acceleration of the maturity of all or a portion of
MAC's debt. MAC bonds and notes constitute general obligations of MAC and do
not constitute an enforceable obligation or debt of either the State or the
City. As of March 31, 1997, MAC had outstanding an aggregate of approximately
$4.592 billion of its bonds. MAC is authorized to issue bonds and notes to
refunds its outstanding bonds and notes and to fund certain reserves, without
limitation as to principal amount, and to finance certain capital commitments to
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the Transit Authority and the New York City School Construction Authority
through the 1997 fiscal year in the event the City fails to provide such
financing.
As of March 31, 1997, the City had received an aggregate of
approximately $4.85 billion from MAC for certain authorized uses by the City
exclusive of capital purposes. In addition, the City had received an aggregate
of approximately $2.352 billion from MAC for capital purposes in exchange for
serial bonds in a like principal amount, of which $191 million was held by MAC
as of March 31, 1997, after $569.1 million was redeemed on January 7, 1997. MAC
has also exchanged $1.839 billion principal amount of MAC bonds for City debt,
of which approximately $57.1 million was redeemed on January 7, 1997. MAC made
the $609.3 million of net redemption proceeds available to the City for capital
financing.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On May 8, 1997, the City released the Financial Plan for the 1998
through 2001 fiscal years (the "1998-2001 Financial Plan"), which relates to the
City, the Board of Education ("BOE") and the City University of New York
("CUNY") and was based on the Executive Budget and Budget Message for the City's
1998 fiscal year (the "City Executive Budget"). The City Executive Budget and
the 1998-2001 Financial Plan projected revenues and expenditures for the 1998
fiscal year balanced in accordance with GAAP. The City Executive Budget and the
1998-2001 Financial Plan included increased tax revenue projections and
additional expenditures for textbooks, computers, improved education programs
and welfare reform, law enforcement, immigrant naturalization and other
initiatives. In addition, the City Executive Budget and the 1998-2001 Financial
Plan set forth gap-closing actions to eliminate a previously projected gap of
$720 million for the 1998 fiscal year, after taking into account the prepayment
in the 1997 fiscal year of $856 million of debt
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service due in the 1998 and 1999 fiscal years. The gap-closing actions for the
1998 fiscal year included (i) additional agency actions totaling $660 million;
(ii) the prepayment in the 1998 fiscal year of $200 million of debt service due
in the 1999 fiscal year; (iii) the proposed sale of various assets; (iv)
additional State aid of $294 million, including a proposal that the State
accelerate a $142 million revenue sharing payment to the City from March 1999;
and (v) entitlement savings of $128 million which would result from certain of
the reductions in Medicaid spending proposed in the Governor's 1997-1998
Executive Budget and the State making available to the City $77 million of
additional Federal block grant aid, as proposed in the Governor's 1997-1998
Executive Budget. The City Executive Budget is subject to approval by the City
Council, and there can be no assurance that the City Executive Budget will be
adopted in its proposed form. The 1998-2001 Financial Plan also set forth
projections for the 1999 through 2001 fiscal years and projected gaps of $2.0
billion, $2.9 billion and $2.7 billion for the 1999 through 2001 fiscal years,
respectively.
The 1998-2001 Financial Plan included a proposed tax reduction program
totaling $284 million, $651 million, $895 million and $1.2 billion in the 1998
through 2001 fiscal year, respectively. The tax reduction program included a
proposed elimination of the 4% City sales tax on clothing items under $500 as of
December 1, 1997, as well as a proposed reduction in the City property tax and
personal income tax which the 1998-2001 Financial Plan assumed will be offset by
proposed increased State aid totaling $47 million, $254 million, $472 million
and $722 million in the 1998 through 2001 fiscal years, respectively.
The 1998-2001 Financial Plan assumed (i) approval by the Governor and
the State Legislature of the extension of the 14% personal income tax surcharge,
which is scheduled to expire on December 31, 1997 and is projected to provide
revenue (if extended) of $169 million, $501 million and $531 million in the 1998
through 2000 fiscal years, respectively, and of the extension of the 12.5%
personal income tax surcharge, which is scheduled to expire on December 31, 1998
and is projected to provide revenue (if extended) of $190 million and $527
million in the 1999 and 2000 fiscal years, respectively; (ii) collection of the
project rent payments for the City's airports, totalling $270 million and $180
million in the 1998 and 1999 fiscal years, respectively, which may depend on the
successful completion of negotiations with the Port Authority or the enforcement
of the City's rights under the existing leases through pending legal actions;
(iii) the ability of the New York City Health and Hospital Corporation to
identify actions to offset substantial City and State revenue reductions and the
receipt by BOE of additional State aid; and (iv) State approval of the cost
containment initiatives and State aid proposed by the City for the 1998 fiscal
year, and $115 million in State aid which is
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assumed in the 1998-2001 Financial Plan but not provided for in the Governor's
1997-1998 Executive Budget. The 1998-2001 Financial Plan reflected the increased
costs which the City is prepared to incur as a result of welfare legislation
recently enacted by Congress, but not certain of the costs resulting from
legislation proposed by the Governor, which would, if enacted, implement such
Federal welfare legislation. Moreover, certain of the proposed entitlement cost
containment and other initiatives included in the 1998-2001 Financial Plan have
been previously considered and rejected by the Legislature. The nature and
extent of the impact on the City of the State budget, when adopted, is
uncertain, and no assurance can be given that the State actions included in the
State adopted budget may not have a significant adverse impact on the City's
budget and its financial plan.
The projections set forth in the 1998-2001 Financial Plan were based
on various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City employees
consistent with those assumed in the 1998-2001 Financial Plan, employment
growth, the ability to implement proposed reductions in City personnel and other
cost reduction initiatives, the ability of the HHC and the BOE to take actions
to offset reduced revenues, the ability to complete revenue generating
transactions, provision of State and Federal aid and mandate relief and the
impact on City revenues and expenditures of Federal and State welfare reform and
any future legislation affecting Medicare or other entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon
the City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority, was
created as part of the City's effort to assist in keeping the City's
indebtedness within the forecast level of the constitutional restrictions on the
amount of debt the City is authorized to incur. Indebtedness subject to the
constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. In addition, the City issues revenue and tax anticipation
notes to finance its seasonal working capital requirements. The success of
projected public sales of City bonds and notes, New York City Municipal Water
Finance Authority ("Water Authority") bonds and Finance Authority
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bonds will be subject to prevailing market conditions, and no assurance can be
given that such sales will be completed. If the City were unable to sell its
general obligation bonds and notes or the Water Authority or the Finance
Authority were unable to sell its bonds, the City would be prevented from
meeting its planned capital and operating expenditures. Future developments
concerning the City and public discussion of such developments, as well as
prevailing market conditions, may affect the market for outstanding City general
obligation bonds and notes.
The City Comptroller and other agencies and public officials have
issued reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment. It is
expected that the City Comptroller and other agencies will issue reports in the
near future commenting on the City Executive Budget and/or the 1998-2001
Financial Plan.
The City since 1981 has fully satisfied its seasonal financing needs
in the public credit markets, repaying all short-term obligations within their
fiscal year of issuance. The City has issued $2.4 billion of short-term
obligations in fiscal year 1997 to finance the City's current estimate of its
seasonal cash flow needs for the 1997 fiscal year. Seasonal financing
requirements for the 1996 fiscal year increased to $2.4 billion from $2.2
billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion and $2.25 billion in the 1993
and 1992 fiscal years, respectively. The delay in the adoption of the State's
budget in certain past fiscal years has required the City to issue short-term
notes in amounts exceeding those expected early in such fiscal year.
Certain localities, in addition to the City, could have financial
problems leading to requests for additional New York State assistance. The
potential impact on the State of such requests by localities was not included in
the State's projections of its receipts and disbursements.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
Governor or the Legislature to assist Yonkers could result in allocation of New
York State resources in amounts that cannot yet be determined.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment
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of a Supervisory Board for the City of Troy in 1994. The Supervisory Board's
powers were increased in 1995, when Troy MAC was created to help Troy avoid
default on certain obligations. The legislation creating Troy MAC prohibits the
city of Troy from seeking federal bankruptcy protection while Troy MAC bonds are
outstanding.
Seventeen municipalities received extraordinary assistance during the
1996 legislative session through $50 million in special appropriations targeted
for distressed cities.
Municipalities and school districts have engaged in substantial short-
term and long-term borrowings. In 1994, the total indebtedness of all
localities in New York State other than New York City was approximately $17.7
billion. A small portion (approximately $82.9 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
enabling New York State legislation. State law requires the comptroller to
review and make recommendations concerning the budgets of those local government
units other than New York City authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
Seventeen localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1994.
From time to time, federal expenditure reductions could reduce, or in
some cases eliminate, federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If New York State, New York City or any of the Authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within New York State could be adversely affected. Localities also
face anticipated and potential problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. Long-range
potential problems of declining urban population, increasing expenditures and
other economic trends could adversely affect localities and require increasing
New York State assistance in the future.
Additional Investment Limitations
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In addition to the investment limitations disclosed in the Prospectus,
the Fund is subject to the following investment limitations, which may be
changed only by a vote of the holders of a majority of the Fund's outstanding
Shares (as defined under "Miscellaneous" in the Prospectus).
The Fund may not:
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1. Make loans, except that the Fund may purchase or hold debt
obligations in accordance with its investment objective, policies, and
limitations;
2. Purchase securities on margin, make short sale of securities, or
maintain a short position; provided that the Fund may enter into futures
contracts and futures options;
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except to the extent that the purchase of Municipal
Obligations or other securities directly from the issuer thereof in accordance
with the Fund's investment objective, policies, and limitations may be deemed to
be underwriting;
4. Purchase or sell real estate, except that the Fund may invest in
Municipal Obligations secured by real estate or interests therein;
5. Purchase or sell commodity futures contracts, or invest in oil,
gas, or mineral exploration or development programs; provided that the Fund may
enter into futures contracts and futures options;
6. Write or sell puts, calls, straddles, spreads, or combinations
thereof; provided that the Fund may enter into futures contracts and futures
options;
7. Invest in industrial revenue bonds where the payment of principal
and interest are the responsibility of a company (including its predecessors)
with less than three years of continuous operation; and
8. Issue any senior securities, except insofar as any borrowing in
accordance with the Fund's investment limitations might be considered to be the
issuance of a senior security; provided that the Fund may enter into futures
contracts and futures options.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
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Shares are continuously offered for sale by Edgewood Services, Inc.
(the "Distributor"), a wholly-owned subsidiary of Federated Investors, and the
Distributor has agreed to use appropriate efforts to solicit all purchase
orders. As described in the Prospectus, Shares may be sold to customers
("Customers") of the Investment Adviser, its affiliates and correspondent banks
and qualified banks, savings and loan associations, broker/dealers, and other
institutions ("Shareholder Organizations") that have entered into servicing
agreements with Excelsior Tax-Exempt Fund. Shares are also sold directly to
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institutional investors ("Institutional Investors") and members of the general
public ("Direct Investors", and collectively with Institutional Investors,
"Investors"). Different types of Customer accounts at the Shareholder
Organizations may be used to purchase Shares, including eligible agency and
trust accounts. In addition, Shareholder Organizations may automatically
"sweep" a Customer's account not less frequently than weekly and invest amounts
in excess of a minimum balance agreed to by the Shareholder Organization and its
Customer. Investors purchasing Shares may include officers, directors, or
employees of the particular Shareholder Organization.
Shares of the Fund are offered for sale at their net asset value per
Share next computed after a purchase order is received by Excelsior Tax-Exempt
Fund's sub-transfer agent.
Prior to March 1, 1997, Shares of the Fund were offered for sale with
a maximum sales charge of 4.50%. For the fiscal year ended March 31, 1997,
total sales charges paid by shareholders of the Fund were $______. The
Distributor retained $___ of the foregoing sales charges with respect to the
Fund for the fiscal year ended March 31, 1997. The balance was paid to selling
dealers. No sales charges were imposed in connection with sales of Shares of
the Fund during the fiscal years ended March 31, 1996 and 1995.
Excelsior Tax-Exempt Fund may suspend the right of redemption or
postpone the date of payment for Shares for more than seven days during any
period when (a) trading on the New York Stock Exchange (the "Exchange") is
restricted by applicable rules and regulations of the Securities and Exchange
Commission (the "SEC"); (b) the Exchange is closed for other than customary
weekend and holiday closings; (c) the SEC has by order permitted such
suspension; or (d) an emergency exists as determined by the SEC.
In the event that Shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such Shares an amount that is
more or less than his original investment due to changes in the market price of
the Fund's portfolio securities.
Excelsior Tax-Exempt Fund reserves the right to honor any request for
redemption or repurchase of the Fund's Shares by making payment in whole or in
part in securities chosen by Excelsior Tax-Exempt Fund and valued in the same
way as they would be valued for purposes of computing the Fund's net asset
value. If payment is made in securities, a shareholder may incur transaction
costs in converting these securities into cash. Such redemptions in kind will
be governed by Rule 18f-1 under the 1940 Act so that the Fund is obligated to
redeem its Shares solely in
-25-
<PAGE>
cash up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder of the Fund.
Under limited circumstances, Excelsior Tax-Exempt Fund may accept
securities as payment for Shares. Securities acquired in this manner will be
limited to securities issued in transactions involving a bona fide
---------
reorganization or statutory merger, or will be limited to other securities
(except for municipal debt securities issued by state political subdivisions or
their agencies or instrumentalities) that: (a) meet the investment objective and
policies of the Fund; (b) are acquired for investment and not for resale; (c)
are liquid securities that are not restricted as to transfer either by law or
liquidity of market; and (d) have a value that is readily ascertainable (and not
established only by evaluation procedures) as evidenced by a listing on the
American Stock Exchange, New York Stock Exchange or NASDAQ, or as evidenced by
their status as U.S. Government securities, bank certificates of deposit,
banker's acceptances, corporate and other debt securities that are actively
traded, money market securities and other similar securities with a readily
ascertainable value.
INVESTOR PROGRAMS
-----------------
Systematic Withdrawal Plan
- --------------------------
An Investor who owns Shares with a value of $10,000 or more may begin
a Systematic Withdrawal Plan. The withdrawal can be on a monthly, quarterly,
semiannual or annual basis. There are four options for such systematic
withdrawals. The Investor may request:
(1) A fixed-dollar withdrawal;
(2) A fixed-share withdrawal;
(3) A fixed-percentage withdrawal (based on the current value of the
account); or
(4) A declining-balance withdrawal.
Prior to participating in a Systematic Withdrawal Plan, the Investor must
deposit any outstanding certificates for Shares with Chase Global Funds Services
Company, the Fund's sub-transfer agent. Under this Plan, dividends and
distributions are automatically reinvested in additional Shares. Amounts paid
to Investors under this Plan should not be considered as income. Withdrawal
payments represent proceeds from the sale of Shares, and there will be a
reduction of the shareholder's equity in the Fund if the amount of the
withdrawal payments exceeds the
-26-
<PAGE>
dividends and distributions paid on the Shares and the appreciation of the
Investor's investment in the Fund. This in turn may result in a complete
depletion of the shareholder's investment. An Investor may not participate in a
program of systematic investing in the Fund while at the same time participating
in the Systematic Withdrawal Plan with respect to an account in the Fund.
Customers of Shareholder Organizations may obtain information on the
availability of, and the procedures and fees relating to, the Systematic
Withdrawal Plan directly from their Shareholder Organizations.
Exchange Privilege
- ------------------
Investors and Customers of Shareholder Organizations may exchange
Shares having a value of at least $500 for Shares of any other portfolio of
Excelsior Tax-Exempt Fund or Excelsior Funds, Inc. ("Excelsior Fund" and,
collectively with Excelsior Tax-Exempt Fund, the "Companies") or for Trust
Shares of Excelsior Institutional Trust. Shares may be exchanged by wire,
telephone or mail and must be made to accounts of identical registration. There
is no exchange fee imposed by the Companies or Excelsior Institutional Trust.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, the Companies and Excelsior Institutional Trust reserve the right
to limit the number of exchange requests of Investors and Customers of
Shareholder Organizations to no more than six per year. The Companies and
Excelsior Institutional Trust may modify or terminate the exchange program at
any time upon 60 days' written notice to shareholders, and may reject any
exchange request. Customers of Shareholder Organizations may obtain information
on the availability of, and the procedures relating to, such programs directly
from their Shareholder Organizations.
For Federal income tax purposes, exchanges are treated as sales on
which the shareholder will realize a gain or loss, depending upon whether the
value of the Shares to be given up in exchange is more or less than the basis in
such Shares at the time of the exchange. Generally, a shareholder may include
sales loads incurred upon the purchase of Shares in his or her tax basis for
such Shares for the purpose of determining gain or loss on a redemption,
transfer or exchange of such Shares. However, if the shareholder effected an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and was able to reduce the sales load previously applicable
to the new shares (by virtue of the Companies' exchange privilege), the amount
equal to such reduction may not be included in the tax basis of the
shareholder's exchanged Shares but may be included (subject to the limitation)
in the tax basis of the new shares.
-27-
<PAGE>
Other Investor Programs
-----------------------
As described in the Prospectus, Shares of the Fund may be purchased in
connection with the Automatic Investment Program. Customers of Shareholder
Organizations may obtain information on the availability of, and the fees and
procedures relating to, such program directly from their Shareholder
Organizations.
DESCRIPTION OF CAPITAL STOCK
----------------------------
Excelsior Tax-Exempt Fund's Charter authorizes its Board of Directors
to issue up to 14 billion full and fractional shares of capital stock and to
classify or reclassify any unissued shares of Excelsior Tax-Exempt Fund into one
or more additional classes or series by setting or changing in any one or more
respects their respective preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption. The Prospectus describes the classes of shares into
which Excelsior Tax-Exempt Fund's authorized capital is currently classified.
Shares have no preemptive rights and only such con version or exchange
rights as the Board of Directors may grant in its discretion. When issued for
payment as described in the Prospectus, Shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of the Fund, its
shareholders are entitled to receive the assets available for distribution
belonging to the Fund and a proportionate dis tribution, based upon the relative
asset values of Excelsior Tax-Exempt Fund's portfolios, of any general assets of
Excelsior Tax-Exempt Fund not belonging to any particular portfolio of Excelsior
Tax-Exempt Fund which are available for distribution. In the event of a
liquidation or dissolution of Excelsior Tax-Exempt Fund, its shareholders will
be entitled to the same distribution process.
Shareholders of Excelsior Tax-Exempt Fund are entitled to one vote for
each full share held, and fractional votes for fractional shares held, and will
vote in the aggregate and not by class, except as otherwise required by the 1940
Act or other applicable law or when the matter to be voted upon affects only the
interests of the shareholders of a particular class. Voting rights are not
cumulative and, accordingly, the holders of more than 50% of the aggregate of
the outstanding shares of Excelsior Tax-Exempt Fund may elect all of Excelsior
Tax-Exempt Fund's directors, regardless of the votes of other shareholders.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as Excelsior Tax-Exempt Fund shall not be deemed to have been
effectively acted upon
-28-
<PAGE>
unless approved by the holders of a majority of the outstanding shares of each
portfolio affected by the matter. A portfolio is affected by a matter unless it
is clear that the interests of each portfolio in the matter are substantially
identical or that the matter does not affect any interest of the portfolio.
Under the Rule, the approval of an investment advisory agreement or any change
in a fundamental investment policy would be effectively acted upon with respect
to a portfolio only if approved by a majority of the outstanding shares of such
portfolio. However, the Rule also provides that the ratification of the
appointment of independent public accountants, the approval of principal
underwriting contracts, and the election of directors may be effectively acted
upon by shareholders of Excelsior Tax-Exempt Fund voting without regard to
class.
Excelsior Tax-Exempt Fund's Charter authorizes its Board of Directors,
without shareholder approval (unless otherwise required by applicable law), to
(a) sell and convey the assets of the Fund to another management investment
company for consideration which may include securities issued by the purchaser
and, in connection therewith, to cause all outstanding Shares of the Fund to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert the Fund's assets
into money and, in connection therewith, to cause all outstanding Shares to be
redeemed at their net asset value; or (c) combine the assets belonging to the
Fund with the assets belonging to another portfolio of Excelsior Tax-Exempt
Fund, if the Board of Directors reasonably determines that such combination will
not have a material adverse effect on shareholders of any portfolio
participating in such combination, and, in connection therewith, to cause all
outstanding Shares of the Fund to be redeemed at their net asset value or
converted into shares of another class of Excelsior Tax-Exempt Fund's capital
stock at net asset value. The exercise of such authority by the Board of
Directors will be subject to the provisions of the 1940 Act, and the Board of
Directors will not take any action described in this paragraph unless the
proposed action has been disclosed in writing to the Fund's shareholders at
least 30 days prior thereto.
Notwithstanding any provision of Maryland law requiring a greater vote
of Excelsior Tax-Exempt Fund's Common Stock (or of the Shares of the Fund voting
separately as a class) in connection with any corporate action, unless otherwise
provided by law (for example, by Rule 18f-2, discussed above) or by Excelsior
Tax-Exempt Fund's Charter, Excelsior Tax-Exempt Fund may take or authorize such
action upon the favorable vote of the holders of more than 50% of the
outstanding Common Stock of Excelsior Tax-Exempt Fund voting without regard to
class.
-29-
<PAGE>
MANAGEMENT OF THE FUND
----------------------
Directors and Officers
- ----------------------
The directors and executive officers of Excelsior Tax-Exempt Fund,
their addresses, ages, principal occupations during the past five years, and
other affiliations are as follows:
<TABLE>
<CAPTION>
Position with Principal Occupation
Excelsior Tax- During Past 5 years and
Name and Address Exempt Fund Other Affiliations
- ---------------- ----------- ------------------
<S> <C> <C>
Frederick S. Wonham(1) Chairman of the Retired; Director of
238 June Road Board, President Excelsior Funds, Inc.
Stamford, CT 06903 & Treasurer (since 1995); Trustee of
Age: 66 Excelsior Funds and
Excelsior Institutional
Trust (since 1995); Vice
Chairman of U.S. Trust
Corporation and U.S.
Trust New York (from
February 1990 until
September 1995);
Chairman, U.S. Trust
Connecticut (from March
1993 to May 1997).
Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior Funds, Inc.
Apt. 10-H (since 1984); Director
New York, NY 10021 of UST Master Variable
Age: 71 Series, Inc. (from 1994
to June 1997); Trustee
of Excelsior
Institutional Trust
(since 1995); Director,
Royal Life Insurance Co.
of New York (since
1991).
</TABLE>
_____________
(1) This director is considered to be an "interested person" of Excelsior
Tax-Exempt Fund as defined in the 1940 Act.
-30-
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Excelsior Tax- During Past 5 years and
Name and Address Exempt Fund Other Affiliations
- ---------------- ----------- ------------------
<S> <C> <C>
Rodman L. Drake Director Director, Excelsior
485 Park Avenue Funds, Inc. (since
New York, New York 10022 1996); Trustee,
Age: 54 Excelsior Funds and
Excelsior Institutional
Trust (since 1994);
Director, Parsons
Brinkerhoff, Inc.
(engineering firm)
(since 1995); Director,
Parsons Brinkerhoff
Energy Services Inc.
(since 1996);
President, Mandrake
Group (investment and
consulting firm)(since
1994); Director,
Hyperion Total Return
Fund, Inc. and four
other funds for which
Hyperion Capital
Management, Inc. serves
as investment adviser
(since 1991); Co-
Chairman, KMR Power
Corporation (power
plants) (from 1993 to
1996); Director, The
Latin American Growth
Fund (since 1993);
Member of Advisory Board
Argentina Private Equity
Fund L.P. (from 1992 to
1996) and Garantia L.P.
(Brazil) (from 1993 to
1996); and Director,
Mueller Industries, Inc.
(from 1992 to 1994).
Joseph H. Dugan Director Retired; Director of
913 Franklin Lakes Road Excelsior Funds, Inc.
Franklin Lakes, NJ 07417 (since 1984); Director
Age: 72 of UST Master Variable
Series, Inc. (from 1994
to June 1997); Trustee
of Excelsior
Institutional Trust
(since 1995).
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Excelsior Tax- During Past 5 years and
Name and Address Exempt Fund Other Affiliations
- ---------------- ----------- ------------------
<S> <C> <C>
Wolfe J. Frankl Director Retired; Director of
2320 Cumberland Road Excelsior Funds, Inc.
Charlottesville, VA (since 1986); Director
22901 of UST Master Variable
Age: 76 Series, Inc. (from 1994
to June 1997); Trustee
of Excelsior
Institutional Trust
(since 1995); Director,
Deutsche Bank Financial,
Inc. (since 1989);
Director, The Harbus
Corporation (since
1951); Trustee, HSBC
Funds Trust and HSBC
Mutual Funds Trust
(since 1988).
W. Wallace McDowell, Jr. Director Director, Excelsior
c/o Prospect Capital Funds, Inc. (since
Corp. 1996); Trustee of
43 Arch Street Excelsior Funds and
Greenwich, CT 06830 Excelsior Institutional
Age: 60 Trust (since 1994);
Private Investor (since
1994); Managing
Director, Morgan Lewis
Githens & Ahn (from 1991
to 1994) and Director,
U.S. Homecare
Corporation (since
1992), Grossmans, Inc.
(from 1993 to 1996),
Children's Discovery
Centers (since 1984),
ITI Technologies, Inc.
(since 1992) and Jack
Morton Productions
(since 1987).
</TABLE>
-32-
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Excelsior Tax- During Past 5 years and
Name and Address Exempt Fund Other Affiliations
- ---------------- ----------- ------------------
<S> <C> <C>
Jonathan Piel Director Director, Excelsior
558 E. 87th Street Funds, Inc. (since
New York, New York 10128 1996); Trustee of
Age: 58 Excelsior Funds and
Excelsior Institutional
Trust (since 1994);
President, Scientific
American, Inc. (from
1984 to 1986); Vice
President and Editor,
Scientific American,
Inc. (from 1986 to
1994); Director, Group
for The South Fork,
Bridgehampton, New York
(since 1993); and
Member, Advisory
Committee, Knight
Journalism Fellowships,
Massachusetts Institute
of Technology (since
1984).
Robert A. Robinson Director Director of Excelsior
Church Pension Fund Funds, Inc. (since
800 Second Avenue 1987); Director of UST
New York, NY 10017 Master Variable Series,
Age: 71 Inc. (from 1994 to June
1997); Trustee of
Excelsior Institutional
Trust (since 1995);
President Emeritus, The
Church Pension Fund and
its affiliated companies
(since 1966); Trustee,
H.B. and F.H. Bugher
Foundation and Director
of its wholly-owned
subsidiaries--Rosiclear
Lead and Flourspar
Mining Co. and The Pigmy
Corporation (since
1984); Director,
Morehouse Publishing Co.
(since 1974); Trustee,
HSBC Funds Trust and
HSBC Mutual Funds Trust
(since 1982); Director,
Infinity Mutual Funds,
Inc. (since 1995).
</TABLE>
-33-
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Excelsior Tax- During Past 5 years and
Name and Address Exempt Fund Other Affiliations
- ---------------- ----------- ------------------
<S> <C> <C>
Alfred C. Tannachion(1) Director Retired; Director of
6549 Pine Meadows Drive Excelsior Funds, Inc.
Spring Hill, FL 34606 (since 1985); Chairman
Age: 71 of the Board, President
and Treasurer of UST
Master Variable Series,
Inc. (from 1994 to June
1997); Trustee of
Excelsior Institutional
Trust (since 1995).
W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National Bank of Drinker Biddle &
Building Reath LLP.
1345 Chestnut Street
Philadelphia, PA 19107-3497
Age: 54
Gregory Sackos Assistant Second Vice President,
Chase Global Funds Secretary Senior Manager of Blue
Services Company Sky Compliance and
73 Tremont Street Financial Reporting,
Boston, MA 02108-3913 Chase Global Funds
Age: 32 Services Company (March
1997 to present); Second
Vice President, Senior
Manager of Financial
Reporting, Chase Global
Funds Services Company
(September 1996 to March
1997); Assistant Vice
President, Assistant
Manager of Financial
Reporting, Scudder,
Stevens & Clark Inc.
(October 1992 to
September 1996).
</TABLE>
_____________
(1) This director is considered to be an "interested person" of Excelsior
Tax-Exempt Fund as defined in the 1940 Act.
-34-
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Excelsior Tax- During Past 5 years and
Name and Address Exempt Fund Other Affiliations
- ---------------- ----------- ------------------
<S> <C> <C>
John M. Corcoran Assistant Vice President, Director
Chase Global Funds Treasurer of Administration Client
Services Company Group, Chase Global
73 Tremont Street Funds Services Company
Boston, MA 02108-3913 (since July 1996);
Age: 32 Second Vice President,
Manager of
Administration, Chase
Global Funds Services
Company (from October
1993 to July 1996);
Audit Manager, Ernst &
Young LLP (from August
1987 to September 1993).
</TABLE>
Each director of Excelsior Tax-Exempt Fund receives an annual fee of $9,000
plus a meeting fee of $1,500 for each meeting attended and is reimbursed for
expenses incurred in attending meetings. The Chairman of the Board is entitled
to receive an additional $5,000 per annum for services in such capacity.
Drinker Biddle & Reath LLP, of which Mr. McConnel is a partner, receives legal
fees as counsel to Excelsior Tax-Exempt Fund. The employees of Chase Global
Funds Services Company do not receive any compensation from Excelsior Tax-Exempt
Fund for acting as officers of Excelsior Tax-Exempt Fund. No person who is
currently an officer, director or employee of the Investment Adviser serves as
an officer, director or employee of Excelsior Tax-Exempt Fund. As of July __,
1997, the directors and officers of Excelsior Tax-Exempt Fund as a group owned
beneficially less than 1% of the outstanding Shares of Excelsior Tax-Exempt
Fund, and less than 1% of the outstanding Shares of all funds of Excelsior Tax-
Exempt Fund in the aggregate.
The following chart provides certain information about the fees
received by Excelsior Tax-Exempt Fund's directors during the fiscal year ended
March 31, 1997.
-35-
<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation from
Aggregate Accrued as Excelsior Tax-Exempt
Compensation from Part of Fund and Fund
Name of Excelsior Fund Complex/*/ Paid
Person/Position Tax-Exempt Fund Expenses to Directors
--------------------------------- ----------------- ---------- --------------------
<S> <C> <C> <C>
Frederick S. Wonham $15,000 None $35,000(4)**
Chairman of the Board,
President and Treasurer***
Donald L. Campbell $13,500 None $31,750(4)**
Director
Rodman L. Drake $ 3,750 None $12,250(4)**
Director****
Joseph H. Dugan $15,000 None $35,000(4)**
Director
Wolfe J. Frankl $15,000 None $35,000(4)**
Director
W. Wallace McDowell $ 2,250 None $ 9,250(4)**
Director****
Jonathan Piel $ 3,750 None $12,500(4)**
Director****
Robert A. Robinson $15,000 None $35,000(4)**
Director
Alfred C. Tannachion $20,000 None $45,000(4)**
Director*****
</TABLE>
- ---------------------------
* The "Fund Complex" consists of Excelsior Funds, Inc., Excelsior Tax-Exempt
Fund, UST Master Variable Series, Inc., Excelsior Institutional Trust and
Excelsior Funds.
** Number of investment companies in the Fund Complex for which director
serves as director or trustee.
*** Mr. Wonham was elected to the Board of Directors of Excelsior Tax-Exempt
Fund on November 17, 1995, and has served as its Chairman, President and
Treasurer since February 13, 1997.
**** Messrs. Drake, McDowell and Piel were elected to the Boards of Directors of
Excelsior Funds, Inc. and Excelsior Tax-Exempt Fund on December 9, 1996.
***** Mr. Tannachion served as Chairman, President and Treasurer
of Excelsior Tax-Exempt Fund until February 13, 1997.
-36-
<PAGE>
Investment Advisory and Administration Agreements
- -------------------------------------------------
United States Trust Company of New York ("U.S. Trust New York") and
U.S. Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively
with U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as
Investment Adviser to the Fund. In the Investment Advisory Agreement, the
Investment Adviser has agreed to provide the services described in the
Prospectus. The Investment Adviser has also agreed to pay all expenses incurred
by it in connection with its activities under the agreement other than the cost
of securities, including brokerage commissions, if any, purchased for the Fund.
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 Investment Advisory Agreement currently in effect for the Fund.
For the fiscal years ended March 31, 1995, 1996 and 1997, Excelsior
Tax-Exempt Fund paid U.S. Trust New York advisory fees of $449,781, $450,208 and
$451,669, respectively, with respect to the Fund. For the same periods, U.S.
Trust New York waived advisory fees totalling $17,901, $22,385 and $30,358,
respectively, with respect to the Fund.
The Investment Advisory Agreement provides that the Investment Adviser
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the performance of this agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for advisory services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment Adviser
in the performance of its duties or from reckless disregard by it of its duties
and obligations thereunder. In addition, the Investment Adviser has undertaken
in the Investment Advisory Agreement to maintain its policy and practice of
conducting its Asset Management Group independently of its Banking Group.
Chase Global Funds Services Company ("CGFSC"), Federated
Administrative Services, an affiliate of the Distributor, and U.S. Trust
Connecticut (the "Administrators") serve as the Fund's administrators. Under
the Administration Agreement, the Administrators have agreed to maintain office
facilities for the Fund, furnish the Fund with statistical and research data,
clerical, accounting and bookkeeping services, and certain other services
required by the Fund, and to compute the net asset value, net income, "exempt
interest dividends" and realized capital gains or losses of the Fund. The
Administrators prepare semiannual reports to the SEC, prepare Federal and state
-37-
<PAGE>
tax returns, prepare filings with state securities commissions, arrange for and
bear the cost of processing Share purchase and redemption orders, maintain the
Fund's financial accounts and records, and generally assist in all aspects of
the Fund's operations.
Prior to May 16, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York served as the Fund's administrators pursuant to an
administrative agreement substantially similar to the Administration Agreement
currently in effect for the Fund. Prior to August 1, 1995, administrative
services were provided to the Fund by CGFSC and Concord Holding Corporation
(collectively, the "former administrators") under an administration agreement
having substantially the same terms as the Administration Agreement currently in
effect.
For the fiscal year ended March 31, 1995, Excelsior Tax-Exempt Fund
paid the former administrators $144,024 in the aggregate with respect to the
Fund.
For the period April 1, 1995 through July 31, 1995, Excelsior Tax-
Exempt Fund paid the former administrators $46,815, in the aggregate with
respect to the Fund. For the same period, former administrators waived
administration fees totalling $160 with respect to the Fund.
For the period August 1, 1995 through March 31, 1996, Excelsior Tax-
Exempt Fund paid CGFSC, Federated Administrative Services and U.S. Trust New
York $98,971 in the aggregate with respect to the Fund. For the same period,
CGFSC, Federated Administrative Services and U.S. Trust New York waived
administration fees totalling $41 with respect to the Fund.
For the fiscal year ended March 31, 1997, Excelsior Tax-Exempt Fund
paid CGFSC, Federated Administrative Services and U.S. Trust New York $247,181
in the aggregate with respect to the Fund. For the same period, CGFSC,
Federated Administrative Services and U.S. Trust New York waived administration
fees totalling $91 with respect to the Fund.
Service Organizations
- ---------------------
As stated in the Prospectus, Excelsior Tax-Exempt Fund will enter into
agreements with Service Organizations. Such shareholder servicing agreements
will require the Service Organizations to provide shareholder administrative
services to their Customers who beneficially own Shares in consideration for the
Fund's payment (on an annualized basis) of up to .40% of the average daily net
assets of the Fund's Shares beneficially owned by Customers of the Service
Organization. Such services may include: (a) assisting Customers in
designating and changing
-38-
<PAGE>
dividend options, account designations and addresses; (b) providing necessary
personnel and facilities to establish and maintain certain shareholder accounts
and records, as may reasonably be requested from time to time by Excelsior Tax-
Exempt Fund; (c) assisting in processing purchases, exchange and redemption
transactions; (d) arranging for the wiring of funds; (e) transmitting and
receiving funds in connection with Customer orders to purchase, exchange or
redeem Shares; (f) verifying and guaranteeing Customer signatures in connection
with redemption orders, transfers among and changes in Customer-designated
accounts; (g) providing periodic statements showing a Customer's account
balances and, to the extent practicable, integrating of such information with
information concerning other client transactions otherwise effected with or
through the Service Organization; (h) furnishing on behalf of Excelsior Tax-
Exempt Fund's distributor (either separately or on an integrated basis with
other reports sent to a Customer by the Service Organization) periodic
statements and confirmations of all purchases, exchanges and redemptions of
Shares in a Customer's account required by applicable federal or state law; (i)
transmitting proxy statements, annual reports, updating prospectuses and other
communications from Excelsior Tax-Exempt Fund to Customers; (j) receiving,
tabulating and transmitting to Excelsior Tax-Exempt Fund proxies executed by
Customers with respect to annual and special meetings of shareholders of
Excelsior Tax-Exempt Fund; (k) providing reports (at least monthly, but more
frequently if so requested by Excelsior Tax-Exempt Fund's distributor)
containing state-by-state listings of the principal residences of the beneficial
owners of the Shares; and (l) providing or arranging for the provision of such
other related services as Excelsior Tax-Exempt Fund or a Customer may reasonably
request.
Excelsior Tax-Exempt Fund's agreements with Service Organizations are
governed by an Administrative Services Plan (the "Plan") adopted by Excelsior
Tax-Exempt Fund. Pursuant to the Plan, Excelsior Tax-Exempt Fund's Board of
Directors will review, at least quarterly, a written report of the amounts
expended under Excelsior Tax-Exempt Fund's agreements with Service Organizations
and the purposes for which the expenditures were made. In addition, the
arrangements with Service Organizations will be approved annually by a majority
of Excelsior Tax-Exempt Fund's directors, including a majority of the directors
who are not "interested persons" of Excelsior Tax-Exempt Fund as defined in the
1940 Act and have no direct or indirect financial interest in such arrangements
(the "Disinterested Directors").
Any material amendment to Excelsior Tax-Exempt Fund's arrangements
with Service Organizations must be approved by a majority of the Board of
Directors (including a majority of the Disinterested Directors). So long as
Excelsior Tax-Exempt Fund's
-39-
<PAGE>
arrangements with Service Organizations are in effect, the selection and
nomination of the members of Excelsior Tax-Exempt Fund's Board of Directors who
are not "interested persons" (as defined in the 1940 Act) of Excelsior Tax-
Exempt Fund will be committed to the discretion of such non-interested
Directors.
For the fiscal years ended March 31, 1997, 1996 and 1995, payments to
Service Organizations totalled $30,408, $22,586 and $17,923, respectively, with
respect to the Fund, of which $30,408, $22,586 and $17,458, respectively, was
paid to affiliates of U.S. Trust.
Expenses
- --------
Except as otherwise noted, the Investment Adviser and the
Administrators bear all expenses in connection with the performance of their
advisory and administrative services. The Fund bears the expenses incurred in
its operations. Such expenses include taxes; interest; fees, including the
Fund's portion of the fees paid to Excelsior Tax-Exempt Fund's directors and
officers who are not affiliated with the Distributor or the Administrators; SEC
fees; state securities qualification fees; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to shareholders;
advisory, administration and administrative servicing fees; charges of the
custodian, transfer agent and dividend disbursing agent; certain insurance
premiums; outside auditing and legal expenses; cost of independent pricing
services; costs of shareholder reports and meetings; and any extraordinary
expenses. The Fund also pays for any brokerage fees and commissions in
connection with the purchase of portfolio securities.
