<PAGE>
As filed with the SEC on March 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. 21 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [x]
ACT OF 1940
Excelsior Tax-Exempt Funds, Inc.: Amendment No. 23 [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
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, 1996 was filed on May 30, 1996.
<PAGE>
EXCELSIOR TAX-EXEMPT FUNDS, INC.
CALIFORNIA TAX-EXEMPT INCOME FUND
SUPPLEMENT TO PROSPECTUS DATED OCTOBER 1, 1996
1. The sales load discussed in the sections entitled "Expense Summary", "How
to Purchase and Redeem Shares -- Public Offering Price" and "Performance and
Yield Information" has been eliminated and Shares of the Fund are now offered
for sale at their net asset value. Accordingly, the Example on page 2 is
restated as follows:
Example: You would pay the following estimated expenses on a $1000
investment, assuming (1) 5% annual return and (2) redemption of your
investment at the end of the following periods:
1 YEAR 3 YEARS
------ -------
California Tax-Exempt Income Fund....... $ 7 $ 22
2. The following has been added immediately following the section entitled
"Expense Summary":
FINANCIAL HIGHLIGHTS
The following table includes selected data for a Share outstanding
throughout the period indicated and other performance information derived
from unaudited financial statements included in the Statement of
Additional Information. The following table should be read in
conjunction with such financial statements and notes thereto. The
Statement of Additional Information may be obtained from Excelsior
Tax-Exempt Fund without charge by calling the number on the front cover
of this Prospectus.
<PAGE>
CALIFORNIA TAX-EXEMPT INCOME FUND
<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31, 1997/1/
(UNAUDITED)
------------------
<S> <C>
Net Asset Value, Beginning of Period........................ $7.00
-----
Income From Investment Operations:
Net Investment Income..................................... 0.08
Net Gains on Securities
(both realized and unrealized).......................... 0.01
-----
Total From Investment Operations.......................... 0.09
-----
Less Distributions:
Dividends From Net Investment Income...................... (0.08)
-----
Net Asset Value, End of Period.......................... $7.01
-----
Total Return................................................ 1.30%/2/
Ratios/Supplemental Data:
Net Assets, End of Period (in millions)................... $9,743
Ratio of Net Operating Expenses to Average
Net Assets.............................................. 0.70%/3/
Ratio of Gross Operating Expenses to Average
Net Assets/4/........................................... 1.37%/3/
Ratio of Net Investment Income to Average
Net Assets/5/........................................... 3.60%/3/
Portfolio Turnover Rate................................... 15.00%/3/
</TABLE>
__________________
NOTES
1. For the period October 1, 1996 (commencement of operations) through
January 31, 1997.
2. Not annualized. Total return does not reflect the sales load that was
payable on purchases of Shares prior to March 1, 1997.
3. Annualized.
4. Expense ratio before waiver of fees and reimbursement of expenses by
adviser and administrators.
5. In the absence of voluntary fee waivers and expense reimbursements by the
investment adviser and administrators, the ratio of net investment income
to average net assets would have been 2.93%.
-2-
<PAGE>
3. The following replaces the first sentence of the first paragraph under
the heading "Investment Objectives and Policies -- Quality of Investments" on
page 3:
The Fund invests in Municipal Obligations that are rated at the
time of purchase: (1) "BBB" or higher by Standard & Poor's Ratings Group
("S&P") or "Baa" or higher by Moody's Investors Service, Inc.
("Moody's"), in the case of bonds (or, in certain instances, bonds with
lower ratings if they are determined by the Investment Adviser or
Sub-Adviser to be comparable to BBB/Baa-rated issues); (2) "SP-3" or
higher by S&P or "MIG-3" or higher ("VMIG-3" or higher, in the case of
variable rate notes) by Moody's, in the case of notes; and (3) "A-3" or
higher by S&P or "Prime-3" or higher by Moody's, in the case of
commercial paper. Securities rated "BBB" by S&P or "Baa" by Moody's are
generally considered to be investment grade, although they have
speculative characteristics and are more sensitive to economic change
than higher rated securities.
4. The following paragraph is inserted after the sixth paragraph under the
heading "Management of the Fund -- Investment Adviser and Sub-Adviser" on page
22:
For the period from October 1, 1996 (commencement of operations)
through January 31, 1997, the Investment Adviser and Sub-Adviser each
waived its entire advisory fee. For the same period, the Investment
Adviser waived fees and reimbursed expenses at the effective annual rate
of .67% of the Fund's average daily net assets.
5. The following paragraph is inserted after the second paragraph under the
heading "Management of the Fund -- Administrators" on page 22:
For the period from October 1, 1996 (commencement of operations)
through January 31, 1997, the Administrators received an aggregate
administration fee at the effective annual rate of .152% of the average
daily net assets of the Fund.
-3-
<PAGE>
6. The following paragraph replaces the last paragraph in the section
entitled "Description of Capital Stock" on page 23:
As of March 25, 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. U.S.
Trust is a wholly-owned subsidiary of U.S. Trust Corporation.
7. The following replaces the second sentence of the first paragraph under
the heading "Custodian and Transfer Agent" on page 23:
Communications to the custodian should be directed to Chase, Mutual
Funds Service Division, 3 Chase MetroTech Center, 8th Floor, Brooklyn,
NY 11245.
This Supplement is dated March 31, 1997 and relates to the Prospectus
originally dated October 1, 1996 and hereby redated March 31, 1997.
-4-
<PAGE>
CROSS-REFERENCE SHEET
---------------------
EXCELSIOR TAX-EXEMPT FUNDS, INC.
(California Tax-Exempt Income Fund)
Form N-1A, Part A, Item Prospectus Caption
- ----------------------- ------------------
1. Cover Page................................ Cover Page
2. Synopsis.................................. Expense Summary
3. Condensed Financial Information........... Not Applicable
4. General Description of Registrant......... Investment Objective and
Policies; Portfolio
Instruments and Other
Investment Information;
Investment Limitations;
Description of Capital
Stock
5. Management of the Fund.................... Management of the Fund;
Custodian and Transfer
Agent
5A. Management's Discussion of
Fund Performance........................ Not Applicable
6. Capital Stock and
Other Securities........................ How to Purchase and
Redeem Shares; Dividends
and Distributions; Taxes;
Description of Capital
Stock; Miscellaneous
7. Purchase of Securities
Being Offered........................... Pricing of Shares; How to
Purchase and Redeem
Shares; Investor Programs
8. Redemption or Repurchase.................. How to Purchase and
Redeem Shares
9. Pending Legal Proceedings................. Not Applicable
<PAGE>
[LOGO]EXCELSIOR
A Management Investment Company
- --------------------------------------------------------------------------------
California Tax-Exempt Income 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 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 (the "Investment Adviser" or "U.S.
Trust") serves as the Fund's investment adviser and United States Trust Company
of California (the "Sub-Adviser") 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 October 1, 1996 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, UNITED STATES TRUST COMPANY, ITS PARENT AND AFFILIATES AND THE
SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE
SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
October 1, 1996
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT
INCOME FUND
-----------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load on Purchases (as percentage of offering price)... 4.50%
Sales Load on Reinvested Dividends.................................. None
Deferred Sales Load................................................. None
Redemption Fees/1/.................................................. None
Exchange Fee........................................................ None
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
Advisory Fees (after fee waivers)/2/................................ .38%
12b-1 Fees.......................................................... None
Other Operating Expenses............................................ .32
------
Administrative Servicing Fee/2/.................................... .02
Other Expenses..................................................... .30
----
Total Operating Expenses (after fee waivers)/2/..................... .70%
======
</TABLE>
- -------
1. The Fund's transfer agent imposes a direct $8.00 charge on each wire redemp-
tion by noninstitutional (i.e. individual) investors which is not reflected
in the estimated expense ratios presented herein. Shareholder organizations
may charge their customers transaction fees in connection with redemptions.
See "Redemption Procedures."
2. The Investment Adviser and Administrators may from time to time voluntarily
waive part of their respective fees, which waivers may be terminated at any
time. Until further notice, the Investment Adviser and/or Administrators in-
tend to voluntarily waive fees in an amount equal to the Administrative Ser-
vicing Fee. Without such fee waivers, "Advisory Fee" would be .50% and "To-
tal Operating Expenses" would be .82% for the Fund.
Example: You would pay the following estimated expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption of your investment at the end
of the following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
California Tax-Exempt Income Fund................................ $52 $66
</TABLE>
The foregoing expense summary and example (based on the maximum sales load
payable on the Shares) are intended to assist the investor in understanding the
costs and expenses that an investor in Shares of the Fund will bear directly or
indirectly. The expense summary sets forth estimated advisory and other ex-
penses payable with respect to Shares of the Fund for the current fiscal year.
For more complete descriptions of the Fund's operating expenses, see "Manage-
ment 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>
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) "A" or higher by Standard & Poor's Ratings Group ("S&P") or by
Moody's Investors Service, Inc. ("Moody's"), in the case of bonds (or, in cer-
tain instances, municipal bonds with lower ratings if they are determined by
the Investment Adviser or Sub-Adviser to be comparable to A-rated issues); (2)
"SP-2" or higher by S&P or "MIG-2" or higher ("VMIG-2" or higher, in the case
of variable rate notes) by Moody's, in the case of notes; and (3) "A-2" or
higher by S&P or "Prime-2" or higher by Moody's, in the case of tax-exempt com-
mercial paper. If not rated, Municipal Obligations purchased by the Fund will
be of comparable quality to the above ratings as determined by the Investment
Adviser 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.
3
<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 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 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 dur-
ing periods when the Fund is not entitled to exercise its demand rights. In
such cases, the Fund could suffer a loss with respect to the instruments.
4
<PAGE>
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 inherent in
the management of the Fund. The Fund will engage in futures contracts only to
the extent permitted by the Commodity Futures Trading Commission ("CFTC") and
the Securities and Exchange Commission ("SEC"). When investing in futures con-
tracts, the Funds must satisfy certain asset segregation requirements to en-
sure that the use of futures is unleveraged. When a Fund takes a long position
in a futures contract, it must maintain a segregated account containing liquid
assets equal to the purchase price of the contract, less any margin or depos-
it. When a Fund
5
<PAGE>
takes a short position in a futures contract, the Fund must maintain a segre-
gated account containing liquid assets in an amount equal to the market value
of the securities underlying such contract (less any margin or deposit), which
amount must be at least equal to the market price at which the short position
was established. Asset segregation requirements are not applicable when the
Fund "covers" a futures position generally by entering into an offsetting po-
sition. As of the date of this Prospectus, the Fund intends to limit its hedg-
ing 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 am ortized 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 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 to possible delay in connection with
the disposition of the underlying securities or loss to the extent that pro-
ceeds from a sale of the underlying securities were less than the repurchase
price under the agreement. Income on the repurchase agreements will be tax-
able.
6
<PAGE>
ILLIQUID SECURITIES
The Fund will not knowingly invest more than 10% of the value of its net as-
sets in securities that are illiq- uid. The Fund may purchase securities which
are not registered under the Securities Act of 1933 (the "Act") but which can
be sold to "qualified institutional buyers" in accordance with Rule 144A under
the Act. Any such security will not be considered illiquid so long as it is
determined by the Investment Adviser or Sub-Adviser, acting under guidelines
approved and monitored by the Board, that an adequate trading market exists
for that security. This investment practice could have the effect of increas-
ing the level of illiquidity in the Fund during any period that qualified in-
stitutional buyers become uninterested in purchasing these restricted securi-
ties.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment immediately after its acquisition if
the Investment Adviser or Sub-Adviser believes that such a disposition is con-
sistent with the Fund's investment objective. The rate of portfolio turnover
will not be a limiting factor in making portfolio decisions. A high rate of
portfolio turnover may involve correspondingly greater transaction costs which
will ultimately be borne by the Fund's shareholders and may result in the re-
alization of substantial net capital gains. To the extent that net short-term
capital gains are realized, any distributions resulting from such gains are
considered ordinary income for Federal income tax purposes. (See "Taxes-- Fed-
eral").
RISK FACTORS
The Fund intends to follow the diversification standards set forth in the
1940 Act except to the extent the Investment Adviser or Sub-Adviser determines
that non-diversification is appropriate in order to maximize the percentage of
the Fund's assets that are California Municipal Obligations. The investment
return on a non-diversified portfolio typically is dependent upon the perfor-
mance of a smaller number of securities relative to the number of securities
held in a diversified portfolio. The Fund's assumption of large positions in
the obligations of a small number of issuers will affect the value of the
Fund's portfolio to a greater extent than that of a diversified portfolio in
the event of changes in the financial condition or in the market's assessment
of the issuers.
Although the Fund does not presently intend to do so on a regular basis, it
may invest more than 25% of its assets in Municipal Obligations the interest
on which is paid solely from revenues on similar projects if such investment
is deemed necessary or appropriate by the Investment Adviser or Sub-Adviser.
To the extent that the Fund's assets are concentrated in Municipal Obligations
payable from revenues on similar projects, the Fund will be subject to the
particular risks presented by such projects to a greater extent than it would
be if its assets were not so concentrated.
The Fund's concentration in California Municipal Obligations involves certain
risks. Payment of the interest and principal of California Municipal Obliga-
tions depends on the continuing ability of their issuers to meet their obliga-
tions thereunder. Investors should consider the greater risk inherent in the
Fund's concentration in California Municipal Obligations versus the safety
that comes with a less geographically concentrated investment portfolio, and
should compare the yield available on a portfolio of California issues with
the yield of a more diversified portfolio including non-California issues be-
fore making an investment decision.
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 re-
7
<PAGE>
sulted in a substantial reduction in state revenues. Decreased state revenues
may result in reductions in allocations of state revenues to local govern-
ments.
Because of the complex nature of the various initiatives mentioned above and
certain possible ambiguities and inconsistencies in their terms and the scope
of various exemptions and exceptions, as well as the impossibility of predict-
ing the level of future appropriations for state and local governmental enti-
ties, the impact of these initiatives and related measures on the ability of
California governmental issuers to pay interest or repay principal on their
obligations is difficult to determine.
In addition to the various initiatives noted above, economic factors have had
an adverse impact on the California economy. Earlier in the decade, economic
factors such as declines in tourism and rising unemployment reduced revenues
to the state government at a time when expenses of state government such as
education costs, various welfare costs and other expenses were rising. Such
economic factors adversely impacted the ability of state and local California
governmental entities to repay debt and these factors, and others that cannot
be predicted, may have an adverse impact in the future.
In December 1994, Orange County, California and its Investment Pool filed
for bankruptcy. In April 1996, the County emerged from bankruptcy after clos-
ing on a $900 million recovery bond deal. At that time, the County and its fi-
nancial advisors stated that the County had emerged from the bankruptcy with-
out any structural fiscal problems and assured that the County would not slip
back into bankruptcy. However, for many of the cities, schools and special
districts that lost money in the County's Investment Pool, repayment remains
contingent on the outcome of litigation which is pending against investment
firms and other finance professionals. Consequently, it is impossible to de-
termine the ultimate impact on these issuers of the bankruptcy and its after-
math.
Other considerations affecting the Fund's investments in California Municipal
Obligations are summarized in the Statement of Additional Information.
Opinions relating to the validity of Municipal Obligations and to the exemp-
tion of interest thereon from Federal income tax (and, with respect to Cali-
fornia Municipal Obligations, to the exemption of interest thereon from Cali-
fornia state personal income taxes) are rendered by bond counsel to the re-
spective issuers at the time of issuance. The Fund, its Investment Adviser and
its Sub-Adviser will not review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
INVESTMENT LIMITATIONS
The Fund's following investment limitations may not be changed without the
vote of a majority of the Fund's outstanding Shares (as defined under
"Miscellaneous").
The Fund may not:
1. Borrow money except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing, provided that the Fund may enter into futures con-
tracts and futures options. (This borrowing provision is 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
8
<PAGE>
one or more issuers conducting their principal business activities in the
same industry; provided that there is no limitation with respect to domestic
bank obligations and securities issued or guaranteed by the United States;
any state or territory; any possession of the U.S. Government; the District
of Columbia; or any of their authorities, agencies, instrumentalities, or po-
litical sub-divisions.
