EXCELSIOR INSTITUTIONAL TRUST, 497, 1999-08-10

EXCELSIOR INSTITUTIONAL TRUST
497, 1999-08-10

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<PAGE>

[LOGO APPEARS HERE]
Excelsior Institutional Shares

Prospectus

August 1, 1999

Excelsior Institutional Trust

Equity Fund
Value Equity Fund
Optimum Growth Fund
Income Fund
Total Return Bond Fund
International Equity Fund

Investment Adviser
United States Trust Company of New York
U.S. Trust Company

The Securities and Exchange Commission has not approved or disapproved any Fund
shares or determined whether this prospectus is accurate or complete. It is a
crime for anyone to tell you otherwise.

[EXCELSIOR LOGO APPEARS HERE]
<PAGE>

Table of Contents

Excelsior Institutional Trust is a mutual fund family that offers shares in
separate investment portfolios (Funds). The Funds have individual investment
goals and strategies. This prospectus gives you important information about the
Institutional Shares of the Funds that you should know before investing. Please
read this prospectus and keep it for future reference.

This prospectus has been arranged into different sections so that you can eas-
ily review this important information. On the next page, there is some general
information you should know about the Funds. For more detailed information
about each Fund, please see:

Page
----
Equity Fund............................... 4
Value Equity Fund......................... 6
Optimum Growth Fund....................... 8
Income Fund............................... 10
Total Return Bond Fund.................... 12
International Equity
Fund..................................... 14
More Information About
Risk..................................... 16
Each Fund's Other
Investments.............................. 17
The Investment Adviser
and Portfolio
Managers................................. 17-18
Purchasing, Selling and
Exchanging Fund
Shares................................... 19
Dividends, Distributions
and Taxes................................ 21
Financial Highlights...................... 22
How to Obtain More
Information About
Excelsior Institutional
Trust.................................... Back Cover

<PAGE>

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

Information Common To All Funds
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.

Each Fund has its own investment goal and strategies for reaching that goal.
The investment managers invest Fund assets in a way that they believe will help
a Fund achieve its goal. Still, investing in each Fund involves risk and there
is no guarantee that a Fund will achieve its goal. An investment manager's
judgments about the markets, the economy, or companies may not anticipate ac-
tual market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job an investment manager does, you could lose money on your investment in a
Fund, just as you could with other investments. A Fund share is not a bank de-
posit and it is not insured or guaranteed by the Federal Deposit Insurance Cor-
poration (FDIC) or any government agency.

The value of your investment in a Fund is based on the market value of the se-
curities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price move-
ments, sometimes called volatility, may be greater or lesser depending on the
types of securities a Fund owns and the markets in which they trade. The effect
on a Fund of a change in the value of a single security will depend on how
widely the Fund diversifies its holdings.

The Adviser's Equity Investment Philosophy
The Adviser manages the Equity Fund, Value Equity Fund and Optimum Growth Fund
with a view toward long-term success. To achieve this success, the Adviser
utilizes two fundamental investment strategies, value and growth. The Adviser
believes that, over the long-term, the blending of these strategies will result
in reduced volatility. These strategies are combined with "longer-term invest-
ment themes" to assess the investment potential of individual companies. Spe-
cific investment selection is a "bottom-up" approach, guided by these strate-
gies and themes to ensure proper diversification, risk control and market fo-
cus.

Value
This long-term strategy consists of searching for, identifying and obtaining
the benefits of present or future investment values. For example, such values
may be found in a company's future earnings potential or in its existing re-
sources and assets. Accordingly, the Adviser is constantly engaged in assess-
ing, comparing and judging the worth of companies, particularly in comparison
to the price the markets place on such companies' shares.

Growth
This long-term strategy consists of buying and holding equity securities of
companies which it believes to be of high quality and high growth potential
Typically, these companies are industry leaders with the potential to domi-
nate their markets by being low-cost, high-quality producers of products or
services. Usually these companies have an identifiable competitive advantage.
The Adviser believes that the earnings growth rate of these companies is the
primary determinant of their stock prices and that efficient markets will re-
ward consistently above average earnings growth with greater-than-average
capital appreciation over the long-term.

Themes
To complete the Adviser's investment philosophy in managing the funds, the
investment strategies discussed above are applied in concert with long-term
investment themes to identify investment opportunities. The Adviser believes
these longer-term themes represent strong and inexorable trends arising from
economic, social, demographic and cultural forces. The Adviser also believes
that understanding the instigation, catalysts and effects of these long-term
trends will enable them to identify companies that are currently or will soon
benefit from these trends.

3
<PAGE>

Equity Fund
- --------------------------------------------------------------------------------

FUND SUMMARY

INVESTMENT GOAL Long-term
capital appreciation

INVESTMENT FOCUS Common stocks
of U.S. companies

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT
STRATEGY Investing in common
stocks that the Adviser
believes are undervalued in
the market

INVESTOR PROFILE Investors
seeking growth of capital, and
who are willing to accept the
risks of investing in equity
securities

Investment Objective
The Equity Fund seeks to provide long-term capital appreciation. This objective
may be changed without shareholder approval.

Investment Strategy of the Equity Fund
The Equity Fund invests at least 65% of its assets in larger capitalization
(i.e., companies with market capitalizations over $5 billion) common stocks of
U.S. and, to a lesser extent, foreign companies that the Adviser believes have
value that is not currently reflected in their market prices. The Adviser gen-
erally diversifies the Fund's investments over a variety of industries and
types of companies. The Fund may invest in companies of any size, including
small, high growth companies.

The Adviser takes a long-term approach to managing the Fund and tries to iden-
tify companies with characteristics that will lead to future earnings growth or
recognition of their true value. In particular, the Adviser looks for companies
that its fundamental analysis indicates are positioned to provide solutions to
or benefit from complex social and economic trends, or whose products are early
in their life cycle and will experience accelerating growth in the future.

Principal Risks of Investing in the Equity Fund
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Fund's equity se-
curities may fluctuate substantially from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic
trends and developments. The prices of securities issued by such companies may
suffer a decline in response. These factors contribute to price volatility,
which is the principal risk of investing in the Fund.

The Fund also may be subject to risks particular to its investments in foreign,
medium and smaller capitalization companies. These risks are discussed in
greater detail in the section entitled "More Information About Risk."

The Fund is also subject to the risk that large capitalization U.S. equity se-
curities may underperform other segments of the equity markets or the equity
markets as a whole.
4
<PAGE>

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

Performance Information
The bar chart and the performance table below illustrate the risks and volatil-
ity of an investment in the Fund. Of course, the Fund's past performance does
not necessarily indicate how the Fund will perform in the future.

This bar chart shows changes in the performance of the Fund's Institutional
Shares from year to year.

[BAR CHART APPEARS HERE]
1996 19.86%
1997 31.72%
1998 24.95%
Best Quarter Worst Quarter
22.45% (15.60)%
(12/31/98) (9/30/98)

The Fund's performance for the six month period ending June 30, 1999 was
14.41%.

This table compares the average annual total return of the Fund's Institutional
Shares for the periods ended December 31, 1998 to those of the Standard & Poors
500 Composite Stock Price Index.