Custodian and Transfer Agent
- ----------------------------
The Chase Manhattan Bank ("Chase") serves as custodian of the Fund's
assets. Under the custodian agreement, Chase has agreed to (i) maintain a
separate account or accounts in the name of the Fund; (ii) make receipts and
disbursements of money on behalf of the Fund; (iii) collect and receive all
income and other payments and distributions on account of the Fund's portfolio
securities; (iv) respond to correspondence from securities brokers and others
relating to its duties; (v) maintain certain financial accounts and records; and
(vi) make periodic reports to Excelsior Tax-Exempt Fund's Board of Directors
concerning the Fund's operations. Chase may, at its own expense, open and
maintain custody accounts with respect to the Fund, with the banks or trust
companies, provided that Chase shall remain liable for the performance of all
its custodial duties under the Custodian Agreement, notwithstanding any
delegation.
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<PAGE>
U.S. Trust New York also serves as the Fund's transfer agent and
dividend disbursing agent. In such capacity, U.S. Trust New York has agreed to
(i) issue and redeem Shares; (ii) address and mail all communications by the
Fund to its shareholders, including reports to shareholders, dividend and
distribution notices, and proxy materials for its meetings of shareholders;
(iii) respond to correspondence by shareholders and others relating to its
duties; (iv) maintain shareholder accounts; and (v) make periodic reports to
Excelsior Tax-Exempt Fund concerning the Fund's operations. For its transfer
agency, dividend disbursing, and subaccounting services, U.S. Trust New York is
entitled to receive $15.00 per annum per account and subaccount. In addition,
U.S. Trust New York is entitled to be reimbursed for its out-of-pocket expenses
for the cost of forms, postage, processing purchase and redemption orders,
handling of proxies, and other similar expenses in connection with the above
services.
U.S. Trust New York may, at its own expense, delegate its transfer
agency obligations to another transfer agent registered or qualified under
applicable law, provided that U.S. Trust New York shall remain liable for the
performance of all of its transfer agency duties under the Transfer Agency
Agreement, notwithstanding any delegation. Pursuant to this provision in the
agreement, U.S. Trust New York has entered into a sub-transfer agency
arrangement with CGFSC, an affiliate of Chase, with respect to accounts of
shareholders who are not Customers of U.S. Trust New York. For the services
provided by CGFSC, U.S. Trust New York has agreed to pay CGFSC $15.00 per annum
per account or subaccount plus out-of-pocket expenses. CGFSC receives no fee
directly from Excelsior Tax-Exempt Fund for any of its sub-transfer agency
services.
PORTFOLIO TRANSACTIONS
----------------------
Subject to the general control of Excelsior Tax-Exempt Fund's Board of
Directors, the Investment Adviser is responsible for, makes decisions with
respect to, and places orders for all purchases and sales of portfolio
securities.
The Fund may engage in short-term trading to achieve its investment
objective. Portfolio turnover may vary greatly from year to year as well as
within a particular year. It is expected that the Fund's turnover rate may be
higher than that of many other investment companies with similar investment
objectives and policies. The Fund's portfolio turnover rate may also be
affected by cash requirements for redemptions of Shares and by regulatory
provisions which enable the Fund to receive certain favorable tax treatment.
Portfolio turnover will not be a limiting factor in making portfolio decisions.
See "Financial
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<PAGE>
Highlights" in the Fund's prospectus for the Fund's portfolio turnover rate.
Securities purchased and sold by the Fund are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
With respect to over-the-counter transactions, the Fund, where possible, will
deal directly with dealers who make a market in the securities involved, except
in those situations where better prices and execution are available elsewhere.
The Investment Advisory Agreement provides that, in executing
portfolio transactions and selecting brokers or dealers, the Investment Adviser
will seek to obtain the best net price and the most favorable execution. The
Investment Adviser shall consider factors it deems relevant, including the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer and whether such
broker or dealer is selling shares of Excelsior Tax-Exempt Fund, and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis.
In addition, the Investment Advisory Agreement authorizes the
Investment Adviser, to the extent permitted by law and subject to the review of
Excelsior Tax-Exempt Fund's Board of Directors from time to time with respect to
the extent and continuation of the policy, to cause the Fund to pay a broker
which furnishes brokerage and research services a higher commission than that
which might be charged by another broker for effecting the same transaction,
provided that the Investment Adviser determines in good faith that such
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker, viewed in terms of either that particular
transaction or the overall responsibilities of the Investment Adviser to the
accounts as to which it exercises investment discretion. Such brokerage and
research services might consist of reports and statistics on specific companies
or industries, general summaries of groups of stocks and their comparative
earnings, or broad overviews of the fixed-income market and the economy.
Supplementary research information so received is in addition to and
not in lieu of services required to be performed by the Investment Adviser and
does not reduce the investment advisory fee payable by the Fund. Such
information may be useful to the Investment Adviser in serving the Fund and
other clients
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<PAGE>
and, conversely, supplemental information obtained by the placement of business
of other clients may be useful to the Investment Adviser in carrying out its
obligations to the Fund.
Portfolio securities will not be purchased from or sold to the
Investment Adviser, Distributor, or any affiliated person of either of them (as
such term is defined in the 1940 Act) acting as principal, except to the extent
permitted by the Securities and Exchange Commission.
Investment decisions for the Fund are made inde pendently from those
for other investment companies, common trust funds and other types of funds
managed by the Investment Adviser. Such other investment companies and funds
may also invest in the same securities as the Fund. When a purchase or sale of
the same security is made at substantially the same time on behalf of the Fund
and another investment company or common trust fund, the transaction will be
averaged as to price, and available investments allocated as to amount, in a
manner which the Investment Adviser believes to be equitable to the Fund and
such other investment company or common trust fund. In some instances, this
investment procedure may adversely affect the price paid or received by the Fund
or the size of the position obtained by the Fund. To the extent permitted by
law, the Investment Adviser may aggregate the securities to be sold or purchased
for the Fund with those to be sold or purchased for other investment companies
or common trust funds in order to obtain best execution.
Excelsior Tax-Exempt Fund is required to identify any securities of
its regular brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or
its parents held by Excelsior Tax-Exempt Fund as of the close of its most recent
fiscal year. As of March 31, 1997, the Fund held the following securities of
Excelsior Tax-Exempt Fund's regular brokers or dealers or their
parents:____________________.
INDEPENDENT AUDITORS
--------------------
Ernst & Young LLP, independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of Excelsior Tax-Exempt Fund. The Fund's Financial
Highlights included in the Prospectus and the financial statements for the
period ended March 31, 1997 incorporated by reference in this Statement of
Additional Information have been audited by Ernst & Young LLP for the periods
included in their report thereon which appears therein.
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<PAGE>
COUNSEL
-------
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of
Excelsior Tax-Exempt Fund, is a partner), Philadelphia National Bank Building,
1345 Chestnut Street, Philadelphia, Pennsylvania 19107-3496, is counsel to
Excelsior Tax-Exempt Fund and will pass upon the legality of the Shares offered
by the Prospectus.
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
Federal
- -------
The following supplements the tax information contained in the
Prospectus.
The Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended (the "Code"), and has qualified and intends to
continue to qualify as a regulated investment company. If, for any reason, the
Fund does not qualify for a taxable year for the special Federal tax treatment
afforded regulated investment companies, the Fund would be subject to Federal
tax on all of its taxable income at regular corporate rates, without any
deduction for distributions to shareholders. In such event, dividend
distributions would be taxable as ordinary income to shareholders to the extent
of the Fund's current and accumulated earnings and profits and would be eligible
for the dividends received deduction in the case of corporate shareholders.
As stated in the Prospectus, the Fund is not intended to constitute a
balanced investment program and is not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Fund will not be suitable for tax-exempt institutions
and may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans and individual retirement accounts because such plans and
accounts are generally tax-exempt and, therefore, not only would not gain any
additional benefit from the Fund's dividends being tax-exempt, but such
dividends would be ultimately taxable to the beneficiaries when distributed to
them. In addition, the Fund may not be an appropriate investment for entities
which are "substantial users" of facilities financed by private activity bonds
or "related persons" thereof. "Substantial user" is defined under the Treasury
Regulations to include a non-exempt person who regularly uses a part of such
facilities in his trade or business and whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenues derived by all users of such facilities, who occupies more
than 5% of the usable area of such facilities or for whom such facilities or a
part
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<PAGE>
thereof were specifically constructed, reconstructed or acquired. "Related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S Corporation and its shareholders.
In order for the Fund to pay exempt-interest dividends for any taxable
year, at least 50% of the aggregate value of the Fund's portfolio must consist
of exempt-interest obligations at the close of each quarter of its taxable year.
Within 60 days after the close of the taxable year, the Fund will notify its
shareholders of the portion of the dividends paid by the Fund which constitutes
an exempt-interest dividend with respect to such taxable year. However, the
aggregate amount of dividends so designated by the Fund cannot exceed the excess
of the amount of interest exempt from tax under Section 103 of the Code received
by the Fund during the taxable year over any amounts disallowed as deductions
under Sections 265 and 171(a)(2) of the Code. The percentage of total dividends
paid by the Fund with respect to any taxable year which qualifies as exempt-
interest dividends will be the same for all shareholders receiving dividends
from the Fund for such year.
Interest on indebtedness incurred by a shareholder to purchase or
carry the Shares generally is not deductible for income tax purposes. In
addition, if a shareholder holds Shares for six months or less, any loss on the
sale or exchange of those Shares will be disallowed to the extent of the amount
of exempt-interest dividends received with respect to the Shares. The Treasury
Department, however, is authorized to issue regulations reducing the six-month
holding requirement to a period of not less than the greater of 31 days or the
period between regular dividend distributions where the investment company
regularly distributes at least 90% of its net tax-exempt interest. No such
regulations had been issued as of the date of this Statement of Additional
Information.
Any net long-term capital gains realized by the Fund will be
distributed at least annually. The Fund will generally have no tax liability
with respect to such gains and the distributions will be taxable to shareholders
as long-term capital gains, regardless of how long a shareholder has held
Shares. Such distributions will be designated as a capital gain dividend in a
written notice mailed by the Fund to shareholders not later than 60 days after
the close of the Fund's taxable year.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). The Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
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<PAGE>
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
The Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or 31% of gross proceeds realized
upon sale paid to shareholders who have failed to provide a correct tax
identification number in the manner required, who are subject to withholding by
the Internal Revenue Service for failure properly to include on their return
payments of taxable interest or dividends, or who have failed to certify to the
Fund when required to do so either that they are not subject to backup
withholding or that they are "exempt recipients."
Taxation of Certain Financial Instruments
- -----------------------------------------
Generally, futures contracts held by the Fund at the close of the
Fund's taxable year will be treated for Federal income tax purposes as sold for
their fair market value on the last business day of such year, a process known
as "mark-to-market." Forty percent of any gain or loss resulting from such
constructive sale will be treated as short-term capital gain or loss and 60% of
such gain or loss will be treated as long-term capital gain or loss, without
regard to the length of time the Fund has held the futures contract (the "40%-
60% rule"). The amount of any capital gain or loss actually realized by the Fund
in a subsequent sale or other disposition of those futures contracts will be
adjusted to reflect any capital gain or loss taken into account by the Fund in a
prior year as a result of the constructive sale of the contracts. Futures
contracts to sell will be regarded as parts of a "mixed straddle" because their
values fluctuate inversely to the values of specific securities held by the
Fund. Losses as to futures contracts to sell will be subject to certain loss
deferral rules which limit the amount of loss currently deductible on either
part of the straddle to the amount thereof which exceeds the unrecognized gain
(if any) with respect to the other part of the straddle, and to certain wash
sales regulations. Under short sales rules, which will also be applicable, the
holding period of the securities forming part of the straddle will (if they have
not been held for the long-term holding period) be deemed not to begin prior to
termination of the straddle. With respect to certain futures contracts,
deductions for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures contracts to
sell which are properly identified as such, the Fund may make an election which
will exempt (in whole or in part) those identified futures contracts from being
treated for Federal income tax purposes as sold on the last business day of the
Fund's taxable year, but gains and losses will be subject to such short sales,
wash sales, and loss deferral rules and the requirement to capitalize interest
and carrying charges. Under
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<PAGE>
temporary regulations, the Fund would be allowed (in lieu of the foregoing) to
elect either (1) to offset gains or losses from positions which are part of a
mixed straddle by separately identifying each mixed straddle to which such
treatment applies, or (2) to establish a mixed straddle account for which gains
and losses would be recognized and offset on a periodic basis during the taxable
year. Under either election, the 40%-60% rule will apply to the net gain or
loss attributable to the futures contracts, but in the case of a mixed straddle
account election, not more than 50 percent of any net gain may be treated as
long-term and no more than 40 percent of any net loss may be treated as short-
term. Options on futures contracts generally receive Federal tax treatment
similar to that described above.
The Fund will not be treated as a regulated investment company under
the Code if 30% or more of the Fund's gross income for a taxable year is derived
from gains realized on the sale or other disposition of the following
investments held for less than three months (the "30% test"): (1) stock and
securities (as defined in section 2(a)(36) of the 1940 Act); (2) options,
futures and forward contracts other than those on foreign currencies; and (3)
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly related to the Fund's principal business of
investing in stock and securities (and options and futures with respect to
stocks and securities). Interest (including original issue discount and accrued
market discount) received by the Fund upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any other income which is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose. With respect to futures contracts, forward
contracts, options on futures contracts, and other financial instruments subject
to the mark-to-market rules described above, the Internal Revenue Service has
ruled in private letter rulings that a gain realized from such a contract,
option, or financial instrument will be treated as being derived from a security
held for three months or more (regardless of the actual period for which the
contract, option or instrument is held) if the gain arises as a result of a
constructive sale under the mark-to-market rules, and will be treated as being
derived from a security held for less than three months only if the contract,
option or instrument is terminated (or transferred) during the taxable year
(other than by reason of mark-to-market) and less than three months have elapsed
between the date the contract, option or instrument is acquired and the
termination date. Increases and decreases in the value of the Fund's futures
contracts and other investments that qualify as part of a "designated hedge," as
defined in Section 851(g) of the Code, may be netted for purposes of determining
whether the 30% test is met.
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<PAGE>
* * *
The foregoing discussion is based on Federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action. Shareholders are advised to consult their tax advisers concerning their
specific situations and the application of state and local taxes.
PERFORMANCE AND YIELD INFORMATION
---------------------------------
The Fund may advertise the standardized effective 30-day (or one
month) yields calculated in accordance with the method prescribed by the SEC for
mutual funds. Such yield will be calculated separately for each Fund according
to the following formula:
a-b
Yield = 2 [(----- + 1) to the sixth power - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = average daily number of Shares outstanding that were entitled to
receive dividends.
d = maximum offering price per Share on the last day of the period.
For the purpose of determining interest earned during the period
(variable "a" in the formula), the Fund computes the yield to maturity of any
debt obligation held by it based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest). Such yield is then
divided by 360, and the quotient is multiplied by the market value of the
obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is in the portfolio. It is assumed in the above calculation that
each month contains 30 days. Also, the maturity of a debt obligation with a
call provision is deemed to be the next call date on which the obligation
reasonably may be expected to be called or, if none, the maturity date. The
Fund calculates interest gained on tax-exempt obligations issued without
original
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<PAGE>
issue discount and having a current market discount by using the coupon rate of
interest instead of the yield to maturity. In the case of tax-exempt
obligations with original issue discount, where the discount based on the
current market value exceeds the then-remaining portion of original issue
discount, the yield to maturity is the imputed rate based on the original issue
discount calculation. Conversely, where the discount based on the current
market value is less than the remaining portion of the original issue discount,
the yield to maturity is based on the market value.
Expenses accrued for the period (variable "b" in the formula) include
all recurring fees charged by the Fund to all shareholder accounts and to the
particular series of Shares in proportion to the length of the base period and
the Fund's mean (or median) account size. Undeclared earned income will be
subtracted from the maximum offering price per Share (variable "d" in the
formula). Based on the foregoing calculations, the Fund's standardized
effective yield for the 30-day period ended March 31, 1997 was ___%.
The "tax-equivalent" yield of the Fund is computed by: (a) dividing
the portion of the yield (calculated as above) that is exempt from Federal
income tax by one minus a stated Federal income tax rate and (b) adding that
figure to that portion, if any, of the yield that is not exempt from Federal
income tax. Tax-equivalent yields assume the payment of Federal income taxes at
a rate of 31%.
Based on the foregoing calculation, the tax-equivalent yield of the
Fund for the 30-day period ended March 31, 1997 was ___%.
The Fund's "average annual total return" is computed by determining
the average annual compounded rate of return during specified periods that
equates the initial amount invested to the ending redeemable value of such
investment according to the following formula:
ERV
T = [(-----) /to the first power divided by n/ - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year (or other)
periods at the end of the applicable period (or a
fractional portion thereof).
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<PAGE>
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in years.
The calculation is made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
Share existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. The Fund's average annual total return for Shares for the
period from commencement of operations (May 31, 1990) to March 31, 1997 and for
the one year period ended March 31, 1997 and the five year period ended March
31, 1997 were 6.32%, 4.46% and 5.65%, respectively.
The Fund may also from time to time include in advertisements, sales
literature and communications to shareholders a total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately the Fund's performance with other measures of investment return. For
example, in comparing the Fund's total return with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of an index, the Fund may
calculate its aggregate total return for the period of time specified in the
advertisement or communication by assuming the investment of $10,000 in Shares
and assuming the reinvestment of each dividend or other distribution at net
asset value on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value.
The total return and yield of the Fund may be compared to that of
other mutual funds with similar investment objectives and to other relevant
indices or to ratings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For
example, the total return and/or yield of the Fund may be compared to data
prepared by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.
and Weisenberger Investment Company Service. Total return and yield data as
reported in national financial publications such as Money Magazine, Forbes,
----- -------- ------
Barron's, The Wall Street Journal and The New York Times, or in publications of
- -------- --- ---- ------ ------- --- --- ---- -----
a local or regional nature, may also be used in comparing the performance of the
Fund. Advertisements, sales literature or reports to shareholders may from time
to time also include a
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discussion and analysis of the Fund's performance, including without limitation,
those factors, strategies and technologies that together with market conditions
and events, materially affected the Fund's performance.
The Fund may also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions of the Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciations of the Fund would increase the value, not only
of the original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash. The Fund may also include discussions or illustrations of the potential
investment goals of a prospective investor, investment management techniques,
policies or investment suitability of the Fund, economic conditions, the effects
of inflation and historical performance of various asset classes, including but
not limited to, stocks, bonds and Treasury bills. From time to time
advertisements, sales literature or communications to shareholders may summarize
the substance of information contained in shareholder reports (including the
investment composition of the Fund), as well as the views of the Investment
Adviser as to current market, economy, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to the Fund. The Fund may also
include in advertisements charts, graphs or drawings which illustrate the
potential risks and rewards of investment in various investment vehicles,
including but not limited to, stocks, bonds, Treasury bills and Shares of the
Fund. In addition, advertisements, sales literature or shareholder
communications may include a discussion of certain attributes or benefits to be
derived by an investment in the Fund. Such advertisements or communicators may
include symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein.
MISCELLANEOUS
-------------
As used in the Prospectus, "assets belonging to the Fund" means the
consideration received upon the issuance of Shares in the Fund, together with
all income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of Excelsior Tax-Exempt Fund not belonging to a particular portfolio of
Excelsior Tax-Exempt Fund. In determining the net asset value of the Fund's
Shares, assets belonging to the Fund allocable to Shares are charged with
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the direct liabilities of the Fund allocable to Shares and with a share of the
general liabilities of Excelsior Tax-Exempt Fund which are normally allocated in
proportion to the relative asset values of Excelsior Tax-Exempt Fund's
portfolios at the time of allocation. Subject to the provisions of Excelsior
Tax-Exempt Fund's Charter, determinations by the Board of Directors as to the
direct and allocable liabilities, and the allocable portion of any general
assets with respect to the Fund, are conclusive.
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.
As of July __, 1997, the name, address and percentage ownership of
each person, in addition to U.S. Trust, that beneficially owned 5% or more of
the outstanding shares of the Fund were as follows:____________________.
FINANCIAL STATEMENTS
--------------------
The audited financial statements and notes thereto in Excelsior Tax-
Exempt Fund's Annual Report to Shareholders for the fiscal year ended March 31,
1997 (the "1997 Annual Report") for the tax-exempt fixed income portfolios are
incorporated in this Statement of Additional Information by reference. No other
parts of the 1997 Annual Report are incorporated by reference herein. The
financial statements included in the 1997 Annual Report for the Fund have been
audited by Excelsior Tax-Exempt Fund's independent auditors, Ernst & Young LLP,
whose reports thereon also appear in the 1997 Annual Report and are incorporated
herein by reference. Such financial statements have been incorporated herein in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing. Additional copies of the 1997 Annual Report may be
obtained at no charge by telephoning CGFSC at the telephone number appearing on
the front page of this Statement of Additional Information.
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<PAGE>
APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
"B" - Issues are regarded as having only a speculative capacity for
timely payment.
"C" - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
"D" - Issues are in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuers or related supporting institutions have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well established access to a
range of financial markets and assured sources of alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuers or related supporting institutions have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
"Prime-3" - Issuers or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one
A-3
<PAGE>
year or less which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations which posses a particularly strong credit feature
are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a good capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which
are currently in default.
A-4
<PAGE>
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
A-5
<PAGE>
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are
A-6
<PAGE>
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be revised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.
A-7
<PAGE>
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong
A-8
<PAGE>
as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are
not significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "BBB" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of
A-9
<PAGE>
principal and interest is adequate, although adverse changes in business,
economic or financial conditions are more likely to lead to increased investment
risk than for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating below
"AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of
A-10
<PAGE>
principal and interest. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
A-11
<PAGE>
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
EXCELSIOR TAX-EXEMPT FUNDS, INC.
California Tax-Exempt Income Fund
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1997
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectus for the California Tax-Exempt Income
Fund (the "Fund"), an investment portfolio of Excelsior Tax-Exempt Funds, Inc.
("Excelsior Tax-Exempt Fund") dated August 1, 1997 (the "Prospectus"). Much of
the information contained in this Statement of Additional Information expands
upon the subjects discussed in the Prospectus. No investment in shares of the
Fund ("Shares") should be made without reading the Prospectus. A copy of the
Prospectus may be obtained by writing Excelsior Tax-Exempt Fund c/o Chase Global
Funds Services Company, 73 Tremont Street, Boston, MA 02108-3913 or by calling
(800) 446-1012.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES......................... 1
Additional Information on Portfolio
Instruments........................................ 1
Risk Factors Relating to
California Municipal Obligations................... 7
Additional Investment Limitations.................... 20
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............ 21
INVESTOR PROGRAMS......................................... 23
Systematic Withdrawal Plan........................... 23
Exchange Privilege................................... 23
Other Investor Programs.............................. 24
DESCRIPTION OF CAPITAL STOCK.............................. 24
MANAGEMENT OF THE FUND.................................... 27
Directors and Officers............................... 27
Investment Advisory, Sub-Advisory and
Administration Agreements.......................... 34
Service Organizations................................ 35
Expenses............................................. 36
Custodian and Transfer Agent......................... 37
PORTFOLIO TRANSACTIONS.................................... 38
INDEPENDENT AUDITORS...................................... 40
COUNSEL................................................... 40
ADDITIONAL INFORMATION CONCERNING TAXES................... 41
Federal.............................................. 41
Taxation of Certain Financial Instruments............ 43
California........................................... 45
PERFORMANCE AND YIELD INFORMATION......................... 46
MISCELLANEOUS............................................. 50
FINANCIAL STATEMENTS...................................... 51
APPENDIX A................................................ A-1
APPENDIX B................................................
</TABLE>
-i-
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
---------------------------------
The investment objective of the Fund is to provide California
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
taxes as is consistent with relative stability of principal. Under normal
market conditions, at least 80% of the Fund's assets will be invested in
Municipal Obligations (as defined in the Prospectus), and at least 65% of the
Fund's assets will be invested in California Municipal Obligations (as defined
in the Prospectus). The following policies supplement the Fund's investment
objective and policies as set forth in the Prospectus.
Additional Information on Portfolio Instruments
- -----------------------------------------------
Municipal Obligations
---------------------
Municipal Obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to public
institutions and facilities. Private activity bonds that are issued by or on
behalf of public authorities to finance various privately operated facilities
are included within the term "Municipal Obligations" only if the interest paid
thereon is exempt from general Federal income tax and not treated as a specific
tax preference item under the Federal alternative minimum tax.
The two principal classifications of Municipal Obli gations are
"general obligation" and "revenue" issues, but the Fund's portfolio may also
include "moral obligation" issues, which are normally issued by special-purpose
authorities. There are, of course, variations in the quality of Municipal
Obligations, both within a particular classification and between
classifications, and the yields on Municipal Obligations depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard
& Poor's Ratings Group ("S&P") described in the Prospectus and Appendix A hereto
represent their opinion as to the quality of Municipal Obligations. It should
be emphasized that these ratings are general and are not absolute standards of
quality, and Municipal Obligations with the same maturity, interest rate, and
rating may have different yields while Municipal Obligations of the same
maturity and interest rate with different ratings may have the same yield.
Subsequent to its purchase by the Fund, an issue of Municipal Obligations
-1-
<PAGE>
may cease to be rated, or its rating may be reduced below the minimum rating
required for purchase by the Fund. United States Trust Company of New York
("U.S. Trust New York"), U.S. Trust Company of Connecticut ("U.S. Trust
Connecticut" and, collectively with U.S. Trust New York, the "Investment
Adviser" or "U.S. Trust") and United States Trust Company of California, the
Fund's sub-adviser (the "Sub-Adviser") will consider such an event in
determining whether the Fund should continue to hold the obligation.
The payment of principal and interest on most securi ties purchased by
the Fund will depend upon the ability of the issuers to meet their obligations.
Each state, the District of Columbia, each of their political subdivisions,
agencies, instrumentalities and authorities, and each multistate agency of which
a state is a member, is a separate "issuer" as that term is used in this
Statement of Additional Information and the Fund's Prospectus. The non-
governmental user of facilities financed by private activity bonds is also
considered to be an "issuer." An issuer's obligations under its Municipal
Obligations are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by Federal or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. The power or ability of an issuer to
meet its obligations for the payment of interest on and principal of its
Municipal Obligations may be materially adversely affected by litigation or
other conditions.
Private activity bonds are issued to obtain funds to provide, among
other things, privately operated housing facil ities, pollution control
facilities, convention or trade show facilities, mass transit, airport, port or
parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the Federal income tax exemption for
interest on Municipal Obligations. For example, under the Tax Reform Act of
1986, as amended, interest on certain private activity bonds must be included in
an investor's alternative minimum taxable income, and corporate investors must
treat all tax-exempt interest as an item
-2-
<PAGE>
of tax preference. Excelsior Tax-Exempt Fund cannot, of course, predict what
legislation may be proposed in the future regarding the income tax status of
interest on Municipal Obligations, or which proposals, if any, might be enacted.
Such proposals, while pending or if enacted, might materially adversely affect
the availability of Municipal Obligations for investment by the Fund and the
liquidity and value of its portfolio. In such an event, the Fund would
reevaluate its investment objective and policies and consider possible changes
in its structure or possible dissolution.
Opinions relating to the validity of Municipal Obli gations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. 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.
Money Market Instruments
------------------------
Certificates of deposit acquired by the Fund within the limits set
forth in the Prospectus will be those of (i)
domestic branches of U.S. banks which are members of the Federal Reserve System
or are insured by the Bank Insurance Fund of the Federal Deposit Insurance
Corporation ("FDIC"), or (ii) savings and loan associations which are insured by
the Savings Association Insurance Fund of the FDIC. (The foregoing limitation
does not preclude the Fund from acquiring Municipal Obligations which are backed
by letters of credit issued by foreign banks.)
Tax-exempt commercial paper purchased by the Fund will consist of
issues rated at the time of purchase "A-3" or higher by S&P or "Prime-3" or
better by Moody's or, if not rated, determined to be of comparable quality by
the Investment Adviser. These rating symbols are described in Appendix A
hereto.
Insured Municipal Obligations
-----------------------------
The Fund may purchase Municipal Obligations which are insured as to
timely payment of principal and interest at the time of purchase. The insurance
policies will usually be
obtained by the issuer of the bond at the time of its original issuance. Bonds
of this type will be acquired only if at the time of purchase they satisfy
quality requirements generally applicable to Municipal Obligations as described
in the Prospectus. Although insurance coverage for the Municipal Obligations
held by the Fund reduces credit risk by insuring that the Fund will receive
timely payment of principal and interest, it does not protect against market
fluctuations caused by changes in interest rates and other factors. The Fund
may invest more
-3-
<PAGE>
than 25% of its net assets in Municipal Obligations covered by insurance
policies.
Repurchase Agreements
---------------------
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by the Fund plus interest negotiated
on the basis of current short-term rates (which may be more or less than the
rate on securities underlying the repurchase agreement). Securities subject to
repurchase agreements are held by the Fund's custodian (or sub-custodian) or in
the Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered loans by the Fund under the Investment Company Act of 1940 (the "1940
Act").
When-Issued and Forward Transactions
------------------------------------
When the Fund agrees to purchase securities on a "when-issued" or
forward commitment basis, the custodian will
set aside liquid assets equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to satisfy
a purchase commitment, and, in such case, the Fund may be required subsequently
to place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that the Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash. Because the Fund will set aside liquid assets to
satisfy its purchase commitments in the manner described, the Fund's liquidity
and ability to manage its portfolio might be affected in the event its forward
commitments or commitments to purchase "when-issued" securities ever exceeded
25% of the value of its assets.
The Fund will purchase securities on a "when-issued" or forward
commitment basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, the Fund may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered to
the Fund on the settlement date. In these cases, the Fund may realize a taxable
capital gain or loss.
When the Fund engages in "when-issued" or forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such other party to do so may result in the Fund incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a "when-issued" purchase
or a forward commitment to purchase securities
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and any subsequent fluctuations in their market value are taken into account
when determining the market value of the Fund starting on the day the Fund
agrees to purchase the securities. The Fund does not earn interest on the
securities it has committed to purchase until they are paid for and delivered on
the settlement date.
Stand-By Commitments
--------------------
The Fund may acquire "stand-by commitments" with respect to Municipal
Obligations held by it. Under a "stand-by commitment," a dealer or bank agrees
to purchase from the Fund, at the Fund's option, specified Municipal Obligations
at a specified price. The amount payable to the Fund upon its exercise of a
"stand-by commitment" is normally (i) the Fund's acquisition cost of the
Municipal Obligations (excluding any accrued interest which the Fund paid on
their acquisition), less any amortized market premium or plus any amortized
market or original issue discount during the period the Fund owned the
securities, plus (ii) all interest accrued on the securities since the last
interest payment date during that period. "Stand-by commitments" are
exercisable by the Fund at any time before the maturity of the underlying
Municipal Obligations, and may be sold, transferred or assigned by the Fund only
with the underlying instruments.
The Fund expects that "stand-by commitments" will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Fund may pay for a "stand-by commitment" either
separately in cash or by paying a higher price for securities which are acquired
subject to the commitment (thus reducing the yield to maturity otherwise
available for the same securities). Where the Fund has paid any consideration
directly or indirectly for a "stand-by commitment," its cost will be reflected
as unrealized depreciation for the period during which the commitment was held
by the Fund.
The Fund intends to enter into "stand-by commitments" only with banks
and broker/dealers which, in the Investment Adviser's or Sub-Adviser's opinion,
present minimal credit risks. In evaluating the creditworthiness of the issuer
of a "stand-by commitment," the Investment Adviser or Sub-Adviser will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.
Futures Contracts
-----------------
The Fund may invest in interest rate futures contracts and municipal
bond index futures contracts. Futures contracts will not be entered into for
speculative purposes, but to hedge risks associated with the Fund's securities
investments.
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<PAGE>
Positions in futures contracts may be closed out only on an exchange which
provides a secondary market for such futures. However, there can be no
assurance that a liquid secondary market will exist for any particular futures
contract at any specific time. Thus, it may not be possible to close a futures
position. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments to maintain its required margin. In
such situations, if the Fund has insufficient cash, it may have to sell
portfolio securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, the Fund may be required to make
delivery of the instruments underlying futures contracts it holds. The
inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively hedge.
Successful use of futures by the Fund is also subject to the
Investment Adviser's or Sub-Adviser's ability to correctly predict movements in
the direction of the market. For example, if the Fund has hedged against the
possibility of a decline in the market adversely affecting securities held by it
and securities prices increase instead, the Fund will lose part or all of the
benefit to the increased value of its securities which it has hedged because it
will approximately equal offsetting losses in its futures positions. In
addition, in some situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily variation margin requirements. Such sale of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. The Fund may have to sell securities at a time when
it may be disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may result in losses in excess of the amount invested in the
contract.
Utilization of futures transactions by the Fund involves the risk of
loss by the Fund of margin deposits in the
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event of bankruptcy of a broker with whom the Fund has an open position in a
futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Miscellaneous
-------------
The Fund may not invest in oil, gas, or mineral leases.
Risk Factors Relating to California Municipal Obligations
- ---------------------------------------------------------
Some of the significant financial considerations relating to the
Fund's investment in California Municipal Obligations are summarized below.
This summary information is not intended to be a complete description and is
principally derived from official statements relating to issues of California
Municipal Obligations that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in those official statements have not been independently verified.
The following information constitutes only a brief summary, does not
purport to be a complete description, and is based on information available as
of the date of this Prospectus from official statements and prospectuses
relating to securities offerings of the State of California and various local
agencies in California.
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<PAGE>
ECONOMIC FACTORS
- ----------------
FISCAL YEARS PRIOR TO 1996-97. By the close of the 1989-90 Fiscal
Year, California's revenues had fallen below projections so that the State's
budget reserve, the Special Fund for Economic Uncertainties (the "Special
Fund"), was fully depleted by June 30, 1990. A recession which had begun in
mid-1990, combined with higher health and welfare costs driven by the State's
rapid population growth, adversely affected General Fund revenues and raised
expenditures above initial budget appropriations.
As a result of these factors and others, the State confronted a period
of budget imbalance. Beginning with the 1990-91 Fiscal Year and for several
years thereafter, the budget required multibillion dollar actions to bring
projected revenues and expenditures into balance. During this period,
expenditures exceeded revenues in four out of six years, and the State
accumulated and sustained a budget deficit in the Special Fund --approaching
$2.8 billion at its peak on June 30, 1993.
By the 1993-94 Fiscal Year, the accumulated deficit was too large to
be prudently retired in one year and a two-year program was implemented. This
program used revenue anticipation warrants to carry a portion of the deficit
over to the end of the fiscal year.
The 1994-95 Budget Act projected General Fund revenues and transfers
of $41.9 billion. Expenditures were projected to be $40.9 billion -- an
increase of $1.6 billion over the prior year. As a result of the improving
economy, however, the fiscal year ultimately produced revenues and transfers of
$42.7 billion which more than offset expenditures of $42.0 billion and thereby
reduced the accumulated budget deficit.
With strengthening revenues and reduced caseload growth driven by an
improving economy, the State entered the 1995-96 Fiscal Year budget negotiations
with the smallest nominal "budget gap" to be closed in many years. The 1995-96
Budget Act projected General Fund revenues and transfers of $44.1 billion, a 3.5
percent increase from the prior year, and expenditures were budgeted at $43.4
billion. In addition, the Department of Finance projected that after repaying
the last of the carryover budget deficit, there would be a positive balance of
$28 million in the budget reserve as of June 30, 1996.
1996-97 FISCAL YEAR. The 1996-97 Governor's Budget, released January
10, 1996, projected General Fund revenues and transfers of $45.6 billion, a 1.3%
increase over 1995-96. The Governor's budget proposed two major initiatives, a
15% personal
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and corporate income tax cut and a revision of the trial court funding program,
which would have the effect of reducing General Fund revenues. The Governor's
Budget proposed General Fund expenditures of $45.2 billion. The Governor's
Budget also proposed Special Fund revenues equal to expenditures, at a level of
$13.3 billion.
The May Revision of the Governor's Budget, released on May 21, 1996
("The May Revision"), updated revenue estimates for the 1996-97 Fiscal Year,
reflecting stronger economic activity in the State and thus greater revenue
growth. The revised estimate was for $47.1 billion of revenues, still assuming
the Governor's tax cut would be enacted, and $46.5 billion of expenditures.
1996-97 BUDGET ACT. The 1996-97 Budget Act was signed by the Governor
on July 15, 1996, along with various implementing bills. The Governor vetoed
about $82 million of appropriations (both General Fund and Special Fund). With
the signing of the Budget Act, the State implemented its regular cash flow
borrowing program with the issuance of $3.0 billion of Revenue Anticipation
Notes to mature on June 30, 1997. The Budget Act appropriates a budget reserve
in the Special Fund of $305 million, as of June 30, 1997. The Department of
Finance projects that, on June 30, 1997, the State's available borrowable (cash)
resources will be $2.9 billion, after payment of all obligations due by that
date, so that no cross-fiscal year borrowing is anticipated.
Revenues. The Legislature rejected the Governor's proposed 15% cut in
personal income taxes (to be phased in over three years), approved a 5% cut in
bank and corporation taxes, to be effective for income years commencing on
January 1, 1997. As a result of the Legislature's failure to enact the personal
income tax cut, revenues for the Fiscal Year are estimated to be $550 million
higher than projected in the May Revision, and are now estimated to total
$47.643 billion, a 3.3 percent increase over the final estimated 1995-96
revenues. Special Fund revenues are estimated to be $13.3 billion.
Expenditures. The Budget Act contains General Fund appropriations
totaling $47.251 billion, a 4.0 percent increase over the final estimated 1995-
96 expenditures. Special Fund expenditures are budgeted at $12.6 billion.
The following are principal features of the 1996-97 Budget Act:
1. Proposition 98 funding for schools and community college
districts increased by almost $1.6 billion (General Fund) and $1.65 billion
above revised 1995-96 levels. Almost half of this money was budgeted to fund
class-size reductions in kindergarten and grades 1-3. Also, for the second
consecutive year, the full cost of living allowance (3.2 percent) was funded.
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<PAGE>
Proposition 98 increases have brought K-12 expenditures to almost $4,800 per
pupil (also called "ADA", or "Average Daily Attendance"), an almost 15% increase
over the level prevailing during the recession years. Out of this $1.6 billion
total, community colleges will receive an increase in funding of $157 million
for 1996-97.
Due to higher than projected revenues in 1995-96, an additional $1.1
billion ($190 per K-12 ADA and $145 million for community colleges) was
appropriated and retroactively applied towards the 1995-96 Proposition 98
guarantee, bringing K-12 expenditures in that year to over $4,600 per ADA.
Similar retroactive increases totaling $230 million, based on final figures on
revenues and State population growth, were made to the 1991-92 and the 1994-95
Proposition 98 guarantees, most of which was allocated to each school site.
2. The Budget Act assumed savings of approximately $660 million in
health and welfare costs which required changes in federal law, including
federal welfare reform. The Budget Act further assumed federal law changes in
August 1996 which would allow welfare cash grant levels to be reduced by October
1, 1996. These cuts totaled approximately $163 million of the anticipated $660
million savings. See "Federal Welfare Reform" below.
3. A 4.9 percent increase in funding for the University of
California ($130 million General Fund) and the California State University
system ($101 million General Fund), with no increases in student fees.
4. The Budget Act assumed the federal government will provide
approximately $700 million in new aid for incarceration and health care costs of
illegal immigrants. These funds reduce appropriations in these categories that
would otherwise have to be paid from the General Fund. (For purposes of cash
flow projections, the Department of Finance expects $540 million of this amount
to be received during the 1996-97 fiscal year.)