* * *
The Fund will not purchase securities of any one issuer if, as a result, more
than 5% of the value of the Fund's total assets would be invested in the secu-
rities of such issuer, except that (a) up to 50% of the value of the Fund's as-
sets may be invested without regard to this 5% limitation, provided that no
more than 25% of the value of the Fund's total assets are invested in the secu-
rities of any one issuer; and (b) the foregoing 5% limitation does not apply to
securities issued or guaranteed by the U.S. Government, its agencies or instru-
mentalities. For purposes of this policy, (a) a security is considered to be
issued by the governmental entity or entities whose assets and revenues back
the security, or, with respect to a private activity bond that is backed only
by the assets and revenues of a non-governmental user, such non-governmental
user; (b) in certain circumstances, the guarantor of a guaranteed security may
also be considered to be an issuer in connection with such guarantee; and (c)
securities issued or guaranteed by the United States Government, its agencies
or instrumentalities (including securities backed by the full faith and credit
of the United States) are deemed to be U.S. Government obligations. This policy
may be changed by the Board of Directors of Excelsior Tax-Exempt Fund upon 30
days' written notice to shareholders.
If a percentage limitation is satisfied at the time of investment, a later in-
crease or decrease in such percentage resulting from a change in value of the
Fund's portfolio securities will not constitute a violation of such limitation.
PRICING OF SHARES
The net asset value of the Fund's Shares is determined and priced for pur-
chases and redemptions at the close of regular trading hours on the New York
Stock Exchange (the "Exchange"), currently 4:00 p.m. (Eastern Time). Net asset
value and pricing for the Fund's Shares are determined on each day the Exchange
and the Investment Adviser are open for business ("Business Day"). Currently,
the holidays which the Fund observes are: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas. Net asset
value per share for purposes of pricing sales and redemptions is calculated by
dividing the value of all securities and other assets allocable to the Fund,
less the liabilities charged to the Fund, by the number of outstanding Shares.
Portfolio securities in the Fund for which market quotations are readily
available (other than debt securities maturing in 60 days or less) are valued
at market value. Securities and other assets for which market quotations are
not readily available are valued at fair value, pursuant to guidelines adopted
by Excelsior Tax-Exempt Fund's Board of Directors. Absent unusual circumstanc-
es, portfolio securities maturing in 60 days or less are normally valued at am-
ortized cost. A futures contract is valued at the last sales price quoted on
the principal exchange or board of trade on which such contract is traded or,
in the absence of a sale, the mean between the last bid and asked prices. The
net asset value of the Fund will fluctuate as the market value of the Fund's
portfolio securities changes in response to changing market rates of interest
and other factors.
The Fund's administrators have undertaken to price the securities in the
Fund's portfolio and may use one or more pricing services to value certain
portfolio securities where the prices provided are believed to reflect the fair
market value of such securities. The methods used by the pricing services and
the valuations so established will be reviewed by the administrators un-
9
<PAGE>
der 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.
PURCHASE OF SHARES
The Distributor has established several procedures for purchasing Shares in
order to accommodate different types of investors.
Shares may be purchased directly by individuals ("Direct Investors") or by
institutions ("Institutional Investors" and, collectively with Direct Invest-
ors, "Investors"). Shares may also be purchased by customers ("Customers") of
the Investment Adviser, its affiliates and correspondent banks, and other in-
stitutions ("Shareholder Organizations") that have entered into shareholder
servicing agreements with Excelsior Tax-Exempt Fund. A Shareholder Organiza-
tion may elect to hold of record Shares for its Customers and to record bene-
ficial ownership of Shares on the account statements provided by it to its
Customers. If it does so, it is the Shareholder Organization's responsibility
to transmit to the Distributor all purchase orders for its Customers and to
transmit, on a timely basis, payment for such orders to Chase Global Funds
Services Company ("CGFSC"), the Fund's sub-transfer agent, in accordance with
the procedures agreed to by the Shareholder Organization and the Distributor.
Confirmations of all such Customer purchases and redemptions will be sent by
CGFSC to the particular Shareholder Organization. As an alternative, a Share-
holder Organization may elect to establish its Customers' accounts of record
with CGFSC. In this event, even if the Shareholder Organization continues to
place its Customers' purchase and redemption orders with the Fund, CGFSC will
send confirmations of such transactions and periodic account statements di-
rectly to Customers. A Shareholder Organization may also elect to establish
its Customers as record holders.
Excelsior Tax-Exempt Fund enters into shareholder servicing agreements with
Shareholder Organizations which agree to provide their Customers various
shareholder administrative services with respect to their Shares (hereinafter
referred to as "Service Organizations"). Shares in the Fund bear the expense
of fees payable to Service Organizations for such services. See "Management of
the Fund--Service Organizations."
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
under "Purchase Procedures."
PUBLIC OFFERING PRICE
The public offering price for the Shares is the sum of the net asset value of
the Shares purchased plus a sales load according to the table below:
<TABLE>
<CAPTION>
REALLOWANCE
TOTAL SALES CHARGES TO DEALERS
------------------------------ --------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
- --------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Less than $50,000................. 4.50% 4.71% 4.00%
$50,000 to $99,999................ 4.00 4.17 3.50
$100,000 to $249,999.............. 3.50 3.63 3.00
$250,000 to $499,999.............. 3.00 3.09 2.50
$500,000 to $999,999.............. 2.00 2.05 1.50
$1,000,000 to $1,999,999.......... 1.00 1.00 .50
$2,000,000 and over............... .50 .50 .25
</TABLE>
10
<PAGE>
The reallowance to dealers may be changed from time to time but will remain
the same for all such dealers.
At various times the Distributor may implement programs under which a deal-
er's sales force may be eligible to win nominal awards for certain sales ef-
forts or under which the Distributor will reallow to any dealer that sponsors
sales contests or recognition programs conforming to criteria established by
the Distributor, or participates in sales programs sponsored by the Distribu-
tor, an amount not exceeding the total applicable sales charges on the sales
generated by the dealer at the public offering price during such programs. Al-
so, the Distributor in its discretion may from time to time, pursuant to ob-
jective criteria established by the Distributor, pay fees to qualifying deal-
ers for certain services or activities which are primarily intended to result
in sales of Shares of the Fund. If any such program is made available to any
dealer, it will be made available to all dealers on the same terms and condi-
tions. Payments made under such programs will be made by the Distributor out
of its own assets and not out of the assets of the Fund. These programs will
not change the price of Shares or the amount that the Fund will receive from
such sales.
In addition, the Distributor may offer to pay a fee from its own assets (in-
cluding any portion of the sales load retained by the Distributor) to finan-
cial 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.
The sales load described above will not be applicable to: (a) purchases of
Shares by customers of the Investment Adviser or its affiliates; (b) trust,
agency or custodial accounts opened through the trust department of a bank,
trust company or thrift institution, provided that appropriate notification of
such status is given at the time of investment; (c) companies, corporations
and partnerships (excluding full service broker/dealers and financial plan-
ners, registered investment advisers and depository institutions not covered
by the exemptions in (d) and (e) below); (d) financial planners and registered
investment advisers not affiliated with or clearing purchases through full
service broker/dealers; (e) purchases of Shares by depository institutions for
their own account as principal; (f) exchange transactions (described below un-
der "Investor Programs--Exchange Privilege") where the Shares being exchanged
were acquired in connection with the distribution of assets held in a trust,
agency or custodial account maintained with the trust department of a bank;
(g) corporate/business retirement plans (such as 401(k), 403(b)(7), 457 and
Keogh accounts) sponsored by the Distributor and IRA accounts sponsored by the
Investment Adviser; (h) company-sponsored employee pension or retirement plans
making direct
investments in the Fund; (i) purchases of Shares by officers, trustees, direc-
tors, employees, former employees and retirees of Excelsior Tax-Exempt Fund,
Excelsior Funds, Inc. ("Excelsior Fund"), Excelsior Institutional Trust, Ex-
celsior Funds, the Investment Adviser, the Distributor or of any direct or in-
direct affiliate of any of them; (j) purchases of Shares by all beneficial
shareholders of Excelsior Tax-Exempt Fund or Excelsior Fund as of May 22,
1989; (k) purchases of Shares by investment advisers registered under the In-
vestment Advisers Act of 1940 for their customers through an omnibus account
established with United States Trust Company of New York; (l) purchases of
Shares by directors, officers and employees of brokers and dealers selling
shares pursuant to a selling agreement with Excelsior Tax-Exempt Fund, Excel-
sior Fund, Excelsior Institutional Trust or Excelsior Funds; (m) purchases of
shares by investors who are members of affinity groups serviced by USAffinity
Investments Limited Partnership; and (n) customers of certain financial insti-
tutions who purchase Shares through a registered repre-
11
<PAGE>
sentative of UST Financial Services Corp. on the premises of their financial
institutions. In addition, no sales load is charged on the reinvestment of
dividends or distributions or in connection with certain share exchange trans-
actions. Investors who have previously redeemed shares in an "Eligible Fund"
(as defined below) on which a sales load has been paid also have a one-time
privilege of purchasing shares of another "Eligible Fund" at net asset value
without a sales charge, provided that such privilege will apply only to pur-
chases made within 30 calendar days from the date of redemption and only with
respect to the amount of the redemption. These exemptions to the imposition of
a sales load are due to the nature of the investors and/or reduced sales ef-
fort that will be needed in obtaining investments.
Quantity Discounts
An investor in the Fund may be entitled to reduced sales charges through
Rights of Accumulation, a Letter of Intent or a combination of investments, as
described below, even if the investor does not wish to make an investment of a
size that would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify CGFSC
at the time of purchase that he or she would like to take advantage of any of
the discount plans described below. Upon such notification, the investor will
receive the lowest applicable sales charge. Quantity discounts may be modified
or terminated at any time and are subject to confirmation of an investor's
holdings through a check of appropriate records. For more information about
quantity discounts, please call (800) 446-1012 or contact your Shareholder Or-
ganization.
Rights of Accumulation. A reduced sales load applies to any purchase of
shares of any portfolio of Excelsior Tax-Exempt Fund and Excelsior Fund that
is sold with a sales load ("Eligible Fund") where an investor's then current
aggregate investment is $50,000 or more. "Aggregate investment" means the to-
tal of: (a) the dollar amount of the then current purchase of shares of an El-
igible Fund and (b) the value (based on current net asset value) of previously
purchased and beneficially owned shares of any Eligible Fund on which a sales
load has been paid. If, for example, an investor beneficially owns shares of
one or more Eligible Funds with an aggregate current value of $49,000 on which
a sales load has been paid and subsequently purchases shares of an Eligible
Fund having current value of $1,000, the load applicable to the subsequent
purchase would be reduced to 4.00% of the offering price. Similarly, with re-
spect to each subsequent investment, all shares of Eligible Funds that are
beneficially owned by the investor at the time of investment may be combined
to determine the applicable sales load.
Letter of Intent. By completing the Letter of Intent included as part of the
New Account Application, an investor becomes eligible for the reduced sales
load applicable to the total number of Eligible Fund shares purchased in a 13-
month period pursuant to the terms and under the conditions set forth below
and in the Letter of Intent. To compute the applicable sales load, the offer-
ing price of shares of an Eligible Fund on which a sales load has been paid,
beneficially owned by an investor on the date of submission of the Letter of
Intent, may be used as a credit toward completion of the Letter of Intent.
However, the reduced sales load will be applied only to new purchases.
CGFSC will hold in escrow shares equal to 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if an investor does not
purchase the full amount indicated in the Letter of Intent. The escrow will be
released when an investor fulfills the terms of the Letter of Intent by pur-
chasing the specified amount. If purchases qualify for a further sales load
reduction, the sales load will be adjusted to reflect an investor's total pur-
chases. If total purchases are less than the amount specified, an investor
will be requested to remit an amount equal to the difference between the sales
load actually paid and the sales load applicable to the total purchases. If
such remittance is not received within 20 days, CGFSC, as attorney-in-fact
pursuant to the terms of the Letter of Intent and at the
12
<PAGE>
Distributor's direction, will redeem an appropriate number of shares held in
escrow to realize the difference. Signing a Letter of Intent does not bind an
investor to purchase the full amount indicated at the sales load in effect at
the time of signing, but an investor must complete the intended purchase in ac-
cordance with the terms of the Letter of Intent to obtain the reduced sales
load. To apply, an investor must indicate his or her intention to do so under a
Letter of Intent at the time of purchase.
Qualification for Discounts. For purposes of applying the Rights of Accumula-
tion and Letter of Intent privileges described above, the scale of sales loads
applies to the combined purchases made by any individual and/or spouse purchas-
ing securities for his, her or their own account or for the account of any mi-
nor children, or the aggregate investments of a trustee or custodian of any
qualified pension or profit sharing plan or IRA established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
PURCHASE PROCEDURES
General
Direct Investors may purchase Shares by completing the Application for pur-
chase of Shares accompanying this Prospectus and mailing it, together with a
check payable to 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, N.A.
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. 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 au-
13
<PAGE>
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 Fund in accordance with procedures
governing their accounts at the Shareholder Organizations. It is the responsi-
bility of the Shareholder Organizations to transmit redemption orders to CGFSC
and credit such Customer accounts with the redemption proceeds on a timely ba-
sis. Redemption orders for Institutional Investors must be transmitted to CGFSC
by telephone at (800) 446-1012 or by terminal access. No charge for wiring re-
demption payments to Shareholder Organizations or Institutional Investors is
imposed by Excelsior Tax-Exempt Fund, although Shareholder Organizations may
charge a Customer's account for wiring redemption proceeds. Information relat-
ing to such redemption services and charges, if any, is available from the
Shareholder Organizations. An investor redeeming Shares through a registered
investment adviser or certified financial planner may incur transaction charges
in connection with such redemptions. Such investors should contact their regis-
tered investment adviser or certified financial planner for further information
on transaction fees. Investors may redeem all or part of their Shares in accor-
dance with any of the procedures described below (these procedures also apply
to Customers of Shareholder Organizations for whom individual accounts have
been established with CGFSC).
REDEMPTION BY MAIL
Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
A written redemption request to CGFSC must (i) state the number of Shares to
be redeemed, (ii) identify the shareholder account number and tax identifica-
tion number, and (iii) be signed by each registered owner exactly as the Shares
are registered. If the Shares to be redeemed were issued in certificate form,
the certificates must be endorsed for transfer (or accompanied by a duly exe-
cuted stock power) and must be submitted to CGFSC together with the redemption
request. A redemption request for an amount in excess of $50,000 per account,
or for any amount if the proceeds are to be sent elsewhere than the address of
record, must be accompanied by signature guarantees from any eligible guarantor
institution approved by CGFSC in accordance with its Standards, Procedures and
Guidelines for the Acceptance of Signature Guarantees ("Signature Guarantee
Guidelines"). Eligible guarantor institutions generally include banks,
broker/dealers, credit unions, national securities exchanges, registered secu-
rities associations, clearing agencies and savings associations. All eligible
guarantor institutions must participate in the Securities Transfer Agents Me-
dallion Program ("STAMP") in order to be approved by CGFSC pursuant to the Sig-
nature Guarantee Guidelines. Copies of the Signature Guarantee Guidelines and
information on STAMP can be obtained from CGFSC at (800) 446-1012 or at the
address given above. CGFSC may require additional supporting documents for re-
demptions made by corporations, executors, administrators, trustees and guardi-
ans. A redemption request will not be deemed to be properly received until
CGFSC receives all required documents in proper form. Payment for Shares re-
deemed will ordinarily be made by mail within five Business Days after proper
receipt by CGFSC of the redemption request. Questions with respect to the
proper form for redemption requests should be directed to CGFSC at (800) 446-
1012 (from overseas, call (617) 557-8280).
Redemption by Wire or Telephone
Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do so, may redeem Shares by instructing CGFSC by
wire or telephone to wire the redemption proceeds directly
14
<PAGE>
to the Direct Investor's account at any commercial bank in the United States.