<TABLE>
<CAPTION>
Since
1 Year Inception
- ----------------------------------------------
<S> <C> <C>
Equity Fund
(Institutional Shares) 24.95% 24.21%*
Standard & Poors 500
Composite Stock Price Index 28.58% 30.48%**
</TABLE>

* Since January 16, 1995
** Since December 31, 1994

What is an Index?
An index measures the market prices of a specific group of securities in a par-
ticular market or securities in a market sector. You cannot invest directly in
an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower.

Fund Fees and Expenses
Every mutual fund has operating expenses to pay for services such as profes-
sional advisory, shareholder, administration and custody services and other
costs of doing business. This table describes the fees and expenses that you
may pay if you buy and hold shares of the Fund.

Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Institutional Shares
- ----------------------------------------------------
<S> <C> <C>
Management Fees 0.65%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.25%
Total Other Expenses 0.65%
- ----------------------------------------------------
Total Annual Fund Operating Expenses 1.30%*
</TABLE>

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Advis-
er's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administra-
tive servicing fee paid by the Fund. The Adviser may discontinue all or part
of these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses for the last fiscal year were 0.70%. For more information
about these fees, see "Investment Adviser."

Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell
your shares at the end of the period.

The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------
<S> <C> <C> <C> <C>
$132 $412 $713 $1,568
</TABLE>

5
<PAGE>

Value Equity Fund
- ----------------------------------------------------------------------------

FUND SUMMARY

Investment Goal Long-term
capital appreciation

Investment Focus Common stocks
of U.S. companies

Share Price Volatility High

Principal Investment
Strategy Investing in common
stocks that the Adviser
believes are undervalued in
the market

Investor Profile Investors
seeking growth of capital, and
who are willing to accept the
risks of investing in equity
securities

Investment Objective
The Value Equity Fund seeks long-term capital appreciation. This objective may
be changed without shareholder approval.

Investment Strategy of the Value Equity Fund
The Value Equity Fund invests at least 65% of its assets in common stocks of
U.S. and, to a lesser extent, foreign companies that the Adviser believes are
undervalued, at current market prices. The Adviser generally diversifies the
Fund's investments over a variety of industries and may invest in companies of
any size.

In selecting investments for the Fund, the Adviser combines fundamental re-
search with valuation constraints to identify companies trading at what the Ad-
viser believes are reasonable prices and displaying characteristics expected to
lead to greater recognition of true value. The Adviser believes that events
such as restructuring activities and industry consolidations can be the cata-
lysts necessary to realize this value.

Principal Risks of Investing in the Value Equity Fund
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Fund's equity se-
curities may fluctuate substantially from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic
trends and developments. The prices of securities issued by such companies may
suffer a decline in response. These factors contribute to price volatility,
which is the principal risk of investing in the Fund.

The smaller capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these small companies may have limited product lines, markets
and financial resources, and may depend upon a relatively small management
group. Therefore, small cap stocks may be more volatile than those of larger
companies. These securities may be traded over-the-counter or listed on an ex-
change and may or may not pay dividends.

The Fund also may be subject to risks particular to its investments in foreign
and medium capitalization companies. These risks are discussed in greater de-
tail in the section entitled "More Information About Risk."

The Fund is also subject to the risk that undervalued equity securities may
underperform other segments of the equity markets or the equity markets as a
whole.

6
<PAGE>

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

This bar chart shows changes in the performance of the Fund's Institutional
Shares from year to year.

[CHART APPEARS HERE]
1997 27.31%
1998 20.52%
Best Quarter Worst Quarter
23.91% (16.32)%
(12/31/98) (9/30/98)

The Fund's performance for the six month period ending June 30, 1999 was
17.81%.

This table compares the average annual total returns of the Fund's Institu-
tional Shares for the periods ended December 31, 1998 to those of the Russell
1000 Value Index.

<TABLE>
<CAPTION>
Since
1 Year Inception
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Value Equity Fund
(Institutional Shares) 20.52% 24.99%*
Russell 1000 Value Index 15.63% 24.75%**
</TABLE>

* Since June 1, 1996
** Since May 31, 1996

Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Institutional Shares
- ----------------------------------------------------
<S> <C> <C>
Management Fees 0.65%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.32%
Total Other Expenses 0.72%
- ----------------------------------------------------
Total Annual Fund Operating Expenses 1.37%*
</TABLE>

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------
<S> <C> <C> <C> <C>
$139 $434 $750 $1,646
</TABLE>

7
<PAGE>

Optimum Growth Fund
- --------------------------------------------------------------------------------

FUND SUMMARY

Investment Goal Superior,
risk-adjusted total return

Investment Focus Common stocks
of U.S. companies

Share Price Volatility High

Principal Investment
Strategy Invests in common
stocks that the Adviser
believes have strong growth
prospects

Investor Profile Investors
seeking total return, and who
are willing to accept the
risks of investing in equity
securities

Investment Objective
The Optimum Growth Fund seeks superior, risk- adjusted total return. This ob-
jective may be changed without shareholder approval.

Investment Strategy of the Optimum Growth Fund
The Optimum Growth Fund invests at least 65% of its assets in common stocks of
U.S. companies that the Adviser believes have growth prospects that exceed
those of the overall market. The Fund generally invests in mid- to large-capi-
talization companies (i.e., companies with market capitalizations over $1.5
billion) in a variety of industries.

The Adviser takes a long-term approach to managing the Fund and tries to iden-
tify high quality companies with consistent or rising earnings growth records.
Typically, these companies are industry leaders with the potential to dominate
their markets by being the low cost, high quality producers of products or
services. In addition to its core portfolio selections, the Adviser further di-
versifies Fund investments with a structured segment of issuers included in the
Russell 1000 Growth Index, which includes growth-oriented issuers selected from
among the 1000 largest U.S. issuers. From this universe, the Adviser systemati-
cally selects companies that it believes, based on quantitative screening, com-
plements the Fund's core holdings by reducing portfolio volatility and further
diversifying the Fund.

Principal Risks of Investing in the Optimum Growth Fund
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Fund's equity se-
curities may fluctuate substantially from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic
trends and developments. The prices of securities issued by such companies may
suffer a decline in response. These factors contribute to price volatility,
which is the principal risk of investing in the Fund.

The Fund also may be subject to risks particular to its investments in medium
capitalization companies. These risks are discussed in greater detail in the
section entitled "More Information About Risk."

The Fund is also subject to the risk that medium to large capitalization U.S.
equity securities may underperform other segments of the equity markets or the
equity markets as a whole.

8
<PAGE>

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

This bar chart shows changes in the performance of the Fund's Institutional
Shares from year to year.

[BAR CHART APPEARS HERE]
1997 33.51%
1998 65.23%
Best Quarter Worst Quarter
36.46% (6.27)%
(12/31/98) (9/30/98)

The Fund's performance for the six month period ending June 30, 1999 was
19.58%.

This table compares the average annual total returns of the Fund's Institu-
tional Shares for the periods ended December 31, 1998 to those of the Russell
1000 Growth Index.

<TABLE>
<CAPTION>
Since
1 Year Inception
- -------------------------------------------
<S> <C> <C>
Optimum Growth Fund
(Institutional Shares) 65.23% 38.01%*
Russell 1000 Growth Index 38.65% 30.52%**
</TABLE>

* Since June 1, 1996
** Since May 31, 1996

Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Institutional Shares
- ----------------------------------------------------------------
<S> <C> <C>
Management Fees 0.65%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.28%
Total Other Expenses 0.68%
- ----------------------------------------------------------------
Total Annual Fund Operating Expenses 1.33%*
</TABLE>

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Advis-
er's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administra-
tive servicing fee paid by the Fund. The Adviser may discontinue all or part
of these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses for the last fiscal year were 0.71%. For more information
about these fees, see "Investment Adviser."