5. General Fund support for the Department of Corrections was
increased by about 7 percent over the prior year, reflecting estimates of
increased prison population.
6. With respect to aid to local governments, the principal new
programs included in the Budget Act are $100 million in grants to cities and
counties for law enforcement purposes, and budgeted $50 million for competitive
grants to local governments for programs to combat juvenile crime.
The Budget Act did not contain any tax increases. As noted, there was
a reduction in bank and corporate taxes. In addition, the Legislature approved
another one-year suspension of the Renters' Tax Credit, saving $520 million in
expenditures.
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<PAGE>
FEDERAL WELFARE REFORM. Following enactment of the 1996-97 Budget
Act, Congress passed and the President signed (on August 22, 1996) the Personal
Responsibility and Work Opportunity Act of 1996 (P.L. 104-193, the "Law") making
a fundamental reform of the current welfare system. Among many provisions, the
Law includes: (i) conversion of Aid to Families with Dependent Children from an
entitlement program to a block grant titled Temporary Assistance for Needy
Families ("TANF"), with lifetime time limits on TANF recipients, work
requirements and other changes; (ii) provisions denying certain federal welfare
and public benefits to legal noncitizens, allowing states to elect to deny
additional benefits (including TANF) to legal noncitizens, and generally denying
almost all benefits to illegal immigrants; and (iii) changes in the Food Stamp
program, including reducing maximum benefits and imposing work requirements.
The Law requires states to implement the new TANF program not later
than July 1, 1997 and provides California approximately $3.7 billion in block
grant funds for the 1996-97 Fiscal Year. States are allowed to implement TANF
as soon as possible and will receive a prorated block grant effective the date
of application. The California State Plan is to be submitted in time to allow
grant reductions to be implemented effective January 1, 1997 (allowing $92
million of the $163 million referred to in paragraph 2 above to be saved) and to
allow the State to capture approximately $267 million in additional federal
block grant funds over the currently budgeted level. None of the other federal
changes needed to achieve the balance of the $660 million cost savings were
enacted. Thus, in lieu of the $660 million savings initially assumed to be
saved, it is now projected that savings will total approximately $360 million.
A preliminary analysis of the Law by the Legislative Analyst's Office
indicated that an overall assessment of how these changes will affect the
State's General Fund will not be known for some time, and will depend on how the
State implements the Law. There are many choices, including how quickly the
State implements the Law; the degree to which the State elects to make up for
cuts in federal aid, provide more aid to counties or cut some of its own
existing programs for noncitizens; and the State's ability to avoid certain
penalties written into the Law.
1997-98 FISCAL YEAR PROPOSED BUDGET.
On January 9, 1997, the Governor released his proposed budget for the
1997-98 Fiscal Year (the "Governor's Budget"). The Governor's Budget projects
General Fund revenues and transfers in 1997-98 of $50.7 billion, a 4.6% increase
from revised 1996-97 figures. The Governor proposes expenditures of $50.3
billion, a 3.9% increase from 1996-97. The Governor's Budget projects a balance
in the SPEU of $553 million on June 30,
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<PAGE>
1998. The Governor's Budget also anticipates about $3 billion of external
borrowing for cash flow purposes during the year, with no requirement for cross-
fiscal year borrowing.
Among the major initiatives and features of the Governor's Budget are
the following:
1. A proposed 10% cut in the Bank and Corporation Tax rate, to be
phased in over two years.
2. Proposition 98 funding for K-14 schools will be increased again,
as a result of stronger revenues. Per-pupil funding for K-12 schools will reach
$5,010, compared to $4,220 as recently as the 1993-94 Fiscal Year. Part of the
new funding is proposed to be dedicated to the completion of the current program
to reduce class size to 20 pupils in lower elementary grades, and to expand the
program by one grade, so that it will cover K-3rd grade.
3. Funding for higher education will be increased consistent with a
four-year "compact" established in 1995-96. There is not projected to be any
increase in student fees at any of the three levels of the State higher
education system.
4. The 1997-98 proposed Governor's Budget assumes approximately $500
million in savings contingent upon federal action. The Budget assumes that
federal law will be enacted to remove the maintenance-of-effect requirement for
Supplemental Security Income (SSI) payments, thereby enabling the state to
reduce grant levels pursuant to previously enacted state law ($279 million).
The Budget also assumes the federal government will fund $216 million in costs
of health care for illegal immigrants.
THE ORANGE COUNTY BANKRUPTCY. On December 6, 1994, Orange County,
California and its Investment Pool (the "Pool") filed for bankruptcy under
Chapter 9 of the United States Bankruptcy Code. The subsequent restructuring
led to the sale of substantially all of the Pool's portfolio and resulted in
losses estimated to be approximately $1.7 billion (or approximately 22% of
amounts deposited by the Pool investors). Approximately 187 California public
entities -- substantially all of which are public agencies within the county --
had various bonds, notes or other forms of indebtedness outstanding. In some
instances the proceeds of such indebtedness were invested in the Pool.
In April, 1996, the County emerged from bankruptcy after closing on a
$900 million recovery bond transaction. At that time, the County and its
financial advisors stated that the County had emerged from the bankruptcy
without any structural fiscal problems and assured that the County would not
slip back into bankruptcy. However, for many of the cities, schools and
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special districts that lost money in the County portfolio, repayment remains
contingent on the outcome of litigation which is pending against investment
firms and other finance professionals. Thus, it is impossible to determine the
ultimate impact of the bankruptcy and its aftermath on these various agencies
and their claims.
CONSTITUTIONAL, LEGISLATIVE AND OTHER FACTORS.
- ---------------------------------------------
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could produce
the adverse effects described below, among others.
REVENUE DISTRIBUTION. Certain Municipal Obligations held by the Fund
may be obligations of issuers which rely in whole or in part on California State
revenues for payment of these obligations. Property tax revenues and a portion
of the State's general fund surplus are distributed to counties, cities and
their various taxing entities and the State assumes certain obligations
theretofore paid out of local funds. Whether and to what extent a portion of
the State's general fund will be distributed in the future to counties, cities
and their various entities is unclear.
HEALTH CARE LEGISLATION. Certain Municipal Obligations held by the
Fund may be obligations which are payable solely from the revenues of health
care institutions. Certain provisions under California law may adversely affect
these revenues and, consequently, payment on those Municipal Obligations.
The Federally sponsored Medicaid program for health care services to
eligible welfare beneficiaries in California is known as the Medi-Cal program.
Historically, the Medi-Cal program has provided for a cost-based system of
reimbursement for inpatient care furnished to Medi-Cal beneficiaries by any
hospital wanting to participate in the Medi-Cal program, provided such hospital
met applicable requirements for participation. California law now provides that
the State of California shall selectively contract with hospitals to provide
acute inpatient services to Medi-Cal patients. Medi-Cal contracts currently
apply only to acute inpatient services. Generally, such selective contracting
is made on a flat per diem payment basis for all services to Medi-Cal
beneficiaries, and generally such payment has not increased in relation to
inflation, costs or other factors. Other reductions or limitations may be
imposed on payment for services rendered to Medi-Cal beneficiaries in the
future.
Under this approach, in most geographical areas of California, only
those hospitals which enter into a Medi-Cal
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contract with the State of California will be paid for non-emergency acute
inpatient services rendered to Medi-Cal beneficiaries. The State may also
terminate these contracts without notice under certain circumstances and is
obligated to make contractual payments only to the extent the California
legislature appropriates adequate funding therefor.
California enacted legislation in 1982 that authorizes private health
plans and insurers to contract directly with hospitals for services to
beneficiaries on negotiated terms. Some insurers have introduced plans known as
"preferred provider organizations" ("PPOs"), which offer financial incentives
for subscribers who use only the hospitals which contract with the plan. Under
an exclusive provider plan, which includes most health maintenance organizations
("HMOs"), private payors limit coverage to those services provided by selected
hospitals. Discounts offered to HMOs and PPOs may result in payment to the
contracting hospital of less than actual cost and the volume of patients
directed to a hospital under an HMO or PPO contract may vary significantly from
projections. Often, HMO or PPO contracts are enforceable for a stated term,
regardless of provider losses or of bankruptcy of the respective HMO or PPO. It
is expected that failure to execute and maintain such PPO and HMO contracts
would reduce a hospital's patient base or gross revenues. Conversely,
participation may maintain or increase the patient base, but may result in
reduced payment and lower net income to the contracting hospitals.
These Municipal Obligations may also be insured by the State of
California pursuant to an insurance program implemented by the Office of
Statewide Health Planning and Development for health facility construction
loans. If a default occurs on insured Municipal Obligations, the State
Treasurer will issue debentures payable out of a reserve fund established under
the insurance program or will pay principal and interest on an unaccelerated
basis from unappropriated State funds. At the request of the Office of
Statewide Health Planning and Development, Arthur D. Little, Inc. prepared a
study in December 1983, to evaluate the adequacy of the reserve fund established
under the insurance program and based on certain formulations and assumptions
found the reserve fund substantially underfunded. In September of 1986, Arthur
D. Little, Inc. prepared an update of the study and recommended that an
additional 10% reserve be established for "multi-level" facilities. For the
balance of the reserve fund, the update recommended maintaining the current
reserve calculation method. In March of 1990, Arthur D. Little, Inc. prepared a
further review of the study and recommended that separate reserves continue to
be established for "multi-level" facilities at a reserve level consistent with
those that would be required by an insurance company.
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MORTGAGES AND DEEDS. Certain Municipal Obligations held by the Fund
may be obligations which are secured in whole or in part by a mortgage or deed
of trust on real property. California has five principal statutory provisions
which limit the remedies of a creditor secured by a mortgage or deed of trust.
Two statutes limit the creditor's right to obtain a deficiency judgment, one
limitation being based on the method of foreclosure and the other on the type of
debt secured. Under the former, a deficiency judgment is barred when the
foreclosure is accomplished by means of a nonjudicial trustee's sale. Under the
latter, a deficiency judgment is barred when the foreclosed mortgage or deed of
trust secures certain purchase money obligations. Another California statute,
commonly known as the "one form of action" rule, requires creditors secured by
real property to exhaust their real property security by foreclosure before
bringing a personal action against the debtor. The fourth statutory provision
limits any deficiency judgment obtained by a creditor secured by real property
following a judicial sale of such property to the excess of the outstanding debt
over the fair value of the property at the time of the sale, thus preventing the
creditor from obtaining a large deficiency judgment against the debtor as the
result of low bids at a judicial sale. The fifth statutory provision gives the
debtor the right to redeem the real property from any judicial foreclosure sale
as to which a deficiency judgment may be ordered against the debtor.
Upon the default of a mortgage or deed of trust with respect to
California real property, the creditor's nonjudicial foreclosure rights under
the power of sale contained in the mortgage or deed of trust are subject to the
constraints imposed by California law upon transfers of title to real property
by private power of sale. During the three-month period beginning with the
filing of a formal notice of default, the debtor is entitled to reinstate the
mortgage by making any overdue payments. Under standard loan servicing
procedures, the filing of the formal notice of default does not occur unless at
least three full monthly payments have become due and remain unpaid. The power
of sale is exercised by posting and publishing a notice of sale for at least 20
days after expiration of the three-month reinstatement period. The debtor may
reinstate the mortgage, in the manner described above, up to five business days
prior to the scheduled sale date. Therefore, the effective minimum period for
foreclosing on a mortgage could be in excess of seven months after the initial
default. Such time delays in collections could disrupt the flow of revenues
available to an issuer for the payment of debt service on the outstanding
obligations if such defaults occur with respect to a substantial number of
mortgages or deeds of trust securing an issuer's obligations.
In addition, a court could find that there is sufficient involvement
of the issuer in the nonjudicial sale of property securing a mortgage for such
private sale to constitute
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"state action," and could hold that the private-right-of-sale proceedings
violate the due process requirements of the Federal or State Constitutions,
consequently preventing an issuer from using the nonjudicial foreclosure remedy
described above.
Certain Municipal Obligations held by the Fund may be obligations
which finance the acquisition of single family home mortgages for low and
moderate income mortgagors. These obligations may be payable solely from
revenues derived from the home mortgages, and are subject to California's
statutory limitations described above applicable to obligations secured by real
property. Under California antideficiency legislation, there is no personal
recourse against a mortgagor of a single family residence purchased with the
loan secured by the mortgage, regardless of whether the creditor chooses
judicial or nonjudicial foreclosure.
Under California law, mortgage loans secured by single-family owner-
occupied dwellings may be prepaid at any time. Prepayment charges on such
mortgage loans may be imposed only with respect to voluntary prepayments made
during the first five years during the term of the mortgage loan, and then only
if the borrower prepays an amount in excess of 20% of the original principal
amount of the mortgage loan in a 12-month period; a prepayment charge cannot in
any event exceed six months' advance interest on the amount prepaid during the
12-month period in excess of 20% of the original principal amount of the loan.
This limitation could affect the flow of revenues available to an issuer for
debt service on the outstanding debt obligations which financed such home
mortgages.
PROPOSITION 13. Certain Municipal Obligations may be obligations of
issuers who rely in whole or in part on ad valorem real property taxes as a
source of revenue. On June 6, 1978, California voters approved an amendment to
the California Constitution known as Proposition 13, which added Article XIIIA
to the California Constitution. The effect of Article XIIIA was to limit ad
valorem taxes on real property and to restrict the ability of taxing entities to
increase real property tax revenues.
Section 1 of Article XIIIA, as amended, limits the maximum ad valorem
tax on real property to 1% of full cash value to be collected by the counties
and apportioned according to law. The 1% limitation does not apply to ad
valorem taxes or special assessments to pay the interest and redemption charges
on any bonded indebtedness for the acquisition or improvement of real property
approved by two-thirds of the votes cast by the voters voting on the
proposition. Section 2 of Article XIIIA defines "full cash value" to mean "the
County Assessor's valuation of real property as shown on the 1975/76 tax bill
under `full cash value' or, thereafter, the appraised value of real property
when
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purchased, newly constructed, or a change in ownership has occurred after the
1975 assessment." The full cash value may be adjusted annually to reflect
inflation at a rate not to exceed 2% per year, or reduction in the consumer
price index or comparable local data, or reduced in the event of declining
property value caused by damage, destruction or other factors.
Legislation enacted by the California Legislature to implement Article
XIIIA provides that notwithstanding any other law, local agencies may not levy
any ad valorem property tax except to pay debt service on indebtedness approved
by the voters prior to July 1, 1978, and that each county will levy the maximum
tax permitted by Article XIIIA.
PROPOSITION 9. On November 6, 1979, an initiative known as
"Proposition 9" or the "Gann Initiative" was approved by the California voters,
which added Article XIIIB to the California Constitution. Under Article XIIIB,
State and local governmental entities have an annual "appropriations limit" and
are not allowed to spend certain moneys called "appropriations subject to
limitation" in an amount higher than the "appropriations limit." Article XIIIB
does not affect the appropriation of moneys which are excluded from the
definition of "appropriations subject to limitation," including debt service on
indebtedness existing or authorized as of January 1, 1979, or bonded
indebtedness subsequently approved by the voters. In general terms, the
"appropriations limit" is required to be based on certain 1978/79 expenditures,
and is to be adjusted annually to reflect changes in consumer prices,
population, and certain services provided by these entities. Article XIIIB also
provides that if these entities' revenues in any year exceed the amounts
permitted to be spent, the excess is to be returned by revising tax rates or fee
schedules over the subsequent two years.
PROPOSITION 98. On November 8, 1988, voters of the State approved
Proposition 98, a combined initiative constitutional amendment and statute
called the "Classroom Instructional Improvement and Accountability Act."
Proposition 98 changed State funding of public education below the university
level and the operation of the State Appropriations Limit, primarily by
guaranteeing K-14 schools a minimum share of General Fund revenues. Under
Proposition 98 (modified by Proposition 111 as discussed below), K-14 schools
are guaranteed the greater of (a) in general, a fixed percent of General Fund
revenues ("Test 1"), (b) the amount appropriated to K-14 schools in the prior
year, adjusted for changes in the cost of living (measured as in Article XIII B
by reference to State per capita personal income) and enrollment ("Test 2"), or
(c) a third test, which would replace Test 2 in any year when the percentage
growth in per capita General Fund revenues from the prior year plus one half of
one percent is less than the percentage growth in State per capita personal
income ("Test 3"). Under Test 3, schools would
-17-
<PAGE>
receive the amount appropriated in the prior year adjusted for changes in
enrollment and per capita General Fund revenues, plus an additional small
adjustment factor. If Test 3 is used in any year, the difference between Test 3
and Test 2 would become a "credit" to schools which would be the basis of
payments in future years when per capita General Fund revenue growth exceeds per
capita personal income growth.
Proposition 98 permits the Legislature -- by two-thirds vote of both
houses, with the Governor's concurrence -- to suspend the K-14 schools' minimum
funding formula for a one-year period. Proposition 98 also contains provisions
transferring certain State tax revenues in excess of the Article XIII B limit to
K-14 schools.
During the recession years of the early 1990s, General Fund revenues
for several years were less than originally projected, so that the original
Proposition 98 appropriations turned out to be higher than the minimum
percentage provided in the law. The Legislature responded to these developments
by designating the "extra" Proposition 98 payments in one year as a "loan" from
future years' Proposition 98 entitlements, and also intended that the "extra"
payments would not be included in the Proposition 98 "base" for calculating
future years' entitlements. In 1992, a lawsuit was filed, California Teachers'
--------------------
Association v. Gould, which challenged the validity of these off-budget loans.
- --------------------
During the course of this litigation, a trial court determined that almost $2
billion in "loans" which had been provided to school districts during the
recession violated the constitutional protection of support for public
education. A settlement was reached on April 12, 1996 which ensures that future
school funding will not be in jeopardy over repayment of these so-called loans.
PROPOSITION 111. On June 30, 1989, the California Legislature enacted
Senate Constitutional Amendment 1, a proposed modification of the California
Constitution to alter the spending limit and the education funding provisions of
Proposition 98. Senate Constitutional Amendment 1 -- on the June 5, 1990 ballot
as Proposition 111 -- was approved by the voters and took effect on July 1,
1990. Among a number of important provisions, Proposition 111 recalculated
spending limits for the State and for local governments, allowed greater annual
increases in the limits, allowed the averaging of two years' tax revenues before
requiring action regarding excess tax revenues, reduced the amount of the
funding guarantee in recession years for school districts and community college
districts (but with a floor of 40.9 percent of State general fund tax revenues),
removed the provision of Proposition 98 which included excess moneys transferred
to school districts and community college districts in the base calculation for
the next year, limited the amount of State tax revenue over the limit which
would be transferred to
-18-
<PAGE>
school districts and community college districts, and exempted increased
gasoline taxes and truck weight fees from the State appropriations limit.
Additionally, Proposition 111 exempted from the State appropriations limit
funding for capital outlays.
PROPOSITION 62. On November 4, 1986, California voters approved an
initiative statute known as Proposition 62. This initiative provided the
following:
1. Requires that any tax for general governmental purposes imposed by
local governments be approved by resolution or ordinance adopted by a two-
thirds vote of the governmental entity's legislative body and by a majority
vote of the electorate of the governmental entity;
2. Requires that any special tax (defined as taxes levied for other
than general governmental purposes) imposed by a local governmental entity
be approved by a two-thirds vote of the voters within that jurisdiction;
3. Restricts the use of revenues from a special tax to the purposes
or for the service for which the special tax was imposed;
4. Prohibits the imposition of ad valorem taxes on real property by
local governmental entities except as permitted by Article XIIIA;
5. Prohibits the imposition of transaction taxes and sales taxes on
the sale of real property by local governments;
6. Requires that any tax imposed by a local government on or after
August 1, 1985 be ratified by a majority vote of the electorate within two
years of the adoption of the initiative;
7. Requires that, in the event a local government fails to comply
with the provisions of this measure, a reduction in the amount of property
tax revenue allocated to such local government occurs in an amount equal to
the revenues received by such entity attributable to the tax levied in
violation of the initiative; and
8. Permits these provisions to be amended exclusively by the voters
of the State of California.
In September 1988, the California Court of Appeal in City of
-------
Westminster v. County of Orange, 204 Cal.App. 3d 623, 215 Cal.Rptr. 511
- -------------------------------
(Cal.Ct.App. 1988), held that Proposition 62 is unconstitutional to the extent
that it requires a general tax by a general law city, enacted on or after August
1, 1985 and prior
-19-
<PAGE>
to the effective date of Proposition 62, to be subject to approval by a majority
of voters. The Court held that the California Constitution prohibits the
imposition of a requirement that local tax measures be submitted to the
electorate by either referendum or initiative. It is impossible to predict the
impact of this decision on charter cities, on special taxes or on new taxes
imposed after the effective date of Proposition 62. The California Court of
Appeal in City of Woodlake v. Logan, (1991) 230 Cal.App.3d 1058, subsequently
-------------------------
held that Proposition 62's popular vote requirements for future local taxes also
provided for an unconstitutional referenda. The California Supreme Court
declined to review both the City of Westminster and the City of Woodlake
------------------- ----------------
decisions.
In Santa Clara Local Transportation Authority v. Guardino, (Sept. 28,
------------------------------------------------------
1995) 11 Cal.4th 220, reh'g denied, modified (Dec. 14, 1995) 12 Cal.4th 344e,
----- ------ --------
the California Supreme Court upheld the constitutionality of Proposition 62's
popular vote requirements for future taxes, and specifically disapproved of the
City of Woodlake decision as erroneous. The Court did not determine the
- ----------------
correctness of the City of Westminster decision, because that case appeared
-------------------
distinguishable, was not relied on by the parties in Guardino, and involved
--------
taxes not likely to still be at issue. It is impossible to predict the impact
of the Supreme Court's decision on charter cities or on taxes imposed in
reliance on the City of Woodlake case.
----------------
Senate Bill 1590 (O'Connell), introduced February 16, 1996, would make
the Guardino decision inapplicable to any tax first imposed or increased by an
--------
ordinance or resolution adopted before December 14, 1995. The California State
Senate passed the Bill on May 16, 1996 and it is currently pending in the
California State Assembly. It is not clear whether the Bill, if enacted, would
be constitutional as a non-voted amendment to Proposition 62 or as a non-voted
change to Proposition 62's operative date.
PROPOSITION 218. On November 5, 1996, the voters of the State
approved Proposition 218, a constitutional initiative, entitled the "Right to
Vote on Taxes Act" ("Proposition 218"). Proposition 218 adds Articles XIII C
and XIII D to the California Constitution and contains a number of interrelated
provisions affecting the ability of local governments to levy and collect both
existing and future taxes, assessments, fees and charges. Proposition 218
became effective on November 6, 1996. The Sponsors are unable to predict
whether and to what extent Proposition 218 may be held to be constitutional or
how its terms will be interpreted and applied by the courts. However, if
upheld, Proposition 218 could substantially restrict certain local governments'
ability to raise future revenues and could subject certain existing sources of
revenue to reduction or repeal, and increase local government
-20-
<PAGE>
costs to hold elections, calculate fees and assessments, notify the public and
defend local government fees and assessments in court.
Article XIII C of Proposition 218 requires majority voter approval for
the imposition, extension or increase of general taxes and two-thirds voter
approval for the imposition, extension or increase of special taxes, including
special taxes deposited into a local government's general fund. Proposition 218
also provides that any general tax imposed, extended or increased without voter
approval by any local government on or after January 1, 1995 and prior to
November 6, 1996 shall continue to be imposed only if approved by a majority
vote in an election held within two years of November 6, 1996.
Article XIII C of Proposition 218 also expressly extends the
initiative power to give voters the power to reduce or repeal local taxes,
assessments, fees and charges, regardless of the date such taxes, assessments,
fees or charges were imposed. This extension of the initiative power to some
extent constitutionalizes the March 6, 1995 State Supreme Court decision in
Rossi v. Brown, which upheld an initiative that repealed a local tax and held
that the State constitution does not preclude the repeal, including the
prospective repeal, of a tax ordinance by an initiative, as contrasted with the
State constitutional prohibition on referendum powers regarding statutes and
ordinances which impose a tax. Generally, the initiative process enables
California voters to enact legislation upon obtaining requisite voter approval
at a general election. Proposition 218 extends the authority stated in Rossi v.
Brown by expanding the initiative power to include reducing or repealing
assessments, fees and charges, which had previously been considered
administrative rather than legislative matters and therefore beyond the
initiative power.
The initiative power granted under Article XIII C of Proposition 218,
by its terms, applies to all local taxes, assessments, fees and charges and is
not limited to local taxes, assessments, fees and charges that are property
related.
Article XIII D of Proposition 218 adds several new requirements making
it generally more difficult for local agencies to levy and maintain
"assessments" for municipal services and programs. "Assessment" is defined to
mean any levy or charge upon real property for a special benefit conferred upon
the real property.
Article XIII D of Proposition 218 also adds several provisions
affecting "fees" and "charges" which are defined as "any levy other than an ad
valorem tax, a special tax, or an assessment, imposed by a local government upon
a parcel or upon a person as an incident of property ownership, including a user
fee
-21-
<PAGE>
or charge for a property related service." All new and, after June 30, 1997,
existing property related fees and charges must conform to requirements
prohibiting, among other things, fees and charges which (i) generate revenue
exceeding the funds required to provide the property related service, (ii) are
used for any purpose other than those for which the fees and charges are
imposed, (iii) are for a service not actually used by, or immediately available
to, the owner of the property in question, or (iv) are used for general
governmental services, including police, fire or library services, where the
service is available to the public at large in substantially the same manner as
it is to property owners. Further, before any property related fee or charge may
be imposed or increased, written notice must be given to the record owner of
each parcel of land affected by such fee or charges. The local government must
then hold a hearing upon the proposed imposition or increase of such property
based fee, and if written protests against the proposal are presented by a
majority of the owners of the identified parcels, the local government may not
impose or increase the fee or charge. Moreover, except for fees or charges for
sewer, water and refuse collection services, no property related fee or charge
may be imposed or increased without majority approval by the property owners
subject to the fee or charge or, at the option of the local agency, two-thirds
voter approval by the electorate residing in the affected area.
PROPOSITION 87. On November 8, 1988, California voters approved
Proposition 87. Proposition 87 amended Article XVI, Section 16, of the
California Constitution by authorizing the California Legislature to prohibit
redevelopment agencies from receiving any of the property tax revenue raised by
increased property tax rates levied to repay bonded indebtedness of local
governments which is approved by voters on or after January 1, 1989.
Additional Investment Limitations
- ---------------------------------
In addition to the investment limitations disclosed in the Prospectus,
the Fund is subject to the following investment limitations, which may be
changed only by a vote of the holders of a majority of the Fund's outstanding
Shares (as defined under "Miscellaneous" in the Prospectus).
The Fund may not:
1. Make loans, except that the Fund may purchase or hold debt
obligations in accordance with its investment objective, policies, and
limitations;
2. Purchase securities on margin, make short sale of securities, or
maintain a short position; provided that the Fund may enter into futures
contracts and futures options;
-22-
<PAGE>
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except to the extent that the purchase of Municipal
Obligations or other securities directly from the issuer thereof in accordance
with the Fund's investment objective, policies, and limitations may be deemed to
be underwriting;
4. Purchase or sell real estate, except that the Fund may invest in
Municipal Obligations secured by real estate or interests therein;
5. Purchase or sell commodity futures contracts, or invest in oil,
gas, or mineral exploration or development programs; provided that the Fund may
enter into futures contracts and futures options;
6. Write or sell puts, calls, straddles, spreads, or combinations
thereof; provided that the Fund may enter into futures contracts and futures
options;
7. Invest in industrial revenue bonds where the payment of principal
and interest are the responsibility of a company (including its predecessors)
with less than three years of continuous operation; and
8. Issue any senior securities, except insofar as any borrowing in
accordance with the Fund's investment limitations might be considered to be the
issuance of a senior security; provided that the Fund may enter into futures
contracts and futures options.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares are continuously offered for sale by Edgewood Services, Inc.
(the "Distributor"), a wholly-owned subsidiary of Federated Investors, and the
Distributor has agreed to use appropriate efforts to solicit all purchase
orders. As described in the Prospectus, Shares may be sold to customers
("Customers") of the Investment Adviser, its affiliates and correspondent banks
and qualified banks, savings and loan associations, broker/dealers, and other
institutions ("Shareholder Organizations") that have entered into servicing
agreements with Excelsior Tax-Exempt Fund. Shares are also sold directly to
institutional investors ("Institutional Investors") and members of the general
public ("Direct Investors", and collectively with Institutional Investors,
"Investors"). Different types of Customer accounts at the Shareholder
Organizations may be used to purchase Shares, including eligible agency and
trust accounts. In addition, Shareholder Organizations may automatically
"sweep" a Customer's account not less frequently than weekly and invest amounts
in excess of a minimum balance agreed to by the
-23-
<PAGE>
Shareholder Organization and its Customer. Investors purchasing Shares may
include officers, directors, or employees of the particular Shareholder
Organization.
Shares of the Fund are offered for sale at their net asset value per
Share next computed after a purchase order is received by Excelsior Tax-Exempt
Fund's sub-transfer agent.
Prior to March 1, 1997, Shares of the Fund were offered for sale with
a maximum sales charge of 4.50%. For the fiscal period ended March 31, 1997,
total sales charges paid by shareholders of the Fund were $________. The
Distributor retained $__________ of the foregoing sales charges, and the balance
was paid to selling dealers.
Excelsior Tax-Exempt Fund may suspend the right of redemption or
postpone the date of payment for Shares for more than seven days during any
period when (a) trading on the New York Stock Exchange (the "Exchange") is
restricted by applicable rules and regulations of the Securities and Exchange
Commission (the "SEC"); (b) the Exchange is closed for other than customary
weekend and holiday closings; (c) the SEC has by order permitted such
suspension; or (d) an emergency exists as determined by the SEC.
In the event that Shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such Shares an amount that is
more or less than his original investment due to changes in the market price of
the Fund's portfolio securities.
Excelsior Tax-Exempt Fund reserves the right to honor any request for
redemption or repurchase of the Fund's Shares by making payment in whole or in
part in securities chosen by Excelsior Tax-Exempt Fund and valued in the same
way as they would be valued for purposes of computing the Fund's net asset
value. If payment is made in securities, a shareholder may incur transaction
costs in converting these securities into cash. Such redemptions in kind will
be governed by Rule 18f-1 under the 1940 Act so that the Fund is obligated to
redeem its Shares solely in cash up to the lesser of $250,000 or 1% of its net
asset value during any 90-day period for any one shareholder of the Fund.
Under limited circumstances, Excelsior Tax-Exempt Fund may accept
securities as payment for Shares. Securities acquired in this manner will be
limited to securities issued in transactions involving a bona fide
---------
reorganization or statutory merger, or will be limited to other securities
(except for municipal debt securities issued by state political subdivisions or
their agencies or instrumentalities) that: (a) meet the investment objective and
policies of the Fund; (b) are acquired for investment and not for resale; (c)
are liquid securities that
-24-
<PAGE>
are not restricted as to transfer either by law or liquidity of market; and (d)
have a value that is readily ascertainable (and not established only by
evaluation procedures) as evidenced by a listing on the American Stock Exchange,
New York Stock Exchange or NASDAQ, or as evidenced by their status as U.S.
Government securities, bank certificates of deposit, banker's acceptances,
corporate and other debt securities that are actively traded, money market
securities and other similar securities with a readily ascertainable value.
INVESTOR PROGRAMS
-----------------
Systematic Withdrawal Plan
- --------------------------
An Investor who owns Shares with a value of $10,000 or more may begin
a Systematic Withdrawal Plan. The withdrawal can be on a monthly, quarterly,
semiannual or annual basis. There are four options for such systematic
withdrawals. The Investor may request:
(1) A fixed-dollar withdrawal;
(2) A fixed-share withdrawal;
(3) A fixed-percentage withdrawal (based on the current value of the
account); or
(4) A declining-balance withdrawal.
Prior to participating in a Systematic Withdrawal Plan, the Investor must
deposit any outstanding certificates for Shares with Chase Global Funds Services
Company, the Fund's sub-transfer agent. Under this Plan, dividends and
distributions are automatically reinvested in additional Shares. Amounts paid
to Investors under this Plan should not be considered as income. Withdrawal
payments represent proceeds from the sale of Shares, and there will be a
reduction of the shareholder's equity in the Fund if the amount of the
withdrawal payments exceeds the dividends and distributions paid on the Shares
and the appreciation of the Investor's investment in the Fund. This in turn may
result in a complete depletion of the shareholder's investment. An Investor may
not participate in a program of systematic investing in the Fund while at the
same time participating in the Systematic Withdrawal Plan with respect to an
account in the Fund. Customers of Shareholder Organizations may obtain
information on the availability of, and the procedures and fees relating to, the
Systematic Withdrawal Plan directly from their Shareholder Organizations.
-25-
<PAGE>
Exchange Privilege
- ------------------
Investors and Customers of Shareholder Organizations may exchange
Shares having a value of at least $500 for Shares of any other portfolio of
Excelsior Tax-Exempt Fund or Excelsior Funds, Inc. ("Excelsior Fund") or for
Trust Shares of Excelsior Institutional Trust (collectively, the "Companies").
Shares may be exchanged by wire, telephone or mail and must be made to accounts
of identical registration. There is no exchange fee imposed by the Companies.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, the Companies reserve the right to limit the number of exchange
requests of Investors and Customers of Shareholder Organizations to no more than
six per year. The Companies may modify or terminate the exchange program at any
time upon 60 days' written notice to shareholders, and may reject any exchange
request.
For Federal income tax purposes, exchanges are treated as sales on
which the shareholder will realize a gain or loss, depending upon whether the
value of the Shares to be given up in exchange is more or less than the basis in
such Shares at the time of the exchange. Generally, a shareholder may include
sales loads incurred upon the purchase of Shares in his or her tax basis for
such Shares for the purpose of determining gain or loss on a redemption,
transfer or exchange of such Shares. However, if the shareholder effected an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and was able to reduce the sales load previously applicable
to the new shares (by virtue of the Companies' exchange privilege), the amount
equal to such reduction may not be included in the tax basis of the
shareholder's exchanged Shares but may be included (subject to the limitation)
in the tax basis of the new shares.
Other Investor Programs
- -----------------------
As described in the Prospectus, Shares of the Fund may be purchased in
connection with the Automatic Investment Program.
DESCRIPTION OF CAPITAL STOCK
----------------------------
Excelsior Tax-Exempt Fund's Charter authorizes its Board of Directors
to issue up to 14 billion full and fractional shares of capital stock and to
classify or reclassify any unissued shares of Excelsior Tax-Exempt Fund into one
or more additional classes or series by setting or changing in any one or more
respects their respective preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption. The Prospectus describes the classes of shares into
which Excelsior Tax-Exempt Fund's authorized capital is currently classified.
-26-
<PAGE>
Shares have no preemptive rights and only such con version or exchange
rights as the Board of Directors may grant in its discretion. When issued for
payment as described in the Prospectus, Shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of the Fund, its
shareholders are entitled to receive the assets available for distribution
belonging to the Fund and a proportionate dis tribution, based upon the relative
asset values of Excelsior Tax-Exempt Fund's portfolios, of any general assets of
Excelsior Tax-Exempt Fund not belonging to any particular portfolio of Excelsior
Tax-Exempt Fund which are available for distribution. In the event of a
liquidation or dissolution of Excelsior Tax-Exempt Fund, its shareholders will
be entitled to the same distribution process.
Shareholders of Excelsior Tax-Exempt Fund are entitled to one vote for
each full share held, and fractional votes for fractional shares held, and will
vote in the aggregate and not by class, except as otherwise required by the 1940
Act or other applicable law or when the matter to be voted upon affects only the
interests of the shareholders of a particular class. Voting rights are not
cumulative and, accordingly, the holders of more than 50% of the aggregate of
the outstanding shares of Excelsior Tax-Exempt Fund may elect all of Excelsior
Tax-Exempt Fund's directors, regardless of the votes of other shareholders.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as Excelsior Tax-Exempt Fund shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each portfolio affected by the matter. A portfolio is
affected by a matter unless it is clear that the interests of each portfolio in
the matter are substantially identical or that the matter does not affect any
interest of the portfolio. Under the Rule, the approval of an investment
advisory agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a portfolio only if approved by a
majority of the outstanding shares of such portfolio. However, the Rule also
provides that the ratification of the appointment of independent public
accountants, the approval of principal underwriting contracts, and the election
of directors may be effectively acted upon by shareholders of Excelsior Tax-
Exempt Fund voting without regard to class.
Excelsior Tax-Exempt Fund's Charter authorizes its Board of Directors,
without shareholder approval (unless otherwise required by applicable law), to
(a) sell and convey the assets of the Fund to another management investment
company for consideration which may include securities issued by the purchaser
and, in connection therewith, to cause all outstanding Shares of the Fund to be
redeemed at a price which is equal to
-27-
<PAGE>
their net asset value and which may be paid in cash or by distribution of the
securities or other consideration received from the sale and conveyance; (b)
sell and convert the Fund's assets into money and, in connection therewith, to
cause all outstanding Shares to be redeemed at their net asset value; or (c)
combine the assets belonging to the Fund with the assets belonging to another
portfolio of Excelsior Tax-Exempt Fund, if the Board of Directors reasonably
determines that such combination will not have a material adverse effect on
shareholders of any portfolio participating in such combination, and, in
connection therewith, to cause all outstanding Shares of the Fund to be redeemed
at their net asset value or converted into shares of another class of Excelsior
Tax-Exempt Fund's capital stock at net asset value. The exercise of such
authority by the Board of Directors will be subject to the provisions of the
1940 Act, and the Board of Directors will not take any action described in this
paragraph unless the proposed action has been disclosed in writing to the Fund's
shareholders at least 30 days prior thereto.
Notwithstanding any provision of Maryland law requiring a greater vote
of Excelsior Tax-Exempt Fund's Common Stock (or of the Shares of the Fund voting
separately as a class) in connection with any corporate action, unless otherwise
provided by law (for example, by Rule 18f-2, discussed above) or by Excelsior
Tax-Exempt Fund's Charter, Excelsior Tax-Exempt Fund may take or authorize such
action upon the favorable vote of the holders of more than 50% of the
outstanding Common Stock of Excelsior Tax-Exempt Fund voting without regard to
class.
-28-
<PAGE>
MANAGEMENT OF THE FUND
----------------------
Directors and Officers
- ----------------------
The directors and executive officers of Excelsior Tax-Exempt Fund,
their addresses, ages, principal occupations during the past five years, and
other affiliations are as follows:
<TABLE>
<CAPTION>
Position with Principal Occupation
Excelsior Tax- During Past 5 years and
Name and Address Exempt Fund Other Affiliations
- ---------------- -------------- -------------------------
<S> <C> <C>
Frederick S. Wonham(1) Chairman of the Retired; Director of
238 June Road Board, President Excelsior Funds, Inc.
Stamford, CT 06903 & Treasurer (since 1995); Trustee of
Age: 66 Excelsior Funds and
Excelsior Institutional
Trust (since 1995); Vice
Chairman of U.S. Trust
Corporation and U.S.
Trust Company of New
York (from February 1990
until September 1995);
Chairman, U.S. Trust
Connecticut (from March
1993 to May 1997).
Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior Funds, Inc.
Apt. 10-H (since 1984); Director
New York, NY 10021 of UST Master Variable
Age: 71 Series, Inc. (from 1994
to June 1997); Trustee
of Excelsior
Institutional Trust
(since 1995); Director,
Royal Life Insurance Co.
of New York (since
1991).