Direct Investors who are shareholders of record may also redeem Shares by
instructing CGFSC by telephone to mail a check for redemption proceeds of $500
or more to the shareholder of record at his or her address of record. Institu-
tional 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 proceeds for Direct Investors must be paid to the same bank and
account as designated on the Application or in written instructions subse-
quently 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 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
15
<PAGE>
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 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 Funds, Inc. 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 Funds, Inc. currently offers twenty investment portfolios:
Money Fund, a money market fund seeking as high a level of current income as
is consistent with liquidity and stability of principal through investments
in high-quality money market instruments maturing within 13 months;
Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaranteed by the U.S. Govern-
ment, its agencies and instrumentalities and repurchase agreements collater-
alized by such obligations;
Treasury Money Fund, a money market fund seeking current income generally
exempt from state and local income taxes through investments in direct short-
term obligations issued by the U.S. Treasury and certain agencies or instru-
mentalities of the U.S. Government;
Short-Term Government Securities Fund, a fund seeking a high level of cur-
rent income by investing principally in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agree-
ments collateralized by such obligations, and having a dollar-weighted aver-
age portfolio maturity of 1 to 3 years;
Intermediate-Term Managed Income Fund, a fund seeking a high level of cur-
rent interest income by investing principally in investment grade or better
debt obligations and money market instruments, and having a dollar-weighted
average portfolio maturity of 3 to 10 years;
Managed Income Fund, a fund seeking higher current income through invest-
ments in investment
16
<PAGE>
grade debt obligations, U.S. Government obligations and money market instru-
ments;
Equity Fund, a fund seeking primarily long-term capital appreciation through
investments in a diversified portfolio of primarily equity securities;
Income and Growth Fund, a fund investing substantially in equity securities
in seeking to provide moderate current income and to achieve capital appreci-
ation as a secondary objective;
Long-Term Supply of Energy Fund, a fund seeking long-term capital apprecia-
tion by investing in companies benefiting from the availability, development
and delivery of secure hydrocarbon and other energy sources;
Productivity Enhancers Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their roles as innovators, devel-
opers and suppliers of goods and services which enhance service and manufac-
turing productivity or companies that are most effective at obtaining and ap-
plying productivity enhancement developments;
Environmentally-Related Products and Services Fund, a fund seeking long-term
capital appreciation by investing in companies benefitting from their provi-
sion of products, technologies and services related to conservation, protec-
tion and restoration of the environment;
Aging of America Fund, a fund seeking long-term capital appreciation by in-
vesting in companies benefitting from the changes occurring in the demo-
graphic structure of the U.S. population, particularly of its growing popula-
tion of individuals over the age of 40;
Communication and Entertainment Fund, a fund seeking long-term capital ap-
preciation by investing in companies benefitting from the technological and
international transformation of the communications and entertainment indus-
tries, particularly the convergence of information, communication and enter-
tainment media;
Business and Industrial Restructuring Fund, a fund seeking long-term capital
appreciation by investing in companies benefitting from their restructuring
or redeployment of assets and operations in order to become more competitive
or profitable;
Global Competitors Fund, a fund seeking long-term capital appreciation by
investing in U.S.-based companies benefitting from their position as effec-
tive and strong competitors on a global basis;
Early Life Cycle Fund, a fund seeking long-term capital appreciation by in-
vesting in smaller companies in the earlier stages of their development or
larger or more mature companies engaged in new and higher growth potential
operations;
International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;
Emerging Americas Fund, a fund seeking long-term capital appreciation
through investments in companies and securities of governments in all coun-
tries in the Western Hemisphere, except the U.S.;
Pacific/Asia Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Asia and on the
Asian side of the Pacific Ocean; and
Pan European Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments located in Europe.
Excelsior Institutional Trust currently offers Trust Shares in two investment
portfolios as follows:
Optimum Growth Fund, a fund seeking superior, risk-adjusted total return
through investments in a diversified portfolio of equity securities whose
growth prospects, in the opinion of its investment adviser, appear to exceed
that of the overall market; and
Value Equity Fund, a fund seeking long-term capital appreciation through in-
vestments in a diversified
17
<PAGE>
portfolio of equity securities whose market value, in the opinion of its in-
vestment 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 portfo-
lio 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 (plus any applicable sales load) next deter-
mined after acceptance of the exchange request. No sales load will be payable
on shares to be acquired through an exchange to the extent that a sales load
was previously paid on the Shares being exchanged.
Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in 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
18
<PAGE>
financial institution allows automatic withdrawals, Shares are purchased by
transferring funds from an Investor's checking, bank money market or NOW ac-
count designated by the Investor. At the Investor's option, the account desig-
nated 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.
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.
19
<PAGE>
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
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 effects an
exchange of such Shares for shares of another portfolio within 90 days of the
purchase and is able to reduce the sales charges applicable to the new shares
(by virtue of the exchange privilege), the amount equal to reduction may not
be included in the tax basis of the shareholder's exchanged Shares for the
purpose of determining gain or loss, but may be included (subject to the limi-
tation) 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
20
<PAGE>
that tax will be those that come from interest attributable to California Mu-
nicipal Obligations and certain Federal obligations. (Such exemption 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 California state
corporate income tax, dividends may still be taxed as ordinary or capital gain
dividends, despite the personal income tax exemption. Dividends derived from
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 serves as the Investment Adviser to
the Fund. U.S. Trust is a state-chartered bank and trust company. The Invest-
ment Adviser provides trust and banking services to individuals, corporations,
and institutions both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate
trust and agency banking, and personal and corporate banking. The Investment
Adviser is a member bank of the Federal Reserve System and the Federal Deposit
Insurance Corporation and is one of the twelve members of the New York Clear-
ing House Association.
On June 30, 1996, the Investment Adviser's Asset Management Group had approx-
imately $50.3 billion in assets under management. The Investment Adviser,
which has its principal offices at 114 W. 47th Street, New York, New York
10036, is a subsidiary of U.S. Trust Corporation, a registered bank holding
company.
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 In-
21
<PAGE>
vestment Adviser is entitled to be paid a fee, computed daily and paid month-
ly, at the annual rate of .50% of the average daily net assets of the Fund.
The Sub-Adviser is entitled to receive from the Investment Adviser an annual
fee, computed and paid monthly, at the annual rate of .50% of the average
daily net assets of the Fund.
From time to time, the Investment Adviser and the Sub-Adviser may waive (ei-
ther voluntarily or pursuant to applicable state expense limitations) all or a
portion of the advisory fees payable by the Fund, which waivers may be termi-
nated at any time. See "Management of the Fund--Service Organizations" for ad-
ditional information on fee waivers.
ADMINISTRATORS
CGFSC, Federated Administrative Services and U.S. Trust serve as the Fund's
administrators (the "Administrators") and provide it with general administra-
tive 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 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.
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
22
<PAGE>
or controlling a registered, open-end investment company continuously engaged
in the issuance of its shares, and prohibit banks generally from issuing, un-
derwriting, selling or distributing securities such as Shares of the Fund, but
such banking laws and regulations do not prohibit such a holding company or af-
filiate or banks generally 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 regulations. State securities laws may differ from the inter-
pretations 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 Cus-
tomers. 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 offered. Excelsior
Tax-Exempt Fund's Charter authorizes the Board of Directors to classify or re-
classify 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 enti-
tled to such dividends and distributions out of the income earned on the assets
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 fractional
votes for fractional shares held, and will vote in the aggregate and not by
class, except as otherwise expressly required by law.
Certificates for Shares will not be issued unless expressly requested in writ-
ing to CGFSC and will not be issued for fractional Shares.
As of September 30, 1996, U.S. Trust held of record substantially all of the
Shares in Excelsior Tax-Exempt Fund as agent or custodian for its customers,
but did not own such Shares beneficially because it did not have voting or
investment discretion with respect to such Shares. U.S. Trust is a wholly-owned
subsidiary of U.S. Trust Corporation.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, N.A. ("Chase"), a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Fund's assets. Com-
munications to the custodian should be directed to Chase, Mutual Funds Service
Division, 770 Broadway, New York, New York 10003-9598.
U.S. Trust serves as the Fund's transfer and dividend disbursing agent. U.S.
Trust has also entered into a sub-transfer agency arrangement with CGFSC, 73
Tremont Street, Boston, Massachusetts 02108-3913, pursuant to which CGFSC pro-
vides certain transfer agent, dividend disbursement and registrar services to
the Fund.
23
<PAGE>
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 service;
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 maximum offering
price per Share on the last day of the period, and annualizing the result on a
semi-annual 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 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 and also reflect the maximum sales load charged by the Fund.
Performance and yields will fluctuate and any quotation of performance and
yield should not be considered as representative of the Fund's future 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.
24
<PAGE>
Shareholders should remember that performance and yield are generally func-
tions of the kind and quality of the instruments held in a portfolio, portfo-
lio maturity, operating expenses, and market conditions. Any fees charged by
Shareholder Organizations with respect to accounts of Customers that have in-
vested 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."
25
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) and mail to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
FOR OVERNIGHT DELIVERY: send to:
Excelsior Funds
c/o Chase Global Funds Services Company--
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 transfer agent at (800) 446-1012 between 9:00 a.m.
and 5:00 p.m. (Eastern Time).
26
<PAGE>
- ------------------------------------------------------------------------------
CHASE GLOBAL FUNDS SERVICES COMPANY NEW
CLIENT SERVICES ACCOUNT
[LOGO]EXCELSIOR APPLICATION
P.O. Box 2798
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
- --------------------------------------------------------------------------------
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 PER FUND
AND $50 PER FUND, RESPECTIVELY. MAKE CHECKS PAYABLE TO "EXCELSIOR FUNDS.")
- --------------------------------------------------------------------------------
INITIAL INVESTMENT INITIAL INVESTMENT
[_] California Tax-Exempt $ ____________ [_] Other ___________ $ ____________
Income Fund
TOTAL INITIAL INVESTMENT: $ ____________
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
[_] I/We appoint CGFSC as my/our agent to act upon instructions received by
telephone in order to effect the telephone exchange and redemption
privileges. I/We hereby ratify any instructions given pursuant to this
authorization and agree that Excelsior Fund, Excelsior Tax-Exempt Fund,
CGFSC and their directors, officers and employees will not be liable for any
loss, liability, cost or expense for acting upon instructions believed to be
genuine and in accordance with the procedures described in the then current
Prospectus. To the extent that Excelsior Fund and Excelsior Tax-Exempt Fund
fail to use reasonable procedures as a basis for their belief, they or their
service contractors may be liable for instructions that prove to be
fraudulent or unauthorized.
I/We further acknowledge that it is my/our responsibility to read the
Prospectus of any Fund into which I/we exchange.
[_] I/We do not wish to have the ability to exercise telephone redemption
and exchange privileges. I/We further understand that all exchange and
redemption requests must be in writing.
SPECIAL PURCHASE AND REDEMPTION PLANS
I/We have completed and attached the Supplemental Application for:
[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan
AUTHORITY TO TRANSMIT REDEMPTION PROCEEDS TO PRE-DESIGNATED ACCOUNT.
I/We hereby authorize CGFSC to act upon instructions received by telephone
to withdraw $500 or more from my/our account in the Excelsior Funds and to
wire the amount withdrawn to the following commercial bank account. I/We
understand that CGFSC charges an $8.00 fee for each wire redemption, which
will be deducted from the proceeds of the redemption.
Title on Bank Account*________________________________________
Name of Bank _________________________________________________
Bank A.B.A. Number _______________ Account Number ____________
Bank Address __________________________________________________
City/State/Zip _________________________________________________
(attach voided check here)
A corporation, trust or partnership must also submit a "Corporate
Resolution" (or "Certificate of Partnership") indicating the names and
titles of officers authorized to act on its behalf.
* TITLE ON BANK AND FUND ACCOUNT MUST BE IDENTICAL.
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
RIGHTS OF ACCUMULATION
- -------------------------------------------------------------------------------
To qualify for Rights of Accumulation, you must complete this section, listing
all of your accounts including those in your spouse's name, joint accounts and
accounts held for your minor children. If you need more space, please attach a
separate sheet.
[_] I/We qualify for the Rights of Accumulation sales charge discount
described in the Prospectus and Statement of Additional Information.
[_] I/We own shares of more than one Fund distributed by Edgewood Services,
Inc. Listed below are the numbers of each of my/our Shareholder
Accounts.
[_] The registration of some of my/our shares differs from that shown on
this application. Listed below are the account number(s) and full
registration(s) in each case.
LIST OF OTHER EXCELSIOR FUND ACCOUNTS:
______________________ _______________________________________
______________________ _______________________________________
______________________ _______________________________________
ACCOUNT NUMBER ACCOUNT REGISTRATIONS
- --------------------------------------------------------------------------------
LETTER OF INTENT
- --------------------------------------------------------------------------------
[_] I agree to the Letter of Intent provisions set forth in the Prospectus.
Although I am not obligated to purchase, and Excelsior Tax-Exempt Fund is not
obligated to sell, I intend to invest, over a 13-month period beginning on ,
19 , an aggregate amount in Eligible Funds of Excelsior Fund and Excelsior
Tax-Exempt Fund at least equal to (check appropriate box):
<TABLE>
<S> <C> <C> <C> <C> <C>
[_] $50,000 [_] $100,000 [_] $250,000 [_] $500,000 [_] $1,000,000 [_] $2,000,000
</TABLE>
By signing this application, I hereby authorize CGFSC to re-deem an
appropriate number of shares held in escrow to pay any additional sales loads
payable in the event that I do not fulfill the terms of this Letter of Intent.
- --------------------------------------------------------------------------------
AGREEMENTS AND SIGNATURES
- --------------------------------------------------------------------------------
By signing this application, I/we hereby certify under penalty of perjury that
the information on this application is complete and correct and that as
required by Federal law:
[_] I/We certify that (1) the number(s) shown on this form is/are the correct
taxpayer identification number(s) and (2) I/we are not subject to backup
withholding either because I/we have not been notified by the Internal Revenue
Service that I/we are subject to backup withholding, or the IRS has notified
me/us that I am/we are no longer subject to backup withholding. (NOTE: IF ANY
OR ALL OF PART 2 IS NOT TRUE, PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
[_] If no taxpayer identification number ("TIN") or SSN has been provided
above, I/we have applied, or intend to apply, to the IRS or the Social
Security Administration for a TIN or a SSN, and I/we understand that if I/we
do not provide this number to 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, United States Trust Company of New York, its parent and
affiliates and the Shares are not federally insured by, guaranteed by,
obligations of or otherwise supported by the U.S. Government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
governmental agency; and that an investment in the Fund involves investment
risks, including possible loss of principal amount invested..
X ___________________________________ Date ________________________________
Owner Signature
X ___________________________________ Date ________________________________
Co-Owner Signature
Sign exactly as name(s) of registered owner(s) appear(s) above (including
legal title if signing for a corporation, trust custodial account, etc.).
- --------------------------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
- --------------------------------------------------------------------------------
We hereby submit this application for the purchase of shares in accordance
with the terms of our selling agreement with Edgewood Services, Inc., and with
the Prospectus and Statement of Additional Information of each Fund purchased.
We agree to notify CGFSC of any purchases made under the Letter of Intent or
Rights of Accumulation.
--------------------------------------- -------------------------------------
Investment Dealer's Name Source of Business Code
--------------------------------------- -------------------------------------
Main Office Address Branch Number
--------------------------------------- -------------------------------------
Representative's Number Representative's Name
--------------------------------------- -------------------------------------
Branch Address Telephone
--------------------------------------- -------------------------------------
Investment Dealer's Title
Authorized Signature
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
CHASE GLOBAL FUNDS SERVICES COMPANY SUPPLEMENTAL
[LOGO] EXCELSTOR 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) Account No. ____________________
To: ________________________
(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 public offering price
determined on that day.
[_] Monthly on the 1st day[_] Monthly on the 15th day[_] Monthly on both
the 1st and 15th days
Amount of each debit (minimum $50
per Fund) $ ________________________
NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------
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[_] NONOT 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)
------------------------------- --------------------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)
X X
------------------------------- --------------------------------------
Signature Signature
------------------------------- --------------------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)
*ELIGIBLE GUARANTORS: An Eligible Guarantor institution is a bank, trust
company, broker, dealer, municipal or government securities broker or dealer,
credit union, national securities exchange, registered securities association,
clearing agency or savings association, provided that such institution is a
participant in STAMP, the Securities Transfer Agents Medallion Program.