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------
<S> <C> <C> <C> <C>
$135 $421 $729 $1,601
</TABLE>

9
<PAGE>

Income Fund
- --------------------------------------------------------------------------------

FUND SUMMARY

Investment Goal Current income

Investment Focus Investment
grade fixed income securities

Share Price Volatility Medium

Principal Investment
Strategy Investing in
investment grade government
and corporate fixed income
securities

Investor Profile Investors
seeking current income, and
who are willing to accept the
risks of investing in fixed
income securities of varying
maturities

Investment Objective
The Income Fund seeks to provide as high a level of current interest income as
is consistent with moderate risk of capital and maintenance of liquidity. This
objective may be changed without shareholder approval.

Investment Strategy of the Income Fund
The Income Fund invests at least 65% of its assets in fixed income securities
issued or guaranteed by the U.S. government, its agencies and instrumentali-
ties, and corporate issuers rated at the time of investment in one of the two
highest rating categories by a major rating agency. However, the Fund may in-
vest without limit in securities rated at the time of investment in one of the
three highest rating categories by a major rating agency and may place up to
35% of its assets in fixed income securities that are rated below investment
grade. These securities are sometimes called "high yield" or "junk" bonds. The
Fund also may invest a portion of its assets in dollar-denominated fixed income
securities of foreign issuers and mortgage-backed securities.

There is no limit on the Fund's average maturity or on the maximum maturity of
a particular security. The Adviser manages the Fund's average portfolio matu-
rity in light of current market and economic conditions to provide a competi-
tive current yield and reasonable principal volatility. In selecting particular
investments, the Adviser looks for securities that offer relative value, based
on its assessment of real interest rates and the yield curve. The fixed income
securities held by the Fund also may have the potential for moderate price
appreciation.

Due to its investment strategy, the Fund may buy and sell securities frequent-
ly. This may result in higher transaction costs and additional capital gains
tax liabilities and may affect the Fund's performance.

Principal Risks of Investing in the Income Fund
The prices of the Fund's fixed income securities respond to economic develop-
ments, particularly interest rate changes, as well as to perceptions about the
creditworthiness of individual issuers, including governments. Generally, the
Fund's fixed income securities will decrease in value if interest rates rise,
and the volatility of lower rated securities is even greater than that of
higher rated securities.

Junk bonds involve greater risks of default or downgrade and are more volatile
than investment grade securities. Junk bonds involve greater risk of default or
price declines than investment grade securities due to actual or perceived
changes in an issuer's creditworthiness. In addition, issuers of junk bonds may
be more susceptible than other issuers to economic downturns. Junk bonds are
subject to the risk that the issuer may not be able to pay interest or divi-
dends and ultimately to repay principal upon maturity. Discontinuation of these
payments could substantially adversely affect the market value of the security.

The mortgages underlying mortgage-backed securities may be paid off early,
which makes it difficult to determine their actual maturity and therefore cal-
culate how they will respond to changes in interest rates. The Fund may have to
reinvest prepaid amounts at lower interest rates.

The Fund's U.S. Government securities are not guaranteed against price move-
ments due to changing interest

10
<PAGE>

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

rates. Obligations issued by some U.S. Government agencies are backed by the
U.S. Treasury, while others are backed solely by the ability of the agency to
borrow from the U.S. Treasury or by the agency's own resources.

The Fund also may be subject to risks particular to its investments in foreign
fixed income securities as well as credit risk. These risks are discussed in
greater detail in the section entitled "More Information About Risk."

The Fund is also subject to the risk that long-term fixed income securities may
underperform other segments of the fixed income markets or the fixed income
markets as a whole.

This bar chart shows changes in the performance of the Fund's Institutional
Shares from year to year.

[BAR CHART APPEARS HERE]
1996 2.51%
1997 9.28%
1998 8.46%
Best Quarter Worst Quarter
4.85% (2.03)%
(6/30/95) (3/31/96)

The Fund's performance for the six month period ending June 30, 1999 was -
2.24%.

This table compares the average annual total returns of the Fund's Institu-
tional Shares for the periods ended December 31, 1998 to those of the Lehman
Brothers Intermediate Govt/Corp Bond Index.

<TABLE>
<CAPTION>
1 Since
Year Inception
- ------------------------------------------------------------------------------------
<S> <C> <C>
Income Fund
(Institutional Shares) 8.46% 8.74%*
Lehman Brothers Intermediate Govt/Corp Bond Index 8.42% 8.84%**
</TABLE>

* Since January 16, 1995
** Since December 31, 1994

Fund Fees and Expenses

Every mutual fund has operating expenses to pay for services such as profes-
sional advisory, shareholder, administration and custody services and other
costs of doing business. This table describes the fees and expenses that you
may pay if you buy and hold shares of the Fund.

Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Institutional Shares
- ----------------------------------------------------------------
<S> <C> <C>
Management Fees 0.65%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.26%
Total Other Expenses 0.66%
- ----------------------------------------------------------------
Total Annual Fund Operating Expenses 1.31%*
</TABLE>

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Advis-
er's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administra-
tive servicing fee paid by the Fund. The Adviser may discontinue all or part
of these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses for the last fiscal year were 0.50%. For more information
about these fees, see "Investment Adviser."

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------
<S> <C> <C> <C> <C>
$133 $415 $718 $1,579
</TABLE>

11
<PAGE>

Total Return Bond Fund
- --------------------------------------------------------------------------------

..........................................................

FUND SUMMARY

Investment Goal Total return

Investment Focus Investment
grade fixed income securities

Share Price Volatility Medium

Principal Investment
Strategy Investing in
investment grade government
and corporate fixed income
securities

Investor Profile Investors
seeking total return, and who
are willing to accept the
risks of investing in fixed
income securities of varying
maturities

Investment Objective
The Total Return Bond Fund seeks to maximize the total rate of return consis-
tent with moderate risk of capital and maintenance of liquidity. This objective
may be changed without shareholder approval.

Investment Strategy of the Total Return Bond Fund
The Total Return Bond Fund invests at least 65% of its assets in fixed income
securities issued or guaranteed by the U.S. government, its agencies and in-
strumentalities, and corporate issuers rated at the time of investment in one
of the two highest rating categories by a major rating agency. However, the
Fund may invest without limit in securities rated at the time of investment in
one of the three highest rating categories by a major rating agency. The Fund
also may invest a portion of its assets in dollar-denominated fixed income se-
curities of foreign issuers and mortgage-backed securities.

There is no limit on the Fund's average maturity or on the maximum maturity of
a particular security. The Adviser manages the Fund by balancing yield, average
maturity and risk in light of its assessment of real interest rates and the
yield curve to provide maximum preservation of purchase power. In selecting
particular investments, the Adviser looks for fixed income securities that of-
fer relative value and potential for moderate price appreciation.

Principal Risks of Investing in the Total Return Bond Fund
The prices of the Fund's fixed income securities respond to economic develop-
ments, particularly interest rate changes, as well as to perceptions about the
creditworthiness of individual issuers, including governments. Generally, the
Fund's fixed income securities will decrease in value if interest rates rise,
and the volatility of lower rated securities is even greater than that of
higher rated securities.