</TABLE>
- ------------------------
(1) This director is considered to be an "interested person" of Excelsior Tax-
Exempt Fund as defined in the 1940 Act.
-29-
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Excelsior Tax- During Past 5 years and
Name and Address Exempt Fund Other Affiliations
- ---------------- -------------- -------------------------
<S> <C> <C>
Rodman L. Drake Director Director, Excelsior
485 Park Avenue Funds, Inc. (since
New York, New York 10022 1996); Trustee,
Age: 54 Excelsior Funds and
Excelsior Institutional
Trust (since 1994);
Director, Parsons
Brinkerhoff, Inc.
(engineering firm)
(since 1995); Director,
Parsons Brinkerhoff
Energy Services Inc.
(since 1996); President,
Mandrake Group
(investment and
consulting firm)(since
1994); Director,
Hyperion Total Return
Fund, Inc. and four
other funds for which
Hyperion Capital
Management, Inc. serves
as investment adviser
(since 1991); Co-
Chairman, KMR Power
Corporation (power
plants) (from 1993 to
1996); Director, The
Latin American Growth
Fund (since 1993);
Member of Advisory Board
Argentina Private Equity
Fund L.P. (from 1992 to
1996) and Garantia L.P.
(Brazil) (from 1993 to
1996); and Director,
Mueller Industries, Inc.
(from 1992 to 1994).
Joseph H. Dugan Director Retired; Director of
913 Franklin Lakes Road Excelsior Funds, Inc.
Franklin Lakes, NJ 07417 (since 1984); Director
Age: 72 of UST Master Variable
Series, Inc. (from 1994
to June 1997); Trustee
of Excelsior
Institutional Trust
(since 1995).
</TABLE>
-30-
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Excelsior Tax- During Past 5 years and
Name and Address Exempt Fund Other Affiliations
- ---------------- -------------- -------------------------
<S> <C> <C>
Wolfe J. Frankl Director Retired; Director of
2320 Cumberland Road Excelsior Funds, Inc.
Charlottesville, VA (since 1986); Director
22901 of UST Master Variable
Age: 76 Series, Inc. (from 1994
to June 1997); Trustee
of Excelsior
Institutional Trust
(since 1995); Director,
Deutsche Bank Financial,
Inc. (since 1989);
Director, The Harbus
Corporation (since
1951); Trustee, HSBC
Funds Trust and HSBC
Mutual Funds Trust
(since 1988).
W. Wallace McDowell, Jr. Director Director, Excelsior
c/o Prospect Capital Funds, Inc. (since
Corp. 1996); Trustee of
43 Arch Street Excelsior Funds and
Greenwich, CT 06830 Excelsior Institutional
Age: 60 Trust (since 1994);
Private Investor (since
1994); Managing
Director, Morgan Lewis
Githens & Ahn (from 1991
to 1994) and Director,
U.S. Homecare
Corporation (since
1992), Grossmans, Inc.
(from 1993 to 1996),
Children's Discovery
Centers (since 1984),
ITI Technologies, Inc.
(since 1992) and Jack
Morton Productions
(since 1987).
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Excelsior Tax- During Past 5 years and
Name and Address Exempt Fund Other Affiliations
- ---------------- -------------- -------------------------
<S> <C> <C>
Jonathan Piel Director Director, Excelsior
558 E. 87th Street Funds, Inc. (since
New York, New York 10128 1996); Trustee of
Age: 58 Excelsior Funds and
Excelsior Institutional
Trust (since 1994);
President, Scientific
American, Inc. (from
1984 to 1986); Vice
President and Editor,
Scientific American,
Inc. (from 1986 to
1994); Director, Group
for The South Fork,
Bridgehampton, New York
(since 1993); and
Member, Advisory
Committee, Knight
Journalism Fellowships,
Massachusetts Institute
of Technology (since
1984).
Robert A. Robinson Director Director of Excelsior
Church Pension Fund Funds, Inc. (since
800 Second Avenue 1987); Director of UST
New York, NY 10017 Master Variable Series,
Age: 71 Inc. (from 1994 to June
1997); Trustee of
Excelsior Institutional
Trust (since 1995);
President Emeritus, The
Church Pension Fund and
its affiliated companies
(since 1966); Trustee,
H.B. and F.H. Bugher
Foundation and Director
of its wholly-owned
subsidiaries--Rosiclear
Lead and Flourspar
Mining Co. and The Pigmy
Corporation (since
1984); Director,
Morehouse Publishing Co.
(since 1974); Trustee,
HSBC Funds Trust and
HSBC Mutual Funds Trust
(since 1982); Director,
Infinity Mutual Funds,
Inc. (since 1995).
</TABLE>
-32-
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Excelsior Tax- During Past 5 years and
Name and Address Exempt Fund Other Affiliations
- ---------------- -------------- -------------------------
<S> <C> <C>
Alfred C. Tannachion(1) Director Retired; Director of
6549 Pine Meadows Drive Excelsior Funds, Inc.
Spring Hill, FL 34606 (since 1985); Chairman
Age: 71 of the Board, President
and Treasurer of UST
Master Variable Series,
Inc. (from 1994 to June
1997); Trustee of
Excelsior Institutional
Trust (since 1995).
W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National of Drinker Biddle &
Bank Building Reath LLP.
1345 Chestnut Street
Philadelphia, PA 19107-3497
Age: 54
Greg Sackos Assistant Second Vice President,
Chase Global Funds Secretary Senior Manager of Blue
Services Company Sky Compliance and
73 Tremont Street Financial Reporting,
Boston, MA 02108-3913 Chase Global Funds
Age: 32 Services Company (March
1997 to present); Second
Vice President, Senior
Manager of Financial
Reporting, Chase Global
Funds Services Company
(September 1996 to March
1997); Assistant Vice
President, Assistant
Manager of Financial
Reporting, Scudder,
Stevens & Clark Inc.
(October 1992 to
September 1996).
John M. Corcoran Assistant Vice President, Director
Chase Global Funds Treasurer of Administration Client
Services Company Group, Chase Global
73 Tremont Street Funds Services Company
Boston, MA 02108-3913 (since July 1996);
Age: 32 Second Vice President,
Manager of
Administration, Chase
Global Funds Services
Company (from October
1993 to July 1996);
Audit Manager, Ernst &
Young LLP (from August
1987 to September 1993).
</TABLE>
_____________
(1) This director is considered to be an "interested person" of Excelsior Tax-
Exempt Fund as defined in the 1940 Act.
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<PAGE>
Each director of Excelsior Tax-Exempt Fund receives an annual fee of $9,000
plus a meeting fee of $1,500 for each meeting attended and is reimbursed for
expenses incurred in attending meetings. The Chairman of the Board is entitled
to receive an additional $5,000 per annum for services in such capacity.
Drinker Biddle & Reath LLP, of which Mr. McConnel is a partner, receives legal
fees as counsel to Excelsior Tax-Exempt Fund. The employees of Chase Global
Funds Services Company do not receive any compensation from Excelsior Tax-Exempt
Fund for acting as officers of Excelsior Tax-Exempt Fund. No person who is
currently an officer, director or employee of the Investment Adviser serves as
an officer, director or employee of Excelsior Tax-Exempt Fund. As of July
_____, 1997, the directors and officers of Excelsior Tax-Exempt Fund as a group
owned beneficially less than 1% of the outstanding Shares of the Fund, and less
than 1% of the outstanding Shares of all funds of Excelsior Tax-Exempt Fund in
the aggregate.
The following chart provides certain information about the fees
received by Excelsior Tax-Exempt Fund's directors during the fiscal year ended
March 31, 1997.
-34-
<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation from
Aggregate Accrued as Excelsior Tax-Exempt
Compensation from Part of Fund and Fund
Name of Excelsior Fund Complex/*/ Paid
Person/Position Tax-Exempt Fund Expenses to Directors
- --------------- ----------------- ---------- --------------------
<S> <C> <C> <C>
Frederick S. Wonham $15,000 None $14,424(4)**
Chairman of the Board,
President and Treasurer***
Donald L. Campbell $13,500 None $31,750(4)**
Director
Rodman L. Drake $ 3,750 None $12,250(4)**
Director****
Joseph H. Dugan $15,000 None $35,000(4)**
Director
Wolfe J. Frankl $15,000 None $35,000(4)**
Director
W. Wallace McDowell $ 2,250 None $ 9,250(4)**
Director****
Jonathan Piel $ 3,750 None $12,500(4)**
Director****
Robert A. Robinson $15,000 None $35,000(4)**
Director
Alfred C. Tannachion $20,000 None $45,000(4)**
Director*****
</TABLE>
- ---------------------------
* The "Fund Complex" consists of Excelsior Funds, Inc., Excelsior Tax-Exempt
Fund, UST Master Variable Series, Inc., Excelsior Institutional Trust and
Excelsior Funds.
** Number of investment companies in the Fund Complex for which director
serves as director or trustee.
*** Mr. Wonham was elected to the Board of Directors of Excelsior Tax-Exempt
Fund on November 17, 1995, and has served as its Chairman, President and
Treasurer since February 13, 1997.
**** Messrs. Drake, McDowell and Piel were elected to the Boards of Directors of
Excelsior Funds, Inc. and Excelsior Tax-Exempt Fund on December 9, 1996.
-35-
<PAGE>
***** Mr. Tannachion served as Chairman, President and Treasurer
of Excelsior Tax-Exempt Fund until February 13, 1997.
-36-
<PAGE>
Investment Advisory, Sub-Advisory and Administration Agreements
- ---------------------------------------------------------------
United States Trust Company of New York ("U.S. Trust New York") and
U.S. Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively
with U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as
Investment Adviser to the Fund. United States Trust Company of California (the
"Sub-Adviser") serves as the Fund's Sub-Adviser. In the Investment Advisory and
Sub-Advisory Agreements, U.S. Trust and the Sub-Adviser, respectively, have
agreed to provide the services described in the Prospectus. The Investment
Adviser and Sub-Adviser have also agreed to pay all expenses incurred by them in
connection with their activities under the agreements other than the cost of
securities, including brokerage commissions, if any, purchased for the Fund.
The Investment Adviser and Sub-Adviser may, from time to time, voluntarily waive
a portion of their respective fees, which waivers may be terminated at any time.
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 Investment Advisory Agreement currently in effect for the Fund.
For the period from October 1, 1996 (commencement of operations)
through March 31, 1997, U.S. Trust New York waived its entire advisory fee
totalling $______ and reimbursed expenses totalling $_____. For the same
period, the Sub-Adviser waived its entire sub-advisory fee totalling $______.
The Investment Advisory Agreement and the Sub-Advisory Agreement
provide that the Investment Adviser and the Sub-Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of such agreements, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
advisory services or a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Investment Adviser or Sub-Adviser in the
performance of their duties or from reckless disregard by either of them of
their duties and obligations thereunder. In addition, the Investment Adviser
has undertaken in the Investment Advisory Agreement to maintain its policy and
practice of conducting its Asset Management Group independently of its Banking
Group.
Chase Global Funds Services Company ("CGFSC"), Federated
Administrative Services, an affiliate of the Distributor, and U.S. Trust
Connecticut (the "Administrators") serve as the Fund's Administrators. Under
the Administration Agreement, the Administrators have agreed to maintain office
facilities for the Fund, furnish the Fund with statistical and research data,
clerical, accounting and bookkeeping services, and
-37-
<PAGE>
certain other services required by the Fund, and to compute the net asset value,
net income, "exempt interest dividends" and realized capital gains or losses of
the Fund. The Administrators prepare semiannual reports to the SEC, prepare
Federal and state tax returns, prepare filings with state securities
commissions, arrange for and bear the cost of processing Share purchase and
redemption orders, maintain the Fund's financial accounts and records, and
generally assist in all aspects of the Fund's operations.
Prior to May 16, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York served as the Fund's administrators pursuant to an
administrative agreement substantially similar to the Administration Agreement
currently in effect for the Fund.
For the period from October 1, 1996 (commencement of operations)
through March 31, 1997, Excelsior Tax-Exempt Fund paid CGFSC, Federated
Administrative Services and U.S. Trust New York combined administration fees
totalling $________ with respect to the Fund. For the same period, CGFSC,
Federated Administrative Services and U.S. Trust New York waived administration
fees totalling $_______ with respect to the Fund.
Service Organizations
- ---------------------
As stated in the Prospectus, Excelsior Tax-Exempt Fund will enter into
agreements with Service Organizations. Such shareholder servicing agreements
will require the Service Organizations to provide shareholder administrative
services to their Customers who beneficially own Shares in consideration for the
Fund's payment (on an annualized basis) of up to .40% of the average daily net
assets of the Fund's Shares beneficially owned by Customers of the Service
Organization. Such services may include: (a) assisting Customers in
designating and changing dividend options, account designations and addresses;
(b) providing necessary personnel and facilities to establish and maintain
certain shareholder accounts and records, as may reasonably be requested from
time to time by Excelsior Tax-Exempt Fund; (c) assisting in processing
purchases, exchange and redemption transactions; (d) arranging for the wiring of
funds; (e) transmitting and receiving funds in connection with Customer orders
to purchase, exchange or redeem Shares; (f) verifying and guaranteeing Customer
signatures in connection with redemption orders, transfers among and changes in
Customer-designated accounts; (g) providing periodic statements showing a
Customer's account balances and, to the extent practicable, integrating of such
information with information concerning other client transactions otherwise
effected with or through the Service Organization; (h) furnishing on behalf of
Excelsior Tax-Exempt Fund's distributor (either separately or on an integrated
basis with other reports sent to a Customer by the Service
-38-
<PAGE>
Organization) periodic statements and confirmations of all purchases, exchanges
and redemptions of Shares in a Customer's account required by applicable federal
or state law; (i) transmitting proxy statements, annual reports, updating
prospectuses and other communications from Excelsior Tax-Exempt Fund to
Customers; (j) receiving, tabulating and transmitting to Excelsior Tax-Exempt
Fund proxies executed by Customers with respect to annual and special meetings
of shareholders of Excelsior Tax-Exempt Fund; (k) providing reports (at least
monthly, but more frequently if so requested by Excelsior Tax-Exempt Fund's
distributor) containing state-by-state listings of the principal residences of
the beneficial owners of the Shares; and (l) providing or arranging for the
provision of such other related services as Excelsior Tax-Exempt Fund or a
Customer may reasonably request.
Excelsior Tax-Exempt Fund's agreements with Service Organizations are
governed by an Administrative Services Plan (the "Plan") adopted by Excelsior
Tax-Exempt Fund. Pursuant to the Plan, Excelsior Tax-Exempt Fund's Board of
Directors will review, at least quarterly, a written report of the amounts
expended under Excelsior Tax-Exempt Fund's agreements with Service Organizations
and the purposes for which the expenditures were made. In addition, the
arrangements with Service Organizations will be approved annually by a majority
of Excelsior Tax-Exempt Fund's directors, including a majority of the directors
who are not "interested persons" of Excelsior Tax-Exempt Fund as defined in the
1940 Act and have no direct or indirect financial interest in such arrangements
(the "Disinterested Directors").
Any material amendment to Excelsior Tax-Exempt Fund's arrangements
with Service Organizations must be approved by a majority of the Board of
Directors (including a majority of the Disinterested Directors). So long as
Excelsior Tax-Exempt Fund's arrangements with Service Organizations are in
effect, the selection and nomination of the members of Excelsior Tax-Exempt
Fund's Board of Directors who are not "interested persons" (as defined in the
1940 Act) of Excelsior Tax-Exempt Fund will be committed to the discretion of
such Disinterested Directors.
For the period from October 1, 1996 (commencement of operations)
through March 31, 1997, payments to Service Organizations totalled $_____ with
respect to the Fund, $______ of which was paid to affiliates of U.S. Trust.
Expenses
- --------
Except as otherwise noted, the Investment Adviser, Sub-Adviser and the
Administrators bear all expenses in connection with the performance of their
advisory, sub-advisory and administrative services. The Fund bears the expenses
incurred in
-39-
<PAGE>
its operations. Such expenses include taxes; interest; fees, including the
Fund's portion of the fees paid to Excelsior Tax-Exempt Fund's directors and
officers who are not affiliated with the Distributor or the Administrators; SEC
fees; state securities qualification fees; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to shareholders;
advisory, sub-advisory, administration and administrative servicing fees;
charges of the custodian, transfer agent and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; cost of independent
pricing services; costs of shareholder reports and meetings; and any
extraordinary expenses. The Fund also pays for any brokerage fees and
commissions in connection with the purchase of portfolio securities.
Custodian and Transfer Agent
- ----------------------------
The Chase Manhattan Bank ("Chase") serves as custodian of the Fund's
assets. Under the custodian agreement, Chase has agreed to (i) maintain a
separate account or accounts in the name of the Fund; (ii) make receipts and
disbursements of money on behalf of the Fund; (iii) collect and receive all
income and other payments and distributions on account of the Fund's portfolio
securities; (iv) respond to correspondence from securities brokers and others
relating to its duties; (v) maintain certain financial accounts and records; and
(vi) make periodic reports to Excelsior Tax-Exempt Fund's Board of Directors
concerning the Fund's operations. Chase is entitled to monthly fees for
furnishing custodial services according to the following fee schedule: on the
face value of debt securities and the market value of equity securities, a fee
at the annual rate of .025%; on issues held, $50.00 for each physical issue
held, $25.00 for each book-entry issue held and 1/4 of 1% of market value for
each foreign issue held; on transactions, $25.00 for each physical transaction,
$15.00 for each book-entry transaction and $50.00 for each foreign security
transaction. In addition, Chase is entitled to reimbursement for its out-of-
pocket expenses in connection with the above services. Chase may, at its own
expense, open and maintain custody accounts with respect to the Fund, with the
banks or trust companies, provided that Chase shall remain liable for the
performance of all its custodial duties under the Custodian Agreement,
notwithstanding any delegation.
U.S. Trust New York serves as the Fund's transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust New York has agreed to (i) issue
and redeem Shares; (ii) address and mail all communications by the Fund to its
shareholders, including reports to shareholders, dividend and distribution
notices, and proxy materials for its meetings of shareholders; (iii) respond to
correspondence by shareholders and others relating to its duties; (iv) maintain
shareholder accounts; and
-40-
<PAGE>
(v) make periodic reports to Excelsior Tax-Exempt Fund concerning the Fund's
operations. For its transfer agency, dividend disbursing, and subaccounting
services, U.S. Trust New York is entitled to receive $15.00 per annum per
account and subaccount. In addition, U.S. Trust New York is entitled to be
reimbursed for its out-of-pocket expenses for the cost of forms, postage,
processing purchase and redemption orders, handling of proxies, and other
similar expenses in connection with the above services.
U.S. Trust New York may, at its own expense, delegate its transfer
agency obligations to another transfer agent registered or qualified under
applicable law, provided that U.S. Trust New York shall remain liable for the
performance of all of its transfer agency duties under the Transfer Agency
Agreement, notwithstanding any delegation. Pursuant to this provision in the
agreement, U.S. Trust New York has entered into a sub-transfer agency
arrangement with CGFSC, an affiliate of Chase, with respect to accounts of
shareholders who are not Customers of U.S. Trust New York. For the services
provided by CGFSC, U.S. Trust New York has agreed to pay CGFSC $15.00 per annum
per account or subaccount plus out-of-pocket expenses. CGFSC receives no fee
directly from Excelsior Tax-Exempt Fund for any of its sub-transfer agency
services.
PORTFOLIO TRANSACTIONS
----------------------
Subject to the general control of Excelsior Tax-Exempt Fund's Board of
Directors, the Investment Adviser and Sub-Adviser are responsible for, make
decisions with respect to, and place orders for all purchases and sales of
portfolio securities.
The Fund may engage in short-term trading to achieve its investment
objective. Portfolio turnover may vary greatly from year to year as well as
within a particular year. It is expected that the Fund's turnover rate may be
higher than that of many other investment companies with similar investment
objectives and policies. The Fund's portfolio turnover rate may also be
affected by cash requirements for redemptions of Shares and by regulatory
provisions which enable the Fund to receive certain favorable tax treatment.
Portfolio turnover will not be a limiting factor in making portfolio decisions.
Securities purchased and sold by the Fund are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
With respect to over-the-counter transactions, the Fund, where possible, will
deal directly with
-41-
<PAGE>
dealers who make a market in the securities involved, except in those situations
where better prices and execution are available elsewhere.
The Investment Advisory and Sub-Advisory Agreements provide that, in
executing portfolio transactions and selecting brokers or dealers, the
Investment Adviser and Sub-Adviser will seek to obtain the best net price and
the most favorable execution. The Investment Adviser and Sub-Adviser shall
consider factors they deem relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and whether such broker or dealer is selling
shares of Excelsior Tax-Exempt Fund, and the reasonableness of the commission,
if any, for the specific transaction and on a continuing basis.
In addition, the Investment Advisory and Sub-Advisory Agreements
authorize the Investment Adviser and Sub-Adviser, to the extent permitted by law
and subject to the review of Excelsior Tax-Exempt Fund's Board of Directors from
time to time with respect to the extent and continuation of the policy, to cause
the Fund to pay a broker which furnishes brokerage and research services a
higher commission than that which might be charged by another broker for
effecting the same transaction, provided that the Investment Adviser or Sub-
Adviser determines in good faith that such commission is reasonable in relation
to the value of the brokerage and research services provided by such broker,
viewed in terms of either that particular transaction or the overall
responsibilities of the Investment Adviser or Sub-Adviser to the accounts as to
which it exercises investment discretion. Such brokerage and research services
might consist of reports and statistics on specific companies or industries,
general summaries of groups of stocks and their comparative earnings, or broad
overviews of the fixed-income market and the economy.
Supplementary research information so received is in addition to and
not in lieu of services required to be performed by the Investment Adviser and
the Sub-Adviser and does not reduce the investment advisory fee payable by the
Fund. Such information may be useful to the Investment Adviser or Sub-Adviser
in serving the Fund and other clients and, conversely, supplemental information
obtained by the placement of business of other clients may be useful to the
Investment Adviser or Sub-Adviser in carrying out its obligations to the Fund.
Portfolio securities will not be purchased from or sold to the
Investment Adviser, the Sub-Adviser, the Distributor, or any affiliated person
of any of them (as such term is defined in the 1940 Act) acting as principal,
except to the extent permitted by the SEC.
-42-
<PAGE>
Investment decisions for the Fund are made inde pendently from those
for other investment companies, common trust funds and other types of funds
managed by the Investment Adviser and the Sub-Adviser. Such other investment
companies and funds may also invest in the same securities as the Fund. When a
purchase or sale of the same security is made at substantially the same time on
behalf of the Fund and another investment company or common trust fund, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which the Investment Adviser or Sub-Adviser believes to
be equitable to the Fund and such other investment company or common trust fund.
In some instances, this investment procedure may ad versely affect the price
paid or received by the Fund or the size of the position obtained by the Fund.
To the extent permitted by law, the Investment Adviser and the Sub-Adviser may
aggregate the securities to be sold or purchased for the Fund with those to be
sold or purchased for other investment companies or common trust funds in order
to obtain best execution.
Excelsior Tax-Exempt Fund is required to identify any securities of
its regular brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or
their parents held by the Fund as of the close of its most recent fiscal year.
As of March 31, 1997, the Fund held the following securities of Excelsior Tax-
Exempt Fund's regular brokers or dealers or their parents:____________.
INDEPENDENT AUDITORS
--------------------
Ernst & Young LLP, independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of Excelsior Tax-Exempt Fund. The Fund's Financial
Highlights included in the Prospectus and the financial statements for the
period from October 1, 1996 (commencement of operations) to March 31, 1997
incorporated by reference in this Statement of Additional Information have been
audited by Ernst & Young LLP for the period included in their reports thereon
which appear therein.
COUNSEL
-------
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of
Excelsior Tax-Exempt Fund, is a partner), Philadelphia National Bank Building,
1345 Chestnut Street, Philadelphia, Pennsylvania 19107-3496, is counsel to
Excelsior Tax-Exempt Fund and will pass upon the legality of the Shares offered
by the Prospectus.
-43-
<PAGE>
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
Federal
- -------
The following supplements the tax information contained in the
Prospectus.
The Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended (the "Code"), and has qualified and intends to
continue to qualify as a regulated investment company. If, for any reason, the
Fund does not qualify for a taxable year for the special Federal tax treatment
afforded regulated investment companies, the Fund would be subject to Federal
tax on all of its taxable income at regular corporate rates, without any
deduction for distributions to shareholders. In such event, dividend
distributions would be taxable as ordinary income to shareholders to the extent
of the Fund's current and accumulated earnings and profits and would be eligible
for the dividends received deduction in the case of corporate shareholders.
As stated in the Prospectus, the Fund is not intended to constitute a
balanced investment program and is not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Fund will not be suitable for tax-exempt institutions
and may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans and individual retirement accounts because such plans and
accounts are generally tax-exempt and, therefore, not only would not gain any
additional benefit from the Fund's dividends being tax-exempt, but such
dividends would be ultimately taxable to the beneficiaries when distributed to
them. In addition, the Fund may not be an appropriate investment for entities
which are "substantial users" of facilities financed by private activity bonds
or "related persons" thereof. "Substantial user" is defined under the Treasury
Regulations to include a non-exempt person who regularly uses a part of such
facilities in his trade or business and whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenues derived by all users of such facilities, who occupies more
than 5% of the usable area of such facilities or for whom such facilities or a
part thereof were specifically constructed, reconstructed or acquired. "Related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S Corporation and its shareholders.
In order for the Fund to pay exempt-interest dividends for any taxable
year, at least 50% of the aggregate value of the Fund's portfolio must consist
of exempt-interest obligations at the close of each quarter of its taxable year.
Within 60 days after the close of the taxable year, the Fund will notify its
-44-
<PAGE>
shareholders of the portion of the dividends paid by the Fund which constitutes
an exempt-interest dividend with respect to such taxable year. However, the
aggregate amount of dividends so designated by the Fund cannot exceed the excess
of the amount of interest exempt from tax under Section 103 of the Code received
by the Fund during the taxable year over any amounts disallowed as deductions
under Sections 265 and 171(a)(2) of the Code. The percentage of total dividends
paid by the Fund with respect to any taxable year which qualifies as exempt-
interest dividends will be the same for all shareholders receiving dividends
from the Fund for such year.
Interest on indebtedness incurred by a shareholder to purchase or
carry the Shares generally is not deductible for income tax purposes. In
addition, if a shareholder holds Shares for six months or less, any loss on the
sale or exchange of those Shares will be disallowed to the extent of the amount
of exempt-interest dividends received with respect to the Shares. The Treasury
Department, however, is authorized to issue regulations reducing the six-month
holding requirement to a period of not less than the greater of 31 days or the
period between regular dividend distributions where the investment company
regularly distributes at least 90% of its net tax-exempt interest. No such
regulations had been issued as of the date of this Statement of Additional
Information.
Any net long-term capital gains realized by the Fund will be
distributed at least annually. The Fund will generally have no tax liability
with respect to such gains and the distributions will be taxable to shareholders
as long-term capital gains, regardless of how long a shareholder has held
Shares. Such distributions will be designated as a capital gain dividend in a
written notice mailed by the Fund to shareholders not later than 60 days after
the close of the Fund's taxable year.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). The Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
The Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or 31% of gross proceeds realized
upon sale paid to shareholders who have failed to provide a correct tax
identification number in the manner required, who are subject to withholding by
the Internal Revenue Service for failure properly to include on their return
payments of taxable interest or dividends, or who have failed to
-45-
<PAGE>
certify to the Fund when required to do so either that they are not subject to
backup withholding or that they are "exempt recipients."
Taxation of Certain Financial Instruments
- -----------------------------------------
Generally, futures contracts held by the Fund at the close of the
Fund's taxable year will be treated for Federal income tax purposes as sold for
their fair market value on the
last business day of such year, a process known as "mark-to-market." Forty
percent of any gain or loss resulting from such constructive sale will be
treated as short-term capital gain or loss and 60% of such gain or loss will be
treated as long-term capital gain or loss, without regard to the length of time
the Fund has held the futures contract (the "40-60 rule"). The amount of any
capital gain or loss actually realized by the Fund in a subsequent sale or other
disposition of those futures contracts will be adjusted to reflect any capital
gain or loss taken into account by the Fund in a prior year as a result of the
constructive sale of the contracts. With respect to futures contracts to sell,
which will be regarded as parts of a "mixed straddle" because their values
fluctuate inversely to the values of specific securities held by the Fund,
losses as to such contracts to sell will be subject to certain loss deferral
rules which limit the amount of loss currently deductible on either part of the
straddle to the amount thereof which exceeds the unrecognized gain (if any) with
respect to the other part of the straddle, and to certain wash sales
regulations. Under short sales rules, which will also be applicable, the
holding period of the securities forming part of the straddle will (if they have
not been held for the long-term holding period) be deemed not to begin prior to
termination of the straddle. With respect to certain futures contracts,
deductions for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures contracts to
sell which are properly identified as such, the Fund may make an election which
will exempt (in whole or in part) those identified futures contracts from being
treated for Federal income tax purposes as sold on the last business day of the
Fund's taxable year, but gains and losses will be subject to such short sales,
wash sales, and loss deferral rules and the requirement to capitalize interest
and carrying charges. Under temporary regulations, the Fund would be allowed
(in lieu of the foregoing) to elect either (1) to offset gains or losses from
positions which are part of a mixed straddle by separately identifying each
mixed straddle to which such treatment applies, or (2) to establish a mixed
straddle account for which gains and losses would be recognized and offset on a
periodic basis during the taxable year. Under either election, the 40-60 rule
will apply to the net gain or loss attributable to the futures contracts, but in
the case of a mixed straddle account election, not more than 60% of any net gain
may be treated as long-term and no more than 40% of any net
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<PAGE>
loss may be treated as short-term. Options on futures contracts generally
receive Federal tax treatment similar to that described above.
The Fund will not be treated as a regulated investment company under
the Code if 30% or more of the Fund's gross income for a taxable year is derived
from gains realized on the sale or other disposition of the following
investments held for less than three months (the "Short-Short Gain Test"): (1)
stock and securities (as defined in section 2(a)(36) of the 1940 Act); (2)
options, futures and forward contracts other than those on foreign currencies;
and (3) foreign currencies (and options, futures and forward contracts on
foreign currencies) that are not directly related to the Fund's principal
business of investing in stock and securities (and options and futures with
respect to stocks and securities). Interest (including original issue discount
and accrued market discount) received by the Fund upon maturity or disposition
of a security held for less than three months will not be treated as gross
income derived from the sale or other disposition of such security within the
meaning of this requirement. However, any other income which is attributable to
realized market appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose. With respect to futures
contracts, forward contracts, options on futures contracts, and other financial
instruments subject to the mark-to-market rules described above, the Internal
Revenue Service has ruled in private letter rulings that a gain realized from
such a contract, option, or financial instrument will be treated as being
derived from a security held for three months or more (regardless of the actual
period for which the contract, option or instrument is held) if the gain arises
as a result of a constructive sale under the mark-to-market rules, and will be
treated as being derived from a security held for less than three months only if
the contract, option or instrument is terminated (or transferred) during the
taxable year (other than by reason of mark-to-market) and less than three months
have elapsed between the date the contract, option or instrument is acquired and
the termination date. Increases and decreases in the value of the Fund's
futures contracts and other investments that qualify as part of a "designated
hedge," as defined in Section 851(g) of the Code, may be netted for purposes of
determining whether the Short-Short Gain Test is met.
* * *
The foregoing discussion is based on Federal and California state tax
laws and regulations which are in effect on the date of this Statement of
Additional Information; such laws and regulations may be changed by legislative
or administrative action. Shareholders are advised to consult their tax
advisers concerning their specific situations and the application of state and
other local taxes.
-47-
<PAGE>
CALIFORNIA
----------
As a regulated investment company, the Fund will be relieved of
liability for California state franchise and corporate income tax to the extent
its earnings are distributed to its shareholders (including interest income on
California Municipal Obligations for franchise tax purposes). The Fund will be
taxed on its undistributed taxable income. If for any year the Fund does not
qualify for the special tax treatment afforded regulated investment companies,
all of the Fund's taxable income may be subject to California state franchise or
income tax at regular corporate rates.
If, at the close of each quarter of its taxable year, at least 50% of
the value of the total assets of a regulated investment company, or series
thereof, consists of obligations the interest on which, if held by an
individual, is exempt from taxation by California ("California Exempt
Securities"), then a regulated investment company, or series thereof, will be
qualified to pay dividends exempt from California state personal income tax to
its non-corporate shareholders (hereinafter referred to as "California exempt-
interest dividends"). For this purpose, California Exempt Securities are
generally limited to California Municipal Securities and certain U.S. Government
and U.S. Possession obligations. "Series" of a regulated investment company is
defined as a segregated portfolio of assets, the beneficial interest in which is
owned by the holders of an exclusive class or series of stock of the company.
The Fund intends to qualify under the above requirements so that it can pay
California exempt-interest dividends. If the Fund fails to so qualify, no part
of its dividends to shareholders will be exempt from the California state
personal income tax. The Fund may reject purchase orders for shares if it
appears desirable to avoid failing to so qualify.
Within 60 days after the close of its taxable year, the Fund will
notify each shareholder of the portion of the dividends paid by the Fund to the
shareholder with respect to such taxable year which is exempt from California
state personal income tax. The total amount of California exempt-interest
dividends paid by the Fund with respect to any taxable year cannot exceed the
excess of the amount of interest received by the Fund for such year on
California Exempt Securities over any amounts that, if the Fund were treated as
an individual, would be considered expenses related to tax-exempt income or
amortizable bond premium and would thus not be deductible under federal income
or California state personal income tax law. The percentage of total dividends
paid by the Fund with respect to any taxable year which qualifies as California
exempt-interest dividends will be the same for all shareholders receiving
dividends from the Fund with respect to such year.
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<PAGE>
In cases where shareholders are "substantial users" or "related
persons" with respect to California Exempt Securities held by the Fund, such
shareholders should consult their tax advisers to determine whether California
exempt-interest dividends paid by the Fund with respect to such obligations
retain California state personal income tax exclusion. In this connection rules
similar to those regarding the possible unavailability of federal exempt-
interest dividend treatment to "substantial users" are applicable for California
state tax purposes. See "Additional Information Concerning Taxes -Federal"
above.
To the extent, if any, dividends paid to shareholders are derived from
the excess of net long-term capital gains over net short-term capital losses,
such dividends will not constitute California exempt-interest dividends and will
generally be taxed as long-term capital gains under rules similar to those
regarding the treatment of capital gains dividends for federal income tax
purposes. See "Additional Information Concerning Taxes -Federal" above.
Moreover, interest on indebtedness incurred by a shareholder to purchase or
carry Fund shares is not deductible for California state personal income tax
purposes if the Fund distributes California exempt-interest dividends during the
shareholder's taxable year.
The foregoing is only a summary of some of the important California
state personal income tax considerations generally affecting the Fund and its
shareholders. No attempt is made to present a detailed explanation of the
California state personal income tax treatment of the Fund or its shareholders,
and this discussion is not intended as a substitute for careful planning.
Further, it should be noted that the portion of any Fund dividends constituting
California exempt-interest dividends is excludable from income for California
state personal income tax purposes only. Any dividends paid to shareholders
subject to California state franchise tax or California state corporate income
tax may therefore be taxed as ordinary dividends to such purchasers
notwithstanding that all or a portion of such dividends is exempt from
California state personal income tax. Accordingly, potential investors in the
Fund, including, in particular, corporate investors which may be subject to
either California franchise tax or California corporate income tax, should
consult their tax advisers with respect to the application of such taxes to the
receipt of Fund dividends and as to their own California state tax situation, in
general.
PERFORMANCE AND YIELD INFORMATION
---------------------------------
The Fund may advertise the standardized effective 30-day (or one
month) yields calculated in accordance with the method prescribed by the SEC for
mutual funds. Such yield will
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<PAGE>
be calculated separately for each Fund according to the following formula:
a-b
Yield = 2 [(----- + 1) to the sixth power - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = average daily number of Shares outstanding that were entitled to
receive dividends.
d = maximum offering price per Share on the last day of the period.
For the purpose of determining interest earned during the period
(variable "a" in the formula), the Fund computes the yield to maturity of any
debt obligation held by it based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest). Such yield is then
divided by 360, and the quotient is multiplied by the market value of the
obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is in the portfolio. It is assumed in the above calculation that
each month contains 30 days. Also, the maturity of a debt obligation with a
call provision is deemed to be the next call date on which the obligation
reasonably may be expected to be called or, if none, the maturity date. The
Fund calculates interest gained on tax-exempt obligations issued without
original issue discount and having a current market discount by using the coupon
rate of interest instead of the yield to maturity. In the case of tax-exempt
obligations with original issue discount, where the discount based on the
current market value exceeds the then-remaining portion of original issue
discount, the yield to maturity is the imputed rate based on the original issue
discount calculation. Conversely, where the discount based on the current
market value is less than the remaining portion of the original issue discount,
the yield to maturity is based on the market value.
Expenses accrued for the period (variable "b" in the formula) include
all recurring fees charged by the Fund to all shareholder accounts and to the
particular series of Shares in proportion to the length of the base period and
the Fund's mean
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<PAGE>
(or median) account size. Undeclared earned income will be subtracted from the
maximum offering price per Share (variable "d" in the formula). Based on the
foregoing calculations, the Fund's standardized effective yield for the 30-day
period ended March 31, 1997 was _____%.
The "tax-equivalent" yield of the Fund is computed by: (a) dividing
the portion of the yield (calculated as above) that is exempt from Federal
income tax by one minus a stated Federal income tax rate and (b) adding that
figure to that portion, if any, of the yield that is not exempt from Federal
income tax. Tax-equivalent yields assume the payment of Federal income taxes at
a rate of 31%. Based on the foregoing calculation, the tax-equivalent yield of
the Fund for the 30-day period ended March 31, 1997 was ____%.
The Fund's "average annual total return" is computed by determining
the average annual compounded rate of return during specified periods that
equates the initial amount invested to the ending redeemable value of such
investment according to the following formula:
ERV
T = [(-----) to the first power divided by n - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year (or other)
periods at the end of the applicable period (or a
fractional portion thereof).
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in years.
The Fund's "aggregate total return" is computed by determining the
aggregate compounded rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
ERV
T = [(-----)] - 1
P
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<PAGE>
These calculations are made assuming that (1) all divi dends and
capital gain distributions are reinvested on the reinvestment dates at the price
per Share existing on the reinvestment date, (2) all recurring fees charged to
all share holder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size in the Fund during
the periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. The Fund's aggregate total return for Shares for the period
from October 1, 1996 (commencement of operations) to March 31, 1997 was ____%.
The Fund may also from time to time include in advertisements, sales
literature and communications to shareholders a total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately the Fund's performance with other measures of investment return. For
example, in comparing the Fund's total return with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of an index, the Fund may
calculate its aggregate total return for the period of time specified in the
advertisement or communication by assuming the investment of $10,000 in Shares
and assuming the reinvestment of each dividend or other distribution at net
asset value on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value.
The total return and yield of the Fund may be compared to those of
other mutual funds with similar investment objectives and to other relevant
indices or to ratings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For
example, the total return and/or yield of the Fund may be compared to data
prepared by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.
and Weisenberger Investment Company Service. Total return and yield data as
reported in national financial publications such as Money Magazine, Forbes,
----- -------- ------
Barron's, The Wall Street Journal and The New York Times, or in publications of
- -------- --- ---- ------ ------- --- --- ---- -----
a local or regional nature, may also be used in comparing the performance of the
Fund. Advertisements, sales literature or reports to shareholders may from time
to time also include a discussion and analysis of the Fund's performance,
including without limitation, those factors, strategies and technologies that
together with market conditions and events, materially affected the Fund's
performance.