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY........................................................... 2
INVESTMENT OBJECTIVE AND POLICIES......................................... 3
General.................................................................. 3
Quality of Investments................................................... 3
Types of Municipal Obligations........................................... 4
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION.................... 4
Variable and Floating Rate Instruments................................... 4
When-Issued and Forward Transactions and Stand-By Commitments............ 5
Eligible Taxable Obligations............................................. 5
Illiquid Securities...................................................... 7
Portfolio Turnover....................................................... 7
Risk Factors............................................................. 7
INVESTMENT LIMITATIONS.................................................... 8
PRICING OF SHARES......................................................... 9
HOW TO PURCHASE AND REDEEM SHARES......................................... 10
Distributor.............................................................. 10
Purchase of Shares....................................................... 10
Public Offering Price.................................................... 10
Purchase Procedures...................................................... 13
Redemption Procedures.................................................... 14
Redemption by Mail....................................................... 14
General.................................................................. 15
INVESTOR PROGRAMS......................................................... 16
Exchange Privilege....................................................... 16
Systematic Withdrawal Plan............................................... 18
Automatic Investment Program............................................. 18
DIVIDENDS AND DISTRIBUTIONS............................................... 19
TAXES..................................................................... 19
Federal.................................................................. 19
California............................................................... 20
Miscellaneous............................................................ 21
MANAGEMENT OF THE FUND.................................................... 21
Investment Adviser and Sub-Adviser....................................... 21
Administrators........................................................... 22
Service Organizations.................................................... 22
Banking Laws............................................................. 22
DESCRIPTION OF CAPITAL STOCK.............................................. 23
CUSTODIAN AND TRANSFER AGENT.............................................. 23
EXPENSES.................................................................. 24
PERFORMANCE AND YIELD INFORMATION......................................... 24
MISCELLANEOUS............................................................. 25
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION.................................. 26
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY 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.
USTCAXP1096
LOGO
CALIFORNIA TAX-EXEMPT INCOME FUND
Prospectus October 1, 1996
<PAGE>
EXCELSIOR TAX-EXEMPT FUNDS, INC.
California Tax-Exempt Income Fund
STATEMENT OF ADDITIONAL INFORMATION
March 31, 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 March 31, 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
-----------------
Page
----
INVESTMENT OBJECTIVE AND POLICIES................................ 1
Additional Information on Portfolio
Instruments.............................................. 1
Risk Factors Relating to
California Municipal Obligations......................... 7
Additional Investment Limitations.......................... 17
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................... 18
INVESTOR PROGRAMS................................................ 20
Systematic Withdrawal Plan.................................. 20
Exchange Privilege.......................................... 21
Other Investor Programs.................................... 21
DESCRIPTION OF CAPITAL STOCK..................................... 21
MANAGEMENT OF THE FUND........................................... 23
Directors and Officers...................................... 23
Investment Advisory, Sub-Advisory and Administration
Agreements................................................ 31
Service Organizations....................................... 32
Expenses.................................................... 33
Custodian and Transfer Agent............................... 34
PORTFOLIO TRANSACTIONS........................................... 35
INDEPENDENT AUDITORS............................................. 37
COUNSEL.......................................................... 37
ADDITIONAL INFORMATION CONCERNING TAXES.......................... 37
Federal.................................................... 37
Taxation of Certain Financial Instruments.................. 39
California................................................. 41
PERFORMANCE AND YIELD INFORMATION................................ 43
MISCELLANEOUS.................................................... 47
FINANCIAL STATEMENTS............................................. 48
APPENDIX A....................................................... A-1
APPENDIX B....................................................... B-1
-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 Obligations 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,
the Fund's investment adviser ("U.S. Trust" or the "Investment Adviser") 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 securities 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 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.
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
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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 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. 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 than 25% of its net assets in Municipal
Obligations covered by insurance policies.
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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 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.
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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. 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
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<PAGE>
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 event of bankruptcy of a broker
with whom the Fund has an open position in a futures contract or related
option.
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<PAGE>
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. Reflecting the belief shared by many
analysts that the California economy would remain strong, the 1996-1997 Budget
Act established a State budget of some $63 billion. Relying on the optimistic
revenue projections released by the Department of Finance, the Budget Act
granted a $230 million tax cut to corporations while simultaneously providing
an
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<PAGE>
increase in funding for education and prisons. However, only a relatively
modest amount, $287 million, was allocated to the reserve fund available for
emergencies such as earthquakes. The ultimate impact of these and other
budgetary allocations is impossible to predict. Indeed, constant fluctuations
in other factors affecting the State -- including changes in welfare caseloads,
property tax receipts and federal funding -- will undoubtedly create new budget
challenges.
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 deal. 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 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.
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<PAGE>
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 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
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<PAGE>
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.
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.
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<PAGE>
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 "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
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<PAGE>
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 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
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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 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.
-14-
<PAGE>
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 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;
-15-
<PAGE>
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 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
-16-
<PAGE>
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.
The voters will be presented with a new initiative constitutional
amendment on the November 1996 ballot. The Right to Vote on Taxes Act,
sponsored by the Howard Jarvis Taxpayers Association, seeks to strengthen
Proposition 62 by requiring majority voter approval for general taxes,
two-thirds voter approval for special taxes (including taxes imposed for
specific purposes but placed in the general fund), voter approval of existing
local taxes enacted after January 1, 1995, and placing other restrictions on
fees and assessments. As a constitutional amendment, the provisions would
clearly apply to charter cities.
Another initiative on the November 1996 ballot, a statutory
initiative sponsored by the California Tax Reform Association, would reimpose
the now sunseted temporary 10 and 11 percent tax brackets and use the revenues
from the increase to replace a portion of the property tax revenue shifted from
cities, counties and special districts to schools on an ongoing basis since
1992.
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).
-17-
<PAGE>
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;
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. No sales charge is imposed by Excelsior Tax-Exempt Fund 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
-18-
<PAGE>
"Investor Programs--Exchange Privilege." 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 Shareholder Organization and its Customer.
Investors purchasing Shares may include officers, directors, or employees of
the particular Shareholder Organization.
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; (b) the Exchange is closed for other than customary weekend and
holiday closings; (c) the Securities and Exchange Commission has by order
permitted such suspension; or (d) an emergency exists as determined by the
Securities and Exchange Commission.
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
-19-
<PAGE>
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
(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.
-20-
<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 Fund or Excelsior Tax-Exempt 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
effects an exchange of Shares for shares of another portfolio of the Companies
within 90 days of the purchase and is able to reduce the sales load applicable
to the new shares (by virtue of the Companies' exchange privilege), the amount
equal to such reduction may not be included in the tax basis of the
shareholder's exchanged Shares but may be included (subject to the limitation)
in the tax basis of the new shares.
Other Investor Programs
- -----------------------
As described in the Prospectus, Shares of the Funds may be
purchased in connection with the Automatic Investment Program.
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.
-21-
<PAGE>
Shares have no preemptive rights and only such conversion or
exchange rights as the Board of Directors may grant in its discretion. When
issued for payment as described in the Prospectus, Shares will be fully paid
and non-assessable. In the event of a liquidation or dissolution of the Fund,
its shareholders are entitled to receive the assets available for distribution
belonging to the Fund and a proportionate distribution, 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
-22-
<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.
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:
-23-
<PAGE>
<TABLE>
<CAPTION>
Position with Fund Principal Occupation
Excelsior Tax- During Past 5 years and
Name and Address Exempt Other Affiliations
- ---------------- -------------- -------------------------
<S> <C> <C>
Frederick S. Wonham[1] Chairman of the Board, Retired; Director of
238 June Road President & Treasurer Excelsior Funds, Inc. (since
Stamford, CT 06903 1995); Trustee of Excelsior
Age: 65 Funds and Excelsior
Institutional Trust (since
1995); Vice Chairman of U.S.
Trust Corporation and U.S.
Trust Company of New York
(until 1995); Chairman, U.S.
Trust of Connecticut.
Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior Funds, Inc. (since
Apt. 10-H 1984); Director of UST Master
New York, NY 10021 Variable Series, Inc. (since
Age: 70 1994); Trustee of Excelsior
Institutional Trust (since
1995); Director, Royal Life
Insurance Co. of NY (since
1991).
</TABLE>
/1/ This director is considered to be an "interested person" of Excelsior
Tax-Exempt Fund as defined in the 1940 Act.
-24-
<PAGE>
<TABLE>
<CAPTION>
Position with Fund Principal Occupation
Excelsior Tax- During Past 5 years and
Name and Address Exempt Other Affiliations
- ---------------- -------------- -------------------------
<S> <C> <C>
Rodman L. Drake Director Director, Excelsior Funds,
c/o KMR Power Corp. Inc. (since 1996); Trustee of
30 Rockefeller Plaza Excelsior Funds and Excelsior
Suite 5425 Institutional Trust (since
New York, New York 10112 1994); Director, Parsons
Age: 53 Brinkerhoff, Inc.
(engineering firm) (since
1995); President, Mandrake
Group (investment and
consulting firm) (since
1994); Director, Hyperion
Total Return Fund, Inc. and
four other funds for which
Hyperion Capital Management,
Inc. serves as investment
adviser (since 1991);
Co-Chairman, KMR Power
Corporation (power plants)
(since 1993); 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. (since
Franklin Lakes, NJ 07417 1984); Director of UST Master
Age: 71 Variable Series, Inc. (since
1994); Trustee of Excelsior
Institutional Trust (since
1995).
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
Position with Fund Principal Occupation
Excelsior Tax- During Past 5 years and
Name and Address Exempt Other Affiliations
- ---------------- -------------- -------------------------
<S> <C> <C>
Wolfe J. Frankl Director Retired; Director of
2320 Cumberland Road Excelsior Funds, Inc. (since
Charlottesville, VA 1986); Director of UST Master
22901 Variable Series, Inc. (since
Age: 75 1994); 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 Funds,
c/o Prospect Capital Inc. (since 1996); Trustee of
Corp. Excelsior Funds and Excelsior
43 Arch Street Institutional Trust (since
Greenwich, CT 06830 1994); Private Investor
Age: 60 (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>
-26-
<PAGE>
<TABLE>
<CAPTION>
Posi tion with Fund Principal Occupation
Excelsior Tax- During Past 5 years and
Name and Address Exempt Other Affiliations
- ---------------- -------------- -------------------------
<S> <C> <C>
Jonathan Piel Director Director, Excelsior Funds,
558 E. 87th Street Inc. (since 1996); Trustee of
New York, New York 10128 Excelsior Funds and Excelsior
Age: 58 Institutional Trust (since
1994); Vice President and
Editor, Scientific American,
Inc. (from 1986 to 1994);
Director, Group for The South
Fork, Bridgehampton, New York
(since 1993); and Member,
Advisory Committee, Knight
Journalism Fellowships,
Massachusetts Institute of
Technology (since 1984).
Robert A. Robinson Director Director of Excelsior Funds,
Church Pension Fund Inc. (since 1987); Director
800 Second Avenue of UST Master Variable
New York, NY 10017 Series, Inc. (since 1994);
Age: 70 Trustee of Excelsior
Institutional Trust (since
1995); President Emeritus,
The Church Pension Fund and
its affiliated companies
(since 1968); 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>
-27-
<PAGE>
<TABLE>
<CAPTION>
Position with Fund Principal Occupation
Excelsior Tax- During Past 5 years and
Name and Address Exempt Other Affiliations
- ---------------- -------------- -------------------------
<S> <C> <C>
Alfred C. Tannachion[1] Director Retired; Director of
6549 Pine Meadows Drive Excelsior Funds, Inc. (since
Spring Hill, FL 34606 1985); Chairman of the Board,
President and Treasurer of
UST Master Variable Series,
Inc. (since 1994); Trustee of
Excelsior Institutional Trust
(since 1995).
W. Bruce McConnel, III Secretary Partner of the law firm of
1345 Chestnut Street Drinker Biddle & Reath.
Philadelphia, PA 19107-3497
Age: 54
Sherry Aramini Assistant Secretary Second Vice President, Blue
Chase Global Funds Sky Compliance Manager, Chase
Services Company Global Funds Services Company
73 Tremont Street (since May 1996); Technical
Boston, MA 02108-3913 Resources Manager, Chase
Age: 32 Global Funds Services Company
(from April 1995 to May
1996); Financial Reporting
Supervisor, Chase Global
Funds Services Company (from
September 1993 to April
1995); Audit Supervisor,
Coopers & Lybrand L.L.P.
(from July 1990 to August
1993).
John M. Corcoran Assistant Treasurer Vice President, Director of
Chase Global Funds Administration Client Group,
Services Company Chase Global Funds Services
73 Tremont Street Company (since July 1996);
Boston, MA 02108-3913 Second Vice President,
Age: 31 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.
-28-
<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, 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.
The directors and officers of Excelsior Tax-Exempt Fund as a group own less
than 1% of the Shares of the Fund.
The following chart provides certain information about the fees
received by Excelsior Tax-Exempt Fund's directors during the fiscal year ended
March 31, 1996.
-29-
<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 $6,375 None (4)**$14,424
Chairman of the Board,
President and Treasurer***
Donald L. Campbell $16,500 None (4)**$39,500
Director
Rodman L. Drake -0- None (4)**$10,000
Director****
Joseph H. Dugan $16,500 None (4)**$39,500
Director
Wolfe J. Frankl $16,500 None (4)**$39,500
Director
W. Wallace McDowell -0- None (4)**$10,000
Director****
Jonathan Piel -0- None (4)**$10,000
Director****
Robert A. Robinson $16,500 None (4)**$39,500
Director
Alfred C. Tannachion $21,500 None (4)**$51,500
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.
-30-
<PAGE>
Investment Advisory, Sub-Advisory and Administration Agreements
- ---------------------------------------------------------------
United States Trust Company of New York and United States Trust
Company of California serve as the Fund's Investment Adviser and Sub-Adviser,
respectively. 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.
For the period from October 1, 1996 (commencement of operations)
through January 31, 1997, the Investment Adviser waived its entire advisory fee
totalling $10,754 and reimbursed expenses totalling $3,765. For the same period,
the Sub-Adviser waived its entire sub-advisory fee totalling $10,574.
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.
Chase Global Funds Services Company ("CGFSC"), Federated
Administrative Services, an affiliate of the Distributor, and U.S. Trust 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 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 Fund's financial accounts and records, and generally
assist in all aspects of the Fund's operations.
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<PAGE>
For the period from October 1, 1996 (commencement of operations)
through January 31, 1997, Excelsior Tax-Exempt Fund paid the Administrators
combined administration fees totalling $3,303.
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 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
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<PAGE>
(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 January 31, 1997, payments to Service Organizations totalled $9,272 with
respect to the Fund, all of which was paid to affiliates of U.S. Trust.
Expenses
- --------
Except as otherwise noted, the Investment Adviser, Sub-Adviser and
the Administrators will bear all expenses in connection with the performance of
their advisory, sub-advisory and administrative services. The Fund will bear
the expenses incurred in its operations. Such expenses include taxes;
interest; fees, including the Fund's portion of the fees paid to 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.
-33-
<PAGE>
Custodian and Transfer Agent
- ----------------------------
The Chase Manhattan Bank, N.A. ("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 also serves as the Fund's transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust 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
-34-
<PAGE>
to Excelsior Tax-Exempt Fund concerning the Fund's operations. For its
transfer agency, dividend disbursing, and subaccounting services, U.S. Trust is
entitled to receive $15.00 per annum per account and subaccount. In addition,
U.S. Trust 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 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 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 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. For the services provided by CGFSC, U.S. Trust 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 dealers who make a market in the securities involved, except
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<PAGE>
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 Securities and Exchange Commission.
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<PAGE>
Investment decisions for the Fund are made independently 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 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 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.
INDEPENDENT AUDITORS
--------------------
Ernst & Young LLP, independent auditors, 200 Clarendon Street,
Boston, MA 02116, serve as auditors of Excelsior Tax-Exempt Fund.
COUNSEL
-------
Drinker Biddle & Reath (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
-37-
<PAGE>
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 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
-38-
<PAGE>
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 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
-39-
<PAGE>
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 50% of any net gain may be treated as
long-term and no more than 40% 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 "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
-40-
<PAGE>
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.
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. 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 (including interest income on California Municipal
Obligations for franchise tax purposes only) may be subject to California state
franchise or income tax at regular corporate rates.