The Fund's U.S. Government securities are not guaranteed against price move-
ments due to changing interest rates. Obligations issued by some U.S. Govern-
ment agencies are backed by the U.S. Treasury, while others are backed solely
by the ability of the agency to borrow from the U.S. Treasury or by the
agency's own resources.

The Fund is also subject to the risk that long-term fixed income securities may
underperform other segments of the fixed income markets or the fixed income
markets as a whole.

12
<PAGE>

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

This bar chart shows changes in the performance of the Fund's Institutional
Shares from year to year.

[BAR CHART APPEARS HERE]
1996 2.66%
1997 9.23%
1998 9.22%
Best Quarter Worst Quarter
7.03% (2.47)%
(6/30/95) (3/31/96)

The Fund's performance for the six month period ending June 30, 1999 was -
2.87%.

This table compares the average annual total returns of the Fund's Institu-
tional Shares for the periods ended December 31, 1998 to those of the Lehman
Brothers Govt/Corp Bond Index.

<TABLE>
<CAPTION>
1 Since
Year Inception
- -----------------------------------------------------------------------------------
<S> <C> <C>
Total Return Bond Fund (Institutional Shares) 9.22% 9.79%*
Lehman Brothers Govt/Corp Bond Index 9.46% 10.19%**
</TABLE>

* Since January 19, 1995
** Since December 31, 1994

Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Institutional Shares
- --------------------------------------------------------
<S> <C> <C>
Management Fees 0.65%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.24%
Total Other Expenses 0.64%
- --------------------------------------------------------
Total Annual Fund Operating
Expenses 1.29%*
</TABLE>

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Advis-
er's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administra-
tive servicing fee paid by the Fund. The Adviser may discontinue all or part
of these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses for the last fiscal year were 0.50%. For more information
about these fees, see "Investment Adviser."

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------
<S> <C> <C> <C> <C>
$131 $409 $708 $1,556
</TABLE>

13
<PAGE>

International Equity Fund
- --------------------------------------------------------------------------------

FUND SUMMARY

Investment Goal Long-term
capital appreciation

Investment Focus Foreign
equity securities

Share Price Volatility High

Principal Investment
Strategy Investing in a
diversified portfolio of
equity securities of issuers
in developed foreign countries
and, to a lesser extent,
emerging markets

Investor Profile Investors
seeking total return, who are
willing to accept the risks of
investing in companies located
in foreign countries

Investment Objective
The International Equity Fund seeks to provide long-term capital appreciation
through investment in a diversified portfolio of marketable foreign securities.
This objective may be changed without shareholder approval.

Investment Strategy of the International Equity Fund
The International Equity Fund invests at least 65% of its assets in equity se-
curities of larger, more established companies located in developed foreign
markets, which include most nations in western Europe and the more developed
nations in the Pacific Basin and Latin America. The Fund may invest to a lesser
extent in less developed countries and regions to capitalize on opportunities
in emerging markets. Emerging market countries are countries that the World
Bank or the United Nations considers to be emerging or developing. The Adviser
generally does not attempt to hedge the effects of currency value fluctuations
on the Fund's investments on an on-going basis.

The Adviser selects investments for the Fund by applying a bottom-up investment
approach designed to identify companies that the Adviser expects to experience
sustainable earnings growth and to benefit from global economic trends or prom-
ising technologies or products and whose value is not recognized in the prices
of their securities. The Adviser continuously analyzes companies in a broad
range of foreign markets, giving particular emphasis to each company's scope of
operations and economic ties to one or more specific countries. While the Fund
generally invests in companies in a variety of countries, industries and sec-
tors, the Adviser does not attempt to invest a specific percentage of the
Fund's assets in a given country, region or industry. The Fund will make in-
vestments in companies located in emerging markets only where the Adviser be-
lieves that such companies' growth/appreciation potential transcends their lo-
cation or operations in emerging market countries.

Principal Risks of Investing in the International Equity Fund
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Fund's equity se-
curities may fluctuate substantially from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic
trends and developments. The prices of securities issued by such companies may
suffer a decline in response. These factors contribute to price volatility,
which is the principal risk of investing in the Fund.

Investing in foreign countries poses additional risks since political and eco-
nomic events unique to a country or region will affect those markets and their
issuers. These events will not necessarily affect the U.S. economy or similar
issuers located in the United States. In addition, investments in foreign coun-
tries are generally denominated in a foreign currency. As a result, changes in
the value of those currencies compared to the U.S. dollar may affect (posi-
tively or negatively) the value of a Fund's investments. These currency move-
ments may happen separately from and in response to events that do not other-
wise affect the value of the security in the issuer's home country. These vari-
ous risks will be even greater for investments in emerging market countries
since political turmoil and rapid changes in economic conditions are more
likely to occur in these countries.

Emerging markets may be more likely to experience political turmoil or rapid
changes in market or economic condi-

14
<PAGE>

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

tions than more developed countries. In addition, the financial stability of
issuers (including governments) in emerging market countries may be more pre-
carious than in other countries. As a result, there will tend to be an in-
creased risk of price volatility associated with the Fund's investments in
emerging market countries, which may be magnified by currency fluctuations rel-
ative to the U.S. dollar.

The Fund is also subject to the risk that foreign equity securities may
underperform other segments of the equity markets or the equity markets as a
whole.

This bar chart shows changes in the performance of the Fund's Institutional
Shares from year to year.

[BAR CHART APPEARS HERE]
1996 14.75%
1997 -4.59%
1998 10.13%
Best Quarter Worst Quarter
18.21% (16.37)%
(12/31/98) (9/30/98)

The Fund's performance for the six month period ending June 30, 1999 was 4.75%.

This table compares the average annual total returns of the Fund's Institu-
tional Shares for the periods ended December 31, 1998 to those of the FT/S&P--
Actuaries World Indices--World Excluding U.S. Index.

<TABLE>
<CAPTION>
Since
1 Year Inception
- ------------------------------------------------------------------------------------
<S> <C> <C>
International Equity Fund (Institutional Shares) 10.13% 9.81%*
FT/S&P--Actuaries World Indices--
World Excluding U.S. Index 16.17% 8.33%**
</TABLE>

* Since January 24, 1995
** Since December 31, 1994

Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Institutional Shares
- --------------------------------------------------------
<S> <C> <C>
Management Fees 1.00%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.53%
Total Other Expenses 0.93%
- --------------------------------------------------------
Total Annual Fund Operating
Expenses 1.93%*
</TABLE>

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Advis-
er's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administra-
tive servicing fee paid by the Fund. The Adviser may discontinue all or part
of these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses for the last fiscal year were 0.90%. For more information
about these fees, see "Investment Adviser."

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------
<S> <C> <C> <C> <C>
$196 $606 $1,042 $2,254
</TABLE>

15
<PAGE>

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

More Information About Risk

Equity Risk
(Equity Fund, Value Equity Fund, Optimum Growth Fund and International Equity
Fund)--Equity securities include public and privately issued equity securities,
common and preferred stocks, warrants, rights to subscribe to common stock and
convertible securities, as well as instruments that attempt to track the price
movement of equity indices. Investments in equity securities and equity deriva-
tives in general are subject to market risks that may cause their prices to
fluctuate over time. The value of securities convertible into equity securi-
ties, such as warrants or convertible debt, is also affected by prevailing in-
terest rates, the credit quality of the issuer and any call provision.