The Fund may also from time to time include discussions or
illustrations of the effects of compounding in advertisements.
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<PAGE>
"Compounding" refers to the fact that, if dividends or other distributions of
the Fund investment are reinvested by being paid in additional Fund shares, any
future income or capital appreciations of the Fund would increase the value, not
only of the original Fund investment, but also of the additional Fund shares
received through reinvestment. As a result, the value of the Fund investment
would increase more quickly than if dividends or other distributions had been
paid in cash. The Fund may also include discussions or illustrations of the
potential investment goals of a prospective investor, investment management
techniques, policies or investment suitability of the Fund, economic conditions,
the effects of inflation and historical performance of various asset classes,
including but not limited to, stocks, bonds and Treasury bills. From time to
time advertisements, sales literature or communications to shareholders may
summarize the substance of information contained in shareholder reports
(including the investment composition of the Fund), as well as the views of the
Investment Adviser as to current market, economy, trade and interest rate
trends, legislative, regulatory and monetary developments, investment strategies
and related matters believed to be of relevance to the Fund. The Fund may also
include in advertisements charts, graphs or drawings which illustrate the
potential risks and rewards of investment in various investment vehicles,
including but not limited to, stocks, bonds, treasury bills and shares of the
Fund. In addition, advertisement, sales literature or shareholder
communications may include a discussion of certain attributes or benefits to be
derived by an investment in the Fund. Such advertisements or communicators may
include symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein.
MISCELLANEOUS
-------------
As used in the Prospectus, "assets belonging to the Fund" means the
consideration received upon the issuance of Shares in the Fund, together with
all income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of Excelsior Tax-Exempt Fund not belonging to a particular portfolio of
Excelsior Tax-Exempt Fund. In determining the net asset value of the Fund's
Shares, assets belonging to the Fund allocable to Shares are charged with the
direct liabilities of the Fund allocable to Shares and with a share of the
general liabilities of Excelsior Tax-Exempt Fund which are normally allocated in
proportion to the relative asset values of Excelsior Tax-Exempt Fund's
portfolios at the time of allocation. Subject to the provisions of Excelsior
Tax-Exempt Fund's Charter, determinations by the Board of Directors as to
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<PAGE>
the direct and allocable liabilities, and the allocable portion of any general
assets with respect to the Fund, are conclusive.
As of July ___, 1997, U.S. Trust and its affiliates held of record
substantially all of the outstanding Shares of the Fund as agent or custodian
for its customers. In addition, at that date, U.S. Trust and its affiliates
held investment and/or voting power with respect to a majority of the
outstanding Shares of the Fund on behalf of their customers.
As of July ___, 1997, the name, address and percentage ownership of
each person, in addition to U.S. Trust and its affiliates, that beneficially
owned 5% or more of the outstanding Shares of the Fund were as follows:
[___________________________].
FINANCIAL STATEMENTS
--------------------
The audited financial statements and notes thereto in Excelsior Tax-
Exempt Fund's Annual Report to Shareholders for the fiscal year ended March 31,
1997 (the "1997 Annual Report") for the tax-exempt fixed income portfolios are
incorporated in this Statement of Additional Information by reference. No other
parts of the 1997 Annual Report are incorporated by reference herein. The
financial statements included in the 1997 Annual Report for the Fund have been
audited by Excelsior Tax-Exempt Fund's independent auditors, Ernst & Young LLP,
whose reports thereon also appear in the 1997 Annual Report and are incorporated
herein by reference. Such financial statements have been incorporated herein in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing. Additional copies of the 1997 Annual Report may be
obtained at no charge by telephoning CGFSC at the telephone number appearing on
the front page of this Statement of Additional Information.
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<PAGE>
APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
"B" - Issues are regarded as having only a speculative capacity for
timely payment.
"C" - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
"D" - Issues are in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuers or related supporting institutions have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well established access to a
range of financial markets and assured sources of alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuers or related supporting institutions have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
"Prime-3" - Issuers or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one
A-3
<PAGE>
year or less which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations which posses a particularly strong credit feature
are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a good capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which
are currently in default.
A-4
<PAGE>
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
A-5
<PAGE>
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are
A-6
<PAGE>
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be revised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.
A-7
<PAGE>
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong
A-8
<PAGE>
as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are
not significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "BBB" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of
A-9
<PAGE>
principal and interest is adequate, although adverse changes in business,
economic or financial conditions are more likely to lead to increased investment
risk than for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating below
"AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of
A-10
<PAGE>
principal and interest. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
A-11
<PAGE>
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
EXCELSIOR TAX-EXEMPT FUNDS, INC.
FORM N-1A
---------
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
(1) Included in Part A:
Audited Financial Highlights for the Registrant's Tax-
Exempt Money Fund, Intermediate-Term Tax-Exempt Fund
and Long-Term Tax-Exempt Fund for the fiscal years
ended March 31, 1988 through March 31, 1997; New York
Intermediate-Term Tax-Exempt Fund for the period from
May 31, 1990 (commencement of operations) to March 31,
1991 and for the fiscal years ended March 31, 1992
through March 31, 1997; Short-Term Tax-Exempt
Securities Fund for the period from December 31, 1992
(commencement of operations) to March 31, 1993 and for
the fiscal years ended March 31, 1994 through March 31,
1997; and for the California Tax-Exempt Income Fund for
the period from October 1, 1996 (commencement of
operations) to March 31, 1997.
(2) Incorporated by reference into Part B are the following
audited financial statements:
i) With respect to the Tax-Exempt Money,
Intermediate-Term Tax-Exempt, Long-Term Tax-
Exempt, New York Intermediate-Term Tax-Exempt,
Short-Term Tax-Exempt Securities and California
Tax-Exempt Income Funds:
. Statements of Assets and Liabilities as of
March 31, 1997;
. Statements of Operations for the year ended
March 31, 1997;
. Statement of Changes in Net Assets for the
year ended March 31, 1997;
. Portfolio of Investments as of March 31,
1997;
. Notes to Financial Statements; and
. Report of Independent Auditors for the
fiscal year ended March 31, 1997.
<PAGE>
(b) Exhibits:
--------
(1) (a) Articles of Incorporation of Registrant
dated August 7, 1984 (1).
(b) Articles Supplementary of Registrant dated April
27, 1990 (10).
(c) Articles Supplementary of Registrant concerning the
increase of authorized capital stock. (14)
(d) Articles Supplementary of Registrant dated December
28, 1995. (17)
(2) (a) Bylaws of Registrant dated August 6, 1984.
(1).
(b) Amendment No. 1 to Bylaws of Registrant dated
April 28, 1986. (4).
(c) Amendment No. 2 to Bylaws of Registrant dated July
31, 1987. (20).
(d) Amendment No. 3 to Bylaws of Registrant dated May
16, 1997. (20).
(3) None.
(4) (a) Articles VI, VII, VIII and X of Registrant's
Articles of Incorporation dated August 7, 1984 are incorporated
herein by reference to Exhibit 1(a) of Registrant's Registration
Statement on Form N-1A filed on August 31, 1984;
(b) Articles I, II, IV and VI of Registrant's By-Laws
are incorporated herein by reference to Exhibit 2(a) of
Registrant's Registration Statement on Form N-1A filed on August
31, 1984.
(5) (a) Investment Advisory Agreement among Registrant,
U.S. Trust Company of Connecticut and United States Trust Company
of New York dated May 16, 1997 with respect to the Tax-Exempt
Money, Intermediate-Term Tax-Exempt and Long-Term Tax-Exempt
Funds (20).
(b) Investment Advisory Agreement among Registrant,
U.S. Trust Company of Connecticut and United States Trust Company
of New York dated May 16, 1997 with respect to the New York
Intermediate-Term Tax-Exempt Fund, Short-Term Tax-Exempt
Securities Fund and California Tax-Exempt Income Fund (20).
(c) Form of Sub-Advisory Agreement among U.S. Trust
Connecticut, United States Trust Company of New York and United
States Trust Company of California dated May 16, 1997 with
respect to the California Tax-Exempt Income Fund. (20).
(6) (a) Distribution Contract dated August 1, 1995 between
Registrant and Edgewood Services, Inc. (16).
-2-
<PAGE>
(b) Exhibit A to the Distribution Contract dated
August 1, 1995 between Registrant and Edgewood Services, Inc.
(19).
(7) None.
(8) (a) Form of Custody Agreement dated September 1, 1995
between Registrant and The Chase Manhattan Bank (17)
(b) Exhibit A to Custody Agreement dated September 1,
1995 between Registrant and The Chase Manhattan Bank (19).
(9) (a) Amended and Restated Administrative Services Plan
and Related Form of Shareholder Servicing Agreement. (19).
(b) Administration Agreement dated May 16, 1997 among
Registrant, Chase Global Funds Services Company, Federated
Administrative Services and U.S. Trust Company of Connecticut.
(20).
(c) Form of Mutual Funds Transfer Agency Agreement
dated as of September 1, 1995 between Registrant and United
States Trust Company of New York (20).
(d) Form of Mutual Funds Sub-Transfer Agency Agreement
dated as of September 1, 1995 between United States Trust Company
of New York and Chase Global Funds Services Company (20).
(10) Opinion of counsel./1/
(11) (a) Consent of Drinker Biddle & Reath LLP (20).
(b) Consent of Ernst & Young LLP (20).
(12) None.
(13) (a) Purchase Agreement between Registrant and
Shearson Lehman Brothers Inc. dated February 6, 1985. (3)
(b) Purchase Agreement between Registrant and Edgewood
Services, Inc. dated September 25, 1996. (19).
(14) None.
(15) None.
(16) (a) Schedule for computation of performance
quotation (11).
(b) Schedule for computation of performance quotation
(15).
(17) (a) Financial Data Schedule as of March 31, 1997 for
the Tax-Exempt Money Fund (20).
- --------------------------------
/1/ Filed pursuant to Rule 24f-2 as part of Registrant's Rule 24f-2 Notice.
-3-
<PAGE>
(b) Financial Data Schedule as of March 31, 1997 for
the Short-Term Tax-Exempt Securities Fund (20).
(c) Financial Data Schedule as of March 31, 1997 for
the Intermediate-Term Tax-Exempt Fund (20).
(d) Financial Data Schedule as of March 31, 1997 for
the Long-Term Tax-Exempt Fund (20).
(e) Financial Data Schedule as of March 31, 1997 for
the New York Intermediate-Term Tax-Exempt Fund (20).
(f) Financial Data Schedule as of March 31, 1997 for
the California Tax-Exempt Income Fund (20).
(24) Registrant's Annual Report dated March 31, 1997 is
incorporated herein by reference to Registrant's filing including
such Annual Report and filed with the Securities and Exchange
Commission on May 30, 1997 (Accession No. 0000927016-97-001586).
(1) Incorporated by reference to Registrant's Registration Statement on Form N-
1A filed August 31, 1984.
(2) Incorporated by reference to Registrant's Pre-Effective Amendment No. 2 to
its Registration Statement on Form N-1A filed February 14, 1985.
(3) Incorporated by reference to Registrant's Post-Effective Amendment No. 1 to
its Registration Statement on Form N-1A filed October 30, 1985.
(4) Incorporated by reference to Registrant's Post-Effective Amendment No. 2 to
its Registration Statement on Form N-1A filed June 6, 1986.
(5) Incorporated by reference to Registrant's Post-Effective Amendment No. 3 to
its Registration Statement on Form N-1A filed July 30, 1987.
(6) Incorporated by reference to Registrant's Post-Effective Amendment No. 5 to
its Registration Statement on Form N-1A filed November 1, 1988.
(7) Incorporated by reference to Registrant's Post-Effective Amendment No. 6 to
its Registration Statement on Form N-1A filed June 2, 1989.
(8) Incorporated by reference to Registrant's and UST Master Funds, Inc.'s
("Master Fund") joint Post-Effective Amendments Nos. 9 and 7, respectively,
to their Registration Statements on Form N-1A filed March 12, 1990.
(9) Incorporated by reference to Registrant's and Master Fund's joint Post-
Effective Amendments Nos. 10 and 8, respectively, to their Registration
Statements on Form N-1A filed July 27, 1990.
(10) Incorporated by reference to Registrant's and Master Fund's joint Post-
Effective Amendments Nos. 11 and 9, respectively, to their Registration
Statements on Form N-1A filed December 7, 1990.
(11) Incorporated by reference to Registrant's and Master Fund's joint Post-
Effective Amendments Nos. 12 and 10, respectively, to their Registration
Statements on Form N-1A filed May 31, 1991.
-4-
<PAGE>
(12) Incorporated by reference to Registrant's and Master Fund's joint Post-
Effective Amendments Nos. 13 and 11, respectively, to their Registrant
Statements on Form N-1A filed August 1, 1991.
(13) Incorporated by reference to Registrant's Post-Effective Amendment No. 13
to its Registration Statement on Form N-1A filed October 29, 1992.
(14) Incorporated by reference to Registrant's Post-Effective Amendment No. 14
to its Registration Statement on Form N-1A filed December 24, 1992.
(15) Incorporated by reference to Registrant's Post-Effective Amendment No. 15
to its Registration Statement on Form N-1A filed August 2, 1993.
(16) Incorporated by reference to Registrant's Post-Effective Amendment No. 18
to its Registration Statement on Form N-1A filed August 1, 1995.
(17) Incorporated by reference to Registrant's Post-Effective Amendment No. 19
to its Registration Statement on Form N-1A filed July 18, 1996.
(18) Incorporated by reference to Registrant's Post-Effective Amendment No. 20
to its Registration Statement on Form N-1A filed July 31, 1996.
(19) Incorporated by reference to Registrant's Post-Effective Amendment No. 21
to its Registration Statement on Form N-1A filed March 31, 1997.
(20) Filed herewith.
Item 25. Persons Controlled By or Under
Common Control with Registrant
------------------------------
Registrant is controlled by its Board of Directors.
Item 26. Number of Holders of Securities
-------------------------------
The following information is as of July 14, 1997
Title of Class Number of Record Holders
-------------- ------------------------
Class A Common Stock 4316
Class B Common Stock 994
Class C Common Stock 1330
Class D Common Stock 527
Class E Common Stock 151
Class F Common Stock 452
Item 27. Indemnification
---------------
Article VII, Section 3 of Registrant's Articles of Incorporation,
incorporated by reference as Exhibit (1)(a) hereto, and Article VI, Section 2 of
Registrant's Bylaws, incorporated by reference as Exhibit (2)(a) hereto, provide
for the indemnification of Registrant's directors and officers. Indemnification
of Registrant's principal underwriter, custodian, transfer agent and co-
administrators is provided for, respectively, in Section 1.11 of the
Distribution Contract Incorporated by reference as Exhibit (6)(a) and Section 12
of the Custody Agreement, incorporated by reference as Exhibit (8)(a) hereto,
Section 7 of the Mutual Funds Transfer Agency Agreement incorporated by
reference as Exhibit 9(c), and Section 6 of the Administration Agreement
incorporated by reference as Exhibit 9(b) hereto. Registrant has obtained from
a major insurance carrier a directors' and officers' liability policy covering
certain types of errors and omissions. In no event will
-5-
<PAGE>
Registrant indemnify any of its directors, officers, employees, or agents
against any liability to which such person would otherwise be subject by reason
of his willful misfeasance, bad faith, gross negligence in the performance of
his duties, or by reason of his reckless disregard of the duties involved in the
conduct of his office or arising under his agreement with Registrant.
Registrant will comply with Rule 484 under the Securities Act of 1933 and
Release No. 11330 under the Investment Company Act of 1940 in connection with
any indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer, or controlling person of Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
-6-
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
(a) U.S Trust Company of Connecticut
U.S. Trust Company of Connecticut ("U.S. Trust CT") is a Connecticut
State Bank and Trust Company. Set forth below are the names and principal
businesses of the trustees and certain senior executive officers of the U.S.
Trust Connecticut, including those who are engaged in any other business,
profession, vocation or employment of a substantial nature.
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust CT Name Occupation Business
- ------------- -------------------- ----------------- ------------------
<S> <C> <C> <C>
Director John N. Irwin Lawyer
1133 Avenue of the
Americas
New York, NY 10035
Director June Noble Larkin Foundation Not-for-Profit
Edward John Noble Director Organization
Foundation, Inc.
32 East 57th Street
New York, NY 10022
Director Tucker H. Warner Co-Founder, Consulting Firm
The Nutmeg Financial Partner &
Group, LLC Director
1157 Highland Avenue
West
Cheshire, CT 06903
Director Thomas C. Clark UST-NY Asset Management,
United States Trust Managing Director Investment and
Company of New York Fiduciary Services
11 West 54th Street
New York, NY 10019
Director Maribeth S. Rahe UST-NY Asset Management,
United States Trust Vice Chairman Investment and
Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10036
Director Frederick B. Taylor UST-NY Asset Management,
United States Trust Vice Chairman Investment and
Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10036
Director Kenneth G. Walsh UST-NY Asset Management,
United States Trust Executive Vice Investment and
Company of New York President Fiduciary Services
114 West 47th Street
New York, NY 10036
Director, William V. Ferdinand Managing Director Asset Management,
Managing U.S. Trust Company & CIO Fiduciary Services
Director & of Connecticut & Private Banking
CIO 225 High Ridge Road
Stamford, CT 06905
</TABLE>
-7-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Director, W. Michael Funck President & CEO Asset Management,
President & U.S. Trust Company Fiduciary Services
CEO of Connecticut & Private Banking
225 High Ridge Road
Stamford, CT 06905
Vice Presi- Neil M. McDonnell Vice President & Asset Management,
dent & U.S. Trust Company Treasurer Fiduciary Services
Treasurer of Connecticut & Private Banking
225 High Ridge Road
Stamford, CT 06905
Vice Presi- Alberto Rodriguez Vice President & Asset Management,
dent & U.S. Trust Company Secretary Fiduciary Services
Secretary of Connecticut & Private Banking
225 High Ridge Road
Stamford, CT 06905
</TABLE>
(b) United States Trust Company of New York.
United States Trust Company of New York ("U.S. Trust NY") is a full-
service state-chartered bank located in New York, New York. Set forth below are
the names and principal businesses of the trustees and certain senior executive
officers of U.S. Trust NY, including those who are engaged in any other
business, profession, vocation, or employment of a substantial nature.
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust NY Name Occupation Business
- --------------- ----------------------- ---------------------- --------------
<S> <C> <C> <C>
Director Eleanor Baum Dean of School Academic
The Cooper Union for of Engineering
the Advancement
of Science & Art
51 Astor Place
New York, NY 10003
Director Samuel C. Butler Partner in Cravath, Law Firm
Cravath, Swaine Swaine & Moore
& Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Director Peter O. Crisp Chairman Venture
Venrock Inc. Capital
Room 5600
30 Rockefeller Plaza
New York, NY 10112
Director Antonia M. Grumbach Partner in Patter- Law Firm
Patterson, Belknap, son, Belknap, Webb
Webb & Tyler LLP & Tyler
1133 Avenue of the
Americas
New York, NY 10036
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust NY Name Occupation Business
- --------------- ----------------------- ---------------------- --------------
<S> <C> <C> <C>
Director, H. Marshall Schwarz Chairman of the Asset Management,
Chairman United States Trust Board & Chief Exe- Investment and
of the Board Company of New York cutive Officer of Fiduciary Services
and Chief 114 West 47th Street U.S. Trust Corp. and
Executive New York, NY 10036 U.S. Trust Company of
Officer N.Y.
Director Philippe de Montebello Director of the Art Museum
The Metropolitan Museum Metropolitan
of Art Museum of Art
1000 Fifth Avenue
New York, NY 10028-0198
Director Paul W. Douglas Retired Chairman of Coal Mining,
250 Park Avenue The Pittston Company Transportation
Suite 1800 and Security
New York, NY 10177 Services
Director Frederic C. Hamilton Chairman of the Investment and
The Hamilton Companies Board Venture Capital
1560 Broadway
Suite 2000
Denver, CO 80202
Director John H. Stookey Corporate Director
Per Scholas Inc. and Trustee
131 Walnut Avenue
Bronx, New York 10454
Director Robert N. Wilson Vice Chairman of Health Care
Johnson & Johnson the Board of Johnson Products
One Johnson & & Johnson
Johnson Plaza
New Brunswick, NJ 08933
Director Peter L. Malkin Chairman of Law Firm
Wein, Malkin LLP Wein, Malkin & Bettex
Lincoln Building
60 East 42nd Street
New York, NY 10165
Director David A. Olsen Vice Chairman Risk & Insurance
Marsh & McLennan, Inc. Services
125 Broad Street
New York, NY 10004
Director Richard F. Tucker Retired Vice Chairman- Petroleum
P.O.Box 2072 Mobil Oil Corporation and Chemicals
New York, NY 10163
Director Carroll L. Wainright, Consulting Partner Law Firm
Jr. of Milbank, Tweed,
Milbank, Tweed, Hadley Hadley & McCloy
& McCloy
One Chase Manhattan Plaza
New York, NY 10005
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust NY Name Occupation Business
- --------------- ----------------------- ---------------------- --------------
<S> <C> <C> <C>
Director Ruth A. Wooden President & CEO Not for
The Advertising Profit Public
Council, Inc. Service
261 Madison Avenue Advertising
11th Floor
New York, NY 10016
Executive Paul K. Napoli Executive Asset Management,
Vice United States Trust Vice President Investment and
President Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10036
Director and Maribeth S. Rahe Vice Chairman Asset Management,
Vice Chair- United States Trust Investment and
man Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10036
Director Frederick B. Taylor Vice Chairman and Asset Management,
Vice Chair- United States Trust Chief Investment Of- Investment and
man and Company of New York ficer of U.S. Trust Fiduciary Services
Chief Invest- 114 West 47th Street Corporation and United
ment Officer New York, NY 10036 States Trust Company
of New York
Director, Jeffrey S. Maurer President and Asset Management,
President, United States Trust Chief Operating Investment and
and Chief Company of New York Officer Fiduciary Services
Operating 114 West 47th Street
Officer New York, NY 10036
Trustee/ Daniel P. Davison Chairman, Christie, Fine Art
Director Christie, Manson Manson & Woods Auctioneer
& Woods International, Inc.
International,Inc.
502 Park Avenue
New York, NY 10021
Trustee/ Orson D. Munn Chairman and Investment
Director Munn, Bernhard & Director of Munn, Advisory
Associates, Inc. Bernhard & Asso- Firm
6 East 43rd Street ciates, Inc.
28th Floor
New York, NY 10017
Executive John L. Kirby Executive Asset Management,
Vice United States Trust Vice President Investment and
President Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10030
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust NY Name Occupation Business
- --------------- ----------------------- ---------------------- --------------
<S> <C> <C> <C>
Executive Kenneth G. Walsh Executive Asset Management,
Vice United States Trust Vice President Investment and
President Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10030
Director Philip L. Smith Corporate Director and
P.O. Box 386 Trustee
Ponte Verde Beach, FL 32004
Executive John C. Hoover, II Executive Asset Management,
Vice United States Trust Vice President Investment and
President Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10030
Executive John M. Deignan Executive Asset Management,
Vice United States Trust Vice President Investment and
President Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10030
</TABLE>
(a) Investment Sub-Adviser - United States Trust Company of
California.
United States Trust Company of California ("U.S. Trust California")
serves as sub-adviser with respect to the California Tax-Exempt Income Fund.
U.S. Trust California is a full-service state-chartered bank located in Los
Angeles, California. Set forth below are the names and principal businesses of
the trustees and certain senior executive officers of U.S. Trust California,
including those who are engaged in any other business, profession, vocation, or
employment of a substantial nature.
<TABLE>
<CAPTION>
Position
<S> <C> <C> <C>
with U.S.
Trust Principal Type of
California Name Occupation Business
- ------------------- ----------------------- ---------- -----------
Director and William R. Barrett, Jr. Managing Asset
Managing Director Director Management,
Investment
and
Fiduciary
Services
Director Thomas C. Clark Managing Asset
Director Management,
Investment
and
Fiduciary
Services
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S.
Trust Principal Type of
California Name Occupation Business
- --------------------- ------------------ --------------- -----------
<S> <C> <C> <C>
Director Jeffrey S. Maurer President Asset
and Chief Management,
Operating Investment
Officer and
Fiduciary
Services
Director/Managing Robert M. Raney Managing Director Asset
Director and Chief and Chief Management,
Investment Officer Investment Investment
Officer and
Fiduciary
Services
Director/President Gregory F. Sanford President and Asset
and Chief Operating Chief Operating Management,
Officer Officer Investment
and
Fiduciary
Services
Director/Chairman Franklin E. Ulf Chairman of the Asset
of the Board Board Management,
Investment
and
Fiduciary
Services
Director and Charles E. Wert Executive Vice Asset
Executive Vice President Management,
President Investment
and
Fiduciary
Services
</TABLE>
Item 29. Principal Underwriter
---------------------
(a) Edgewood Services, Inc. (the "Distributor") currently serves as
distributor for Registrant. The Distributor acts as principal underwriter for
the following open-end investment companies: BT Advisor Funds, BT Pyramid Mutual
Funds, BT Investment Funds, BT Institutional Funds, Excelsior Funds, Inc.,
Excelsior Institutional Trust, FTI Funds, Fund Manager Portfolios, Marketvest
Funds, Marketvest Funds, Inc., and Old Westbury Funds, Inc.
(b) Names and Principal Positions and Offices with Offices with
Business Addresses the Distributor Registrant
------------------------- -------------------------- ------------
Lawrence Caracciolo Director and President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Arthur L. Cherry Director, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
-12-
<PAGE>
J. Christopher Donahue Director, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Ronald M. Petnuch Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Newton Heston, III Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Thomas P. Schmitt Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3770
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Assistant
Federated Investors Tower Edgewood Services, Inc. Secretary
Pittsburgh, PA 15222-3779
Thomas J. Ward Assistant Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Kenneth W. Pegher, Jr. Treasurer, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
(c) Not Applicable.
Item 30. Location of Accounts and Records
--------------------------------
(1) United States Trust Company of New York, 114 W. 47th Street, New
York, NY 10036 (records relating to its functions as investment adviser and
transfer agent).
(2) U.S. Trust Company of Connecticut, 225 High Ridge Road, East
Building, Stamford, Connecticut 06905 (records relating to its function as
investment adviser and co-administrator).
(3) United States Trust Company of California, 515 South Flower
Street, Los Angeles, CA 90071 (records relating to its function as sub-adviser
to the California Tax-Exempt Income Fund).
(4) Edgewood Services, Inc., Clearing Operations, P.O. Box 897,
Pittsburgh, PA 15230-0897 (records relating to its function as distributor).
(5) Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108-3913 (records relating to its function as co-administrator
and sub-transfer agent).
(6) Federated Administrative Services, Federated Investors Tower,
Pittsburgh, PA 15222-3799 (records relating to its function as co-
administrator).
(7) The Chase Manhattan Bank, 3 Chase MetroTech Center, 8th Floor,
Brooklyn, NY 11245 (records relating to its function as custodian).
-13-
<PAGE>
(8) Drinker Biddle & Reath LLP, Philadelphia National Bank Building,
1345 Chestnut Street, Philadelphia, Pennsylvania 19107-3496 (Registrants'
Articles of Incorporation, Bylaws, and Minute Books).
Item 31. Management Services
-------------------
Inapplicable.
Item 32. Undertakings
------------
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest available Annual Report to
Shareholders which includes Management's Discussion of Registrant's performance,
upon request and without charge.
-14-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 (the "1933
Act") and the Investment Company Act of 1940, Excelsior Tax-Exempt Funds, Inc.
certifies that it meets all of the requirements for effectiveness of this Post-
Effective Amendment No. 23 to its Registration Statement on Form N-1A
("Amendment No. 23") pursuant to Rule 485(b) under the 1933 Act and has duly
caused this Amendment No. 23 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Philadelphia and the Commonwealth of
Pennsylvania on the 31st day of July, 1997.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
Registrant
*Frederick S. Wonham
---------------------------
Frederick S. Wonham, President
(Signature and Title)
Pursuant to the requirements of the 1933 Act, this Amendment No. 23
has been signed below by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
*Frederick S. Wonham Chairman of the July 31, 1997
- ---------------------- Board, President
Frederick S. Wonham and Treasurer
*Joseph H. Dugan
- ----------------------
Joseph H. Dugan Director July 31, 1997
*Donald L. Campbell
- ----------------------
Donald L. Campbell Director July 31, 1997
*Wolfe J. Frankl
- ----------------------
Wolfe J. Frankl Director July 31, 1997
*Robert A. Robinson
- ----------------------
Robert A. Robinson Director July 31, 1997
*Alfred Tannachion
- ----------------------
Alfred Tannachion Director July 31, 1997
*W. Wallace McDowell, Jr.
- ---------------------------
W. Wallace McDowell, Jr. Director July 31, 1997
*Jonathan Piel
- ----------------------
Jonathan Piel Director July 31, 1997
*Rodman L. Drake
- ----------------------
Rodman L. Drake Director July 31, 1997
* By:/s/ W. Bruce McConnel, III
---------------------------
W. Bruce McConnel, III, Attorney-in-Fact
-15-
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s, Excelsior Institutional Trust's, and
Excelsior Funds' (collectively, the "Companies") respective Registration
Statements on Form N-1A pursuant to the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (the "Acts") and all
instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and said attorney shall have full power and authority, to
do and perform in the name and on behalf of the undersigned in any and all
capacities, every act whatsoever requisite or necessary to be done, as fully and
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney may lawfully do or cause to be done by
virtue hereof.
Dated: May 16, 1997 /s/ Alfred C. Tannachion
-------------------------
Alfred C. Tannachion
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s, Excelsior Institutional Trust's and
Excelsior Funds' (collectively, the "Companies") respective Registration
Statements on Form N-1A pursuant to the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (the "Acts") and all
instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and either of said attorneys shall have full power and
authority, to do and perform in the name and on behalf of the undersigned in any
and all capacities, every act whatsoever requisite or necessary to be done, as
fully and to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that either of said attorneys may lawfully do or
cause to be done by virtue hereof.
Dated: May 16, 1997 /s/ Donald L. Campbell
-----------------------
Donald L. Campbell
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s, Excelsior Institutional Trust's and
Excelsior Funds' (collectively, the "Companies") respective Registration
Statements on Form N-1A pursuant to the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (the "Acts") and all
instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and either of said attorneys shall have full power and
authority, to do and perform in the name and on behalf of the undersigned in any
and all capacities, every act whatsoever requisite or necessary to be done, as
fully and to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that either of said attorneys may lawfully do or
cause to be done by virtue hereof.
Dated: May 16, 1997 /s/ Joseph H. Dugan
--------------------
Joseph H. Dugan
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s, Excelsior Institutional Trust's and
Excelsior Funds' (collectively, the "Companies") respective Registration
Statements on Form N-1A pursuant to the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (the "Acts") and all
instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and either of said attorneys shall have full power and
authority, to do and perform in the name and on behalf of the undersigned in any
and all capacities, every act whatsoever requisite or necessary to be done, as
fully and to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that either of said attorneys may lawfully do or
cause to be done by virtue hereof.
Dated: May 16, 1997 /s/ Robert A. Robinson
-----------------------
Robert A. Robinson
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s, Excelsior Institutional Trust's and
Excelsior Funds' (collectively, the "Companies") respective Registration
Statements on Form N-1A pursuant to the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (the "Acts") and all
instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and either of said attorneys shall have full power and
authority, to do and perform in the name and on behalf of the undersigned in any
and all capacities, every act whatsoever requisite or necessary to be done, as
fully and to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that either of said attorneys may lawfully do or
cause to be done by virtue hereof.
Dated: May 16, 1997 /s/ Wolfe J. Frankl
--------------------
Wolfe J. Frankl
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints W.
Bruce McConnel, III his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for him and in his name, place and
stead, in his capacity as director/trustee or officer, or both, to execute
amendments to Excelsior Funds, Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s,
Excelsior Institutional Trust's and Excelsior Funds' (collectively, the
"Companies") respective Registration Statements on Form N-1A pursuant to the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended (the "Acts") and all instruments necessary or incidental in connection
therewith pursuant to said Acts and any rules, regulations, or requirements of
the Securities and Exchange Commission in respect thereof, and to file the same
with the Securities and Exchange Commission, and said attorney shall have full
power and authority, to do and perform in the name and on behalf of the
undersigned in any and all capacities, every act whatsoever requisite or
necessary to be done, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney may
lawfully do or cause to be done by virtue hereof.
Dated: May 16, 1997 /s/ Frederick S. Wonham
------------------------
Frederick S. Wonham
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, to execute amendments to Excelsior Funds, Inc.'s,
Excelsior Tax-Exempt Fund's, Excelsior Institutional Trust's and Excelsior
Funds' (collectively, the "Companies") respective Registration Statements on
Form N-1A pursuant to the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended (the "Acts") and all instruments necessary or
incidental in connection therewith pursuant to said Acts and any rules,
regulations, or requirements of the Securities and Exchange Commission in
respect thereof, and to file the same with the Securities and Exchange
Commission, and either of said attorneys shall have full power and authority, to
do and perform in the name and on behalf of the undersigned in any and all
capacities, every act whatsoever requisite or necessary to be done, as fully and
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that either of said attorneys may lawfully do or cause to be
done by virtue hereof.
Dated: May 16, 1997 /s/ Rodman L. Drake
---------------------
Rodman L. Drake
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, to execute amendments to Excelsior Funds, Inc,'s,
Excelsior Tax-Exempt Funds, Inc.'s, Excelsior Institutional Trust's and
Excelsior Funds' (collectively, the "Companies") respective Registration
Statements on Form N-1A pursuant to the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (the "Acts") and all
instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and either of said attorneys shall have full power and
authority, to do and perform in the name and on behalf of the undersigned in any
and all capacities, every act whatsoever requisite or necessary to be done, as
fully and to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that either of said attorneys may lawfully do or
cause to be done by virtue hereof.
Dated: May 16, 1997 /s/ W. Wallace McDowell
------------------------
W. Wallace McDowell
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, to execute amendments to Excelsior Funds, Inc.'s,
Excelsior Tax-Exempt Funds, Inc.'s, Excelsior Institutional Trust's and
Excelsior Funds' (collectively, the "Companies") respective Registration
Statements on Form N-1A pursuant to the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (the "Acts") and all
instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and either of said attorneys shall have full power and
authority, to do and perform in the name and on behalf of the undersigned in any
and all capacities, every act whatsoever requisite or necessary to be done, as
fully and to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that either of said attorneys may lawfully do or
cause to be done by virtue hereof.
Dated: May 17, 1997 /s/ Jonathan Piel
-------------------
Jonathan Piel
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
- -------
No. Description of Exhibit
- --- ----------------------
(2) (c) Amendment No. 2 to Bylaws of Registrant dated July 31, 1987.
(2) (d) Amendment No. 3 to Bylaws of Registrant dated May 16, 1997.
(5) (a) Investment Advisory Agreement among Registrant, U.S. Trust
Company of Connecticut and United States Trust Company of New
York dated May 16, 1997 with respect to the Tax-Exempt
Money, Intermediate-Term Tax-Exempt and Long-Term Tax-Exempt
Funds.
(5) (b) Investment Advisory Agreement among Registrant, U.S. Trust
Company of Connecticut and United States Trust Company of
New York dated May 16, 1997 with respect to the New York
Intermediate-Term Tax-Exempt Fund, Short-Term Tax-Exempt
Securities Fund and California Tax-Exempt Income Fund.
(5) (c) Form of Sub-Advisory Agreement among U.S. Trust Connecticut,
United States Trust Company of New York and United States
Trust Company of California dated May 16, 1997 with respect
to the California Tax-Exempt Income Fund.
(9) (b) Administration Agreement dated May 16, 1997 among
Registrant, Chase Global Funds Services Company, Federated
Administrative Services and U.S. Trust Company of
Connecticut.
(9) (c) Form of Mutual Funds Transfer Agency Agreement dated as of
September 1, 1995 between Registrant and United States Trust
Company of New York.
(9) (d) Form of Mutual Funds Sub-Transfer Agency Agreement dated as
of September 1, 1995 between United States Trust Company of
New York and Chase Global Funds Services Company.
(11) (a) Consent of Drinker Biddle & Reath LLP.
(b) Consent of Ernst & Young LLP.
(27) (a) Financial Data Schedule as of March 31, 1997 for the Tax-
Exempt Money Fund.
(b) Financial Data Schedule as of March 31, 1997 for the Short-
Term Tax-Exempt Securities Fund.
(c) Financial Data Schedule as of March 31, 1997 for the
Intermediate-Term Tax-Exempt Fund.
(d) Financial Data Schedule as of March 31, 1997 for the Long-
Term Tax-Exempt Fund.
(e) Financial Data Schedule as of March 31, 1997 for the New
York Intermediate-Term Tax-Exempt Fund.
(f) Financial Data Schedule as of March 31, 1997 for the
California Tax-Exempt Income Fund.
<PAGE>
EXHIBIT 2(c)
U.S.T. MASTER FUNDS, INC.
U.S.T. MASTER TAX-EXEMPT FUNDS, INC.
Amendments of By-Laws as adopted at the
Regular Meetings of the Boards of Directors
July 31, 1987
RESOLVED, that Article I of each of the Company's
By-Laws be, and hereby is, amended by the addition of the
following as Section 8:
Section 8. No Annual Meeting Required.
--------------------------
No annual meeting of stockholders of the
Corporation shall be held unless required by
applicable law or otherwise determined by the
Board of Directors.
FURTHER RESOLVED, that the last sentence of
Article II, Section 1 of each Company's By-Laws be, and
hereby is, amended to provide as follows:
Subject to the provisions of Article 1,
Section 8, the members of the Board of Directors
shall be elected by the stockholders at their
annual meeting and each Director shall hold office
until the annual meeting next after his election
and until his successor shall have been duly
elected and qualified, until he shall have
resigned, or until he shall have been removed as
provided in Sections 10 and 11 of this Article II.
<PAGE>
EXHIBIT 2(d)
EXCELSIOR FUNDS, INC.
Amendment of By-Laws as adopted at the Regular Meeting
of the Board of Directors held May 16, 1997
RESOLVED, that ARTICLE I, SECTION 6 of Excelsior Funds, Inc.'s By-Laws
be, and hereby is, amended and restated in its entirety as follows:
SECTION 6. Organization. At every meeting of the stockholders,
------------
the Chairman of the Board, if one has been selected and is present or, if
not, the President, or in the absence of the Chairman of the Board and the
President, a Vice President, or in the absence of the Chairman of the
Board, the President and all the Vice Presidents, a chairman chosen by the
Chairman of the Board, the President, a Vice President or the Secretary,
shall act as chairman; and the Secretary, or in his absence, an Assistant
Secretary, or in the absence of the Secretary and all the Assistant
Secretaries, a person appointed by the Chairman of the Board, the
President, a Vice President, the Secretary or the chairman of the meeting
of stockholders, shall act as secretary.
<PAGE>
EXHIBIT 5(a)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of May 16, 1997 by and among EXCELSIOR TAX-EXEMPT
FUNDS, INC., a Maryland corporation (herein called the "Company"), U.S. TRUST
COMPANY OF CONNECTICUT ("USTCT"), a Connecticut state bank and trust company,
and UNITED STATES TRUST COMPANY OF NEW YORK ("USTNY"), a New York state-
chartered bank and trust company (together with USTCT, the "Investment
Adviser").