-41-
<PAGE>
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.
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.
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<PAGE>
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 be calculated separately for each Fund
according to the following formula:
a-b
Yield = 2 [(----- + 1) to the 6th power - 1]
cd
Where: a = dividends and interest earned during the period.
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<PAGE>
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 (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 January 31, 1997 was 3.43%.
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.
-44-
<PAGE>
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 January 31, 1997 was 4.97%.
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
These 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. In addition, the Fund's average annual total
return and aggregate total return quotations will reflect the deduction of
-45-
<PAGE>
the maximum sales load charged in connection with the purchase of Shares.
The Fund's aggregate total return for Shares for the period from October 1,
1996 (commencement of operations) to January 31, 1997 was 1.30%.
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. "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
-46-
<PAGE>
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 the
direct and allocable liabilities, and the allocable portion of any general
assets with respect to the Fund, are conclusive.
As of March 25, 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.
-47-
<PAGE>
As of March 25, 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: (1)
Annette G. Larson Living Trust, c/o United States Trust Company of California,
515 South Flower Street, Suite 2700, Los Angeles, CA 90071-2291; 7.49%; and (2)
Dorothy H. Jernstedt Family Trust, c/o United States Trust Company of
California, 515 South Flower Street, Suite 2700, Los Angeles, CA 90071-2291;
7.92%.
FINANCIAL STATEMENTS
--------------------
The Fund's unaudited financial statements for the period from
October 1, 1996 (commencement of operations) through January 31, 1997 are
attached as Exhibit B to this Statement of Additional Information.
-48-
<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" - Issue's degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes in
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is 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" - Issuer or related supporting institutions are
considered to 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" - Issuer or related supporting institutions are
considered to 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" - Issuer 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" - Issuer does 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" categories.
"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 satisfactory 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>
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 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-8
<PAGE>
"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 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.
A-9
<PAGE>
"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 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 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.
A-10
<PAGE>
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
nclude 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.
"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.
A-11
<PAGE>
"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.
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997 (UNAUDITED)
CALIFORNIA TAX-EXEMPT INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- --------- ----------
<C> <S> <C>
TAX-EXEMPT SECURITIES - 92.36%
$105,000 Alameda County California
Transportation Authority, Sales Tax $107,497
Revenue Bonds, (FGIC), 5.200%, 05/01/99
125,000 Anaheim, California, Electric Revenue
Bonds, (AMBAC), 4.750%, 10/01/02 126,978
200,000 Antelope Valley East Kern California
Water Agency, General Obligation Bonds, 200,484
(AMBAC), 4.500%, 08/01/01
200,000 Bakersfield, California City School
District, General Obligation Bonds, 203,604
(MBIA), 5.000%, 08/01/05
135,000 California Educational Facilities
Authority, Santa Clara University 135,713
Revenue Bonds, (MBIA), 4.900%, 09/01/06
150,000 California Educational Facilities
Authority, Stanford University Revenue 159,539
Bonds, Series J, 5.900%, 11/01/03
200,000 California Health Facilities Financing
Authority Revenue Bonds, (AMBAC), 216,000
7.625%, 10/01/15, (Prerefunded 10/01/98)
250,000 California State Department Water
Resources, Central Valley Project 288,427
Revenue Bonds, Series L, 8.000%,
12/01/01
150,000 California State, General Obligation
Bonds, (AMBAC), 6.250%, 6/01/04 164,465
200,000 California State Public Works Board,
Lease Revenue Bonds, 6.600%, 12/01/22, 225,068
(Prerefunded 12/01/02)
300,000 California State University,
Institutional Lease Revenue Bonds, 315,846
(AMBAC), 5.500%, 06/01/03
250,000 Central Coast Water Authority,
California Revenue Bonds, Series A, 249,778
(AMBAC), 4.375%, 10/01/01
200,000 Concord, California Redevelopment
Agency Tax Allocation Bonds, Series 3,
(MBIA), 8.000%, 07/01/18, (Prerefunded 215,290
07/01/98)
250,000 Cupertino, California, Certificates of
Participation, 7.125%, 04/01/16, 279,985
(Prerefunded 04/01/01)
250,000 East Bay, California Municipal
Utilities District Wastewater Treatment
System Revenue Bonds, (AMBAC), 6.375%, 275,958
06/01/21, (Prerefunded 12/01/01)
155,000 Fresno, California Sewer Revenue Bonds,
Series A-1, (AMBAC), 4.800%, 09/01/06 154,640
250,000 Los Angeles, California, Municipal
Improvement Corporate-Equipment,
Real-Estate Property, Certificates of 250,000
Participation, (AMBAC), 4.500%, 12/01/01
200,000 Los Angeles, California Convention &
Exhibition Center Authority,
Certificates of Participation, (AMBAC), 211,292
6.600%, 08/15/99
305,000 Los Angeles, California Harbor
Department Revenue Bonds, Series C, 310,951
4.875%, 11/01/02
250,000 Los Angeles, California Municipal
Improvement Corporation, Sanitation
Equipment Charge Revenue Bonds, Series 255,172
A, (FSA), 5.000%, 02/01/01
150,000 Los Angeles, California Municipal
Improvement Corporation, Sanitation
Equipment Charge Revenue Bonds, Series 149,892
A, (FSA), 4.875%, 02/01/06
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- --------- ----------
<C> <S> <C>
$250,000 Los Angles, California Wastewater
Systems Revenue Bonds, Series A, $268,440
(FGIC), 6.000%, 02/01/03
200,000 Los Angeles County, California, Public
Works Financing Authority Lease Revenue
Bonds, Series A, (MBIA), 6.000%, 214,800
09/01/03
175,000 Los Angeles County, California
Transportation, Communication, Sales
Tax Revenue Bonds, Series A, 6.750%, 197,115
07/01/19, (Prerefunded 07/01/02)
100,000 Metropolitan Water District Southern
California, General Obligation Bonds, 102,520
Series A1, 5.000%, 03/01/02
150,000 Metropolitan Water District Southern
California, General Obligation Bonds, 152,013
Series A3, 4.700%, 03/01/00
200,000 Modesto, California Irrigation
District, Financing Authority Revenue 203,494
Bonds, Series A, (MBIA), 4.850%,
10/01/01
250,000 Northern California Power Agency,
Public Power Revenue Bonds, (AMBAC), 263,448
5.600%, 07/01/06
100,000 Northern California Transmission
Revenue Bonds, Series A (MBIA), 7.000%, 109,565
05/01/24, (Prerefunded 05/01/00)
100,000 Orange County California Municipal
Water District Facilities Corporation,
Certificates of Participation, (MBIA), 100,931
4.800%, 07/01/03
150,000 Paramount, California Redevelopment
Agency Tax Allocation Bonds, 7.350%, 170,751
08/01/21, (Prerefunded 08/01/01)
200,000 Sacramento County, California, Public
Facilities Project, Certificates of 200,208
Participation, (MBIA), 4.700%, 02/01/03
250,000 Sacramento County, California, Public
Facilities Project, Certificates of 249,018
Participation, (MBIA), 4.875%, 02/01/05
255,000 San Bernardino County, California
Transportation Authority, Sales Tax 251,274
Revenue Bonds, Series A, 4.625%,
03/01/05
150,000 San Diego County, California, Regional
Transportation, Communication, Sales
Tax Revenue Bonds, Series A, (FGIC), 154,721
5.200%, 04/01/05
150,000 San Diego County, California, Regional
Transportation, Communication, Sales
Tax Revenue Bonds, Series A, (FGIC), 154,050
5.250%, 04/01/06
50,000 San Diego County, California Water
Authority, Water Revenue Certificates
of Participation, Series A, 6.250%, 53,610
05/01/04
50,000 San Francisco, California City & County
Airport Communication, International
Airport Revenue Bonds, (MBIA), 6.350%, 53,027
05/01/00
225,000 San Francisco, California City &
County, General Obligation Bonds, 234,351
Series C, (FGIC), 6.000%, 06/15/99
200,000 San Francisco, California State
Building Authority, Lease Revenue 198,870
Bonds, (AMBAC), 4.125%, 12/01/00
100,000 San Jose, California Airport Revenue
Bonds, (FGIC), 5.500%, 03/01/02 104,356
150,000 Santa Barbara County, California,
Transportation Authority, Sales Tax 150,760
Revenue Bonds, (FGIC), 4.900%, 04/01/06
300,000 Southern California Public Power
Authority Revenue Bonds, Series A, 300,483
(AMBAC), 4.000%, 07/01/98
200,000 Tri City California Hospital District
Revenue Bonds, Series B, (MBIA), 206,592
5.500%, 02/15/00
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- --------------------------- -------------------------
<S> <C> <C>
$150,000 University of
California Revenue $ 147,078
Bonds, (AMBAC), 4.600%,
09/01/05
250,000 West & Central Basin
Financing Authority, 260,287
California Revenue ------------------------
Bonds, (AMBAC), 5.500%,
08/01/01
8,998,341
------------------------
TAX-EXEMPT CASH EQUIVALENTS - BACKED BY LETTERS OF CREDIT- 1.03%
CANADIAN IMPERIAL BANK
100,000 ------------------------
San Diego County, 100,500
California, Tax &
Revenue Anticipation
Notes, 4.375%, 09/30/97
-------------------------
SHARES
- ---------------------------
OTHER INVESTMENTS - 5.83%
260,353 Federated California
Money Fund 260,353
307,941 Provident California
Money Fund 307,941
-------------------------
568,294
-------------------------
TOTAL INVESTMENTS
(Cost $9,656,435*) 99.22% $9,667,135
OTHER ASSETS AND
LIABILITIES (NET) 0.78 75,496
-------------------------- -------------------------
NET ASSETS 100.00% $9,742,631
========================== =========================
</TABLE>
* - Aggregate cost for Federal tax and book purposes.
AMBAC - American Municipal Bond Assurance Corp.
FGIC - Financial Guaranty Insurance Corp.
FSA - Financial Security Assurance
MBIA - Municipal Bond Insurance Assoc.
Note:
These municipal securities meet the three highest ratings assigned by Moody's
Investors Services, Inc. or Standard and Poor's Corporation or, where not rated,
are determined by the Investment Adviser, under the supervision of the Board of
Directors, to be of comparable quality at the time of purchase to rated
instruments that may be acquired by the Fund.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EXCELSIOR TAX-EXEMPT FUNDS, INC.
Statement of Assets and Liabilities
As of January 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------------------
California
Tax-Exempt
Income Fund
-----------
ASSETS:
Investments, at cost - see accompanying portfolio $ 9,656,435
=========
Investments, at value (Note 1) $ 9,667,135
Interest receivable 134,075
Receivable from investment adviser 3,765
Unamortized organization costs (Note 5) 29,859
---------
Total Assets 9,834,834
LIABILITIES:
Due to custodian bank 42,647
Payable for dividends declared 28,025
Payable for deferred organization costs (Note 5) 14,048
Accrued expenses and other liabilities 7,483
----------
Total Liabilities 92,203
----------
NET ASSETS $ 9,742,631
=========
NET ASSETS consist of:
Accumulated net realized loss on investments (609)
Unrealized appreciation of investments 10,700
Par value (Note 4) 1,390
Paid-in Capital in excess of par value 9,731,150
---------
Total Net Assets $ 9,742,631
=========
Shares of Common Stock Outstanding 1,389,944
NET ASSET VALUE PER SHARE $ 7.01
==========
</TABLE>
<PAGE>
EXCELSIOR TAX-EXEMPT FUNDS, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD OCTOBER 1, 1996 (COMMENCEMENT OF OPERATIONS)
TO JANUARY 31, 1997 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CALIFORNIA
TAX-EXEMPT
INCOME FUND
--------------------
INVESTMENT INCOME:
Interest income $ 93,274
--------------------
EXPENSES:
Investment advisory fees (Note 2) 10,754
Administrative servicing fees (Note 2) 9,272
Administrators' fees (Note 2) 3,303
Amortization of organization costs (Note 5) 1,602
Custodian fees 1,260
Registration and filing fees 986
Directors' fees and expenses (Note 2) 81
Miscellaneous expenses 2,449
--------------------
TOTAL EXPENSES 29,707
Fees waived and expenses reimbursed by investment adviser
and administrators (Note 2) (14,519)
--------------------
NET EXPENSES 15,188
--------------------
NET INVESTMENT INCOME: 78,086
--------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 1):
Net realized loss on security transactions (609)
Change in unrealized appreciation of investments during the period 10,700
--------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 10,091
--------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 88,177
====================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EXCELSIOR TAX-EXEMPT FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD OCTOBER 1, 1996 (COMMENCEMENT OF OPERATIONS)
TO JANUARY 31, 1997 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------
CALIFORNIA
TAX-EXEMPT
INCOME FUND
--------------------
Net investment income $ 78,086
Net realized loss on investments (609)
Change in unrealized appreciation of investments
during the period 10,700
--------------------
Net increase in net assets resulting from operations 88,177
Distributions to shareholders from net investment income (78,086)
--------------------
Increase in net assets from fund share transactions (Note 4) 9,732,540
--------------------
Net increase in net assets 9,742,631
NET ASSETS:
Beginning of period ---
--------------------
End of period $ 9,742,631
====================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EXCELSIOR TAX-EXEMPT FUNDS, INC.
FINANCIAL HIGHLIGHTS - SELECTED PER SHARE DATA AND RATIOS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD OCTOBER 1, 1996 (COMMENCEMENT OF OPERATIONS)
TO JANUARY 31, 1997 (UNAUDITED):
- -----------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA
TAX- EXEMPT
INCOME FUND
----------------
NET ASSET VALUE, BEGINNING OF PERIOD $7.00
----------------
INVESTMENT OPERATIONS:
Net investment income 0.08
Net realized and unrealized gain on investments 0.01
----------------
TOTAL FROM INVESTMENT OPERATIONS 0.09
----------------
DIVIDENDS:
From net investment income (0.08)
----------------
NET ASSET VALUE, END OF PERIOD $7.01
================
TOTAL RETURN 1.30% (1)
================
RATIOS AND SUPPLEMENTAL DATA:
Ratios to Average Net Assets
Expenses (3) 0.70% (2)
Net Investment Income (3) 3.60% (2)
Portfolio Turnover 15.00% (2)
Net Assets at end of Period (000's omitted) $9,743
(1)Not annualized. Total return does not reflect the sales load that was payable on purchase of Fund shares.
(2)Annualized.
(3)Reflects a voluntary expense waiver and reimbursement of expenses by the investment adviser and administrator.
Without these waivers and reimbursements, the ratio of expenses to
average net assets and net investment income to average net assets
would have been as follows:
Expenses to Average Net Assets 1.37% (2)
Net Investment Income to Average Net Assets 2.93% (2)
</TABLE>
<PAGE>
EXCELSIOR TAX-EXEMPT FUNDS, INC.
CALIFORNIA TAX-EXEMPT INCOME FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Significant Accounting Policies
Excelsior Tax-Exempt Funds, Inc. ("Excelsior Tax-Exempt Fund") was incorporated
under the laws of the State of Maryland on August 8, 1984 and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
Excelsior Tax-Exempt Fund currently offers shares in six managed investment
portfolios, each having its own investment objectives and policies. The
following is a summary of significant accounting policies for the California
Tax-Exempt Income Fund (the "Portfolio") which commenced operations on October
1, 1996. Such policies are in conformity with generally accepted accounting
principles and are consistently followed by Excelsior Tax-Exempt Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results
could differ from these estimates.
(a) Portfolio valuation:
Securities are valued each business day as of the close of the New York Stock
Exchange after consultation with an independent pricing service (the "Service").
When in the judgment of the Service, quoted bid prices for securities are
readily available and are representative of the bid side of the market, these
investments are valued at the mean between the quoted bid prices (as obtained by
the Service from dealers in such securities) and ask prices (as calculated by
the Service based upon its evaluation of the market for such securities). Short-
term debt instruments with remaining maturities of 60 days or less, and variable
rate demand notes and securities with put options exercisable within one year,
are valued at amortized cost, which approximates 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.
The net asset value of the Portfolio's shares will fluctuate as the market
values of its portfolio securities change in response to changing market rates
of interest and other factors.