Small Cap Risk
(Equity Fund and Value Equity Fund)--The smaller capitalization companies in
which the Funds may invest in may be more vulnerable to adverse business or
economic events than larger, more established companies. In particular, these
small companies may have limited product lines, markets and financial re-
sources, and may depend upon a relatively small management group. Therefore,
small cap stocks may be more volatile than those of larger companies.

Mid Cap Risk
(Equity Fund, Value Equity Fund and Optimum Growth Fund)--The medium capital-
ization companies that the Funds may invest in may be more vulnerable to ad-
verse business or economic events than larger companies. In particular, these
companies may have limited product lines, markets and financial resources, and
may depend on a relatively small management group. Therefore, medium capital-
ization stocks may be more volatile than those of larger companies.

Fixed Income Risk
(Income Fund and Total Return Bond Fund)--The market value of fixed income in-
vestments change in response to interest rate changes and other factors. During
periods of falling interest rates, the values of outstanding fixed income secu-
rities generally rise. Moreover, while securities with longer maturities tend
to produce higher yields, the prices of longer maturity securities are also
subject to greater market fluctuations as a result of changes in interest
rates. As the average maturity or duration of a security lengthens, the risk
that the price of such security will become more volatile increases. Duration
approximates the price sensitivity of a security to changes in interest rates.
In contrast to maturity which measures only time until final payment, duration
combines consideration of yield, interest payments, final maturity and call
features.

Call Risk
(Income Fund and Total Return Bond Fund)--During periods of falling interest
rates, certain debt obligations with high interest rates may be prepaid (or
"called") by the issuer prior to maturity. This may cause a Fund's average
weighted maturity to fluctuate, and may require a Fund to invest the result-
ing proceeds at lower interest rates.

Credit Risk
(Income Fund and Total Return Bond Fund)--The possibility that an issuer will
be unable to make timely payments of either principal or interest.

Event Risk
(Income Fund and Total Return Bond Fund)--Securities may suffer declines in
credit quality and market value due to issuer restructurings or other fac-
tors. This risk should be reduced because of a Fund's multiple holdings.

High-Yield, Lower Rated Securities
(Income Fund)--"Junk bonds" are subject to additional risks associated with
investing in high-yield securities, including:

. Greater risk of default or price declines due to changes in the issuer's
creditworthiness.
. A thinner and less active market which may increase price volatility and
limit the ability of a Fund to sell these securities at their carrying
values.
. Prices for high-yield, lower rated securities may be affected by investor
perception of issuer credit quality and the outlook for economic growth,
such that prices may move independently of interest rates and the overall
bond market.

Mortgage-Backed Securities
(Income Fund and Total Return Bond Fund)--Mortgage-backed securities are fixed
income securities representing an interest in a pool of underlying mortgage
loans. They are sensitive to changes in interest rates, but may respond to
these changes differently from other fixed income securities due to the possi-
bility of prepayment of the underlying mortgage loans. As a result, it may not
be possible to determine in advance the actual maturity date or average life of
a mortgage-backed security.

16
<PAGE>

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

Rising interest rates tend to discourage refinancings, with the result that the
average life and volatility of the security will increase, exacerbating its de-
crease in market price. When interest rates fall, however, mortgage-backed se-
curities may not gain as much in market value because of the expectation of ad-
ditional mortgage prepayments that must be reinvested at lower interest rates.
Prepayment risk may make it difficult to calculate the average maturity of a
portfolio of mortgage-backed securities and, therefore, to assess the volatil-
ity risk of that portfolio.

Foreign Security Risks
(All Funds)-- Investments in securities of foreign companies or governments can
be more volatile than investments in U.S. companies or governments. Diplomatic,
political, or economic developments, including nationalization or appropria-
tion, could affect investments in foreign countries. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets. In ad-
dition, the value of securities denominated in foreign currencies, and of divi-
dends from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign companies or govern-
ments generally are not subject to uniform accounting, auditing, and financial
reporting standards comparable to those applicable to domestic U.S. companies
or governments. Transaction costs are generally higher than those in the U.S.
and expenses for custodial arrangements of foreign securities may be somewhat
greater than typical expenses for custodial arrangements of similar U.S. secu-
rities. Some foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is recov-
erable, the non-recovered portion will reduce the income received from the se-
curities comprising the portfolio.

Currency Risk
(All Funds)-- Investments in foreign securities denominated in foreign curren-
cies involve additional risks, including:

. A Fund may incur substantial costs in connection with conversions between
various currencies.
. Only a limited market currently exists for hedging transactions relating to
currencies in certain emerging markets.

Year 2000 Risk
(All Funds)-- The Funds depend on the smooth functioning of computer systems in
almost every aspect of their business. Like other mutual funds, businesses and
individuals around the world, the Funds could be adversely affected if the com-
puter systems used by their service providers do not properly process dates on
and after January 1, 2000, and distinguish between the year 2000 and the year
1900. This is commonly known as the "Year 2000 Problem." The Adviser and the
Funds' other service providers advise that they are taking steps to address the
Year 2000 Problem with respect to the computer systems that they use. Current-
ly, they do not anticipate that the transition to the 21st Century will have
any material impact on their ability to continue to service the Funds at cur-
rent levels. At this time, however, there can be no assurance that their ef-
forts will be sufficient to avoid any adverse impact on the Funds as a result
of the Year 2000 Problem. In addition, the Funds and their shareholders may ex-
perience losses as a result of computer difficulties experienced by issuers of
portfolio securities or third parties, such as custodians, banks, broker-deal-
ers or others with which the Funds do business.

Furthermore, many foreign countries are not as prepared as the U.S. for the
year 2000 transition. As a result, computer difficulties in foreign markets and
with foreign institutions as a result of the Year 2000 Problem may add to the
possibility of losses to the Funds and their shareholders.

Each Fund's Other Investments
In addition to the investments and strategies described in this prospectus,
each Fund also may invest in other securities, use other strategies and engage
in other investment practices. These investments and strategies, as well as
those described in this prospectus, are described in detail in our Statement of
Additional Information.

The investments and strategies described in this prospectus are those that we
use under normal conditions. During adverse economic, market or other condi-
tions, each Fund may take temporary defensive positions such as investing up to
100% of its assets in investments that would not ordinarily be consistent with
a Fund's objective. The Fund may not achieve its objective when so invested. A
Fund will do so only if the Adviser believes that the risk of loss outweighs
the opportunity for capital gains or higher income. Of course, a Fund cannot
guarantee that it will achieve its investment goal.

Investment Adviser
United States Trust Company of New York and U.S. Trust Company (together, U.S.
Trust or the Adviser)

17
<PAGE>

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

serve as investment adviser to each Fund. United States Trust Company of New
York is a state-chartered bank and trust company and a member bank of the Fed-
eral Reserve System. U.S. Trust Company is a Connecticut state bank and trust
company. Each is a wholly-owned subsidiary of U.S. Trust Corporation, a regis-
tered bank holding company.