WHEREAS, the Company is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940;
WHEREAS, the Company desires to retain the Investment Adviser to
render investment advisory and other services to the Company for its Tax-Exempt
Money Fund, Intermediate-Term Tax-Exempt Fund and Long-Term Tax-Exempt Fund
portfolios ("the Funds"), and the Investment Adviser is willing to so render
such services;
NOW, THEREFORE, this Agreement
WITNESSETH:
In consideration of the premises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. Appointment. The Company hereby appoints the Investment Adviser
-----------
to act as investment adviser to the Company for the Funds for the period and on
the terms set forth in this Agreement. The Investment Adviser accepts such
appointment and agrees to render the services herein set forth for the
compensation herein provided.
2. Delivery of Documents. The Company has furnished the Investment
---------------------
Adviser with copies properly certified or authenticated of each of the
following:
(a) Articles of Incorporation of the Company;
(b) By-Laws of the Company;
(c) Resolutions of the Board of Directors of the Company
authorizing the appointment of the Investment Adviser and the execution and
delivery of this Agreement;
(d) Registration Statement under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, on Form N-1A (No.
2-93068) relating to shares of the
<PAGE>
Company's Class A Common Shares, $.001 par value, representing interests in the
Short-Term Fund; Class B Common Shares, $.001 par value, representing interests
in the Intermediate-Term Fund; and Class C Common Shares, $.001 par value,
representing interests in the Long-Term Fund ("Shares"), and all amendments
thereto;
(e) Notification of Registration of the Company under the
Investment Company Act of 1940, as amended, on Form N-8A as filed with the
Securities and Exchange Commission on August 31, 1984, and all amendments
thereto; and
(f) Prospectuses of the Company relating to the Shares in effect
under the Securities Act of 1933 (such prospectuses and supplements thereto, as
presently in effect and as from time to time amended and supplemented, herein
called the "Prospectus").
The Company will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing, if any.
3. Management. Subject to the supervision of the Board of Directors
----------
of the Company, the Investment Adviser will provide a continuous investment
program for the Funds, including investment research and management with respect
to all securities, investments, cash and cash equivalents in the Funds. The
Investment Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by the Company for the Funds.
The Investment Adviser will provide the services rendered by it hereunder in
accordance with the Funds' respective investment objectives and policies as
stated in the Prospectus. The Investment Adviser further agrees that it:
(a) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission (herein called the "Rules"), and will in
addition conduct its activities under this Agreement in accordance with
applicable law, including but not limited to applicable banking law;
(b) will not make loans for the purpose of purchasing or carrying
Shares, or make loans to the Company;
(c) will place orders pursuant to its investment determinations
for the Funds either directly with the issuer or with any broker or dealer
selected by it. In placing orders with brokers and dealers, the Investment
Adviser will use its reasonable best efforts to obtain the best net price and
the most favorable execution of its orders, after taking into account all
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition
-2-
<PAGE>
and execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
Consistent with this obligation, the Investment Adviser may, to the extent
permitted by law, purchase and sell portfolio securities to and from brokers and
dealers who provide brokerage and research services (within the meaning of
Section 28(e) of the Securities Exchange Act of 1934) to or for the benefit of
any Fund and/or other accounts over which the Investment Adviser or any of its
affiliates exercises investment discretion. Subject to the review of the
Company's Board of Directors from time to time with respect to the extent and
continuation of the policy, the Investment Adviser is authorized to pay to a
broker or dealer who provides such brokerage and research services a commission
for effecting a securities transaction for any Fund which is in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if the Investment Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the Investment Adviser
with respect to the accounts as to which it exercises investment discretion. In
no instance will portfolio securities be purchased from or sold to the Funds'
principal underwriter, the Investment Adviser or any affiliated person thereof
except as permitted by the Securities and Exchange Commission;
(d) will maintain books and records with respect to the Funds'
securities transactions and will render to the Company's Board of Directors such
periodic and special reports as the Board may request;
(e) will maintain a policy and practice of conducting its Asset
Management Group independently of its Banking Group. When the Investment Adviser
makes investment recommendations for the Funds, its Asset Management Group
personnel will not inquire or take into consideration whether the issuer of
securities proposed for purchase or sale for the Funds' account are customers of
the Banking Group. In dealing with commercial customers, the Banking Group will
not inquire or take into consideration whether securities of those customers are
held by the Funds; and
(f) will treat confidentially and as proprietary information of
the Company all records and other information relative to the Funds and prior,
present or potential shareholders, and will not use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld and may not be
withheld where the
-3-
<PAGE>
Investment Adviser may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Company. Nothing contained
herein, however, shall prohibit the Investment Adviser from advertising or
soliciting the public generally with respect to other products or services,
regardless of whether such advertisement or solicitation may include prior,
present or potential shareholders of the Company.
4. Services Not Exclusive. The investment management services
----------------------
rendered by the Investment Adviser hereunder are not to be deemed exclusive, and
the Investment Adviser shall be free to render similar services to others so
long as its services under this Agreement are not impaired thereby.
5. Books and Records. In compliance with the requirements of Rule
-----------------
31a-3 of the Rules under the Investment Company Act of 1940, the Investment
Adviser hereby agrees that all records which it maintains for the Funds are the
property of the Company and further agrees to surrender promptly to the Company
any of such records upon the Company's request. The Investment Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 the records required
to be maintained by Rule 31a-1 of the Rules.
6. Expenses. During the term of this Agreement, the Investment
--------
Adviser will pay all expenses incurred by it in connection with its activities
under this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Funds.
In addition, if the expenses borne by any Fund in any fiscal year
exceed the applicable expense limitations imposed by the securities regulations
of any state in which the Shares are registered or qualified for sale to the
public, the Investment Adviser shall reimburse such Fund for a portion of any
such excess in an amount equal to the proportion that the fees otherwise payable
to the Investment Adviser bear to the total amount of investment advisory and
administration fees otherwise payable by the Fund up to the amount of the fees
payable to the Investment Adviser during such fiscal year pursuant to paragraph
7 hereof; provided, however, that notwithstanding the foregoing, the Investment
Adviser shall reimburse the Fund for a portion of any such excess expenses in an
amount equal to the proportion that the fees otherwise payable to the Investment
Adviser bear to the total amount of investment advisory and administration fees
otherwise payable by the Fund regardless of the amount of fees paid to the
Investment Adviser during such fiscal year to the extent that the securities
regulations of any state in which the Shares are registered or qualified for
sale so require.
-4-
<PAGE>
7. Compensation. For the services provided and the expenses assumed
------------
pursuant to this Agreement, the Company will pay the Investment Adviser and the
Investment Adviser will accept as full compensation therefor a fee, computed
daily and payable monthly, at the following annual rates: .25% 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.
8. Limitation of Liability of the Investment Adviser. The Investment
-------------------------------------------------
Adviser shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Company in connection with the matters to which this
Agreement relates, except the Investment Adviser shall be jointly, but not
severally, liable for a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Investment
Adviser in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement.
9. Duration and Termination. This Agreement shall be effective as of
------------------------
the date hereof and, unless sooner terminated as provided herein, shall continue
until July 31, 1997. Thereafter, if not terminated, this Agreement shall
continue in effect as to a particular Fund for successive periods of 12 months
each, provided such continuance is specifically approved at least annually (a)
by the vote of a majority of those members of the Board of Directors of the
Company who are not parties to this Agreement or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Board of Directors of the Company or, with respect to
any Fund, by vote of a majority of the outstanding voting securities of such
Fund; provided, however, that this Agreement may be terminated by the Company as
to any Fund at any time, without the payment of any penalty, by the Board of
Directors of the Company or, with respect to any Fund, by vote of a majority of
the outstanding voting securities of such Fund on 60 days' written notice to the
Investment Adviser, or by the Investment Adviser as to any Fund at any time,
without payment of any penalty, on 90 days' written notice to the Company. This
Agreement will immediately terminate in the event of its assignment. (As used
in this Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meanings as such terms
have in the Investment Company Act of 1940.)
10. Amendment of this Agreement. No provision of this Agreement may
---------------------------
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall
-5-
<PAGE>
be effective with respect to a Fund until approved by vote of a majority of such
Fund's outstanding voting securities.
11. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by New York law.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
Attest:
/s/W. Bruce McConnel, III By:/s/F.S. Wonham
- ------------------------- -----------------------------
Secretary President
[Seal]
Attest: U.S. TRUST COMPANY OF CONNECTICUT
/s/Francis J. Hearn, Jr. By:/s/W. Michael Funck
- ------------------------- -----------------------------
President & CEO
UNITED STATES TRUST COMPANY OF NEW YORK
Attest:
/s/Francis J. Hearn, Jr. By:/s/Kenneth L. Walsh
- ------------------------- ----------------------------
Executive Vice President
-6-
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of May 16, 1997 by and among EXCELSIOR TAX-EXEMPT
FUNDS, INC., a Maryland corporation (herein called the "Company"), U.S. TRUST
COMPANY OF CONNECTICUT ("USTCT"), a Connecticut state bank and trust company,
and UNITED STATES TRUST COMPANY OF NEW YORK ("USTNY"), a New York state-
chartered bank and trust company (together with USTCT, the "Investment
Adviser").
WHEREAS, the Company is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940;
WHEREAS, the Company desires to retain the Investment Adviser to
render investment advisory and other services to the Company for its New York
Intermediate-Term Tax-Exempt Fund, Short-Term Tax-Exempt Securities Fund and
California Tax-Exempt Income Fund portfolios ("the Funds"), and the Investment
Adviser is willing to so render such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment.
-----------
(a) The Company hereby appoints the Investment Adviser to act as
investment adviser to the Company for the Funds for the period and on the terms
set forth in this Agreement. The Investment Adviser accepts such appointment
and agrees to render the services herein set forth for the compensation herein
provided.
(b) In the event that the Company establishes one or more
additional portfolios with respect to which it desires to retain the Investment
Adviser to act as investment adviser hereunder, it shall notify the Investment
Adviser in writing. If the Investment Adviser is willing to render such services
under this Agreement it shall notify the Company in writing whereupon such
portfolio shall become a Fund hereunder and shall be subject to the provisions
of this Agreement to the same extent as the Funds except to the extent that said
provisions (including those relating to the compensation payable by the Funds to
the Investment Adviser) are modified with respect to such Fund in writing by the
Company and the Investment Adviser at the time.
2. Delivery of Documents. The Company has furnished the Investment
---------------------
Adviser with copies properly certified or authenticated of each of the
following:
<PAGE>
(a) Articles of Incorporation of the Company and any amendments
thereto;
(b) By-Laws of the Company and any amendments thereto;
(c) Resolutions of the Board of Directors of the Company
authorizing the appointment of the Investment Adviser and the execution and
delivery of this Agreement;
(d) Registration Statement under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, on Form N-1A (No.
2-93068) relating to shares of the Company's Class D Common Shares, $.001 par
value, representing interests in the New York Intermediate-Term Tax-Exempt Fund;
Class E Common Shares, $.001 par value, representing interests in the California
Tax-Exempt Income Fund; and Class F Common Shares, $.001 par value, representing
interests in the Short-Term Tax-Exempt Securities Fund ("Shares"), and all
amendments thereto;
(e) Notification of Registration of the Company under the
Investment Company Act of 1940, as amended, on Form N-8A as filed with the
Securities and Exchange Commission on August 31, 1984, and all amendments
thereto; and
(f) The most recent prospectuses of the Company relating to the
Funds (such prospectuses and supplements thereto, as presently in effect and as
from time to time amended and supplemented, herein called the "Prospectuses").
The Company will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing, if any.
3. Management. Subject to the supervision of the Board of Directors
----------
of the Company, the Investment Adviser will provide a continuous investment
program for the Funds, including investment research and management with respect
to all securities, investments, cash and cash equivalents in the Funds. The
Investment Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by the Company for the Funds.
The Investment Adviser will provide the services rendered by it hereunder in
accordance with the Funds' respective investment objectives and policies as
stated in the Prospectuses. The Investment Adviser further agrees that it:
(a) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission (herein called the "Rules"), and will in
addition conduct its activities under this Agreement in accordance with
applicable law, including but not limited to applicable banking law;
-2-
<PAGE>
(b) will place orders pursuant to its investment determinations
for the Funds either directly with the issuer or with any broker or dealer
selected by it. In placing orders with brokers and dealers, the Investment
Adviser will use its reasonable best efforts to obtain the best net price and
the most favorable execution of its orders, after taking into account all
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. Consistent with this
obligation, the Investment Adviser may, to the extent permitted by law, purchase
and sell portfolio securities to and from brokers and dealers who provide
brokerage and research services (within the meaning of Section 28(e) of the
Securities Exchange Act of 1934) to or for the benefit of any Fund and/or other
accounts over which the Investment Adviser or any of its affiliates exercises
investment discretion. Subject to the review of the Company's Board of Directors
from time to time with respect to the extent and continuation of the policy, the
Investment Adviser is authorized to pay to a broker or dealer who provides such
brokerage and research services a commission for effecting a securities
transaction for any Fund which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if the
Investment Adviser determines in good faith that such commission was reasonable
in relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
overall responsibilities of the Investment Adviser with respect to the accounts
as to which it exercises investment discretion. In no instance will portfolio
securities be purchased from or sold to the Funds' principal underwriter, the
Investment Adviser or any affiliated person thereof except as permitted by the
Securities and Exchange Commission;
(c) will maintain books and records with respect to the Funds'
securities transactions and will render to the Company's Board of Directors such
periodic and special reports as the Board may request;
(d) will maintain a policy and practice of conducting its Asset
Management Group independently of its Banking Group. When the Investment
Adviser makes investment recommendations for the Funds, its Asset Management
Group personnel will not inquire or take into consideration whether the issuer
of securities proposed for purchase or sale for the Funds' account are customers
of the Banking Group. In dealing with commercial customers, the Banking Group
will not inquire or take into consideration whether securities of those
customers are held by the Funds;
-3-
<PAGE>
(e) will treat confidentially and as proprietary information of
the Company all records and other information relative to the Funds and prior,
present or potential shareholders, and will not use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld and may not be
withheld where the Investment Adviser may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the
Company. Nothing contained herein, however, shall prohibit the Investment
Adviser from advertising or soliciting the public generally with respect to
other products or services, regardless of whether such advertisement or
solicitation may include prior, present or potential shareholders of the
Company.
4. Services Not Exclusive. The investment management services
----------------------
rendered by the Investment Adviser hereunder are not to be deemed exclusive, and
the Investment Adviser shall be free to render similar services to others so
long as its services under this Agreement are not impaired thereby.
5. Books and Records. In compliance with the requirements of Rule
-----------------
31a-3 of the Rules under the Investment Company Act of 1940, the Investment
Adviser hereby agrees that all records which it maintains for the Funds are the
property of the Company and further agrees to surrender promptly to the Company
any of such records upon the Company's request. The Investment Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 the records required
to be maintained by Rule 31a-1 of the Rules.
6. Expenses. During the term of this Agreement, the Investment
--------
Adviser will pay all expenses incurred by it in connection with its activities
under this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Funds.
In addition, if the expenses borne by any Fund in any fiscal year
exceed the applicable expense limitations imposed by the securities regulations
of any state in which the shares of the Funds are registered or qualified for
sale to the public, the Investment Adviser shall reimburse such Fund for a
portion of any such excess in an amount equal to the proportion that the fees
otherwise payable to the Investment Adviser bear to the total amount of
investment advisory and administration fees otherwise payable by the Fund up to
the amount of the fees payable to the Investment Adviser during such fiscal year
pursuant to paragraph 7 hereof; provided, however, that notwithstanding the
foregoing, the Investment Adviser shall reimburse the Fund for a portion of any
such excess expenses in an amount equal to the proportion
-4-
<PAGE>
that the fees otherwise payable to the Investment Adviser bear to the total
amount of investment advisory and administration fees otherwise payable by the
Fund regardless of the amount of fees paid to the Investment Adviser during such
fiscal year to the extent that the securities regulations of any state in which
Fund shares are registered or qualified for sale so require.
7. Compensation. For the services provided and the expenses assumed
------------
pursuant to this Agreement, the Company will pay the Investment Adviser and the
Investment Adviser will accept as full compensation therefor a fee, computed
daily and payable monthly, at the following annual rates: .50% of the average
daily net assets of the New York Intermediate-Term Tax-Exempt Fund; .50% of the
average daily net assets of the California Tax-Exempt Income Fund; and .30% of
the average daily net assets of the Short-Term Tax-Exempt Securities Fund.
8. Limitation of Liability of the Investment Adviser. The
-------------------------------------------------
Investment Adviser shall not be liable or any error of judgment or mistake of
law or for any loss suffered by the Company in connection with the matters to
which this Agreement relates, except the Investment Adviser shall be jointly,
but not severally, liable for a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services or a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Investment Adviser in the performance of its duties or from reckless disregard
by it of its obligations and duties under this Agreement.
9. Duration and Termination. This Agreement shall be effective as
------------------------
of the date hereto with respect to the Funds named hereinbefore, and with
respect to any additional Fund, on the date of receipt by the Company of notice
from the Investment Adviser in accordance with Section 1(b) hereof that the
Investment Adviser is willing to serve as investment adviser with respect to
such Fund, provided that this Agreement (as supplemented by the terms specified
in any notice and agreement pursuant to Section l(b) hereof) shall have been
approved by the shareholders of the Funds in accordance with the requirements of
the 1940 Act and unless sooner terminated as provided herein, shall continue in
effect until July 31, 1997. Thereafter, if not terminated, this Agreement shall
automatically continue in effect as to a particular Fund for successive periods
of 12 months each, provided such continuance is specifically approved at least
annually (a) by the vote of a majority of those members of the Board of
Directors of the Company who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the Board of Directors of the Company or,
with respect to any Fund, by vote of a majority of the outstanding voting
securities of such Fund; provided, however, that this Agreement may be
terminated by the Company as to any Fund at any time,
-5-
<PAGE>
without the payment of any penalty, by the Board of Directors of the Company or,
with respect to any Fund, by vote of a majority of the outstanding voting
securities of such Fund on 60 days' written notice to the Investment Adviser, or
by the Investment Adviser as to any Fund at any time, without payment of any
penalty, on 90 days' written notice to the Company. This Agreement will
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meanings as such terms
have in the Investment Company Act of 1940.)
10. Amendment of this Agreement. No provision of this Agreement may
---------------------------
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective with respect to a Fund until approved by vote of a majority of such
Fund's outstanding voting securities.
11. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure
-6-
<PAGE>
to the benefit of the parties hereto and their respective successors and shall
be governed by New York law.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
Attest:
/s/W. Bruce McConnel, III By:/s/F.S. Wonham
- ------------------------- ------------------------------
Secretary President
[Seal]
Attest: U.S. TRUST COMPANY OF CONNECTICUT
/s/Francis J. Hearn, Jr. By:/s/W. Michael Funck
- ------------------------ ------------------------------
President & CEO
UNITED STATES TRUST COMPANY OF
NEW YORK
Attest:
/s/Francis J. Hearn, Jr. By:/s/Kenneth L. Walsh
- ------------------------ ------------------------------
Executive Vice President
-7-
<PAGE>
EXHIBIT 5(c)
SUB-ADVISORY AGREEMENT
AGREEMENT made as of May 16, 1997 by and among U.S. TRUST COMPANY OF
CONNECTICUT ("USTCT"), a Connecticut state bank and trust company, UNITED STATES
TRUST COMPANY OF NEW YORK ("USTNY"), a New York state-chartered bank and trust
company (together with USTCT, "U.S. Trust"), and United States Trust Company of
California, a national bank organized under the laws of the United States
(herein called "U.S. Trust California").
WHEREAS, Excelsior Tax-Exempt Funds, Inc. (the "Company") is
registered as an open-end, management investment company under the Investment
Company Act of 1940;
WHEREAS, U.S. Trust is the investment adviser to the Company's
California Tax-Exempt Income Fund (the "Fund");
WHEREAS, U.S. Trust desires to retain U.S Trust California to render
investment sub-advisory services to the Company for the Fund, and U.S. Trust
California is willing to so render such services;
NOW, THEREFORE, this Agreement
WITNESSETH:
In consideration of the premises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. Appointment. U.S. Trust hereby appoints U.S. Trust California to
-----------
act as investment sub-adviser to the Company for the Fund for the period and on
the terms set forth in this Agreement. U.S. Trust California accepts such
appointment and agrees to render the services herein set forth for the
compensation herein provided.
2. Delivery of Documents. U.S. Trust has furnished U.S. Trust
---------------------
California with copies properly certified or authenticated of each of the
following:
(a) Articles of Incorporation of the Company;
(b) By-Laws of the Company;
(c) Resolutions of the Board of Directors of the Company
authorizing the appointment of U.S. Trust as the investment adviser for the Fund
and the execution and delivery of the Investment Advisory Agreement with respect
to the Fund;
<PAGE>
(d) Resolutions of the Board of Directors of the Company
authorizing the appointment of U.S. Trust California as the Fund's investment
sub-adviser and the execution and delivery of this Agreement;
(e) Post-Effective Amendment No. 19 to the Company's Registration
Statement under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended (the "1940 Act"), on Form N-1A (No. 2-93068)
relating to the Company's shares representing interests in the Fund;
(f) Notification of Registration of the Company under the 1940
Act, as amended, on Form N-8A as filed with the Securities and Exchange
Commission on August 31, 1984, and all amendments thereto; and
(g) Prospectuses and statements of additional information of the
Company relating to the Company's shares representing interests in the Fund in
effect under the Securities Act of 1933 (such prospectuses, statements of
additional information and supplements thereto, as presently in effect and as
from time to time amended and supplemented, herein called the "Prospectus").
U.S. Trust will furnish U.S Trust California from time to time with
copies of all amendments of or supplements to the foregoing, if any.
3. Sub-Advisory Services. Subject to the supervision of the Board of
---------------------
Directors of the Company and the oversight of U.S. Trust, U.S. Trust California
will provide a continuous investment program for the Fund, including investment
research and management with respect to all securities and investments of the
Fund. U.S. Trust California will determine, subject to U.S. Trust's approval,
what securities and other investments will be purchased, retained or sold by the
Company for the Fund including, with the assistance of U.S. Trust if required,
the Fund's investments in futures. U.S. Trust California will provide the
services rendered by it hereunder in accordance with the Fund's investment
objectives and policies as stated in the Prospectus. U.S. Trust California
further agrees that it:
(a) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission (herein called the "Rules"), and will in
addition conduct its activities under this Agreement in accordance with
applicable law, including but not limited to applicable banking law;
(b) will not make loans for the purpose of purchasing or carrying
Fund shares, or make loans to the Company;
-2-
<PAGE>
(c) will manage the Fund's overall cash positions ;
(d) will place orders pursuant to its investment determinations
for the Fund either directly with the issuer or with any broker or dealer
selected by it. In placing orders with brokers and dealers, U.S. Trust
California will use its reasonable best efforts to obtain the best net price and
the most favorable execution of its orders, after taking into account all
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. Consistent with this
obligation, U.S. Trust California may, to the extent permitted by law, purchase
and sell portfolio securities to and from brokers and dealers who provide
brokerage and research services (within the meaning of Section 28(e) of the
Securities Exchange Act of 1934) to or for the benefit of the Fund and/or other
accounts over which U.S. Trust California or any of its affiliates exercises
investment discretion. Subject to the review of the Company's Board of Directors
from time to time with respect to the extent and continuation of the policy,
U.S. Trust California is authorized to pay to a broker or dealer who provides
such brokerage and research services a commission for effecting a securities
transaction for the Fund which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if U.S. Trust
California determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
overall responsibilities of U.S. Trust California with respect to the accounts
as to which it exercises investment discretion. In no instance will portfolio
securities be purchased from or sold to the Fund's principal underwriter, U.S.
Trust, U.S. Trust California or any affiliated person thereof except as
permitted by the Securities and Exchange Commission;
(e) will maintain books and records with respect to the securities
and other investment transactions entered into pursuant to this Agreement and
will render to U.S. Trust and the Company's Board of Directors such periodic and
special reports as they may request;
(f) will treat confidentially and as proprietary information of
the Company all records and other information relative to the Company and prior,
present or potential shareholders, and will not use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing by the
Company, which approval shall not be
-3=
<PAGE>
unreasonably withheld and may not be withheld where U.S. Trust California may be
exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Company. Nothing contained herein, however, shall prohibit
U.S. Trust California from advertising or soliciting the public generally with
respect to other products or services, regardless of whether such advertisement
or solicitation may include prior, present or potential shareholders of the
Company.
4. Services Not Exclusive. The investment sub-advisory services
----------------------
rendered by U.S. Trust California hereunder are not to be deemed exclusive, and
U.S. Trust California shall be free to render similar services to others so long
as its services under this Agreement are not impaired thereby.
5. Books and Records. In compliance with the requirements of Rule
-----------------
31a-3 under the 1940 Act, U.S. Trust California hereby agrees that all records
which it maintains for the Fund are the property of the Company and further
agrees to surrender promptly to the Company any of such records upon the
Company's request. U.S. Trust California further agrees to preserve for the
periods prescribed by Rule 31a-2 the records required to be maintained by Rule
31a-1 under the 1940 Act.
6. Expenses. During the term of this Agreement, U.S. Trust
--------
California will pay all expenses incurred by it in connection with its
activities under this Agreement other than the cost of securities, commodities
and other investments (including brokerage commissions and other transaction
charges, if any) purchased for the Fund.
In addition, U.S. Trust California will pay U.S. Trust an amount equal
to 83% of each expense reimbursement made by U.S. Trust to the Company with
respect to the Fund under the second paragraph of Section 6 of the Investment
Advisory Agreement relating to the Fund.
7. Compensation. For the services provided and the expenses assumed
------------
pursuant to this Agreement, U.S. Trust will pay U.S. Trust California and U.S.
Trust California will accept as full compensation therefor a fee, computed daily
and payable monthly, at the annual rate of .50% of the average daily net assets
of the Fund.
8. Limitation of Liability of the Sub-Adviser. U.S. Trust California
------------------------------------------
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Company in connection with the matters to which this Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence
-4-
<PAGE>
on the part of U.S. Trust California in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement.
9. Duration and Termination. This Agreement shall become effective
------------------------
upon its execution as of the date first written above and, unless sooner
terminated as provided herein, shall continue until through July 31, 1997.
Thereafter, if not terminated, this Agreement shall continue in effect as to the
Fund for successive periods of 12 months each, provided such continuance is
specifically approved at least annually by the vote of a majority of those
members of the Board of Directors of the Company who are not parties to this
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval, and by the Board of Directors
of the Company or the vote of a majority of the outstanding voting securities of
the Fund; provided, however, that this Agreement may be terminated as to the
Fund at any time, without the payment of any penalty, by U.S. Trust or by the
Company (by the Board of Directors of the Company or by vote of a majority of
the outstanding voting securities of the Fund) on 60 days' written notice to
U.S. Trust California, and will automatically terminate upon the termination of
the Investment Advisory Agreement between U.S. Trust and the Company with
respect to the Fund. This Agreement may be terminated as to the Fund by U.S.
Trust California at any time, without payment of any penalty, on 90 days'
written notice to the Company and U.S. Trust. This Agreement will immediately
terminate in the event of its assignment. (As used in this Agreement, the terms
"majority of the outstanding voting securities," "interested person" and
"assignment" shall have the same meanings as such terms have in the 1940 Act.)
10. Amendment of this Agreement. No provision of this Agreement may
---------------------------
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective with respect to the Fund until approved by vote of a majority of the
Fund's outstanding voting securities.
11. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by New York law.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
U.S. TRUST COMPANY
Attest: OF CONNECTICUT
_________________________ By: ______________________
[Seal]
UNITED STATES TRUST COMPANY
Attest: OF NEW YORK
_________________________ By: ______________________
[Seal]
UNITED STATES TRUST COMPANY
Attest: OF CALIFORNIA
_________________________ By: _______________________
[Seal]
-6-
<PAGE>
EXHIBIT 9(b)
ADMINISTRATION AGREEMENT
This AGREEMENT made as of May 16, 1997 by and among EXCELSIOR TAX-
EXEMPT FUNDS, INC., a Maryland corporation (the "Company"), CHASE GLOBAL FUNDS
SERVICES COMPANY, a Delaware corporation ("CGFSC"), FEDERATED ADMINISTRATIVE
SERVICES ("FAS"), a Delaware trust, and U.S. TRUST COMPANY OF CONNECTICUT ("U.S.
Trust"), a Connecticut state bank and trust company (CGFSC, FAS and U.S. Trust
are collectively referred to as the "Administrators").
WITNESSETH:
WHEREAS, the Company is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Company wishes to retain the Administrators to provide,
as co-administrators, certain administration services with respect to one or
more of the Company's investment portfolios (individually, a "Fund," and
collectively, the "Funds"), as described and set forth on one or more exhibits
to this Agreement, and the Administrators are willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Company hereby appoints the Administrators to
-----------
provide administration services to the Funds for the period and on the terms set
forth in this Agreement. The Administrators accept such appointment and agree
to furnish the services herein set forth in return for the compensation as
provided in Section 4 of this Agreement. In the event that the Company
establishes one or more investment portfolios other than the Funds with respect
to which it decides to retain the Administrators to act as co-administrators
hereunder, the Company shall notify the Administrators in writing. If the
Administrators are willing to render such services to a new investment
portfolio, they shall so notify the Company in writing whereupon such investment
portfolio shall become a Fund hereunder and shall be subject to the provisions
of this Agreement to the same extent as the Funds, except to the extent that
said provisions (including those relating to the compensation payable by the
Company) may be modified with respect to such investment portfolio in writing by
the Company and the Administrators at the time of the addition of such new
investment portfolio.
<PAGE>
2. DELIVERY OF DOCUMENTS. The Company has furnished each of the
---------------------
Administrators with copies, properly certified or authenticated, of each of the
following:
(a) Resolutions of the Company's Board of Directors authorizing
the appointment of the Administrators to provide certain administration services
to the Company and approving this Agreement;
(b) The Company's Articles of Incorporation ("Charter");
(c) The Company's Bylaws ("Bylaws");
(d) The Company's Notification of Registration on Form N-8A under
the 1940 Act as filed with the Securities and Exchange Commission ("SEC") on
August 31, 1984 ;
(e) The Company's most recent Post-Effective Amendment to its
Registration Statement on Form N-1A (No. 2-93068) (the "Registration Statement")
under the Securities Act of 1933 and the 1940 Act, as filed with the SEC;
(f) The Company's Amended and Restated Administrative Services and
Amended and Restated Distribution Plans; and
(g) The Company's most recent Prospectuses and Statements of
Additional Information and all amendments and supplements thereto (such
Prospectuses and Statements of Additional Information and supplements thereto,
as presently in effect and as from time to time amended and supplemented, herein
called the "Prospectus").
The Company will timely furnish each of the Administrators from
time to time with copies, properly certified or authenticated, of all amendments
of or supplements to the foregoing, if any.
3. SERVICES AND DUTIES. Subject to the supervision and control of
-------------------
the Company's Board of Directors, and as delineated on one or more Exhibit to
the Agreement, the Administrators agree to assist in supervising various aspects
of each Fund's administrative operations, including the performance of the
following specific services for each Fund:
(a) Providing office facilities (which may be in the offices of
any of the Administrators or a corporate affiliate of any of them, but shall be
in such location as the Company shall reasonably approve);
-2-
<PAGE>
(b) Furnishing statistical and research data, clerical services,
and stationery and office supplies;
(c) Keeping and maintaining all financial accounts and records
(other than those required to be maintained by the Company's Custodian and
Transfer Agent);
(d) Computing each Fund's net asset value, net income and net
capital gain (loss) in accordance with the Company's Prospectus and resolutions
of its Board of Directors ;
(e) Compiling data for and preparing for execution and filing with
the SEC required reports and notices to shareholders of record and the SEC
including, without limitation, Semi-Annual and Annual Reports to Shareholders,
Semi-Annual Reports on Form N-SAR and timely Rule 24f-2 Notices;
(f) Compiling data for, and preparing for execution and filing,
all reports or other documents required by Federal, state and other applicable
laws and regulations, including those required by applicable laws and
regulations, including those required by applicable Federal and state tax laws
(other than those required to be filed by the Company's Custodian or Transfer
Agent);
(g) Reviewing and providing advice with respect to all sales
literature (advertisements, brochures and shareholder communications) for each
of the Funds and any class or series thereof;
(h) Assisting in developing and monitoring compliance procedures
for each Fund and any class or series thereof, including, without limitation,
procedures to monitor compliance with applicable law and regulations, each
Fund's investment objectives, policies and restrictions, its continued
qualification as a regulated investment company under the Internal Revenue Code
of 1986, as amended, and other tax matters;
(i) Monitoring the Company's arrangements with respect to services
provided by certain organizations ("Organizations") under its Amended and
Restated Distribution Plan. With respect to Organizations, the Administrators
shall specifically monitor and review the services rendered under the Amended
and Restated Distribution Plan by Organizations to their customers who are the
beneficial owners of shares, pursuant to agreements between the Company and such
Organizations ("Agreements"), including, without limitation, reviewing the
qualifications of financial institutions wishing to be Organizations, assisting
in the execution and delivery of Agreements, reporting to the Company's Board of
Directors with respect to the amounts paid or payable by the Company from time
to time under the Agreements and the nature of the services
-3-
<PAGE>
provided by Organizations, and maintaining appropriate records in connection
with such duties;
(j) Monitoring the Company's arrangements with respect to
services provided by certain organizations ("Service Organizations") under its
Amended and Restated Administrative Services Plan, provided that each
Administrator will only be responsible for monitoring arrangements with Service
Organizations with whom the Administrator has established the servicing
relationship on behalf of the Company. With respect to such Service
Organizations, the Administrators shall specifically monitor and review the
services rendered by Service Organizations to their customers who are the
beneficial owners of shares, pursuant to agreements between the Company and such
Service Organizations ("Servicing Agreements"), including, without limitation,
reviewing the qualifications of financial institutions wishing to be Service
Organizations, assisting in the execution and delivery of Servicing Agreements,
reporting to the Company's Board of Directors with respect to the amounts paid
or payable by the Company from time to time under the Servicing Agreements and
the nature of the services provided by Service Organizations, and maintaining
appropriate records in connection with such duties;
(k) Determining, together with the Company's Board of Directors,
the jurisdictions in which the Company's shares shall be registered or qualified
for sale and, in connection therewith, maintaining the registration or
qualification of shares for sale under the securities laws of any state. Payment
of share registration fees and any fees for qualifying or continuing the
qualification of any Fund as a dealer or broker, if applicable, shall be made by
that Fund;
(l) Assisting to the extent requested by the Company and its
outside counsel with the preparation of the Company's Registration Statement on
Form N-1A or any replacement therefor; and
(m) Assisting in the monitoring of regulatory and legislative
developments which may affect the Company and, in response to such developments,
counseling and assisting the Company in routine regulatory examinations or
investigations of the Company, and working with outside counsel to the Company
in connection with regulatory matters or litigation.
In performing their duties as co-administrators of the Company, the
Administrators (a) will act in accordance with the Company's Charter, Bylaws,
Prospectus and the instructions and directions of the Company's Board of
Directors and will conform to, and comply with, the requirements of the 1940 Act
and all other applicable Federal or state laws and regulations, and (b)
-4-
<PAGE>
will consult with outside legal counsel to the Company, as necessary or
appropriate.
The Administrators will preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1
under said Act in connection with the services required to be performed
hereunder. The Administrators further agree that all such records which they
maintain for the Company are the property of the Company and further agree to
surrender promptly to the Company any of such records upon the Company's
request.
4. FEES; EXPENSES; EXPENSE REIMBURSEMENT.
-------------------------------------
For the services rendered pursuant to this Agreement for all Funds,
the Administrators shall be entitled jointly to a fee based on the average net
assets of the Company, determined at the following annual rates applied to the
average combined daily net assets of all of the Funds and all of the investment
portfolios of Excelsior Institutional Trust (the "Trust") and Excelsior Funds,
Inc. ("Excelsior Fund")(except the International, Pacific/Asia, Pan European and
Emerging Americas Funds of Excelsior Fund and the International Equity Fund of
the Trust): .20% of the first $200 million; .175% of the next $200 million; and
.15% of any amount in excess of $400 million. Each Fund will pay a portion of
the total fee payable by the Company in an amount equal to the proportion that
such Fund's average daily net assets bears to the total average daily net assets
of all the Funds of the Company. The fee attributable to each Fund shall be the
several (and not joint or joint and several) obligation of each Fund. Such fees
are to be computed daily and paid monthly on the first business day of the
following month. Upon any termination of this Agreement before the end of any
month, the fee for such part of the month shall be pro-rated according to the
proportion which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement.
For purposes of determining fees payable to the Administrators, the
value of each Fund's net assets shall be computed as required by its Prospectus,
generally accepted accounting principles, and resolutions of the Company's Board
of Directors.
The Administrators will from time to time employ or associate with
themselves such person or persons as they may believe to be fitted to assist
them in the performance of this Agreement. Such person or persons may be
officers and employees who are employed by both the Administrators and the
Company. The compensation of such person or persons for such employment shall
be paid by the Administrators and no obligation may be incurred on behalf of the
Company in such respect.
-5-
<PAGE>
The Administrators will bear all expenses in connection with the
performance of their services under this Agreement except as otherwise expressly
provided herein. Other expenses to be incurred in the operation of the Funds,
including taxes, interest, brokerage fees and commissions, if any, salaries and
fees of officers and directors who are not officers, directors, shareholders or
employees of the Administrators, or the Company's investment adviser or
distributor for the Funds, Securities and Exchange Commission fees and state
Blue Sky qualification fees, advisory and administration fees, charges of
custodians, transfer and dividend disbursing agents' fees, certain insurance
premiums, outside auditing and legal expenses, payments to Organizations and
Service Organizations, costs of maintenance of corporate existence, typesetting
and printing of prospectuses for regulatory purposes and for distribution to
current shareholders of the Funds, costs of shareholders' reports and corporate
meetings and any extraordinary expenses, will be borne by the Company, provided,
--------
however, that, except pursuant to the Amended and Restated Distribution Plan,
- -------
the Company will not bear, directly or indirectly, the cost of any activity
which is primarily intended to result in the distribution of shares of the
Funds, and further provided that the Administrators may utilize one or more
----------------
independent pricing services, approved from time to time by the Board of
Directors of the Company, to obtain securities prices in connection with
determining the net asset value of each Fund and that each Fund will reimburse
the Administrators for its share of the cost of such services based upon its
actual use of the services.
If in any fiscal year any Fund's aggregate expenses (as defined under
the securities regulations of any state having jurisdiction over the Fund)
exceed the expense limitations of any such state, the Administrators agree to
reimburse such Fund for a portion of any such excess expenses in an amount equal
to the proportion that the fees otherwise payable to the Administrators bears to
the total amount of investment advisory and administration fees otherwise
payable by the Fund. The expense reimbursement obligation of the Administrators
is limited to the amount of their fees hereunder for such fiscal year, provided,
--------
however, that notwithstanding the foregoing, the Administrators shall reimburse
- -------
such Fund for a portion of any such excess expenses in an amount equal to the
proportion that the fee otherwise payable to the Administrators bears to the
total amount of investment advisory and administration fees otherwise payable by
the Fund regardless of the amount of fees paid to the Administrators during such
fiscal year to the extent that the securities regulations of any state having
jurisdiction over the Funds so require. Such expense reimbursement, if any,
will be estimated, reconciled and paid on a monthly basis. With respect to the
amounts required to be reimbursed under this Section 4 in any fiscal year, the
parties to this Agreement agree that U.S. Trust alone shall reimburse such
amounts up to the amount of fees
-6-
<PAGE>
received by CGFSC and U.S. Trust under this Agreement for such year. FAS shall
only be obligated to reimburse expenses to the extent that the amounts required
to be reimbursed under this Section 4 in any fiscal year exceed the amount of
fees received by CGFSC and U.S. Trust under this Agreement for such year and to
the extent that U.S. Trust makes reimbursements equalling the amount of all such
fees received by CGFSC and U.S. Trust, provided that the reimbursement
obligation of FAS shall be limited to the amount of fees received by it under
this Agreement for such year.