(b) Security transactions and investment income:
Security transactions are recorded on a trade date basis. Realized gains and
losses on investments sold are recorded on the basis of identified cost.
Interest income, adjusted for amortization of premiums and, when appropriate,
discounts on investments, is earned from settlement date and is recorded on the
accrual basis.
<PAGE>
(c) Dividends and distributions to shareholders:
Dividends from net investment income are declared daily and paid monthly. Net
realized capital gains, unless offset by any available capital loss
carryforward, are distributed to shareholders at least annually. Dividends and
distributions are recorded on the ex-dividend date.
Dividends and distributions are determined in accordance with Federal income tax
regulations which may differ from generally accepted accounting principles.
In order to avoid a Federal excise tax, the Portfolio is required to distribute
certain minimum amounts of net realized capital gain and net investment income
for the respective periods ending October 31 and December 31 in each calendar
year.
(d) Federal taxes:
It is the policy of Excelsior Tax-Exempt Fund that the Portfolio qualifies as a
regulated investment company, if such qualification is in the best interest of
the shareholders, by complying with the requirements of the Internal Revenue
Code applicable to regulated investment companies, and by distributing
substantially all of its taxable earnings to its shareholders.
At January 31, 1997, aggregate gross unrealized appreciation for all securities
for which there was an excess of value over tax cost and aggregate gross
unrealized depreciation for all securities in which there was an excess of tax
cost over value were as follows:
<TABLE>
<CAPTION>
<S> <C>
Tax basis unrealized appreciation.. $17,553
Tax basis unrealized depreciation.. (6,853)
---------
Net unrealized appreciation........ $10,700
=========
</TABLE>
(e) Expense allocation:
Expenses directly attributable to a portfolio of Excelsior Tax-Exempt Fund are
charged to that portfolio. Other expenses are allocated to the respective
portfolios based on average net assets.
2. Investment Advisory Fee, Administration Fee and Related Party Transactions
United States Trust Company of New York ("U.S. Trust") serves as the investment
adviser to Excelsior Tax-Exempt Fund. For the services provided pursuant to the
Investment Advisory Agreements U.S. Trust is entitled to receive a fee, computed
daily and paid monthly, at the annual rate of 0.50% of the average daily net
assets of the Portfolio. United States Trust Company of California ("U.S. Trust
California") serves as the Portfolio's sub-adviser. For the services provided
pursuant to the Sub-Advisory Agreement, U.S. Trust California is entitled to
receive fees from U.S. Trust, computed daily and paid monthly, at the annual
rate of 0.50% of the Portfolio's average daily net assets.
<PAGE>
U.S. Trust, Chase Global Funds Services Company ("CGFSC"), a subsidiary of
The Chase Manhattan Bank and Federated Administrative Services (collectively,
the "Administrators") provide administrative services to Excelsior Tax-Exempt
Fund. For the services provided to the portfolios, the Administrators are
entitled jointly to annual fees, computed daily and paid monthly, based on the
combined aggregate average daily net assets of Excelsior Tax-Exempt Fund,
Excelsior Funds, Inc. and Excelsior Institutional Trust (excluding the
international equity portfolios of Excelsior Funds, Inc. and Excelsior
Institutional Trust), all of which are affiliated investment companies, as
follows: .200% of the first $200 million, .175% of the next $200 million, and
.150% over $400 million. Administration fees payable by each portfolio of the
three investment companies are determined in proportion to the relative average
daily net assets of the respective portfolios for the period paid. For the
period ended January 31, 1997, administration fees charged to the Portfolio by
U.S. Trust amounted to $454.
From time to time, as they may deem appropriate in their sole discretion, or
pursuant to applicable state expense limitations, U.S. Trust and the
Administrators may undertake to waive a portion or all of the fees payable to
them and also may reimburse the Portfolio for a portion of other expenses.
Until further notice to Excelsior Tax-Exempt Fund, U.S. Trust intends to
voluntarily waive fees and reimburse expenses to the extent necessary for
the Portfolio to maintain an annual expense ratio of not more than .70%.
Excelsior Tax-Exempt Fund has also entered into administrative servicing
agreements with various service organizations (which may include affiliates of
U.S. Trust) requiring them to provide administrative support services to their
customers owning shares of the Portfolio. As a consideration for the
administrative services provided by each service organization to its customers,
the Portfolio 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 organizations' customers. Such services may include
assisting in processing purchase, exchange and redemption requests;
transmitting and receiving funds in connection with customer orders to
purchase, exchange or redeem shares; and providing periodic statements. Until
further notice to Excelsior Tax-Exempt Fund, U.S. Trust and the Administrators
have voluntarily agreed to waive investment advisory and administration fees
payable by the Portfolio in an amount equal to the administrative service fees
payable by the Portfolio. For the period ended January 31, 1997, U.S. Trust and
the Administrators waived investment advisory and administration fees in amounts
equal to the administrative service fees for the Portfolio which amounted to
$9,272.
Edgewood Services, Inc. (the "Distributor"), a wholly-owned subsidiary of
Federated Investors, serves as the sponsor and distributor of Excelsior Tax-
Exempt Fund. Shares of the Portfolio are sold on a continuous basis by the
Distributor.
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 for attending meetings. The Chairman receives an additional
annual fee of $5,000.
<PAGE>
3. Purchases and Sales of Securities
For the period from October 1, 1996 (commencement of operations) to January 31,
1997, the Portfolio's purchases and sales of securities, excluding short-term
investments, aggregated $9,255,241 and $251,550, respectively.
4. Common Stock:
Excelsior Tax-Exempt Fund currently offers six classes of shares, each
representing interests in one of six separate portfolios. Authorized capital
for the only class of shares currently offered in the Portfolio is 500 million
shares.
Each share has a par value of $.001 and represents an equal proportionate
interest in the Portfolio with other shares of the Portfolio, and is entitled to
such dividends and distributions of taxable and tax-exempt earnings on the
assets belonging to the Portfolio as are declared at the discretion of Excelsior
Tax-Exempt Fund's Board of Directors. The Portfolio's capital share transactions
for the period from October 1, 1996 (commencement of operations) to January 31,
1997 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Shares sold........................ 1,468,964
Shares issued for dividend 21
reinvestment
Shares redeemed.................... (79,041)
Net increase in shares outstanding. 1,389,944
===========
</TABLE>
5. Organization Costs:
Excelsior Tax-Exempt Fund has borne all costs in connection with the initial
organization of the Portfolio, including the fees for registering and
qualifying its shares for distribution under Federal and state securities
regulations. All such costs are being amortized on the straight-line basis over
periods of five years from the dates on which the Portfolio commenced
operations.
<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:
Unaudited Financial Highlights for the
Registrant's California Tax-Exempt Income Fund
for the period from October 1, 1996 (commencement
of operations) through January 31, 1997.
(2) Included in Part B:
. Portfolio of Investments as of January 31,
1997 (unaudited);
. Statement of Assets and Liabilities as of
January 31, 1997 (unaudited);
. Statement of Operations for the period from
October 1, 1996 through January 31, 1997
(unaudited);
. Statement of Changes in Net Assets for the
period from October 1, 1996 through January
31, 1997 (unaudited); and
. Notes to Financial Statements (unaudited).
(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 of Amendment to Articles of
Incorporation dated December 28, 1995. (17)
(2) (a) Bylaws of Registrant (1).
(b) Amendment No. 1 to Bylaws of Registrant.
(4)
(3) None.
<PAGE>
(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 between
Registrant and United States Trust Company of New York ("U.S.
Trust") dated February 6, 1985 (3).
(b) Amendment No. 1 to Investment Advisory
Agreement between Registrant and U.S. Trust dated February 6,
1985 (8).
(c) Investment Advisory Agreement between
Registrant and U.S. Trust dated May 11, 1990 with respect to
the California Intermediate-Term Tax-Exempt Fund and New York
Intermediate-Term Tax-Exempt Fund (10).
(d) Amendment No. 1 to Investment Advisory
Agreement between Registrant and U.S. Trust dated May 11,
1990 with respect to the Short-Term Tax-Exempt Securities
Fund (15).
(e) Amendment No. 2 to Investment Advisory
Agreement between Registrant and U.S. Trust dated May 11,
1990 with respect to the California Tax-Exempt Income Fund.
(f) Sub-Advisory Agreement dated September 1,
1996 between U.S. Trust and U.S. Trust Company of California
with respect to the California Tax-Exempt Income Fund.
(6) (a) Distribution Contract dated August 1, 1995
between Registrant and Edgewood Services, Inc. (16).
(b) Exhibit A to the Distribution Contract
dated August 1, 1995 between Registrant and Edgewood
Services, Inc.
(7) None.
(8) (a) Custody and Transfer Agency Agreement
between Registrant and U.S. Trust, dated February 6, 1985,
amended as of January 30, 1987 (5).
(b) Amendment No. 2 to Custody and Transfer
Agency Agreement with respect to the Short-Term Tax-Exempt
Securities Fund (15).
(c) Custody Agreement dated September 1, 1995
between Registrant and The Chase Manhattan Bank, N.A. (17)
(d) Exhibit A to Custody Agreement dated
September 1, 1995 between Registrant and The Chase Manhattan
Bank, N.A.
-2-
<PAGE>
(9) (a) Amended and Restated Administrative
Services Plan and Related Form of Shareholder Servicing
Agreement.
(b) Administration Agreement dated January 1,
1996 among Chase Global Funds Services Company, Federated
Administrative Services and United States Trust Company of
New York. (17)
[*](10) Opinion of counsel that shares are validly
issued, fully paid and non-assessable.
(11) Consent of Drinker Biddle & Reath.
(12) None.
(13) (a) Purchase Agreement between Registrant and
Shearson Lehman Brothers Inc. dated February 6, 1985. (3)
(b) Purchase Agreement dated September 25, 1996
between Registrant and Edgewood Services, Inc.
(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 January 31,
1997 for the California Tax-Exempt Income Fund.
(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,
- ---------
*Filed pursuant to Rule 24f-2 as part of Registrant's Rule 24f-2 Notice.
-3-
<PAGE>
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.
(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.
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 March 24, 1997
Title of Class Number of Record Holders
-------------- ------------------------
Class A Common Stock 6,946
Class B Common Stock 1,187
Class C Common Stock 764
Class D Common Stock 437
Class E Common Stock 100
Class F Common Stock 394
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,
-4-
<PAGE>
provide for the indemnification of Registrant's directors and officers.
Indemnification of Registrant's principal underwriter and custodian is provided
for, respectively, in Section 1.11 of the Distribution Contract filed herewith
as Exhibit (6)(a) and Section 12 of the Custody Agreement, incorporated by
reference as Exhibit (8)(c) 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 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.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
(a) United States Trust Company of New York.
United States Trust Company of New York ("U.S. Trust") 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, 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 Name Occupation Business
- -------- ---- ---------- --------
<S> <C> <C> <C>
Director Eleanor Baum Dean of School Academic
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
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust Name Occupation Business
- -------- ---- ---------- --------
<S> <C> <C> <C>
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 & Tyler
1133 Avenue of the
Americas
New York, NY 10036
Director, H. Marshall Schwarz Chairman of the Bank
Chairman United States Trust Board & Chief Exe-
of the Board Company of New York cutive Officer of
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
Metropolitan Museum of Metropolitan
Art Museum of Art
1000 Fifth Avenue
New York, NY 10028-0198
Director Paul W. Douglas Retired Executive Coal Mining,
250 Park Avenue Transportation
Room 1900 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
Landmark Volunteers
749 A Main Street
Route 7, Box 455
Sheffield, MA 01257
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 & Bettex Wein, Malkin & Bettex
Lincoln Building
60 East 42nd Street
New York, NY 10165
Director Richard F. Tucker Retired-Mobil Petroleum
11 Over Rock Lane Oil Corporation and Chemicals
Westport, CT 06880
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust Name Occupation Business
- -------- ---- ---------- --------
<S> <C> <C> <C>
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
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
Trustee/ Frederick B. Taylor Vice Chairman and Bank
Director, United States Trust Chief Investment Of-
Vice Chair- Company of New York ficer of U.S. Trust
man and 114 West 47th Street Corporation and United
Chief Invest- New York, NY 10036 States Trust Company
ment Officer of New York
Trustee/ Jeffrey S. Maurer President of U.S. Bank
Director and United States Trust Trust Corporation and
President Company of New York United States Trust
114 West 47th Street Company of New York
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
Trustee/ Philip L. Smith Corporate Director and
Director P.O. Box 386 Trustee
Ponte Verde Beach, FL 32004
</TABLE>
(b) 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.
-7-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S.
Trust Principal Type of
California Name Occupation Business
- ---------- ---- ---------- --------
<S> <C> <C> <C>
Director/Senior Vice William R. Barrett, Jr. Senior Vice Bank
President and Director President and
of Private Banking Director of
Private Banking
Director Thomas C. Clark Senior Vice Bank
President of U.S
Trust Company of
New York
Director and President Jeffrey S. Maurer President of U.S. Bank
of U.S. Trust Company Trust Corporation
of New York and U.S. Trust
Company of New
York
Director/Managing Robert M. Raney Managing Director Bank
Director and Chief and Chief
Investment Officer Investment Officer
Director/President Gregory F. Sanford President and Chief Bank
and Chief Operating Operating Officer
Officer
Director/Chairman Franklin E. Ulf Chairman of the Bank
of the Board and Board and Chief
Chief Executive Executive Officer
Officer
Director/Executive Charles E. Wert Executive Vice Bank
Vice President and President and
Department Manager Department Manager
</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: Excelsior Funds, Inc.,
Excelsior Institutional Trust, FTI Funds, Marketvest Funds, Marketvest Funds,
Inc., and Old Westbury Funds, Inc.
(b)
<TABLE>
<CAPTION>
Names and Principal Positions and Offices with Offices with
Business Addresses the Distributor Registrant
------------------- -------------------------- ------------
<S> <C> <C>
Lawrence Caracciolo Director and President,
Federated Investors Tower Edgewood Services, Inc. --
Pittsburgh, PA 15222-3779
Arthur Cherry Director,
Federated Investors Tower Edgewood Services, Inc. --
Pittsburgh, PA 15222-3779
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Names and Principal Positions and Offices with Offices with
Business Addresses the Distributor Registrant
------------------- -------------------------- ------------
<S> <C> <C>
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
</TABLE>
(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) 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).
(3) Edgewood Services, Inc., Federated Investors Tower, Clearing
Operations, P.O. Box 897, Pittsburgh, PA 15230-0897 (records relating to its
function as distributor).
(4) Chase Global Funds Services Company ("CGFSC"), 73 Tremont
Street, Boston, Massachusetts 02108-3913; Federated Administrative Services,
Federated Investors Tower, Pittsburgh, PA 15222-3779; United States Trust
Company of New York, 114 West 47th Street, New York, NY 10036 (records relating
to their functions as administrators and, with respect to CGFSC, sub-transfer
agent).
(5) The Chase Manhattan Bank, N.A., 3 Chase MetroTech Center, 8th
Floor, Brooklyn, NY 11245 (records relating to its function as custodian).
(6) Drinker Biddle & Reath, Philadelphia National Bank Building,
1345 Chestnut Street, Philadelphia, Pennsylvania 19107-3496 (Registrants'
Articles of Incorporation, Bylaws, and Minute Books).
-9-
<PAGE>
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.
-10-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Excelsior Tax-Exempt Funds, Inc. certifies that
it meets all of the requirements for effectiveness for this Post-Effective
Amendment No. 21 to its Registration Statement ("Amendment No. 21") pursuant to
Rule 485(b) under the 1933 Act and has duly caused this Amendment No. 21 to its
Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and the State
of New York, on the 31st day of March, 1997.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
Registrant
*Frederick S. Wonham
---------------------------
Frederick S. Wonham, President
(Signature and Title)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 21 to Excelsior Tax-Exempt Funds, Inc.'s
Registration Statement on Form N-1A has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
*Frederick S. Wonham Chairman of the March 31, 1997
-------------------
Frederick S. Wonham Board, President
and Treasurer
*Joseph H. Dugan
-------------------
Joseph H. Dugan Director March 31, 1997
*Donald L. Campbell
-------------------
Donald L. Campbell Director March 31, 1997
*Wolfe J. Frankl
-------------------
Wolfe J. Frankl Director March 31, 1997
*Robert A. Robinson
-------------------
Robert A. Robinson Director March 31, 1997
*Alfred Tannachion
-------------------
Alfred Tannachion Director March 31, 1997
-------------------
W. Wallace McDowell Director March 31, 1997
-------------------
Jonathan Piel Director March 31, 1997
-------------------
Rodman L. Drake Director March 31, 1997
<S>
* By:/s/ W. Bruce McConnel, III
---------------------------
W. Bruce McConnel, III, Attorney-in-Fact
</TABLE>
<PAGE>
EXCELSIOR FUNDS, INC.