U.S. Trust is one of the oldest investment management companies in the country.
Since 1853, U.S. Trust has been a leader in wealth management for sophisticated
investors providing trust and banking services to individuals, corporations and
institutions, both nationally and internationally, including investment manage-
ment, estate and trust administration, financial planning, corporate trust and
agency banking, and personal and corporate banking. On December 31, 1998, U.S.
Trust had approximately $65 billion in aggregate assets under management.
United States Trust Company of New York has its principal offices at 114 W.
47th Street, New York, NY 10036. U.S. Trust Company has its principal offices
at 225 High Ridge Road, East Building, Stamford, CT 06905.

The Adviser makes investment decisions for the Funds and continuously reviews,
supervises and administers each Fund's investment program.

The Board of Trustees of Excelsior Institutional Trust supervises the Adviser
and establishes policies that the Adviser must follow in its management activi-
ties.

For the fiscal year ended March 31, 1999, U.S. Trust received advisory fees, as
a percentage of average daily net assets, of:

<TABLE>
<S> <C>
Equity Fund 0.45%
Value Equity Fund 0.39%
Optimum Growth Fund 0.43%
Income Fund 0.24%
Total Return Bond Fund 0.26%
International Equity Fund 0.40%
</TABLE>

From June 22, 1998, to December 28, 1998, U.S. Trust Company, N.A. served as
the International Equity Fund's investment adviser, pursuant to an advisory
agreement substantially similar to the advisory agreement currently in effect
for the Fund. Prior to June 22, 1998, U.S. Trust Company of The Pacific North-
west served as the Fund's investment adviser pursuant to an advisory agreement
substantially similar to the advisory agreement currently in effect for the
Fund. For the fiscal year ended March 31, 1999, U.S. Trust Company, N.A. re-
ceived an advisory fee (after voluntary fee waivers) from the Fund at the ef-
fective annual rate of 0.40% of the Fund's average daily net assets, and U.S.
Trust Company of The Pacific Northwest received an advisory fee (after volun-
tary fee waivers) from the Fund at the effective annual rate of 0.425% of the
Fund's average daily net assets.

Prior to December 28, 1998, Harding Loevner Management, L.P. (Harding) served
as the International Equity Fund's investment sub-adviser and made the day-to-
day investment decisions and portfolio selections for the Fund. For the serv-
ices it provided to the Fund, Harding was paid only by the adviser, and did not
receive any fees directly from the Fund.

Portfolio Managers
Leigh H. Weiss has served as portfolio manager for the Equity Fund since Janu-
ary 1996. Mr. Weiss is a Managing Director and Senior Portfolio Manager of U.S.
Trust and has been with U.S. Trust since 1993. Mr. Weiss is primarily responsi-
ble for the day to day management of the Equity Fund's portfolio. Research,
analyses, trade execution and other facilities provided by U.S. Trust and other
personnel also play a significant role in portfolio management and performance.

David J. Williams has served as portfolio manager for the Value Equity Fund
since its inception. Mr. Williams is a Managing Director and Senior Portfolio
Manager for U.S. Trust and has been with U.S. Trust since 1987. Mr. Williams is
primarily responsible for the day to day management of the Value Equity Fund's
portfolio. Research, analyses, trade execution and other facilities provided by
U.S. Trust and other personnel also play a significant role in portfolio man-
agement and performance.

All investment decisions for the Optimum Growth Fund are made by a committee of
investment professionals and no persons are primarily responsible for making
recommendations to that committee. United States Trust Company of New York pro-
vides its investment advisory services to the Optimum Growth Fund primarily
through its Campbell Cowperthwait division.

Alexander R. Powers has served as portfolio manager for the Income and Total
Return Bond Funds since December 1996. Mr. Powers is a Managing Director of
U.S. Trust's Taxable Fixed-Income Investments and has been with U.S. Trust
since July 1996. From 1988 to 1996, Mr. Powers was the Manager of Taxable
Fixed-Income Investments at Chase Asset Management. Mr. Powers is primar-

18
<PAGE>

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

ily responsible for the day to day management of the Income and Total Return
Bond Funds' portfolios. Research, analyses, trade execution and other facili-
ties provided by U.S. Trust and other personnel also play a significant role in
portfolio management and performance.

Rosemary Sagar has served as portfolio manager for the International Equity
Fund since December 1998. Ms. Sagar is the Managing Director of U.S. Trust's
Global Investment Division and she has been with U.S. Trust since 1996. From
1991 to 1996, Ms. Sagar was Senior Vice President for international equity in-
vestments for General Electric Investments Corp. in Stamford, CT. Ms. Sagar is
primarily responsible for the day to day management of the International Equity
Fund's portfolio. Research, analyses, trade execution and other facilities pro-
vided by U.S. Trust and other personnel also play a significant role in portfo-
lio management and performance.

Purchasing, Selling and Exchanging Fund Shares
This section tells you how to buy, sell (sometimes called "redeem") or exchange
Institutional Shares of the Funds.

Institutional Shares
. No sales charge
. No 12b-1 fees
. No minimum initial or subsequent investment

Institutional Shares are offered only to financial institutions investing for
their own or their customers' accounts. For information on how to open an ac-
count and set up procedures for placing transactions call (800) 909-1989 (from
overseas, call (617) 557-1755). Customers of financial institutions should con-
tact their institutions for information on their accounts.

How to Purchase Fund Shares
You may purchase shares directly by:
. Mail
. Telephone

To purchase shares directly from us, please call (800) 909-1989 (from overseas,
call (617) 557-1755), or complete and send in the enclosed application to Ex-
celsior Funds, c/o Chase Global Funds Services Company, P.O. Box 2798, Boston,
MA 02208-2798. Unless you arrange to pay by wire, write your check, payable in
U.S. dollars, to "Excelsior Institutional Trust" and include the name of the
appropriate Fund(s) on the check. A Fund cannot accept third-party checks,
credit card checks or cash. To purchase shares by wire, please call us for in-
structions. Federal funds and registration instructions should be wired through
the Federal Reserve System to:

The Chase Manhattan Bank
ABA#021000021
Excelsior Institutional Trust
Credit DDA 910-2-733046
[Account Registration]
[Account Number]
[Wire Control Number]

Investors making initial investments by wire must promptly complete the en-
closed application and forward it to the address indicated on the application.
Investors making subsequent investments by wire should follow the above in-
structions.

You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Fund shares for their customers. If you
invest through an authorized institution, you will have to follow its proce-
dures. Your institution may charge a fee for its services, in addition to the
fees charged by the Fund. You will also generally have to address your corre-
spondence or questions regarding a Fund to your institution.

The Funds' distributor may institute promotional incentive programs for deal-
ers, which will be paid for by the distributor out of its own assets and not
out of the assets of the Funds. Under any such program, the distributor may
provide incentives, in the form of cash or other compensation, including mer-
chandise, airline vouchers, trips and vacation packages, to dealers selling
shares of a Fund. If any such program is made available to any dealer, it will
be made available to all dealers on the same terms.

General Information
You may purchase shares on any day that the New York Stock Exchange (NYSE) and
the Adviser are open for business (a "Business Day"). A Fund may reject any
purchase request if it is determined that accepting the request would not be in
the best interests of the Fund or its shareholders.

The price per share (the offering price) will be the net asset value per share
(NAV) next determined after a Fund receives your purchase request in good or-
der. We consider requests to be in "good order" when all required documents are
properly completed, signed and received.