5. PROPRIETARY AND CONFIDENTIAL INFORMATION. The Administrators
----------------------------------------
agree on behalf of themselves and their employees to treat confidentially and as
proprietary information of the Company all records and other information
relative to the Funds and prior, present or potential shareholders, and not to
use such records and information for any purpose other than performance of their
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Company, which approval shall not be unreasonably
withheld and may not be withheld where the Administrators may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Company.
6. LIMITATION OF LIABILITY. Each Administrator shall not be liable
-----------------------
for any error of judgment or mistake of law or for any loss or expense suffered
by the Company in connection with the matters to which this Agreement relates,
except for a loss or expense resulting from willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, partner, employee or agent of any of the
Administrators, who may be or become an officer, director, employee or agent of
the Company shall be deemed when rendering services to the Company or acting on
any business of the Company (other than services or business in connection with
the Administrators' duties hereunder) to be rendering such services to or acting
solely for the Company and not as an officer, partner, employee or agent or one
under the control or direction of the Administrators even though paid by any of
them. The Administrators agree that this Agreement shall not create any joint
and/or several liability among the Administrators with respect to services
provided by any particular Administrator as set forth herein.
7. TERM. This Agreement shall become effective on May 16, 1997 and,
----
unless sooner terminated as provided herein, shall continue until July 31, 1997,
and thereafter shall continue automatically with respect to each Fund for
successive annual periods ending on July 31 of each year, provided such
continuance is specifically approved at least annually by the Company's Board
-7-
<PAGE>
of Directors. This Agreement is terminable with respect to each Fund, without
penalty, on not less than ninety days' notice by the Company's Board of
Directors or by CGFSC, FAS or U.S. Trust. This Agreement will terminate
automatically in the event of its "assignment" (as defined in the Investment
Company Act 1940). The parties agree that an assignment includes the transfer
of "control" of more than 25% of the outstanding voting securities of FAS to a
company that is not a subsidiary of Federated Investors. The parties also agree
that the merger between The Chase Manhattan Corporation and Chemical Banking
Corporation and the merger between The Chase Manhattan Bank, N.A. and Chemical
Bank will not constitute an assignment under this Agreement.
8. GOVERNING LAW. This Agreement shall be governed by New York law.
-------------
9. NOTICES. All notices required or permitted herein shall be in
-------
writing and shall be deemed to be properly given when delivered personally or by
telecopier to the party entitled to receive the notice or when sent by certified
or registered mail, postage prepaid, or delivered to an internationally
recognized overnight courier service, in each case properly addressed to the
party entitled to receive such notice at the address or telecopier number stated
below or to such other address or telecopier number as may hereafter be
furnished in writing by notice similarly given by one party to the other party
hereto:
If to the Company:
Excelsior Tax-Exempt Funds, Inc.
73 Tremont Street
Boston, Massachusetts 02108-3913
Telecopier Number: (617) 557-8617
With copies to:
W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath
1345 Chestnut Street, Suite 1100
Philadelphia, Pennsylvania 19107
Telecopier Number: (215) 988-2757
If to CGFSC:
Chase Global Funds Services Company
73 Tremont Street
Boston, Massachusetts 02108-3913
Telecopier Number: (617) 557-8617
-8-
<PAGE>
If to FAS:
Federated Administrative Services
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Telecopier Number: (412) 288-8141
If to U.S. Trust:
U.S. Trust Company of Connecticut
225 High Ridge Road
East Tower
Stamford, CT 06905
Telecopier Number: (203) 352-4488
10. MISCELLANEOUS. No provisions of this Agreement may be changed,
-------------
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, discharge or termination is
sought. If a change or discharge is sought against the Company, the instrument
must be signed by each Administrator. This Agreement may be executed in one or
more counterparts and all such counterparts will constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the date indicated above.
ATTEST: EXCELSIOR TAX-EXEMPT FUNDS, INC.
By:/s/W. Bruce McConnel, III By:/s/F.S. Wonham
------------------------- -----------------------------
Title: President
(SEAL)
ATTEST: CHASE GLOBAL FUNDS SERVICES COMPANY
By:/s/Daniel A. Moonay By:/s/Donald P. Hearn
------------------------- -----------------------------
Title: Chairman and CEO
(SEAL)
ATTEST: FEDERATED ADMINISTRATIVE SERVICES
By:/s/Victor R. Siclari By:/s/Joseph A. Machi
------------------------- -----------------------------
Title: Vice President Title: Vice President
(SEAL)
ATTEST: U.S. TRUST COMPANY
OF CONNECTICUT
By:/s/Francis J. Hearn, Jr. By:/s/W. Michael Funck
------------------------- -----------------------------
Title: President and CEO
-9-
<PAGE>
Exhibit A
to the
Administration Agreement
EXCELSIOR TAX-EXEMPT FUNDS, INC.
-------------------------------
Tax-Exempt Money Fund
Short-Term Tax-Exempt Securities Fund
Intermediate-Term Tax-Exempt Fund
Long-Term Tax-Exempt Fund
New York Intermediate-Term Tax-Exempt Fund
California Tax-Exempt Income Fund
In consideration of the mutual covenants set forth in the Administration
Agreement dated as of May 16, 1997 among Excelsior Tax-Exempt Funds, Inc. (the
"Company"), Chase Global Funds Services Company ("CGFSC"), Federated
Administrative Services ("FAS") and U.S. Trust Company of Connecticut ("U.S.
Trust"), Excelsior Tax-Exempt Funds, Inc. executes and delivers this Exhibit on
behalf of the Funds, and with respect to any class or series thereof, first set
forth in this Exhibit.
Pursuant to Section 3 of the Agreement, FAS agrees to provide facilities,
equipment, and personnel to carry out the following administrative services to
the Funds, with the understanding that CGFSC will provide all other services and
duties set forth in said Section 3 but not otherwise listed below:
(a) Performing a due diligence review of SEC required reports and notices
to shareholders of record and to the SEC including, without limitation, Semi-
Annual and Annual Reports to Shareholders, Semi-Annual Reports on Form N-SAR,
Proxy Statements and SEC share registration notices;
(b) Reviewing the Company's Registration Statement on Form N-1A or any
replacement therefor;
(c) Reviewing and filing with the National Association of Securities
Dealers, Inc. all sales literature (advertisements, brochures and shareholder
communications) for each of the Funds and any class or series thereof;
(d) Preparing distributor's reports to the Company's Board of Directors;
(e) Performing internal audit examinations in accordance with a charter to
be adopted by FAS and the Company;
(f) Upon request, providing individuals reasonably acceptable to the
Company's Board of Directors for nomination, appointment, or election as
officers of the Company, who will be responsible for the management of certain
of the Funds' affairs as determined by the Company;
<PAGE>
(g) Consulting with the Funds and the Company's Board of Directors, as
appropriate, on matters concerning the distribution of Funds;
(h) Monitoring the Company's arrangements with respect to services provided
by certain organizations ("Organizations") under its Amended and Restated
Distribution Plan. With respect to Organizations, FAS shall specifically
monitor and review the services rendered under the Amended and Restated
Distribution Plan by Organizations to their customers who are the beneficial
owners of shares, pursuant to agreements between the Company and such
Organizations ("Agreements"), including, without limitation, reviewing the
qualifications of financial institutions wishing to be Organizations, assisting
in the execution and delivery of Agreements, reporting to the Company's Board of
Directors with respect to the amounts paid or payable by the Company from time
to time under the Agreements and the nature of the services provided by
Organizations, and maintaining appropriate records in connection with such
duties;
(i) Monitoring the Company's arrangements with respect to services
provided by certain organizations ("Service Organizations") under its Amended
and Restated Administrative Services Plan, provided that FAS will only be
responsible for monitoring arrangements with Service Organizations with whom FAS
has established the servicing relationship on behalf of the Company. With
respect to such Service Organizations, FAS shall specifically monitor and review
the services rendered by Service Organizations to their customers who are the
beneficial owners of shares, pursuant to agreements between the Company and such
Service Organizations ("Servicing Agreements"), including, without limitation,
reviewing the qualifications of financial institutions wishing to be Service
Organizations, assisting in the execution and delivery of Servicing Agreements,
reporting to the Company's Board of Directors with respect to the amounts paid
or payable by the Company from time to time under the Servicing Agreements and
the nature of the services provided by Service Organizations, and maintaining
appropriate records in connection with such duties; and
(j) Consulting with CGFSC and the Company regarding the jurisdictions in
which the Company's shares shall be registered or qualified for sale and, in
connection therewith, reviewing and monitoring the actions of CGFSC in
maintaining the registration or qualification of shares for sale under the
securities laws of any state. Payment of share registration fees and any fees
for qualifying or continuing the qualification of any Fund as a dealer or
broker, if applicable, shall be made by that Fund.
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<PAGE>
Witness the due execution hereof this 16th day of May, 1997.
ATTEST: EXCELSIOR TAX-EXEMPT
FUNDS, INC.
/s/W. Bruce McConnel, III /s/F.S. Wonham
- ------------------------- ------------------------------
Title: Secretary Titlle: President
(SEAL)
ATTEST: FEDERATED ADMINISTRATIVE
SERVICES
/s/Victor R. Siclari /s/Joseph A. Machi
- ------------------------- ------------------------------
Title: Vice President Title: Vice President
(SEAL)
ATTEST: CHASE GLOBAL FUNDS SERVICES COMPANY
/s/Daniel A. Moonay /s/Donald P. Hearn
- ------------------------- ------------------------------
Title: Chairman and CEO
(SEAL)
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<PAGE>
Exhibit B
to the
Administration Agreement
EXCELSIOR TAX-EXEMPT FUNDS, INC.
-------------------------------
Tax-Exempt Money Fund
Short-Term Tax-Exempt Securities Fund
Intermediate-Term Tax-Exempt Fund
Long-Term Tax-Exempt Fund
New York Intermediate-Term Tax-Exempt Fund
California Tax-Exempt Income Fund
In consideration of the mutual covenants set forth in the Administration
Agreement dated as of May 16, 1997 among Excelsior Tax-Exempt Funds, Inc. (the
"Company"), Chase Global Funds Services Company ("CGFSC"), Federated
Administrative Services ("FAS") and U.S. Trust Company of Connecticut ("U.S.
Trust"), Excelsior Tax-Exempt Funds, Inc. executes and delivers this Exhibit on
behalf of the Funds, and with respect to any class or series thereof, first set
forth in this Exhibit.
Pursuant to Section 3 of the Agreement, U.S. Trust agrees to provide
facilities, equipment, and personnel to carry out the following administrative
services to the Funds:
(a) Providing guidance and assistance in the preparation of SEC required
reports and notices to shareholders of record and to the SEC including, without
limitation, Semi-Annual and Annual Reports to Shareholders, Semi-Annual Reports
on Form N-SAR, Proxy Statements and SEC share registration notices;
(b) Reviewing the Company's Registration Statement on Form N-1A or any
replacement therefor;
(c) Consulting with the Funds and the Company's Board of Directors, as
appropriate, on matters concerning the administration and operation of the
Funds;
(d) Monitoring the Company's arrangements with respect to services
provided by certain organizations ("Service Organizations") under its Amended
and Restated Administrative Services Plan, provided that U.S. Trust will only be
responsible for monitoring arrangements with Service Organizations with whom
U.S. Trust has established the servicing relationship on behalf of the Company.
With respect to such Service Organizations, U.S. Trust shall specifically
monitor and review the services rendered by Service Organizations to their
customers who are the beneficial owners of shares, pursuant to agreements
between the Company and such Service Organizations ("Servicing Agreements"),
including, without limitation, reviewing the qualifications of financial
institutions wishing to be Service Organizations, assisting in the execution and
delivery of Servicing Agreements, reporting to the Company's Board of Directors
with respect
<PAGE>
to the amounts paid or payable by the Company from time to time under the
Servicing Agreements and the nature of the services provided by Service
Organizations, and maintaining appropriate records in connection with such
duties.
Witness the due execution hereof this 16th day of May, 1997.
ATTEST: EXCELSIOR TAX-EXEMPT
FUNDS, INC.
/s/W. Bruce McConnel, III /s/F.S. Wonham
- ------------------------- -------------------------------
Title: Secretary Title: President
(SEAL)
ATTEST: U.S. TRUST COMPANY
OF CONNECTICUT
/s/Francis J. Hearn, Jr. By:/s/W. Michael Funck
- ------------------------- ----------------------------
Title: President and CEO
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<PAGE>
Exhibit 9(c)
MUTUAL FUNDS TRANSFER AGENCY AGREEMENT
AGREEMENT made as of September 1, 1995 by and between UST Master Tax-
Exempt Funds, Inc. (the "Company") a Maryland corporation, and United States
Trust Company of New York ("U.S. Trust"), a New York corporation.
W I T N E S S E T H:
WHEREAS, the Company is registered as an open-end investment company
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Company is authorized to issue shares of Common Stock in
separate series and classes representing interests in separate portfolios of
securities and other assets;
WHEREAS, the Company wishes to retain U.S. Trust to serve as the
Company's transfer agent, registrar and dividend disbursing agent;
WHEREAS, U.S. Trust desires to assign its duties and obligations with
respect to the provision of such services to Chase Global Funds Services Company
("CGFSC"), and the Company acknowledges the right of U.S. Trust to make such
assignment provided U.S. Trust shall be as fully responsible to the Company for
the acts and omissions of CGFSC as U.S. Trust is for its own acts and omissions;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
<PAGE>
1. APPOINTMENT. The Company hereby appoints U.S. Trust to serve as
transfer agent, registrar and dividend disbursing agent for each class and/or
series of Common Stock of the Company with respect to its existing Funds (as
hereinafter defined) for the period and on the terms set forth in this
Agreement. In the event that the Company establishes additional classes or
series other than the Common Stock of the Funds covered by this Agreement with
respect to which it desires to retain U.S. Trust to serve as transfer agent,
registrar and dividend disbursing agent hereunder, the Company shall notify U.S.
Trust in writing, whereupon such fund shall become a Fund hereunder and shall be
subject to the provisions of this Agreement to the same extent as the Funds
(except to the extent that said provisions, including the compensation payable
on behalf of such new Fund, may be modified in writing by the Company and U.S.
Trust at the time). U.S. Trust accepts such appointment and agrees to furnish
the services herein set forth in return for the compensation as provided in
Paragraph 5 of this Agreement.
2. REPRESENTATIONS AND WARRANTIES.
(a) U.S. Trust represents and warrants to the Company that:
(i) U.S. Trust is a state chartered bank and trust company
organized and existing under the laws of the State of New York;
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<PAGE>
(ii) U.S. Trust is empowered under applicable laws and by its charter
and by-laws to enter into and perform this Agreement;
(iii) all requisite corporate proceedings have been taken to
authorize U.S. Trust to enter into and perform this Agreement;
(iv) U.S. Trust is duly registered as a transfer agent under Section
17A of the Securities Exchange Act of 1934, as amended (the "1934 Act"). U.S.
Trust shall promptly give written notice to the Company in the event that its
registration is revoked or a proceeding is commenced that could result in such
revocation;
(v) U.S. Trust has been in, and shall continue to be in, compliance
with all provisions of law, including Section 17A(c) of the 1934 Act, required
in connection with the performance of its duties under this Agreement;
(vi) U.S. Trust has, and will continue to have, access to the
facilities, personnel and equipment required to fully perform its duties and
obligations hereunder;
(vii) no legal or administrative proceedings have been instituted
or threatened which would impair U.S. Trust's ability to perform its duties and
obligations under this Agreement; and
(viii) U.S. Trust's entrance into this Agreement shall not cause a
material breach or be in material conflict with
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<PAGE>
any other agreement or obligation of U.S. Trust or any law or regulation
applicable to U.S. Trust;
(b) The Company represents and warrants to U.S. Trust that:
(i) the Company is a Maryland corporation, duly organized and
existing and in good standing under the laws of Maryland;
(ii) the Company is empowered under applicable laws and by its
Articles of Incorporation, as supplemented ("Charter"), and By-Laws, as amended
("By-Laws"), to enter into and perform this Agreement;
(iii) all requisite proceedings have been taken to authorize
the Company to enter into and perform this Agreement;
(iv) the Company is an investment company properly registered
under the 1940 Act;
(v) a registration statement under the Securities Act of 1933, as
amended (the "1933 Act") and the 1940 Act on Form N-1A has been filed and will
be effective and will remain effective during the term of this Agreement, and
all necessary filings under the laws of the states will have been made and will
be current during the term of this Agreement;
(vi) no legal or administrative proceedings have been instituted or
threatened which would impair the Company's ability to perform its duties and
obligations under this Agreement;
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<PAGE>
(vii) the Company's registration statement complies in all material
respects with the 1933 Act and the 1940 Act (including the rules and regulations
thereunder) and none of the Company's prospectuses contain any untrue statement
of material fact or omit to state a material fact necessary to make the
statements therein not misleading; and
(viii) the Company's entrance into this Agreement shall not cause
a material breach or be in material conflict with any other agreement or
obligation of the Company or any law or regulation applicable to it.
3. DELIVERY OF DOCUMENTS. The Company has furnished U.S. Trust with
copies properly certified or authenticated of each of the following:
(a) Resolutions of the Company's Board of Directors authorizing the
appointment of U.S. Trust as transfer agent, registrar and dividend disbursing
agent for each class and/or series of Common Stock of the Company and approving
this Agreement;
(b) Incumbency and signature certificates identifying and containing
the signatures of the Company's officers and/or the persons authorized to sign
Written Instructions, as hereafter defined, on behalf of the Company;
(c) The Company's Charter;
(d) The Company's By-Laws;
(e) Resolutions of the Company's Board of Directors appointing U.S.
Trust as the investment adviser to the Company's
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<PAGE>
Tax-Exempt Money, Intermediate-Term Tax-Exempt, Long-Term Tax-Exempt, New York
Intermediate-Term Tax-Exempt, California Intermediate-Term Tax-Exempt and Short-
Term Tax-Exempt Securities Funds (herein "the Funds") and resolutions of the
Company's Board of Directors and Fund shareholders ("Shareholders") approving an
Investment Advisory Agreement between U.S. Trust and the Company dated as of
February 6, 1985, as amended; and an Investment Advisory Agreement between U.S.
Trust and the Company dated as of May 11, 1990, as amended (the "Advisory
Agreements");
(f) Resolutions of the Company's Board of Directors appointing
Edgewood Services, Inc. (the "Distributor") as the Company's distributor for the
Funds and approving a Distribution Agreement between the Distributor and the
Company dated as of August 1, 1995 (the "Distribution Agreement");
(g) Resolutions of the Company's Board of Directors appointing
Federated Administrative Services ("Federated") as the administrator for the
Funds and approving an Administration Agreement between Federated and the
Company dated as of August 1, 1995 (the "Administration Agreement");
(h) The Advisory Agreements, the Distribution Agreement and the
Administration Agreement;
(i) The Company's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A with the Securities and Exchange
Commission ("SEC") on August 31, 1984;
(j) Post-Effective Amendment No. 18 to the Company's Registration
Statement on Form N-1A under the 1940 Act and the
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<PAGE>
1933 Act, as filed with the SEC on August 1, 1995 (File No. 2-93068) relating to
shares of the Company's Class A Common Stock, $.001 par value per share, which
represent interests in the Tax-Exempt Money Fund; Class B Common Stock, $.001
par value per share, which represent interests in the Intermediate-Term Tax-
Exempt Fund; Class C Common Stock, $.001 par value per share, which represent
interests in the Long-Term Tax-Exempt Fund; Class D Common Stock, $.001 par
value per share, which represent interests in the New York Intermediate-Term
Tax-Exempt Fund; Class E Common Stock, $.001 par value per share, which
represent interests in the California Intermediate-Term Tax-Exempt Fund; and
Class F Common Stock, $.001 par value per share, which represent interests in
the Short-Term Tax-Exempt Securities Fund; (such shares and shares of the
Company hereafter classified by the Company's Board of Directors are hereinafter
collectively called "Shares"), and all amendments thereto; and
(k) The Company's most recent prospectuses (such prospectuses, as
currently in effect, and all amendments and supplements thereto and future
versions thereof are herein called the "Prospectuses").
The Company will furnish U.S. Trust from time to time with copies of
all amendments of or supplements to the foregoing, if any, and with comparable
documents with respect to any Fund of the Company organized after the date of
this Agreement that is covered by this Agreement. The Company shall also
deliver to U.S. Trust the following documents on or before the effective
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<PAGE>
date of any increase or decrease in the total number of Shares authorized to be
issued by the Company: (a) a certified copy of the amendment of the Articles of
Incorporation giving effect to such increase or decrease, and (b) in the case of
an increase, if the appointment of U.S. Trust was theretofore expressly limited,
a certified copy of a resolution of the Board of Directors of the Company
increasing the authority of U.S. Trust.
4. SERVICES PROVIDED
(a) U.S. Trust will provide the following services subject to the
control, direction and supervision of the Board of Directors and in compliance
with the objectives, policies and limitations set forth in the Company's
Registration Statement, Charter and By-Laws; applicable laws and regulations;
and all resolutions and policies implemented by the Board of Directors.
The following is a general description of the transfer agency services
U.S. Trust shall provide to the Company.
A. SHAREHOLDER RECORDKEEPING. Maintain records showing for each
Fund shareholder the following: (i) name, address, appropriate
tax certification and tax identifying number; (ii) number of
shares of each Fund; (iii) historical information including, but
not limited to, dividends paid and date and price of all
transactions including individual purchase and redemptions and
appropriate supporting documents; and (iv) any dividend
reinvestment order, application, dividend
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<PAGE>
to a specific address and correspondence relating to the current
maintenance of the account.
B. SHARE ISSUANCE. Record the issuance of shares of each Fund.
Except as specifically agreed in writing between U.S. Trust and
the Company, U.S. Trust shall have no obligation when
countersigning and issuing and/or crediting shares to take
cognizance of any other laws relating to the issue and sale of
such shares except insofar as policies and procedures of the
Stock Transfer Association recognize such laws. U.S. Trust shall
notify the Company in case any proposed issue of shares by the
Company shall result in an over-issuance. In case any issue of
shares would result in such an over-issue, U.S. Trust shall
refuse to issue said shares and shall not countersign and issue
certificates (if any) for such shares.
C. PURCHASE ORDERS. Process all orders for the purchase of shares
of the Company in accordance with the Company's Prospectuses,
including electronic transmissions, which the Company
acknowledges it has authorized. Upon receipt of any check or
other payment for purchase of shares of the Company from an
investor, U.S. Trust will (i) stamp the order or other
documentation with the date and time of receipt, (ii) forthwith
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<PAGE>
process the same for collection, (iii) determine the amounts
thereof due the Company, and notify the Company of such
determination and deposit, such notification to be given on a
daily basis of the total amounts determined and deposited to the
Company's custodian bank account during such day. U.S. Trust
shall then credit the share account of the investor with the
number of Fund shares to be purchased made on the date such
payment is received by U.S. Trust, as set forth in the Company's
Prospectus and shall promptly mail a confirmation of said
purchase to the investor, all subject to any instructions which
the Company may give to U.S. Trust with respect to the timing or
manner of acceptance of orders for shares relating to payments so
received by it. Any purchase order received by U.S. Trust, which
is not in good order will be rejected immediately.
D. REDEMPTION ORDERS. Receive and stamp with the date and time of
receipt all requests for redemptions or repurchase of shares held
in certificate or non-certificate form, and process redemptions
and repurchase requests as follows: (i) if such certificate or
redemption request complies with the applicable standards
approved by the Company, U.S. Trust shall on each business day
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<PAGE>
notify the Company of the total number of shares presented and
covered by such requests received by U.S. Trust on such day; (ii)
within the time specified in the Prospectus and if not so
specified on or prior to the seventh calendar day succeeding any
such requests received by U.S. Trust, shall notify The Chase
Manhattan Bank, N.A. (the "Custodian"), subject to instructions
from the Company, to transfer monies to such account as
designated by U.S. Trust for such payment to the redeeming
shareholder of the applicable redemption or repurchase price;
(iii) if any such certificate or request for redemption of
repurchase does not comply with applicable standards, U.S. Trust
shall promptly notify the investor of such fact, together with
the reason therefor, and shall effect such redemption at the
Company's price next determined after receipt of documents
complying with said standards.
E. TELEPHONE ORDERS. Process redemptions, exchanges and transfers
of Fund shares upon telephone instructions from qualified
shareholders in accordance with the procedures set forth in the
Company's Prospectuses. The administrator shall be permitted to
redeem, exchange and/or transfer Fund shares from any account for
which such
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<PAGE>
services have been authorized, including electronic
transmissions.
F. TRANSFER OF SHARES. Upon receipt by U.S. Trust of documentation
in proper form to effect a transfer of shares, including in the
case of shares for which certificates have been issued the share
certificates in proper form for transfer, U.S. Trust will
register such transfer on the Company's shareholder records
maintained by U.S. Trust pursuant to instructions received from
the transferor, cancel the certificates representing such shares,
if any, and if so requested, countersign, register, issue and
mail by first class mail new certificates for the same or a
smaller whole number of shares.
G. SHAREHOLDER COMMUNICATIONS. Address and mail all communications
by the Company to its shareholders promptly following the
delivery by the Company of the material to be mailed.
H. PROXY MATERIALS. Prepare shareholder lists, mail and certify as
to the mailing of proxy materials, receive the tabulated proxy
cards, render periodic reports to the Company on the progress of
such tabulation, and provide the Company with inspectors of
election at any meeting of shareholders.
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<PAGE>
I. SHARE CERTIFICATES. If a shareholder of the Company requests a
certificate representing his shares, U.S. Trust as Transfer Agent
or CGFSC as sub-transfer agent, will countersign and mail, a
share certificate to the investor at his/her address as it
appears on the Company's transfer books. U.S. Trust shall
supply, at the expense of the Company a supply of blank share
certificates. The certificates shall be properly signed,
manually or by facsimile, as authorized by the Company, and shall
bear the Company's seal or facsimile; and notwithstanding the
death, resignation or removal of any officers of the Company
authorized to sign certificates, U.S. Trust and/or CGFSC may,
until otherwise directed by the Company, continue to countersign
certificates which bear the manual or facsimile signature of such
officer.
J. RETURNED CHECKS. In the event that any check or other order for
the payment of money is returned unpaid for any reason, U.S.
Trust will take such steps, including redepositing the check for
collection or returning the check to the investor, as U.S. Trust
may, at its discretion, deem appropriate and notify the Company
of such action, or as the Company may instruct. However, subject
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<PAGE>
to Paragraph 7(b) below, the Company remains ultimately liable
for any returned checks of its shareholders.
K. SHAREHOLDER CORRESPONDENCE. Acknowledge all correspondence from
shareholders relating to their share accounts and undertake such
other shareholder correspondence as may from time to time be
mutually agreed upon.
L. TAX REPORTING. U.S. Trust shall issue appropriate shareholder
tax forms on an annual basis.
M. DIVIDEND DISBURSING. U.S. Trust will serve as the Company's
dividend disbursing agent. U.S. Trust will prepare and mail
checks, place wire transfers of credit income and capital gain
payments to shareholders. The Company will advise U.S. Trust of
the declaration of any dividend or distribution and the record
and payable date thereof at least five (5) days prior to the
record date. U.S. Trust will, on or before the payment date of
any such dividend or distribution, notify the Company's Custodian
of the estimated amount required to pay any portion of such
dividend or distribution payable in cash, and on or before the
payment date of such distribution, the Company will instruct its
Custodian to make available to U.S. Trust sufficient funds for
the cash amount to
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<PAGE>
be paid out. If a shareholder is entitled to receive additional
shares by virtue of any such distribution or dividend,
appropriate credits will be made to each shareholder's account.
(b) U.S. Trust will also:
(i) provide office facilities with respect to the provision of the
services contemplated herein (which may be in the offices of U.S. Trust or a
corporate affiliate of U.S. Trust);
(ii) provide the services of individuals to serve as officers of the
Company who will be designated by U.S. Trust and elected by the Board of
Directors subject to reasonable Board approval;
(iii) provide or otherwise obtain personnel sufficient, in
U.S. Trust's sole discretion, for provision of the services contemplated herein;
(iv) furnish equipment and other materials, which U.S. Trust, in its
sole discretion, believes are necessary or desirable for provision of the
services contemplated herein; and
(v) keep records relating to the services provided hereunder in
accordance with the 1940 Act and the rules thereunder. To the extent required
by the 1940 Act and the rules thereunder, U.S. Trust agrees that all such
records prepared or maintained by U.S. Trust relating to the services provided
hereunder are the property of the Company and will be preserved for the periods
prescribed under the 1940 Act and the rules
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<PAGE>
thereunder, maintained at the Company's expense, and made available in
accordance with such Act and rules. U.S. Trust further agrees to surrender
promptly to the Company upon its request and cease to retain in its records and
files those records and documents created and maintained by U.S. Trust pursuant
to this Agreement.
5. FEES; EXPENSES; EXPENSE REIMBURSEMENT.
(a) As compensation for the services rendered to the Company pursuant
to this Agreement, the Company shall pay U.S. Trust monthly $15.00 per account
and subaccount of each Fund of the Company per year or for any portion of a year
plus U.S. Trust's out-of-pocket expenses relating to such services, including,
but not limited to, expenses of postage, telephone, TWX rental and line charges,
communication forms, and checks and check processing. Such fees are to be
billed monthly and shall be due and payable upon receipt of the invoice. The
Company shall also pay U.S. Trust monthly any fees and expenses charged by any
sub-transfer agent other than CGFSC provided that the sub-transfer agent and the
fees and expenses charged by that sub-transfer agent have been approved by the
Company's Board of Directors. Upon any termination of this Agreement before the
end of any month, the fee for the part of the month before such termination
shall be prorated according to the proportion which such part bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement.
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<PAGE>
(b) For the purpose of determining fees calculated as a function of
the Company's assets, the value of the Company's assets and net assets shall be
computed as required by its Prospectuses, generally accepted accounting
principles, and resolutions of the Board of Directors.
(c) U.S. Trust may, in its sole discretion, from time to time employ
or associate with such person or persons as may be appropriate to assist U.S.
Trust in the performance of this Agreement. Such person or persons may be
officers and employees who are employed or designated as officers by both U.S.
Trust and the Company. The compensation of such person or persons for such
employment shall be paid by U.S. Trust and no obligation will be incurred by or
on behalf of the Company in such respect.
(d) The Company may request additional services, additional
processing, or special reports. The Company shall submit such requests in
writing together with such specifications and documentation as may be reasonably
required by U.S. Trust. If U.S. Trust elects to provide such services or
arrange for their provision, it shall be entitled to additional fees and
expenses at its customary rates and charges as approved by the Company's Board
of Directors.
(e) U.S. Trust will bear all of its own expenses in connection with
the performance of the services under this Agreement except as otherwise
expressly provided herein. The Company agrees to promptly reimburse U.S. Trust
for any equipment and supplies specially ordered by or for the Company through
U.S.
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<PAGE>
Trust, and for any other expenses not contemplated by this Agreement that U.S.
Trust may incur on the Company's behalf, as consented to by the Company from
time to time. Expenses to be incurred in the operation of the Company and to be
borne by the Company, include, but are not limited to: taxes; interest;
brokerage fees and commissions, salaries and fees of officers and directors who
are not officers, directors, shareholders or employees of U.S. Trust, or the
Company's investment adviser, or distributor or other service providers; SEC and
state Blue Sky registration and qualification fees, levies, fines and other
charges; EDGAR filing fees, processing services and related fees; advisory and
administration fees; charges and expenses of pricing and data services,
independent public accountants and custodians; insurance premiums including
fidelity bond premiums; legal expenses; costs of maintenance of corporate
existence; expenses of typesetting and printing of prospectuses for regulatory
purposes and for distribution to current shareholders of the Company (the
Company's distributor to bear the expense of all other printing, production, and
distribution of prospectuses, statements of additional information, and
marketing materials except as otherwise approved by the Board of Directors of
the Company); expenses of printing and production costs of shareholders' reports
and proxy statements and materials; costs and expenses of Fund stationery and
forms; costs and expenses of special telephone and data lines and devices; costs
associated with corporate, shareholder, and Board meetings; trade
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<PAGE>
association dues and expenses; and any extraordinary expenses and other
customary Fund expenses. In addition, U.S. Trust may utilize one or more
independent pricing services, approved from time to time by the Board, to obtain
securities prices and to act as backup to the primary pricing services, in
connection with determining the net asset values of the Company, and the Company
will reimburse U.S. Trust for the Company's share of the cost of such services
based upon the actual usage, or a pro rata estimate of the use, of the services
for the benefit of the Company.
(f) All fees, out-of-pocket expenses, or additional charges of U.S.
Trust shall be billed on a monthly basis and shall be due and payable upon
receipt of the invoice.
U.S. Trust will render, after the close of each month in which
services have been furnished, a statement reflecting all of the charges for such
month.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. U.S. Trust agrees on behalf
of itself and its employees to treat confidentially and as proprietary
information of the Company, all records and other information relative to the
Company's prior, present or potential shareholders, and to not use such records
and information for any purpose other than performance of U.S. Trust's
responsibilities and duties hereunder. U.S. Trust may seek a waiver of such
confidentiality provisions by furnishing reasonable prior notice to the Company
and obtaining approval in writing from the Company, which approval shall not be
unreasonably withheld and may not be withheld where U.S. Trust
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<PAGE>
may be exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities.
Waivers of confidentiality are automatically effective without further action by
U.S. Trust with respect to Internal Revenue Service levies, subpoenas and
similar actions, or with respect to any request by the Company.
7. DUTIES, RESPONSIBILITIES, AND LIMITATION OF LIABILITY.
(a) In the performance of its duties hereunder, U.S. Trust shall be
obligated to act in good faith in performing the services provided for under
this Agreement. In performing its services hereunder, U.S. Trust shall be
entitled to rely on any oral or written instructions, notices or other
communications, including electronic transmissions, from the Company and its
custodians, officers and directors, investors, agents and other service
providers which U.S. Trust reasonably believes to be genuine, valid and
authorized. U.S. Trust shall also be entitled to consult with and rely on the
advice and opinions of outside legal counsel retained by the Company, as
necessary or appropriate.
(b) Except as provided herein, U.S. Trust shall not be liable for any
error of judgment or mistake of law or for any loss or expense suffered by the
Company, in connection with the matters to which this Agreement relates, except
for a loss or expense caused by or resulting from willful misfeasance, bad faith
or negligence on U.S. Trust's part in the performance of its duties or from
reckless disregard by U.S. Trust of its
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<PAGE>
obligations and duties under this Agreement. Any person, even though also an
officer, director, partner, employee or agent of U.S. Trust, who may be or
become an officer, director, partner, employee or agent of the Company, shall be
deemed when rendering services to the Company in that capacity or acting on any
business of the Company in that capacity (other than services or business in
connection with U.S. Trust's duties hereunder) to be rendering such services to
or acting solely for the Company and not as an officer, director, partner,
employee or agent or person under the control or direction of U.S. Trust even
though paid by U.S. Trust.
(c) Subject to Paragraphs 7(b) and (d), U.S. Trust shall not be
responsible for, and the Company shall indemnify and hold U.S. Trust harmless
from and against, any and all losses, damages, costs, reasonable attorneys' fees
and expenses, payments, expenses and liabilities arising out of or attributable
to:
(i) all actions of U.S. Trust or its officers or agents
required to be taken pursuant to this Agreement;
(ii) the reliance on or use by U.S. Trust or its officers or agents of
information, records, or documents which are received by U.S. Trust or its
officers or agents and furnished to it or them by or on behalf of the Company,
and which have been prepared or maintained by the Company or any third party on
behalf of the Company other than U.S. Trust or any of its affiliates;
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(iii) the Company's refusal or failure to comply with the terms of
this Agreement or the Company's lack of good faith, or its actions, or lack
thereof, involving gross negligence or willful misfeasance;
(iv) the material breach of any representation or warranty of
the Company hereunder;
(v) the legal taping or other form of legal recording of telephone
conversations or other legal forms of electronic communications with investors
and shareholders, or reliance by U.S. Trust or its officers or agents on
telephone or other electronic instructions of any person acting on behalf of a
shareholder or shareholder account for which telephone or other electronic
services have been authorized;
(vi) the reliance on or the carrying out by U.S. Trust or its officers
or agents of any proper instructions reasonably believed to be duly authorized,
or requests of the Company or recognition by U.S. Trust or its officers or
agents of any share certificates which are reasonably believed to bear the
proper signatures of the officers of the Company and the proper countersignature
of any transfer agent or registrar of the Company;
(vii) any delays, inaccuracies, errors in or omissions from data
provided to U.S. Trust or its officers or agents by data and pricing services;
(viii) the offer or sale of shares by the Company in violation of
any requirement under the Federal securities laws
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or regulations or the securities laws or regulations of any state, or in
violation of any stop order or other determination or ruling by any Federal
agency or any state agency with respect to the offer or sale of such shares in
such state (1) resulting from activities, actions, or omissions by the Company
or its other service providers and agents other than U.S. Trust or its officers
or agents or any of their affiliates, or (2) existing or arising out of
activities, actions or omissions by or on behalf of the Company other than by
U.S. Trust or its officers or agents or any of their affiliates prior to the
effective date of this Agreement;
(ix) any failure of the Company's registration statement to comply
with the 1933 Act and the 1940 Act (including the rules and regulations
thereunder) and any other applicable laws, or any untrue statement of a material
fact or omission of a material fact necessary to make any statement therein not
misleading in a Fund's prospectus, unless such failure, misstatement or omission
relates to, results from or otherwise arises in connection with, actions,
inactions and/or information provided by U.S. Trust or its officers or agents;
and
(x) the actions taken by the Company, its investment adviser (other
than U.S. Trust or its officers or agents or any of their affiliates), and its
distributor in compliance with applicable securities, tax, commodities and other
laws, rules and regulations, or the failure to so comply.
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(d) Notwithstanding anything herein to the contrary, U.S. Trust shall
be as fully responsible to the Company for the acts and omissions of any sub-
transfer agent as U.S. Trust is for its own acts and omissions.
8. TERM. This Agreement shall become effective on the date first
hereinabove written. This Agreement may be modified or amended from time to
time by mutual agreement between the parties hereto. This Agreement shall
continue in effect unless terminated by either party on 120 days' prior written
notice provided that should U.S. Trust fail to be registered pursuant to Section
17A of the 1934 Act as a transfer agent at any time, the Company may, on written
notice to U.S. Trust, immediately terminate this Agreement. Upon termination of
this Agreement, the Company shall pay to U.S. Trust such compensation and any
out-of-pocket or other reimbursable expenses which may become due or payable
under the terms hereof as of the date of termination or after the date that the
provision of services ceases, whichever is later.
9. NOTICES. Any notice required or permitted hereunder shall be in
writing and shall be deemed to have been given when delivered in person or by
certified mail, return receipt requested, to the parties at the following
address (or such other address as a party may specify by notice to the other):
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If to the Company:
Drinker Biddle & Reath
1345 Chestnut Street, Suite 1100
Philadelphia, PA 19107
Attn: W. Bruce McConnel, III
Fax: (215) 988-2757
If to U.S. Trust:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Attention: Maureen Scannell Bateman
Fax: (212) 852-1310
Notice shall be effective upon receipt if by mail, on the date of personal
delivery (by private messenger, courier service or otherwise) or upon confirmed
receipt of telex or facsimile, whichever occurs first.