ESCELSIOR 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 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: July 26, 1996 /s/ Frederick S. Wonham
-----------------------
Frederick S. Wonham
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Alfred Tannachion 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 and Excelsior Institutional Trust's
(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: July 26, 1996 /s/ Wolfe J. Frankl
-------------------
Wolfe J. Frankl
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Alfred Tannachion 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 and Excelsior Institutional Trust's
(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: July 26, 1996 /s/ Robert A. Robinson
----------------------
Robert A. Robinson
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Alfred Tannachion 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 and Excelsior Institutional Trust's
(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: July 26, 1996 /s/ Joseph H. Dugan
-------------------
Joseph H. Dugan
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Alfred Tannachion 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 and Excelsior
Institutional Trust's (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: July 26, 1996 /s/ Donald L. Campbell
----------------------
Donald L. Campbell
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints W.
Bruce McConnel, III, and 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 II Funds, Inc.'s and
Excelsior Institutional Trust's (collectively, the "Companies") respective
Registration Statements on Form N-1A pursuant to the Investment Company Act of
1940, as amended, and 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 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 said attorney may lawfully do or cause to be done by
virtue hereof.
Dated: July 26, 1996 /s/ Alfred C. Tannachion
------------------------
Alfred C. Tannachion
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
-----------
(5)(e) Amendment No. 2 to the Investment
Advisory Agreement between Registrant and United
States Trust Company of New York.
(5)(f) Sub-Advisory Agreement between
United States Trust Company of New York and
United States Trust Company of California.
(6)(b) Exhibit A to Distribution Contract between
Registrant and Edgewood Services, Inc.
(8)(d) Exhibit A to Custody Agreement between Registrant
and The Chase Manhattan Bank, N.A.
(9)(a) Amended and Restated Administrative
Services Plan and Form of Servicing
Agreement.
(11) Consent of Drinker Biddle &
Reath.
(13)(b) Purchase Agreement dated September 25, 1996
between Registrant and Edgewood Services, Inc.
(27) Financial Data Schedule.
<PAGE>
EXHIBIT 5(e)
EXCELSIOR TAX-EXEMPT FUNDS, INC.
AMENDMENT NO. 2
TO
INVESTMENT ADVISORY AGREEMENT
WHEREAS, Excelsior Tax-Exempt Funds, Inc. (the "Company") and United
States Trust Company of New York ("U.S. Trust") desire to amend the Investment
Advisory Agreement of May 11, 1990 (the "Agreement") between them to include
the California Tax-Exempt Income Fund as an investment portfolio for which U.S.
Trust renders investment advisory and other services; and
WHEREAS, U.S. Trust is willing to render such services to the Company
with respect to the California Tax-Exempt Income Fund;
The parties hereto, intending to be legally bound hereby, agree that the
Agreement is amended as follows:
1. The third paragraph of the preamble to the Agreement shall
henceforth read:
"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;
2. Paragraph 2(d) of the Agreement (relating to the delivery of
documents) shall henceforth read:
"(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 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;"
3. Paragraph 7 of the Agreement (relating to compensation) shall
henceforth read:
"Compensation. For the services provided and the expenses
------------
assumed pursuant to this Agreement, the
<PAGE>
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.
IN WITNESS WHEREOF, intending to be legally bound hereby, the
parties hereto have caused this instrument to be executed by their officers
designated below as of September 1, 1996.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
Attest:
/s/ W. Bruce McConnel, III By:/s/ Alfred A. Tannachion
- -------------------------- ---------------------------
[Seal]
UNITED STATES TRUST COMPANY OF
NEW YORK
Attest:
By:/s/ Brian F. Schmidt
- -------------------------- --------------------
[Corporate Seal]
-2-
<PAGE>
EXHIBIT 5(f)
SUB-ADVISORY AGREEMENT
AGREEMENT made as of September 1, 1996 between UNITED STATES TRUST
COMPANY OF NEW YORK, a New York corporation (herein called "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 an 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;
(d) Resolutions of the Board of Directors of the Company
authorizing the appointment of U.S. Trust California as
<PAGE>
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;
(c) will manage the Fund's overall cash positions;
-2-
<PAGE>
(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 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
-3-
<PAGE>
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 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.
-4-
<PAGE>
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.
UNITED STATES TRUST COMPANY
Attest: OF NEW YORK
_________________________ By: /s/ Brian F. Schmidt
---------------------
[Seal]
UNITED STATES TRUST COMPANY
Attest: OF CALIFORNIA
_________________________ By: /s/ Gregory Sanford
--------------------
[Seal]
-6-
<PAGE>
EXHIBIT 6(b)
Exhibit A to the
Distribution Contract
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 Distribution
Contract dated as of August 1, 1995, between Excelsior Tax-Exempt Funds, Inc.
(formerly UST Master Tax-Exempt Funds, Inc.) and Edgewood Services, Inc.,
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.
Witness the due execution hereof this 25th day of September, 1996.
ATTEST: EXCELSIOR TAX-EXEMPT FUNDS, INC.
/s/ W. Bruce McConnel, III /s/ Alfred Tannachion
- -------------------------- ---------------------
Secretary President
(SEAL)
ATTEST: EDGEWOOD SERVICES, INC.
/s/ S. Elliot Cohan /s/ Ronald M. Petnuch
- -------------------------- ---------------------
By: By:
Secretary Vice President
(SEAL)
<PAGE>
EXHIBIT 8(d)
EXHIBIT A
---------
Portfolios covered by the Custody Agreement between The Chase Manhattan Bank,
N.A. and Excelsior Tax-Exempt Funds, Inc.
Tax-Exempt Money Fund
New York Intermediate-Term Tax-Exempt Fund
Short-Term Tax-Exempt Securities Fund
Intermediate-Term Tax-Exempt Fund
Long-Term Tax-Exempt Fund
California Tax-Exempt Income Fund
THE CHASE MANHATTAN BANK, N.A.
By: /s/ Bernard Dagnall
----------------------
Bernard Dagnall
EXCELSIOR TAX-EXEMPT FUNDS, INC.
By: /s/ Alfred Tannachion
------------------------
Alfred Tannachion
Dated: September 25, 1996
<PAGE>
EXHIBIT 9(a)
EXCELSIOR TAX-EXEMPT FUNDS, INC.
--------------------------------
AMENDED AND RESTATED ADMINISTRATIVE SERVICES PLAN
Section 1. Upon the recommendation of Chase Global Funds
---------
Services Company, Federated Administrative Services or U.S. Trust Company of New
York (each a "Co-Administrator") as Co-Administrator of Excelsior Tax-Exempt
Funds, Inc. (the "Company"), any officer of the Company (or any other person
authorized by the Company's Board) is authorized to execute and deliver, in the
name and on behalf of the Company, written agreements in substantially the form
attached hereto or in any other form duly approved by the Board of Directors
("Servicing Agreements") with institutions that are shareholders of record or
that have clients that are shareholders of record or beneficial owners of any of
the Funds of the Company, including without limitation the Company's service
providers and their affiliates ("Service Organizations"). Such Servicing
Agreements shall require the Service Organizations to provide or arrange for the
provision of support services as set forth therein to their clients who
beneficially own Shares of any Fund offered by the Company in consideration of a
fee, computed and paid in the manner set forth in the Servicing Agreements, at
the annual rate of up to .40% of the applicable net asset value of Shares
beneficially owned by such clients. Among other institutions, any bank, trust
company, thrift institution or broker-dealer is eligible to become a Service
Organization and to receive fees under this Plan. All expenses incurred by the
Company with respect to a particular class or series of Shares of a particular
Fund in connection with Servicing Agreements and the implementation of this Plan
shall be borne entirely by the holders of that class or series.
Section 2. The Co-Administrators shall monitor the
---------
arrangements pertaining to the Company's Servicing Agreements with Service
Organizations in accordance with the terms of the Co-Administration Agreement
by and among the Co-Administrators and the Company. The Co-Administrators
shall not, however, be obliged by this Plan to recommend, and the Company shall
not be obliged to execute, any Servicing Agreement with any qualifying Service
Organization.
Section 3. So long as this Plan is in effect, the
---------
Co-Administrators shall provide to the Company's Boards of Directors, and the
Directors shall review, at least quarterly, a written report of the amounts
expended pursuant to this Plan and the purposes for which such expenditures
were made.
<PAGE>
Section 4. This Plan shall become effective immediately upon
---------
the approval of the Plan (and the form of Servicing Agreement attached hereto)
by a majority of the Board of Directors, including a majority of the Directors
who are not "interested persons" as defined in the Investment Company Act of
1940 (the "Act") of the Company and have no direct or indirect financial
interest in the operation of this Plan or in any Servicing Agreement or other
agreements related to this Plan (the "Disinterested Directors"), pursuant to a
vote cast in person at a meeting called for the purpose of voting on the
approval of this Plan (or form of Servicing Agreement).
Section 5. Unless sooner terminated, this Plan shall continue
---------
until July 31, 1996 and thereafter shall continue automatically for successive
annual periods provided such continuance is approved at least annually in the
manner set forth in Section 4.
Section 6. This Plan may be amended at any time by the Board
---------
of Directors, provided that any material amendments of the terms of this Plan
shall become effective only upon the approvals set forth in Section 4.
Section 7. This Plan is terminable at any time by vote of a
---------
majority of the Disinterested Directors.
Section 8. While this Plan is in effect, the selection and
---------
nomination of the new Directors of the Company who are not "interested persons"
(as defined in the Act) of the Company shall be committed to the discretion of
the existing Disinterested Directors.
Section 9. The Company initially adopted this Plan as of
---------
February 21, 1994, and amended this Plan as of February 10, 1995, July 27, 1995
and November 17, 1995.
-2-
<PAGE>
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, by and between Excelsior Tax-Exempt Funds, Inc.
(the "Corporation") and the shareholder service organization (the
"Organization") listed on the signature page hereof;
WITNESSETH:
WHEREAS, certain transactions in Shares of Common Stock, $.001 par
value, of the Corporation or of any series now existing or later created of the
Corporations ("Shares") may be made by investors who are customers of, and
using the services of or arranged by, an Organization, including without
limitation the Company's service providers and their affiliates, that has
entered into a shareholder servicing agreement with the Corporation; and
WHEREAS, the Organization wishes to make it possible for its
customers (the "Customers") to purchase Shares and wishes to act as the
Customers' agent in performing or arranging for the performance of certain
administrative functions in connection with purchases, exchanges and
redemptions of Shares from time to time upon the order and for the account of
Customers and to provide related services to its Customers in connection with
their investments in the Corporation; and
WHEREAS, it is in the interest of the Corporation to make the
services of the Organization available to Customers who are or may become
beneficial owners of Shares of the Corporation;
NOW, THEREFORE, the Corporation and the Organization hereby agree
as follows:
1. Appointment. The Organization, as an independent contractor,
-----------
hereby agrees to perform or to have performed certain services for Customers as
hereinafter set forth. The Organization's appointment hereunder is
non-exclusive, and the parties recognize and agree that, from time to time, the
Corporation may enter into other shareholder servicing agreements, with others
without the Organization's consent. For the purposes of this Agreement, the
Organization is deemed an independent contractor and will have no authority to
act as the Corporation's agent in any respect.
-3-
<PAGE>
2. Service to be Performed.
-----------------------
2.1 Type of Service. The Organization shall be responsible for
---------------
performing or having performed shareholder account administrative and servicing
functions, which shall include without limitation: (a) assisting Customers in
designating and changing dividend options, account designations and
addresses;[1] (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 Corporation; (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,
integration of such information with information concerning other client
transactions otherwise effected with or through the Organization; (h)
furnishing on behalf of the Corporation's distributor (either separately or on
an integrated basis with other reports sent to a Customer by the 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, all such confirmations and statements to conform to Rule 10b-10
under the Securities Exchange Act of 1934 and other applicable federal or state
law; (i) transmitting proxy statements, annual reports, updating prospectuses
and other communications from the Corporation to Customers; (j) receiving,
tabulating and transmitting to the Corporation proxies executed by Customers
with respect to annual and special meetings of shareholders of the Corporation;
(k) providing reports (at least monthly, but more frequently if so requested by
the Corporation'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 the
Corporation or a Customer may reasonably request. The Organization shall
provide or arrange for all personnel and facilities to perform the functions
described in this paragraph with respect to its Customers.
2.2 Standard of Services. All services to be rendered or arranged
--------------------
for by the Organization hereunder shall be performed in a professional,
competent and timely manner. The details of the
- ----------
1. Services may be modified or omitted in a particular case and items
relettered or renumbered.
-4-
<PAGE>
operating standards and procedures to be followed in performance of the
services described above shall be determined from time to time by agreement
between the Organization and the Corporation. The Corporation acknowledges
that the Organization's ability to perform on a timely basis certain of its
obligations under this Agreement depends upon the Corporation's timely delivery
of certain materials and/or information to the Organization. The Corporation
agrees to use its best efforts to provide such materials to the Organization in
a timely manner.
3. Fees.
----
3.1 Fees from the Corporation. In consideration for the services
-------------------------
described in Section 2 hereof and the incurring of expenses in connection
therewith, the Organization shall receive fees set forth in Appendix A hereto,
such fees to be paid in arrears periodically (but in no event less frequently
than semi-annually) at annual rates of up to .40% of the average daily net
assets of the Corporation's Shares owned during the period for which payment
has been made by Customers for whom the Organization is the holder or agent of
record or with whom it maintains a servicing relationship. For purposes of
determining the fees payable to the Organization hereunder, the value of the
Corporation's net assets shall be computed in the manner specified in the
Corporation's then-current prospectus for computation of the net asset value of
the Corporation's Shares. The above fees constitute all fees to be paid to the
Organization by the Corporation with respect to the transactions contemplated
hereby. The Corporation may at any time in its discretion suspend or withdraw
the sale of its Shares.
3.2 Fees from Customers. It is agreed that the Organization may
-------------------
impose certain conditions on Customers, in addition to or different from those
imposed by the Corporation, such as requiring a minimum initial investment or
charging Customers direct fees for the same or similar services as are provided
hereunder by the Organization (which fees may either relate specifically to the
Organization's services with respect to the Corporation or generally cover
services not limited to those with respect to the Corporation). The
Organization shall bill Customers directly for such fees. In the event the
Organization charges Customers such fees, it shall notify the Corporation in
advance and make appropriate prior written disclosure (such disclosure to be in
accordance with all applicable laws) to Customers of any such fees charged to
the Customer. To the extent required by applicable rules and regulations of
the Securities and Exchange Commission, the Corporation shall make written
disclosure of the fees paid or to be paid to the Organization pursuant to
Section 3.1 of this Agreement. It is understood, however, that in no event
shall the Organization have recourse or access to the account of any
shareholder of the Corporation except to the extent expressly
-5-
<PAGE>
authorized by law or by such shareholder, or to any assets of the Corporation,
for payment of any direct fees referred to in this Section 3.2.
4. Information Pertaining to the Shares. The Organization and its
------------------------------------
officers, employees and agents are not authorized to make any representations
concerning the Corporation or the Shares to Customers or prospective Customers,
excepting only accurate communication of any information provided by or on
behalf of any administrator or distributor of the Corporation or any factual
information contained in the then-current prospectus relating to the
Corporation or to any series of the Corporation. In furnishing such
information regarding the Corporation or the Shares, the Organization shall act
as agent for the Customer only and shall have no authority to act as agent for
the Corporation. Advance copies or proofs of all materials which are generally
circulated or disseminated by the Organization to Customers or prospective
Customers which identify or describe the Corporation shall be provided to the
Corporation at least 10 days prior to such circulation or dissemination (unless
the Corporation consents in writing to a shorter period), and such materials
shall not be circulated or disseminated or further circulated or disseminated
at any time after the Corporation shall have given written notice within such
10 day period to the Organization of any objection thereto.