19
<PAGE>

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

Each Fund calculates its NAV once each Business Day at the regularly-scheduled
close of normal trading on the NYSE (normally, 4:00 p.m., Eastern time). So,
for you to receive the current Business Day's NAV, a Fund must receive your
purchase request in good order before 4:00 p.m., Eastern time.

How We Calculate NAV
NAV for one Fund share is the value of that share's portion of all of the as-
sets in the Fund.

In calculating NAV, a Fund generally values its investment portfolio at market
price. If market prices are unavailable or the Adviser thinks that they are un-
reliable, fair value prices may be determined in good faith using methods ap-
proved by the Board of Trustees. Fixed income investments with remaining matu-
rities of 60 days or less generally are valued at their amortized cost, which
approximates their market value.

Some Funds may hold securities that are listed on foreign exchanges. These se-
curities may trade on weekends or other days when the Funds do not calculate
NAV. As a result, the market value of these securities may change on days when
you cannot purchase or sell Fund shares.

How to Sell Your Fund Shares
You may sell shares directly by:
. Mail, or
. Telephone

Holders of Institutional Shares may sell shares by following procedures estab-
lished when they opened their account or accounts. If you have questions, call
(800) 909-1989 (from overseas, call (617) 557-1755).

You may sell your shares by sending a written request for redemption to:
Excelsior Institutional Trust
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

Please be sure to indicate the number of shares to be sold, identify your ac-
count number and sign the request.

If you own your shares directly and previously indicated on your account appli-
cation or arranged in writing to do so, you may sell (sometimes called "re-
deem") your shares on any Business Day by contacting a Fund directly by tele-
phone at (800) 909-1989 (from overseas, call (617) 557-1755). We may reject a
telephone redemption request if we deem it advisable to do so.

If you would like to sell $50,000 or more of your shares, or any amount if the
proceeds are to be sent to an address other than the address of record, please
notify the Fund in writing and include a signature guarantee by a bank or other
financial institution (a notarized signature is not sufficient).

The sale price of each share will be the next NAV determined after the Fund re-
ceives your request in good order.

Receiving Your Money
Normally, we will send your sale proceeds the Business Day after we receive
your request in good order. Your proceeds can be wired to your bank account or
sent to you by check. If you recently purchased your shares by check, redemp-
tion proceeds may not be available until your check has cleared (which may take
up to 15 Business Days).

Redemptions in Kind
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise, we might pay all or part of
your redemption proceeds in liquid securities with a market value equal to the
redemption price (redemption in kind). It is highly unlikely that your shares
would ever be redeemed in kind, but if they were you would probably have to pay
transaction costs to sell the securities distributed to you, as well as taxes
on any capital gains from the sale as with any redemption.

Involuntary Sales of Your Shares
If your account balance drops below $500 because of redemptions, you may be re-
quired to sell your shares. But, we will always give you at least 60 days'
written notice to give you time to add to your account and avoid the sale of
your shares.

Suspension of Your Right to Sell Your Shares
A Fund may suspend your right to sell your shares if the NYSE restricts trad-
ing, the SEC declares an emergency or for other reasons. More information about
this is in our Statement of Additional Information.

How to Exchange Your Shares
You may exchange your shares on any Business Day for Institutional Shares of
any portfolio of Excelsior Institu-

20
<PAGE>

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

tional Trust, or for Institutional Shares of the Money or Government Money
Funds of Excelsior Funds, Inc. In order to protect other shareholders, we may
limit your exchanges to no more than six per year, and we may reject any ex-
change request. Shares can be exchanged directly by mail, or by telephone if
you previously selected the telephone exchange option on the account applica-
tion.

If you recently purchased shares by check, you may not be able to exchange your
shares until your check has cleared (which may take up to 15 Business Days).
This exchange privilege may be changed or canceled at any time.

When you exchange shares, you are really selling your shares and buying other
Fund shares. So, your sale price and purchase price will be based on the NAV
next calculated after the Fund receives your exchange request in good order.

Telephone Transactions
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although the Funds have certain safeguards
and procedures to confirm the identity of callers and the authenticity of in-
structions, the Funds are not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with a Fund over the telephone, you will
generally bear the risk of any loss.

Authorized Intermediaries
Certain intermediaries, such as brokers or other shareholder organizations, are
authorized to accept purchase, redemption and exchange requests for Funds
shares. These intermediaries may authorize other organizations to accept pur-
chase, redemption and exchange requests for Fund shares. These requests are
normally executed at the NAV next determined after the intermediary receives
the request in good order. Authorized intermediaries are responsible for trans-
mitting requests and delivering funds on a timely basis.

Shareholder Servicing
The Funds are permitted to pay a shareholder servicing fee to certain share-
holder organizations for providing services to their customers who hold shares
of the Funds. These services may include assisting in the processing of pur-
chase, redemption and exchange request and providing periodic account state-
ments. The shareholder servicing fee may be up to 0.40% of the average daily
net asset value of Fund shares held by clients of a shareholder organization.

Dividends, Distributions and Taxes
Each Fund distributes its income as follows:

<TABLE>
<S> <C>
Equity Fund Declared and Paid Quarterly
Value Equity Fund Declared and Paid Quarterly
Optimum Growth Fund Declared and Paid Quarterly
Income Fund Declared Daily and Paid Monthly
Total Return Bond Fund Declared Daily and Paid Monthly
International Equity Fund Declared and Paid Semi-annually
</TABLE>

Each Fund makes distributions of capital gains, if any, at least annually. If
you own Fund shares on a Fund's record date, you will be entitled to receive
the distribution.

Dividends and distributions for shares held of record by U.S. Trust and its af-
filiates or correspondent banks will be paid in cash. Otherwise, dividends and
distributions will be paid in the form of additional Fund shares unless you
elect to receive payment in cash. To elect cash payment, you must notify the
Fund in writing prior to the date of the distribution. Your election will be
effective for dividends and distributions paid after the Fund receives your
written notice. To cancel your election, simply send the Fund written notice.

Taxes
Please consult your tax adviser regarding your specific questions about feder-
al, state and local income taxes. Below we have summarized some important tax
issues that affect the Funds and their shareholders. This summary is based on
current tax laws, which may change.

Each Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from a Fund may be taxable whether or not you reinvest them. Income
distributions are generally taxable at ordinary income tax rates. Capital gains
distributions are generally taxable at the rates applicable to long-term capi-
tal gains. Each sale or exchange of Fund shares is a taxable event.

Each Fund may be able to pass along a tax credit for foreign income taxes it
pays. The Fund will notify you if it gives you the credit.

More information about taxes is in the Statement of Additional Information.

21
<PAGE>

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

Financial Highlights
The table that follow present performance information about Institutional
Shares of the Fund. This information is intended to help you understand the
Fund's financial performance for the past five years, or, if shorter, the pe-
riod of the Fund's operations. Some of this information reflects financial in-
formation for a single Fund share. The total returns in the table represent the
rate that you would have earned (or lost) on an investment in a Fund, assuming
you reinvested all of your dividends and distributions. This information has
been audited by Ernst & Young LLP, independent public accountants. Their re-
port, along with the Fund's financial statements, appears in the annual report
that accompanies our Statement of Additional Information. You can obtain the
annual report, which contains more performance information, at no charge by
calling (800) 909-1989 (from overseas, call (617) 557-1755).