10. ASSIGNMENT AND DELEGATION. This Agreement shall not be assigned and
the rights, duties and obligations of the parties hereunder may not be
subcontracted or delegated by either of the parties hereto without the prior
consent in writing of the other party.
11. WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
12. FORCE MAJEURE. U.S. Trust shall not be responsible or liable for any
failure or delay in performance of its obligations under this Agreement arising
out of or caused, directly or
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indirectly, by circumstances beyond its control, including without limitation,
acts of God, earthquakes, fires, floods, wars, acts of civil or military
authorities, or governmental actions, nor shall any such failure or delay give
the Company the right to terminate this Agreement. During the term of this
Agreement, at no additional cost to the Company, U.S. Trust shall provide a
facility capable of safeguarding the transfer agency and dividend disbursing
records of the Company in case of damage to the primary facility providing those
services (the "Back-Up Facility"). Transfer of the transfer agency and dividend
records of the Company to the Back-Up Facility shall be at U.S. Trust's expense,
shall commence immediately after damage to the primary facility results in an
inability to provide the transfer agency and dividend disbursing services, and
shall be completed within 72 hours of commencement. After the primary facility
has recovered, U.S. Trust shall again utilize it to provide the transfer agency
and dividend disbursing services to the Company at no additional cost to the
Company. U.S. Trust shall use reasonable efforts to provide the services
described in this Agreement from the Back-Up Facility.
13. USE OF NAME. The Company and U.S. Trust agree not to use the other's
name nor the names of such other's affiliates, designees, or assignees in any
prospectus, sales literature, or other printed material written in a manner not
previously approved by the other or such other's affiliates, designees, or
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assignees except where required by the SEC or other regulatory authorities.
14. AMENDMENTS. This Agreement may be modified or amended from time to
time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
15. SEVERABILITY. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE
LAWS OF THE STATE OF NEW YORK, INCLUDING THE DETERMINATION OF WHEN AN
"ASSIGNMENT" HAS OCCURRED.
This Agreement may be executed in one or more counterparts and all
such counterparts will constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the date first written
above.
UST MASTER TAX-EXEMPT FUNDS, INC.
By:___________________________
Name: Alfred Tannachion
Title: President
UNITED STATES TRUST COMPANY
OF NEW YORK
By:___________________________
Name:_________________________
Title:________________________
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Exhibit 9(d)
MUTUAL FUNDS SUB-TRANSFER AGENCY AGREEMENT
AGREEMENT made as of September 1, 1995 by and between United States
Trust Company of New York ("U.S. Trust"), and Chase Global Funds Services
Company ("Sub-Transfer Agent").
W I T N E S S E T H:
WHEREAS, UST Master Tax-Exempt Funds, Inc. (the "Company") a Maryland
corporation, is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Company is authorized to issue shares of Common Stock in
separate series and classes representing interests in separate portfolios of
securities and other assets;
WHEREAS, the Company has retained U.S. Trust to serve as the Company's
transfer agent, registrar and dividend disbursing agent;
WHEREAS, U.S. Trust desires to assign its duties and obligations with
respect to the provision of such services to Sub-Transfer Agent, and the Company
has acknowledged the right of U.S. Trust to make such assignment provided U.S.
Trust shall be as fully responsible to the Company for the acts and omissions of
Sub-Transfer Agent as U.S. Trust is for its own acts and omissions;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
<PAGE>
1. APPOINTMENT. U.S. Trust hereby appoints Sub-Transfer Agent to serve
as sub-transfer agent, sub-registrar and sub-dividend disbursing agent for each
class and/or series of Common Stock of the Company with respect to its existing
Funds (as hereinafter defined) for the period and on the terms set forth in this
Agreement. In the event that the Company establishes additional classes or
series other than the Common Stock of the Funds covered by this Agreement with
respect to which U.S. Trust desires to retain Sub-Transfer Agent to serve as
sub-transfer agent, sub-registrar and sub-dividend disbursing agent hereunder,
U.S. Trust shall notify Sub-Transfer Agent in writing, whereupon such fund shall
become a Fund hereunder and shall be subject to the provisions of this Agreement
to the same extent as the Funds (except to the extent that said provisions,
including the compensation payable on behalf of such new Fund, may be modified
in writing by U.S. Trust and Sub-Transfer Agent at the time). Sub-Transfer
Agent accepts such appointment and agrees to furnish the services herein set
forth in return for the compensation as provided in Paragraph 5 of this
Agreement.
2. REPRESENTATIONS AND WARRANTIES.
(a) U.S. Trust and Sub-Transfer Agent represent and warrant to each
other that:
(i) it is empowered under applicable laws and by its charter
and by-laws to enter into and perform this Agreement;
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<PAGE>
(ii) all requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement;
(iii) it is duly registered as a transfer agent under Section 17A
of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Each shall
promptly give written notice to the other and the Company in the event that its
registration is revoked or a proceeding is commenced that could result in such
revocation;
(iv) it has been in, and shall continue to be in, compliance with all
provisions of law, including Section 17A(c) of the 1934 Act, required in
connection with the performance of its duties under this Agreement;
(v) it has, and will continue to have, access to the facilities,
personnel and equipment required to fully perform its duties and obligations
hereunder;
(vi) no legal or administrative proceedings have been instituted or
threatened which would impair its ability to perform its duties and obligations
under this Agreement; and
(vii) its entrance into this Agreement shall not cause a material
breach or be in material conflict with any other agreement or obligation of it
or any law or regulation applicable to it;
U.S. Trust represents and warrants to Sub-Transfer Agent that:
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<PAGE>
(i) U.S. Trust is a state chartered bank and trust company
organized and existing under the laws of the State of New York;
(c) Sub-Transfer Agent represents and warrants to U.S. Trust that:
(i) Sub-Transfer Agent is a Delaware corporation, duly organized and
existing and in good standing under the laws of Delaware;
3. DELIVERY OF DOCUMENTS. U.S. Trust has furnished Sub-Transfer Agent
with copies properly certified or authenticated of each of the following:
(a) Resolutions of the Company's Board of Directors authorizing the
appointment of U.S. Trust as transfer agent, registrar and dividend disbursing
agent for each class and/or series of Common Stock of the Company and approving
the Mutual Funds Transfer Agency Agreement made as of September 1, 1995 by and
between the Company and U.S. Trust;
(b) Incumbency and signature certificates identifying and containing
the signatures of the Company's officers and/or the persons authorized to sign
Written Instructions, as hereafter defined, on behalf of the Company;
(c) The Company's Charter;
(d) The Company's By-Laws;
(e) Resolutions of the Company's Board of Directors appointing U.S.
Trust as the investment adviser to the Company's Tax-Exempt Money, Intermediate-
Term Tax-Exempt, Long-Term Tax-
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<PAGE>
Exempt, New York Intermediate-Term Tax-Exempt, California Intermediate-Term Tax-
Exempt and Short-Term Tax-Exempt Securities Funds (herein "the Funds") and
resolutions of the Company's Board of Directors and Fund shareholders
("Shareholders") approving an Investment Advisory Agreement between U.S. Trust
and the Company dated as of February 6, 1985, as amended; and an Investment
Advisory Agreement between U.S. Trust and the Company dated as of May 11, 1990,
as amended (the "Advisory Agreements");
(f) Resolutions of the Company's Board of Directors appointing
Edgewood Services, Inc. (the "Distributor") as the Company's distributor for the
Funds and approving a proposed Distribution Agreement between the Distributor
and the Company dated as of August 1, 1995 (the "Distribution Agreement");
(g) Resolutions of the Company's Board of Directors appointing
Federated Administrative Services ("Federated") as the administrator for the
Funds and approving a proposed Administration Agreement between Federated and
the Company dated as of August 1, 1995 (the "Administration Agreement");
(h) The Advisory Agreements, the Distribution Agreement and the
Administration Agreement;
(i) The Company's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A with the Securities and Exchange
Commission ("SEC") on August 31, 1984;
(j) Post-Effective Amendment No. 18 to the Company's Registration
Statement on Form N-1A under the 1940 Act and the 1933 Act, as filed with the
SEC on August 1, 1995 (File No. 2-
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<PAGE>
93068) relating to shares of the Company's Class A Common Stock, $.001 par value
per share, which represent interests in the Tax-Exempt Money Fund; Class B
Common Stock, $.001 par value per share, which represent interests in the
Intermediate-Term Tax-Exempt Fund; Class C Common Stock, $.001 par value per
share, which represent interests in the Long-Term Tax-Exempt Fund; Class D
Common Stock, $.001 par value per share, which represent interests in the New
York Intermediate-Term Tax-Exempt Fund; Class E Common Stock, $.001 par value
per share, which represent interests in the California Intermediate-Term Tax-
Exempt Fund; and Class F Common Stock, $.001 par value per share, which
represent interests in the Short-Term Tax-Exempt Securities Fund; (such shares
and shares of the Company hereafter classified by the Company's Board of
Directors are hereinafter collectively called "Shares"), and all amendments
thereto; and
(k) The Company's most recent prospectuses (such prospectuses, as
currently in effect, and all amendments and supplements thereto and future
versions thereof are herein called the "Prospectuses").
U.S. Trust will furnish Sub-Transfer Agent from time to time with
copies of all amendments of or supplements to the foregoing, if any, and with
comparable documents with respect to any Fund of the Company organized after the
date of this Agreement that is covered by this Agreement. U.S. Trust shall also
deliver to Sub-Transfer Agent the following documents on or before the effective
date of any increase or decrease in the
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<PAGE>
total number of Shares authorized to be issued by the Company: (a) a certified
copy of the amendment of the Articles of Incorporation giving effect to such
increase or decrease, and (b) in the case of an increase, if the appointment of
U.S. Trust was theretofore expressly limited, a certified copy of a resolution
of the Board of Directors of the Company increasing the authority of U.S. Trust.
4. SERVICES PROVIDED
(a) Sub-Transfer Agent will provide the following services subject to
the control, direction and supervision of U.S. Trust and in compliance with the
objectives, policies and limitations set forth in the Company's Registration
Statement, Charter and By-Laws; applicable laws and regulations; and all
resolutions and policies implemented by the Board of Directors.
The following is a general description of the transfer agency services
Sub-Transfer Agent shall provide to the Company.
A. SHAREHOLDER RECORDKEEPING. Maintain records showing for each
Fund shareholder the following: (i) name, address, appropriate
tax certification and tax identifying number; (ii) number of
shares of each Fund; (iii) historical information including, but
not limited to, dividends paid and date and price of all
transactions including individual purchase and redemptions and
appropriate supporting documents; and (iv) any dividend
reinvestment order, application, dividend
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<PAGE>
to a specific address and correspondence relating to the current
maintenance of the account.
B. SHARE ISSUANCE. Record the issuance of shares of each Fund.
Except as specifically agreed in writing between U.S. Trust and
Sub-Transfer Agent, Sub-Transfer Agent shall have no obligation
when countersigning and issuing and/or crediting shares to take
cognizance of any other laws relating to the issue and sale of
such shares except insofar as policies and procedures of the
Stock Transfer Association recognize such laws. Sub-Transfer
Agent shall notify U.S. Trust and the Company in case any
proposed issue of shares by the Company shall result in an over-
issuance. In case any issue of shares would result in such an
over-issue, Sub-Transfer Agent shall refuse to issue said shares
and shall not countersign and issue certificates (if any) for
such shares.
C. PURCHASE ORDERS. Process all orders for the purchase of shares
of the Company in accordance with the Company's Prospectuses,
including electronic transmissions, which the Company has
acknowledged it has authorized. Upon receipt of any check or
other payment for purchase of shares
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<PAGE>
of the Company from an investor, Sub-Transfer Agent will (i)
stamp the order or other documentation with the date and time of
receipt, (ii) forthwith process the same for collection, (iii)
determine the amounts thereof due the Company, and notify U.S
Trust and the Company of such determination and deposit, such
notification to be given on a daily basis of the total amounts
determined and deposited to the Company's custodian bank account
during such day. Sub-Transfer Agent shall then credit the share
account of the investor with the number of Fund shares to be
purchased made on the date such payment is received by Sub-
Transfer Agent, as set forth in the Company's Prospectus and
shall promptly mail a confirmation of said purchase to the
investor, all subject to any instructions which the Company or
U.S. Trust may give to Sub-Transfer Agent with respect to the
timing or manner of acceptance of orders for shares relating to
payments so received by it. Any purchase order received by Sub-
Transfer Agent, which is not in good order will be rejected
immediately.
D. REDEMPTION ORDERS. Receive and stamp with the date and time of
receipt all requests for redemptions or repurchase of shares held
in
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<PAGE>
certificate or non-certificate form, and process redemptions and
repurchase requests as follows: (i) if such certificate or
redemption request complies with the applicable standards
approved by the Company, Sub-Transfer Agent shall on each
business day notify the Company of the total number of shares
presented and covered by such requests received by Sub-Transfer
Agent on such day; (ii) within the time specified in the
Prospectus and if not so specified on or prior to the seventh
calendar day succeeding any such requests received by Sub-
Transfer Agent, shall notify The Chase Manhattan Bank, N.A. (the
"Custodian"), subject to instructions from the Company or U.S.
Trust, to transfer monies to such account as designated by Sub-
Transfer Agent for such payment to the redeeming shareholder of
the applicable redemption or repurchase price; (iii) if any such
certificate or request for redemption of repurchase does not
comply with applicable standards, Sub-Transfer Agent shall
promptly notify the investor of such fact, together with the
reason therefor, and shall effect such redemption at the
Company's price next determined after receipt of documents
complying with said standards.
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<PAGE>
E. TELEPHONE ORDERS. Process redemptions, exchanges and transfers
of Fund shares upon telephone instructions from qualified
shareholders in accordance with the procedures set forth in the
Company's Prospectuses. The administrator shall be permitted to
redeem, exchange and/or transfer Fund shares from any account for
which such services have been authorized, including electronic
transmissions.
F. TRANSFER OF SHARES. Upon receipt by Sub-Transfer Agent of
documentation in proper form to effect a transfer of shares,
including in the case of shares for which certificates have been
issued the share certificates in proper form for transfer, Sub-
Transfer Agent will register such transfer on the Company's
shareholder records maintained by Sub-Transfer Agent pursuant to
instructions received from the transferor, cancel the
certificates representing such shares, if any, and if so
requested, countersign, register, issue and mail by first class
mail new certificates for the same or a smaller whole number of
shares.
G. SHAREHOLDER COMMUNICATIONS. Address and mail all communications
by the Company to its shareholders promptly following the
delivery by the Company or U.S. Trust of the material to be
mailed.
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<PAGE>
H. PROXY MATERIALS. Prepare shareholder lists, mail and certify as
to the mailing of proxy materials, receive the tabulated proxy
cards, render periodic reports to the Company and U.S. Trust on
the progress of such tabulation, and provide the Company with
inspectors of election at any meeting of shareholders.
I. SHARE CERTIFICATES. If a shareholder of the Company requests a
certificate representing his shares, Sub-Transfer Agent as sub-
transfer agent will countersign and mail, a share certificate to
the investor at his/her address as it appears on the Company's
transfer books. Sub-Transfer Agent shall supply, at the expense
of the Company a supply of blank share certificates. The
certificates shall be properly signed, manually or by facsimile,
as authorized by the Company, and shall bear the Company's seal
or facsimile; and notwithstanding the death, resignation or
removal of any officers of the Company authorized to sign
certificates, Sub-Transfer Agent may, until otherwise directed by
the Company or U.S. Trust, continue to countersign certificates
which bear the manual or facsimile signature of such officer.
J. RETURNED CHECKS. In the event that any check or other order for
the payment of money is returned
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<PAGE>
unpaid for any reason, Sub-Transfer Agent will take such steps,
including redepositing the check for collection or returning the
check to the investor, as Sub-Transfer Agent may, at its
discretion, deem appropriate and notify the Company and U.S.
Trust of such action, or as the Company or U.S. Trust may
instruct. However, subject to Paragraph 7(b) below, the Company
remains ultimately liable for any returned checks of its
shareholders.
K. SHAREHOLDER CORRESPONDENCE. Acknowledge all correspondence from
shareholders relating to their share accounts and undertake such
other shareholder correspondence as may from time to time be
mutually agreed upon.
L. TAX REPORTING. Sub-Transfer Agent shall issue appropriate
shareholder tax forms on an annual basis.
M. DIVIDEND DISBURSING. Sub-Transfer Agent will serve as the
Company's dividend disbursing agent. Sub-Transfer Agent will
prepare and mail checks, place wire transfers of credit income
and capital gain payments to shareholders. The Company or U.S.
Trust will advise Sub-Transfer Agent of the declaration of any
dividend or distribution and the record and payable date thereof
at least five
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<PAGE>
(5) days prior to the record date. Sub-Transfer Agent will, on
or before the payment date of any such dividend or distribution,
notify the Company's Custodian of the estimated amount required
to pay any portion of such dividend or distribution payable in
cash, and on or before the payment date of such distribution, the
Company will instruct its Custodian to make available to Sub-
Transfer Agent sufficient funds for the cash amount to be paid
out. If a shareholder is entitled to receive additional shares
by virtue of any such distribution or dividend, appropriate
credits will be made to each shareholder's account.
(b) Sub-Transfer Agent will also:
(i) provide office facilities with respect to the provision of the
services contemplated herein (which may be in the offices of Sub-Transfer Agent
or a corporate affiliate of Sub-Transfer Agent);
(ii) provide the services of individuals to serve as officers of the
Company who will be designated by Sub-Transfer Agent and elected by the
Company's Board of Directors subject to reasonable Board approval;
(iii) provide or otherwise obtain personnel sufficient, in
Sub-Transfer Agent's sole discretion, for provision of the services contemplated
herein;
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<PAGE>
(iv) furnish equipment and other materials, which Sub-Transfer Agent,
in its sole discretion, believes are necessary or desirable for provision of the
services contemplated herein; and
(v) keep records relating to the services provided hereunder in
accordance with the 1940 Act and the rules thereunder. To the extent required
by the 1940 Act and the rules thereunder, Sub-Transfer Agent agrees that all
such records prepared or maintained by Sub-Transfer Agent relating to the
services provided hereunder are the property of the Company and will be
preserved for the periods prescribed under the 1940 Act and the rules
thereunder, maintained at the Company's expense, and made available in
accordance with such Act and rules. Sub-Transfer Agent further agrees to
surrender promptly to the Company upon its request and cease to retain in its
records and files those records and documents created and maintained by Sub-
Transfer Agent pursuant to this Agreement.
5. FEES; EXPENSES; EXPENSE REIMBURSEMENT.
(a) As compensation for the services rendered to the Company for U.S.
Trust pursuant to this Agreement, U.S. Trust shall pay Sub-Transfer Agent
monthly $15.00 per account and subaccount of each Fund of the Company per year
or for any portion of a year plus Sub-Transfer Agent's out-of-pocket expenses
relating to such services, including, but not limited to, expenses of postage,
telephone, TWX rental and line charges, communication forms, and checks and
check processing. Such fees
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<PAGE>
are to be billed monthly and shall be due and payable upon receipt of the
invoice. Upon any termination of this Agreement before the end of any month,
the fee for the part of the month before such termination shall be prorated
according to the proportion which such part bears to the full monthly period and
shall be payable upon the date of termination of this Agreement.
(b) For the purpose of determining fees calculated as a function of
the Company's assets, the value of the Company's assets and net assets shall be
computed as required by its Prospectuses, generally accepted accounting
principles, and resolutions of the Board of Directors.
(c) Sub-Transfer Agent may, in its sole discretion, from time to time
employ or associate with such person or persons as may be appropriate to assist
Sub-Transfer Agent in the performance of this Agreement. Such person or persons
may be officers and employees who are employed or designated as officers by both
Sub-Transfer Agent and the Company. The compensation of such person or persons
for such employment shall be paid by Sub-Transfer Agent and no obligation will
be incurred by or on behalf of the Company or U.S. Trust in such respect.
(d) U.S. Trust may request additional services, additional processing,
or special reports. U.S. Trust shall submit such requests in writing together
with such specifications and documentation as may be reasonably required by Sub-
Transfer Agent. If Sub-Transfer Agent elects to provide such services or
arrange for their provision, it shall be entitled to additional
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<PAGE>
fees and expenses at its customary rates and charges as approved by U.S. Trust.
(e) Sub-Transfer Agent will bear all of its own expenses in connection
with the performance of the services under this Agreement except as otherwise
expressly provided herein. U.S. Trust agrees to promptly reimburse Sub-Transfer
Agent for any equipment and supplies specially ordered by or for the Company
through Sub-Transfer Agent, and for any other expenses not contemplated by this
Agreement that Sub-Transfer Agent may incur on the Company's behalf, as
consented to by U.S. Trust and the Company from time to time. Expenses to be
incurred in the operation of the Company and to be borne by the Company,
include, but are not limited to: taxes; interest; brokerage fees and
commissions, salaries and fees of officers and directors who are not officers,
directors, shareholders or employees of U.S. Trust, or the Company's investment
adviser, or distributor or other service providers; SEC and state Blue Sky
registration and qualification fees, levies, fines and other charges; EDGAR
filing fees, processing services and related fees; advisory and administration
fees; charges and expenses of pricing and data services, independent public
accountants and custodians; insurance premiums including fidelity bond premiums;
legal expenses; costs of maintenance of corporate existence; expenses of
typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Company (the Company's distributor
to bear the expense of all
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other printing, production, and distribution of prospectuses, statements of
additional information, and marketing materials except as otherwise approved by
the Board of Directors of the Company); expenses of printing and production
costs of shareholders' reports and proxy statements and materials; costs and
expenses of Fund stationery and forms; costs and expenses of special telephone
and data lines and devices; costs associated with corporate, shareholder, and
Board meetings; trade association dues and expenses; and any extraordinary
expenses and other customary Fund expenses. In addition, Sub-Transfer Agent may
utilize one or more independent pricing services, approved from time to time by
the Board, to obtain securities prices and to act as backup to the primary
pricing services, in connection with determining the net asset values of the
Company, and U.S. Trust will reimburse Sub-Transfer Agent for the Company's
share of the cost of such services based upon the actual usage, or a pro rata
estimate of the use, of the services for the benefit of the Company.
(f) All fees, out-of-pocket expenses, or additional charges of Sub-
Transfer Agent shall be billed on a monthly basis and shall be due and payable
upon receipt of the invoice.
Sub-Transfer Agent will render, after the close of each month in which
services have been furnished, a statement reflecting all of the charges for such
month.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. Sub-Transfer Agent agrees
on behalf of itself and its employees to treat
-18-
<PAGE>
confidentially and as proprietary information of the Company, all records and
other information relative to the Company's prior, present or potential
shareholders, and to not use such records and information for any purpose other
than performance of Sub-Transfer Agent's responsibilities and duties hereunder.
Sub-Transfer Agent may seek a waiver of such confidentiality provisions by
furnishing reasonable prior notice to the Company and obtaining approval in
writing from the Company, which approval shall not be unreasonably withheld and
may not be withheld where Sub-Transfer Agent may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities. Waivers of confidentiality are
automatically effective without further action by Sub-Transfer Agent with
respect to Internal Revenue Service levies, subpoenas and similar actions, or
with respect to any request by the Company.
7. DUTIES, RESPONSIBILITIES, AND LIMITATION OF LIABILITY.
(a) In the performance of its duties hereunder, Sub-Transfer Agent
shall be obligated to act in good faith in performing the services provided for
under this Agreement. In performing its services hereunder, Sub-Transfer Agent
shall be entitled to rely on any oral or written instructions, notices or other
communications, including electronic transmissions, from the Company and its
custodians, officers and directors, investors, agents and other service
providers which Sub-Transfer Agent reasonably believes to be genuine, valid and
authorized.
-19-
<PAGE>
Sub-Transfer Agent shall also be entitled to consult with and rely on the advice
and opinions of outside legal counsel retained by the Company, as necessary or
appropriate.
(b) Sub-Transfer Agent shall not be liable for any error of judgment
or mistake of law or for any loss or expense suffered by the Company or U.S.
Trust, in connection with the matters to which this Agreement relates, except
for a loss or expense caused by or resulting from willful misfeasance, bad faith
or negligence on Sub-Transfer Agent's part in the performance of its duties or
from reckless disregard by Sub-Transfer Agent of its obligations and duties
under this Agreement. Any person, even though also an officer, director,
partner, employee or agent of Sub-Transfer Agent, who may be or become an
officer, director, partner, employee or agent of the Company, shall be deemed
when rendering services to the Company in that capacity or acting on any
business of the Company in that capacity (other than services or business in
connection with Sub-Transfer Agent's duties hereunder) to be rendering such
services to or acting solely for the Company and not as an officer, director,
partner, employee or agent or person under the control or direction of Sub-
Transfer Agent even though paid by Sub-Transfer Agent.
(c) Subject to Paragraphs 7(b) and (d), Sub-Transfer Agent shall not
be responsible for, and U.S. Trust shall indemnify and hold Sub-Transfer Agent
harmless from and against, any and all losses, damages, costs, reasonable
attorneys' fees
-20-
<PAGE>
and expenses, payments, expenses and liabilities arising out of or attributable
to:
(i) all actions of Sub-Transfer Agent or its officers or
agents required to be taken pursuant to this Agreement;
(ii) the reliance on or use by Sub-Transfer Agent or its officers or
agents of information, records, or documents which are received by Sub-Transfer
Agent or its officers or agents and furnished to it or them by or on behalf of
the Company, and which have been prepared or maintained by the Company or any
third party on behalf of the Company other than Sub-Transfer Agent or any of its
affiliates;
(iii) U.S. Trust's refusal or failure to comply with the terms of
this Agreement or U.S. Trust's lack of good faith, or its actions, or lack
thereof, involving gross negligence or willful misfeasance;
(iv) the material breach of any representation or warranty of
U.S. Trust hereunder;
(v) the legal taping or other form of legal recording of telephone
conversations or other legal forms of electronic communications with investors
and shareholders, or reliance by Sub-Transfer Agent or its officers or agents on
telephone or other electronic instructions of any person acting on behalf of a
shareholder or shareholder account for which telephone or other electronic
services have been authorized;
-21-
<PAGE>
(vi) the reliance on or the carrying out by Sub-Transfer Agent or its
officers or agents of any proper instructions reasonably believed to be duly
authorized, or requests of U.S. Trust or the Company or recognition by Sub-
Transfer Agent or its officers or agents of any share certificates which are
reasonably believed to bear the proper signatures of the officers of the Company
and the proper countersignature of any transfer agent or registrar of the
Company;
(vii) any delays, inaccuracies, errors in or omissions from data
provided to Sub-Transfer Agent or its officers or agents by data and pricing
services;
(viii) the offer or sale of shares by the Company in violation of
any requirement under the Federal securities laws or regulations or the
securities laws or regulations of any state, or in violation of any stop order
or other determination or ruling by any Federal agency or any state agency with
respect to the offer or sale of such shares in such state (1) resulting from
activities, actions, or omissions by the Company or its other service providers
and agents other than Sub-Transfer Agent or its officers or agents or any of
their affiliates, or (2) existing or arising out of activities, actions or
omissions by or on behalf of the Company other than by Sub-Transfer Agent or its
officers or agents or any of their affiliates prior to the effective date of
this Agreement;
-22-
<PAGE>
(ix) any failure of the Company's registration statement to comply
with the 1933 Act and the 1940 Act (including the rules and regulations
thereunder) and any other applicable laws, or any untrue statement of a material
fact or omission of a material fact necessary to make any statement therein not
misleading in a Fund's prospectus, unless such failure, misstatement or omission
relates to, results from or otherwise arises in connection with, actions,
inactions and/or information provided by Sub-Transfer Agent or its officers or
agents; and
(x) the actions taken by the Company, its investment adviser, and its
distributor in compliance with applicable securities, tax, commodities and other
laws, rules and regulations, or the failure to so comply.
(d) Notwithstanding anything herein to the contrary, U.S. Trust shall
be as fully responsible to the Company for the acts and omissions of any sub-
transfer agent as U.S. Trust is for its own acts and omissions.
8. TERM. This Agreement shall become effective on the date first
hereinabove written. This Agreement may be modified or amended from time to
time by mutual agreement between the parties hereto. This Agreement shall
continue in effect unless terminated by either party on 120 days' prior written
notice provided that should Sub-Transfer Agent fail to be registered pursuant to
Section 17A of the 1934 Act as a transfer agent at any time, the Company or U.S.
Trust may, on written notice to Sub-Transfer Agent, immediately terminate this
Agreement. Upon
-23-
<PAGE>
termination of this Agreement, U.S. Trust shall pay to Sub-Transfer Agent such
compensation and any out-of-pocket or other reimbursable expenses which may
become due or payable under the terms hereof as of the date of termination or
after the date that the provision of services ceases, whichever is later.
9. NOTICES. Any notice required or permitted hereunder shall be in
writing and shall be deemed to have been given when delivered in person or by
certified mail, return receipt requested, to the parties at the following
address (or such other address as a party may specify by notice to the other):
If to the Company:
Drinker Biddle & Reath
1345 Chestnut Street, Suite 1100
Philadelphia, PA 19107
Attn: W. Bruce McConnel, III
Fax: (215) 988-2757
If to U.S. Trust:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Attention: Maureen Scannell Bateman
Fax: (212) 852-1310
If to Sub-Transfer Agent:
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108-3913
Attention: Karl O. Hartmann
Fax: (617) 557-8616
Notice shall be effective upon receipt if by mail, on the date of personal
delivery (by private messenger, courier service or otherwise) or upon confirmed
receipt of telex or facsimile, whichever occurs first.
-24-
<PAGE>
10. ASSIGNMENT AND DELEGATION. This Agreement shall not be assigned and
the rights, duties and obligations of the parties hereunder may not be
subcontracted or delegated by either of the parties hereto without the prior
consent in writing of the other party.
11. WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
12. FORCE MAJEURE. Sub-Transfer Agent shall not be responsible or liable
for any failure or delay in performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
control, including without limitation, acts of God, earthquakes, fires, floods,
wars, acts of civil or military authorities, or governmental actions, nor shall
any such failure or delay give the Company the right to terminate this
Agreement. During the term of this Agreement, at no additional cost to the
Company or U.S. Trust, Sub-Transfer Agent shall provide a facility capable of
safeguarding the transfer agency and dividend disbursing records of the Company
in case of damage to the primary facility providing those services (the "Back-Up
Facility"). Transfer of the transfer agency and dividend records of the Company
to the Back-Up Facility shall be at Sub-Transfer Agent's expense, shall
-25-
<PAGE>
commence immediately after damage to the primary facility results in an
inability to provide the transfer agency and dividend disbursing services, and
shall be completed within 72 hours of commencement. After the primary facility
has recovered, Sub-Transfer Agent shall again utilize it to provide the transfer
agency and dividend disbursing services to the Company at no additional cost to
the Company. Sub-Transfer Agent shall use reasonable efforts to provide the
services described in this Agreement from the Back-Up Facility.
13. USE OF NAME. Sub-Transfer Agent and U.S. Trust agree not to use the
other's name nor the name of the Company nor the names of such other's nor the
Company's affiliates, designees, or assignees in any prospectus, sales
literature, or other printed material written in a manner not previously
approved by the other or the Company or such other's or the Company's
affiliates, designees, or assignees except where required by the SEC or other
regulatory authorities.
14. AMENDMENTS. This Agreement may be modified or amended from time to
time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
15. SEVERABILITY. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any
-26-
<PAGE>
person or circumstance it shall nevertheless remain applicable to all other
persons and circumstances.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE
LAWS OF THE STATE OF NEW YORK, INCLUDING THE DETERMINATION OF WHEN AN
"ASSIGNMENT" HAS OCCURRED.
17. THIRD PARTY BENEFICIARY. U.S. Trust and Sub-Transfer Agent expressly
agree that the Company is a third party beneficiary hereof and expressly agree
that the Company may enforce the provisions hereof.
This Agreement may be executed in one or more counterparts and all
such counterparts will constitute one and the same instrument.
-27-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the date first written
above.
CHASE GLOBAL FUNDS SERVICES
COMPANY
By:___________________________
Name:_________________________
Title:________________________
UNITED STATES TRUST COMPANY
OF NEW YORK
By:___________________________
Name:_________________________
Title:________________________
-28-
<PAGE>
EXHIBIT 11(a)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our Firm
under the caption "Counsel" in the Statements of Additional Information that are
included in Post-Effective Amendment Nos. 23 and 25 to the Registration
Statement (Nos. 2-93068; 811-4101) on Form N-1A of Excelsior Tax-Exempt Funds,
Inc. under the Securities Act of 1933 and the Investment Company Act of 1940,
respectively. This consent does not constitute a consent under Section 7 of the
Securities Act of 1933, and in consenting to the use of our name and the
references to our Firm under such caption we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 or the rules and regulations
of the Securities and Exchange Commission thereunder.
/s/ DRINKER BIDDLE & REATH LLP
--------------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
July 31, 1997
<PAGE>
Exhibit 11(b)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in each Prospectus and "Financial Statements" and "Independent
Auditors" in each Statement of Additional Information and to the incorporation
by reference in Post-Effective Amendment Number 23 to the Registration Statement
(Form N-1A No. 2-93068/811-4101) of Excelsior Tax-Exempt Funds, Inc. of our
report dated May 9, 1997 on the financial statements and financial highlights
included in the 1997 Annual Report to Shareholders.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
July 30, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MONEY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 498,790
<INVESTMENTS-AT-VALUE> 498,790
<RECEIVABLES> 1,476
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 10
<TOTAL-ASSETS> 500,276
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,210
<TOTAL-LIABILITIES> 2,210
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 498,137
<SHARES-COMMON-STOCK> 498,294
<SHARES-COMMON-PRIOR> 394,516
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (71)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 498,066
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22,019
<OTHER-INCOME> 0
<EXPENSES-NET> (1,946)
<NET-INVESTMENT-INCOME> 20,073
<REALIZED-GAINS-CURRENT> (4)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 20,069
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (20,073)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,009,771
<NUMBER-OF-SHARES-REDEEMED> (1,908,410)
<SHARES-REINVESTED> 2,417
<NET-CHANGE-IN-ASSETS> 103,781
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (67)
<GROSS-ADVISORY-FEES> 1,025
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,161
<AVERAGE-NET-ASSETS> 410,093
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.049
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.049)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> SHORT-TERM TAX-EXEMPT SECURITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 40,682
<INVESTMENTS-AT-VALUE> 40,697
<RECEIVABLES> 552
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5
<TOTAL-ASSETS> 41,254
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 176
<TOTAL-LIABILITIES> 176
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 41,700
<SHARES-COMMON-STOCK> 5,841
<SHARES-COMMON-PRIOR> 6,099
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (637)
<ACCUM-APPREC-OR-DEPREC> 15
<NET-ASSETS> 41,078
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,778
<OTHER-INCOME> 0
<EXPENSES-NET> (240)
<NET-INVESTMENT-INCOME> 1,538
<REALIZED-GAINS-CURRENT> 7
<APPREC-INCREASE-CURRENT> (66)
<NET-CHANGE-FROM-OPS> 1,479
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,557)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,617
<NUMBER-OF-SHARES-REDEEMED> (2,891)
<SHARES-REINVESTED> 16
<NET-CHANGE-IN-ASSETS> (1,892)
<ACCUMULATED-NII-PRIOR> 19
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (644)
<GROSS-ADVISORY-FEES> 124
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 268
<AVERAGE-NET-ASSETS> 41,253
<PER-SHARE-NAV-BEGIN> 7.05
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> (0.01)
<PER-SHARE-DIVIDEND> (0.27)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.03
<EXPENSE-RATIO> 0.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000752322
<NAME> EXCELSIOR TAX-EXEMPT FUNDS INC.
<SERIES>
<NUMBER> 2
<NAME> INTERMEDIATE-TERM TAX-EXEMPT FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 235,116
<INVESTMENTS-AT-VALUE> 241,638
<RECEIVABLES> 3,632
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 9
<TOTAL-ASSETS> 245,279
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,229
<TOTAL-LIABILITIES> 1,229
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 242,372
<SHARES-COMMON-STOCK> 26,788
<SHARES-COMMON-PRIOR> 27,966
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (4,844)
<ACCUM-APPREC-OR-DEPREC> 6,522
<NET-ASSETS> 244,050
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,971
<OTHER-INCOME> 0
<EXPENSES-NET> (1,464)
<NET-INVESTMENT-INCOME> 11,507
<REALIZED-GAINS-CURRENT> 2,577
<APPREC-INCREASE-CURRENT> (2,845)
<NET-CHANGE-FROM-OPS> 11,239
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,584)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,916
<NUMBER-OF-SHARES-REDEEMED> (7,164)
<SHARES-REINVESTED> 70
<NET-CHANGE-IN-ASSETS> (11,128)
<ACCUMULATED-NII-PRIOR> 77
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (7,420)
<GROSS-ADVISORY-FEES> 882
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,605
<AVERAGE-NET-ASSETS> 252,080
<PER-SHARE-NAV-BEGIN> 9.12
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.41)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.11
<EXPENSE-RATIO> 0.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> LONG-TERM TAX-EXEMPT FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 84,752
<INVESTMENTS-AT-VALUE> 86,125
<RECEIVABLES> 38,352
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 124,481
<PAYABLE-FOR-SECURITIES> 15,818
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 737
<TOTAL-LIABILITIES> 16,555
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 106,531
<SHARES-COMMON-STOCK> 11,450
<SHARES-COMMON-PRIOR> 9,558
<ACCUMULATED-NII-CURRENT> 29
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (7)
<ACCUM-APPREC-OR-DEPREC> 1,373
<NET-ASSETS> 107,926
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,838
<OTHER-INCOME> 0
<EXPENSES-NET> (781)
<NET-INVESTMENT-INCOME> 5,057
<REALIZED-GAINS-CURRENT> 1,286
<APPREC-INCREASE-CURRENT> (726)
<NET-CHANGE-FROM-OPS> 5,617
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,104)
<DISTRIBUTIONS-OF-GAINS> (1,426)
<DISTRIBUTIONS-OTHER> (7)
<NUMBER-OF-SHARES-SOLD> 4,929
<NUMBER-OF-SHARES-REDEEMED> (3,093)
<SHARES-REINVESTED> 56
<NET-CHANGE-IN-ASSETS> 16,868
<ACCUMULATED-NII-PRIOR> 76
<ACCUMULATED-GAINS-PRIOR> 140
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 526
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 852
<AVERAGE-NET-ASSETS> 105,308
<PER-SHARE-NAV-BEGIN> 9.53
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.03
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> (0.13)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.43
<EXPENSE-RATIO> 0.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> NEW YORK INTERMEDIATE-TERM TAX-EXEMPT FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 99,885
<INVESTMENTS-AT-VALUE> 101,067
<RECEIVABLES> 1,653
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3
<TOTAL-ASSETS> 102,723
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 471
<TOTAL-LIABILITIES> 471
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 102,520
<SHARES-COMMON-STOCK> 12,107
<SHARES-COMMON-PRIOR> 11,419
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,450)
<ACCUM-APPREC-OR-DEPREC> 1,182
<NET-ASSETS> 102,252
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,799
<OTHER-INCOME> 0
<EXPENSES-NET> (697)
<NET-INVESTMENT-INCOME> 4,102
<REALIZED-GAINS-CURRENT> 93
<APPREC-INCREASE-CURRENT> (205)
<NET-CHANGE-FROM-OPS> 3,990
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,102)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,768
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<NAME> CALIFORNIA TAX-EXEMPT INCOME FUND
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