Nothing in this Section 4 shall be construed to make the
Corporation liable for the use (or accuracy unless prepared by the Corporation
for the specific use) of any information about the Corporation which is
disseminated by the Organization.
5. Use of the Organization's Name. The Corporation shall not use
------------------------------
the name of the Organization (or any of its affiliates or subsidiaries) in any
prospectus, sales literature or other material relating to the Corporation in a
manner not approved by the Organization prior thereto in writing; provided,
however, that the approval of the Organization shall not be required for any
use of its name which merely refers in accurate and factual terms to its
appointment hereunder and the terms hereof or which is required by law,
including without limitation, by the Securities and Exchange Commission or any
state securities authority or any other appropriate regulatory, governmental or
judicial authority; provided, further, that in no event shall such approval be
unreasonably withheld or delayed.
6. Use of the Corporation's Name. The Organization shall not use
-----------------------------
the name of the Corporation on any checks, bank drafts, bank statements or
forms for other than internal use in a manner not approved by the Corporation
prior thereto in writing; provided, however, that the approval of the
Corporation shall not be required for the use of the Corporation's name in
connection with communications permitted by Section 4 hereof or (subject to
-6-
<PAGE>
Section 4, to the extent the same may be applicable) for any use of the
Corporation's name which merely refers in accurate and factual terms to the
Corporation in connection with the Organization's role hereunder or which is
required by law, including without limitations, by the Securities and Exchange
Commission or any state securities authority or any other appropriate
regulatory, governmental or judicial authority; provided, further, that in no
event shall such approval be unreasonably withheld or delayed.
7. Security. The Organization represents and warrants that to the
--------
best of its knowledge, the various procedures and systems which it has
implemented (including provision for twenty-four hours a day restricted access)
with regard to safeguarding from loss or damage attributable to fire, theft or
any other cause the Corporation's records and other data and the Organization's
records, data, equipment, facilities and other property used in the performance
of its obligations hereunder are adequate and that it will make such changes
therein from time to time as in its judgment are required for the secure
performance of its obligations hereunder. The parties shall review such
systems and procedures on a periodic basis, and the Corporation shall from time
to time specify the types of records and other data of the Corporation to be
safeguarded in accordance with this Section 7.
8. Compliance with Laws. The Organization shall comply with all
--------------------
applicable federal and state laws and regulations, including without limitation
securities laws. The Organization represents and warrants to the Corporation
that the performance of all its obligations hereunder will comply with all
applicable laws and regulations, the provisions of its charter documents and by-
laws and all material contractual obligations binding upon the Organization. The
Organization furthermore undertakes that it will promptly, after the
Organization becomes so aware, inform the Corporation of any change in
applicable laws or regulations (or interpretations thereof) or in its charter or
by-laws or material contracts which would prevent or impair full performance of
any of its obligations hereunder.
9. Reports. Quarterly, and more frequently to the extent
-------
requested by the Corporation from time to time, the Organization agrees that it
will provide the administrator of the Corporation with a written report of the
amounts expended by the Organization pursuant to this Agreement and the
purposes for which such expenditures were made. Such written reports shall be
in a form satisfactory to the Corporation and shall supply all information
necessary for the Corporation to discharge its responsibilities under
applicable laws and regulations.
-7-
<PAGE>
10. Record Keeping.
--------------
10.1 Section 31. The Organization shall maintain records in a form
----------
reasonably acceptable to the Corporation and in compliance with applicable laws
and the rules and regulations of the Securities and Exchange Commission,
including but not limited to the record-keeping requirements of Section 31 of
the Investment Company Act of 1940, as amended (the "1940 Act") and the rules
thereunder. Such records shall be deemed to be the property of the Corporation
and will be made available at the Corporation's request for inspection and use
by the Corporation, representatives of the Corporation and governmental
authorities. The Organization agrees that, for so long as it retains any
records of the Corporation, it will meet all reporting requirements pursuant to
the 1940 Act and applicable to the Organization with respect to such records.
Upon termination of this Agreement, the Organization shall deliver to the
administrator of the Corporation all books and records maintained by the
Organization and deemed to be the Corporation's property hereunder.
10.2 Rules 17a-3 and 17a-4. The Organization shall maintain
---------------------
accurate and complete records with respect to services performed by the
Organization in connection with the purchase and redemption of Shares. Such
records shall be maintained in form reasonably acceptable to the Corporation
and in compliance with the requirements of all applicable laws, rules and
regulations, including without limitation, Rules 17a-3 and 17a-4 under the
Securities Exchange Act of 1934, as amended, pursuant to which any dealer of
the Shares must maintain certain records. All such records maintained by the
Organization shall be the property of such dealer and will be made available
for inspection and use by the Corporation or such dealer upon the request of
either. The Organization shall file with the Securities and Exchange
Commission and other appropriate governmental authorities, and furnish to the
Corporation and any such dealer copies of, all reports and undertakings as may
be reasonably requested by the Corporation or such dealer in order to comply
with the said rules. If so requested by any such dealer, the Organization
shall confirm to such dealer its obligations under this Section 10.2 by a
writing reasonably satisfactory to such dealer.
10.3 Transfer of Customer Data. In the event this Agreement is
-------------------------
terminated or a successor to the Organization is appointed, the Organization
shall transfer to such designee as the Corporation may direct a certified list
of the shareholders of the Corporation serviced by the Organization (with name,
address and tax identification or Social Security number, if any), a complete
record of the account of each such shareholder and the status thereof, and all
other relevant books, records, correspondence, and other data established or
maintained by the Organization under this Agreement. In the event this
Agreement
-8-
<PAGE>
is terminated, the Organization will use its best efforts to cooperate in the
orderly transfer of such duties and responsibilities, including assistance in
the establishment of books, records and other data by the successor.
10.4 Survival of Record-Keeping Obligations. The record-keeping
--------------------------------------
obligations imposed in this Section 10 shall survive the termination of this
Agreement for a period of three years.
10.5 Obligations Pursuant to Agreement Only. Nothing in this
--------------------------------------
Section 10 shall be construed so that the Organization would, by virtue of its
role hereunder, be required under applicable law to maintain the records
required to be maintained by it under this Section 10, but is understood that
the Organization has agreed to do so in order to enable the Corporation and its
dealer or dealers to comply with laws and regulations applicable to them.
10.6 Organization's Rights to Copy Records. Anything in this
-------------------------------------
Section 10 to the contrary notwithstanding, except to the extent otherwise
prohibited by law, the Organization shall have the right to copy, maintain and
use any records maintained by the Organization pursuant to this Section 10,
except as otherwise prohibited by Sections 4 and 6 hereof.
11. Force Majeure. The Organization shall not be liable or
-------------
responsible for delays or errors by reason of circumstances beyond its
reasonable control, including, but not limited to, acts of civil or military
authority, national emergencies, labor difficulties, fire, mechanical
breakdown, flood or catastrophe, Acts of God, insurrection, war, riots or
failure of communication or power supply.
12. Indemnification.
---------------
12.1 Indemnification of the Organization. The Corporation will
-----------------------------------
indemnify and hold the Organization harmless from all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses) from
any claim, demand, action or suit (collectively, "Claims") arising in
connection with material misstatements or omissions in the Corporation's
Prospectus. Notwithstanding anything herein to the contrary, the Corporation
will indemnify and hold the Organization harmless from any and all losses,
claims, damages, liabilities or expenses (including reasonable counsel fees and
expenses) resulting from any Claim as a result of its acting in accordance with
any written instructions reasonably believed by the Organization to have been
executed by any person duly authorized by the Corporation, or as a result of
acting in reliance upon any instrument or stock certificate reasonably believed
by the Organization to have been genuine and signed, countersigned or
-9-
<PAGE>
executed by a person duly authorized by the Corporation, excepting only the
negligence or bad faith of the Organization.
In any case in which the Corporation may be asked to indemnify or
hold the Organization harmless, the Corporation shall be advised of all
pertinent facts concerning the situation in question and the Organization shall
use reasonable care to identify and notify the Corporation promptly concerning
any situation which presents or appears likely to present a claim for
indemnification against the Corporation. The Corporation shall have the option
to defend the Organization against any Claim which may be the subject of
indemnification hereunder. In the event that the Corporation elects to defend
against such Claim, the defense shall be conducted by counsel chosen by the
Corporation and satisfactory to the Organization. The Organization may retain
additional counsel at its expense. Except with the prior written consent of
the Corporation, the Organization shall not confess any Claim or make any
compromise in any case in which the Corporation will be asked to indemnify the
Organization.
12.2 Indemnification of the Corporation. Without limiting the
----------------------------------
rights of the Corporation under applicable law, the Organization will indemnify
and hold the Corporation harmless from all losses, claims, damages, liabilities
or expenses (including reasonable counsel fees and expenses) from any Claim (a)
arising from (i) the bad faith or negligence of the Organization, its officers,
employees or agents, (ii) any breach of applicable law by the Organization, its
officers, employees or agents, (iii) any action of the Organization, its
officers, employees or agents which exceeds the legal authority of the
Organization or its authority hereunder, or (iv) any actions, inactions, errors
or omissions of the Organization, its officers, employees or agents with
respect to the purchase, redemption, transfer and registration of Customers'
Shares or the Corporation's verification or guarantee of any Customer
signature.
In any case in which the Organization may be asked to indemnify or
hold the Corporation harmless, the Organization shall be advised of all
pertinent facts concerning the situation in question and the Corporation shall
use reasonable care to identify and notify the Organization promptly concerning
any situation which presents or appears likely to present a claim for
indemnification against the Organization. The Organization shall have the
option to defend the Corporation against any Claim which may be the subject of
indemnification hereunder. In the event that the Organization elects to defend
against such Claim, the defense shall be conducted by counsel chosen by the
Organization and satisfactory to the Corporation. The Corporation may retain
additional counsel at its expense. Except with the prior written consent of
the Organization, the Corporation shall not confess
-10-
<PAGE>
any Claim or make any compromise in any case in which the Organization will be
asked to indemnify the Corporation.
12.3 Survival of Indemnities. The indemnities granted by the
-----------------------
parties in this Section 12 shall survive the termination of this Agreement.
13. Notices. All notices or other communications hereunder to
-------
either party shall be in writing and shall be deemed sufficient if mailed to
such party at the address of such party set forth on the signature page of this
Agreement or at such other address as such party may have designated by written
notice to the other.
14. Further Assurances. Each party agrees to perform such further
------------------
acts and execute such further documents as are necessary to effectuate the
purposes hereof.
15. Termination. Unless sooner terminated, this Agreement will
-----------
continue until July 31, 1996 and thereafter will continue automatically for
successive annual periods provided such continuance is specifically approved at
least annually by vote of a majority of (i) the Board of Directors of the
Corporation and (ii) those Directors who are not "interested persons" (as
defined in the 1940 Act) of the Corporation and have no direct or indirect
financial interest in the operation of the Corporation's Administrative
Services Plan or in any agreement related thereto cast in person at a meeting
called for the purpose of voting on such approval ("Disinterested Directors").
This Agreement is terminable, without penalty, at any time by the Corporation
(which termination may be by a vote of a majority of the Disinterested
Directors) or by you upon notice to the Corporation.
16. Changes; Amendments. This Agreement may be changed or amended
-------------------
only by written instrument signed by both parties hereto.
17. Subcontracting By Organization. The Organization may, with the
------------------------------
written approval of the Corporation (such approval not to be unreasonably
withheld), subcontract for the performance of the Organization's obligations
hereunder with any one or more persons, including but not limited to any one or
more persons which is an affiliate of the Organization; provided, however, that
the Organization shall be as fully responsible to the Corporation for the acts
and omissions of any subcontractor as it would be for its own acts or
omissions.
18. Compliance with Laws and Policies; Cooperation. The
----------------------------------------------
Corporation hereby agrees that it will comply with all laws and regulations
applicable to its operations and the Organization agrees that it will comply
with all laws and regulations applicable to its operations hereunder. Each
party understands
-11-
<PAGE>
that the other may from time to time adopt or modify policies relating to the
subject matter of this Agreement, in which case the party adopting or modifying
such a policy shall notify the other thereof and the parties shall consider the
applicability thereof and endeavor to comply therewith to the extent not
impracticable or unreasonably burdensome. Each of the parties agrees to
cooperate with the other in connection with the performance of this Agreement
and the resolution of any problems, questions or disagreements in connection
herewith.
18.1 Annual Financial Reports. At least once a year, the
------------------------
Corporation shall send to the record owners of its shares the Corporation's
audited financial statements.
18.2 Annual Certification. At least once a year, the Organization
--------------------
shall certify to the Corporation that it is conducting its business in
accordance with the terms and conditions of the Agreement.
19. Single Portfolio. Notwithstanding anything in this Agreement
----------------
to the contrary, any amount owed by Corporation to the Organization under this
Agreement or otherwise with respect to any matter hereunder shall be paid only
from and shall be limited to the assets and property of the particular
investment portfolio of the Corporation to which the matter relates.
20. Miscellaneous. This Agreement shall be construed and enforced
-------------
in accordance with and governed by the laws of the State of Maryland. The
captions in this Agreement are included for convenience of reference only and
in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect. This Agreement may be executed simultaneously in
two ore more counterparts, each of which shall be deemed an original, but all
of which taken together shall constitute one and the same instrument. The
terms of this Agreement shall become effective as of the date set forth below.
IN WITNESS WHEREOF, intending to be legally bound hereby, the
parties hereto have caused this Agreement to be executed and delivered in their
names and on their behalf by the undersigned, thereunto duly authorized, all as
of the day and year set forth below.
Dated as of: ______________________
Excelsior Tax-Exempt Funds, Inc. Address for Notices:
_______________________
_______________________
-12-
<PAGE>
_______________________
By: ______________________________ _______________________
(Authorized Officer)
___________________________________
[Service Organization]
By: _______________________________ Address for Notices:
(Authorized Officer) ________________________
________________________
________________________
________________________
-13-
<PAGE>
APPENDIX A
----------
EXCELSIOR TAX-EXEMPT FUNDS, INC.
Pursuant to the terms and conditions set forth in the attached
Shareholder Servicing Agreement, the Organization will receive the fees set
forth below in consideration for the services described in Section 2 of said
Agreement and the incurring of expenses in connection therewith, such fees
(calculated pursuant to Section 3.1 of said Agreement) to be paid in arrears
periodically (but in no event less frequently than semi-annually):
FUND SHAREHOLDER
SERVICING
FEE
Tax-Exempt Money Fund __ BP
Short-Term Tax-Exempt Securities Fund __ BP
Intermediate-Term Tax-Exempt Fund __ BP
Long-Term Tax-Exempt Fund __ BP
New York Intermediate-Term Tax-Exempt Fund __ BP
California Tax-Exempt Income Fund __ BP
-14-
<PAGE>
EXHIBIT 11
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 Statement of Additional Information
that are included in Post-Effective Amendment Nos. 21 and 23 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
-------------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
March 31, 1997
<PAGE>
EXHIBIT 13(b)
PURCHASE AGREEMENT
------------------
Excelsior Tax-Exempt Funds, Inc. (the "Company"), a Maryland corporation,
and Edgewood Services, Inc. ("Edgewood"), a New York corporation, hereby agree
with each other as follows:
1. The Company hereby offers Edgewood and Edgewood hereby purchases
two Shares of the California Tax-Exempt Income Fund of the Company
at $10 per Share. The Company hereby acknowledges receipt from
Edgewood of funds in the total amount of $20 in full payment for
the Shares.
2. Edgewood represents and warrants to the Company that the Shares are
being acquired for investment purposes and not with a view to the
distribution thereof.
IN AGREEMENT WHEREOF, and intending to be legally bound hereby, the
parties hereto have executed this Agreement as of the 25th day of September,
1996.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
By:/s/ Alfred Tannachion
---------------------
its President
EDGEWOOD SERVICES, INC.
By:/s/ Ronald M. Petnuch
---------------------
its Vice President
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<PAGE>
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<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 9,656,435
<INVESTMENTS-AT-VALUE> 9,667,135
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