EQUITY FUND

<TABLE>
<CAPTION>
Year Ended
March 31,
---------------- Ten Months Ended Year Ended January 16, 1995(b)
1999 1998 March 31, 1997(a) May 31, 1996 To May 31, 1995
------- ------- ----------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 12.69 $ 9.65 $ 8.93 $ 7.73 $ 7.00
------- ------- ------- ------ ------
Investment Operations:
Net Investment Income.. 0.04 0.05 0.05 0.11 0.05
Net Realized and
Unrealized Gain ...... 2.47 4.67 0.86 1.20 0.70
------- ------- ------- ------ ------
Total from Investment
Operations............ 2.51 4.72 0.91 1.31 0.75
------- ------- ------- ------ ------
Distributions:
From Net Investment
Income................ (0.04) (0.06) (0.07) (0.11) (0.02)
From Net Realized
Gains................. (0.20) (1.62) (0.12) -- --
------- ------- ------- ------ ------
Total Distributions.... (0.24) (1.68) (0.19) (0.11) (0.02)
------- ------- ------- ------ ------
Net Asset Value, End of
Period................. $ 14.96 $ 12.69 $ 9.65 $ 8.93 $ 7.73
======= ======= ======= ====== ======
Total Return............ 20.13% 51.58% 10.22%(c) 17.04% 10.80%(c)
Ratios/Supplemental
Data:
Ratios to Average Net
Assets
Net Expenses........... 0.70% 0.70% 0.70%(e) 0.36% 0.12%(e)
Gross Expenses(d)...... 0.90% 0.90% 0.92%(e) 1.49% 2.67%(e)
Net Investment Income.. 0.28% 0.46% 0.70%(e) 1.32% 2.44%(e)
Portfolio Turnover
Rate.................. 37% 26% 32%(e) 113% 34%(e)
Net Assets at End of
Period (in millions).. $180.11 $138.33 $118.56 $23.50 $15.41
</TABLE>
- ------
Notes:
(a) The Fund changed its fiscal year end to March 31.
(b) Commencement of operations.
(c) Not annualized.
(d) Expense ratios before waiver of fees and reimbursement of expenses (if any)
by the investment adviser and administrators.
(e) Annualized.

22
<PAGE>

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

VALUE EQUITY FUND

<TABLE>
<CAPTION>
Year Ended
March 31, June 1, 1996(a)
-------------- to
1999 1998 March 31, 1997
------ ------ ---------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period........... $16.12 $11.33 $10.00
------ ------ ------
Investment Operations:
Net Investment Income......................... 0.13 0.11 0.08
Net Realized and Unrealized Gain ............. 0.52 5.59 1.31
------ ------ ------
Total from Investment Operations.............. 0.65 5.70 1.39
------ ------ ------
Distributions:
From Net Investment Income.................... (0.12) (0.11) (0.06)
From Net Realized Gains....................... (1.32) (0.80) --
------ ------ ------
Total Distributions........................... (1.44) (0.91) (0.06)
------ ------ ------
Net Asset Value, End of Period................. $15.33 $16.12 $11.33
====== ====== ======
Total Return................................... 4.80% 51.67% 13.91%(b)
Ratios/Supplemental Data:
Ratios to Average Net Assets
Net Expenses.................................. 0.70% 0.70% 0.70%(c)
Gross Expenses(d)............................. 0.97% 1.00% 1.12%(c)
Net Investment Income......................... 0.87% 0.81% 0.94%(c)
Portfolio Turnover Rate........................ 55% 51% 64%(c)
Net Assets at End of Period (in millions)...... $39.31 $34.77 $23.69
</TABLE>
- ------
Notes:
(a) Commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Expense ratios before waiver of fees and reimbursement of expenses (if any)
by the investment adviser and administrators.

23
<PAGE>

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

OPTIMUM GROWTH FUND

<TABLE>
<CAPTION>
Year Ended
March 31,
------------- June 1, 1996(a)
1999 1998 to March 31, 1997
------ ------ -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period........... $16.33 $10.19 $10.00
------ ------ ------
Investment Operations:
Net Investment Income......................... -- 0.03 0.05
Net Realized and Unrealized Gain (loss)....... 11.22 6.15 0.17
------ ------ ------
Total from Investment Operations.............. 11.22 6.18 0.22
------ ------ ------
Distributions:
From Net Investment Income.................... -- (0.04) (0.03)
From Net Realized Gains....................... -- -- --
------ ------ ------
Total Distributions........................... -- (0.04) (0.03)
------ ------ ------
Net Asset Value, End of Period................. $27.55 $16.33 $10.19
====== ====== ======
Total Return................................... 68.74% 60.85% 2.23%(b)
Ratios/Supplemental Data:
Ratios to Average Net Assets
Net Expenses.................................. 0.71% 0.70% 0.70%(c)
Gross Expenses(d)............................. 0.93% 0.97% 1.11%(c)
Net Investment Income......................... 0.00% 0.23% 0.66%(c)
Portfolio Turnover Rate....................... 22% 19% 20%(c)
Net Assets at End of Period (in millions)..... $88.05 $51.44 $27.18
</TABLE>
- ------
Notes:
(a) Commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Expense ratios before waiver of fees and reimbursement of expenses (if any)
by the investment adviser and administrators.
(e) Amount represents less than $0.01 per share.

24
<PAGE>

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

INCOME FUND

<TABLE>
<CAPTION>
Year Ended
March 31,
---------------- Ten Months Ended Year Ended January 16, 1995(b)
1999 1998 March 31, 1997(a) May 31, 1996 To May 31, 1995
------ ------ ----------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 7.23 $ 6.90 $ 6.99 $ 7.33 $ 7.00
------ ------ ------ ------ ------
Investment Operations:
Net Investment Income.. 0.40 0.44 0.38 0.51 0.19
Net Realized and
Unrealized Gain
(loss)................ 0.03 0.35 (0.01) (0.27) 0.33
------ ------ ------ ------ ------
Total from Investment
Operations............ 0.43 0.79 0.37 0.24 0.52
------ ------ ------ ------ ------
Distributions:
From Net Investment
Income................ (0.41) (0.44) (0.38) (0.51) (0.19)
In Excess of Net
Investment Income..... -- (f) -- (f) -- -- --
From Net Realized
Gains................. (0.25) (0.02) (0.08) (0.07) --
------ ------ ------ ------ ------
Total Distributions.... (0.66) (0.46) (0.46) (0.58) (0.19)
------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $ 7.00 $ 7.23 $ 6.90 $ 6.99 $ 7.33
====== ====== ====== ====== ======
Total Return............ 5.94% 11.78% 5.39%(c) 3.18% 7.51%(c)
Ratios and Supplemental
Data:
Ratios to Average Net
Assets
Net Expenses........... 0.50% 0.50% 0.50%(e) 0.26% 0.12%(e)
Gross Expenses(d)...... 0.91% 0.91% 0.96%(e) 1.35% 1.65%(e)
Net Investment Income.. 5.57% 6.14% 6.50%(e) 6.99% 7.17%(e)
Portfolio Turnover
Rate................... 196% 190% 107%(e) 67% 34%(e)
Net Assets at End of
Period (in millions)... $67.24 $61.38 $51.08 $24.00 $33.23
</TABLE>
- ------
Notes:
(a) The Fund changed its fiscal year end to March 31.
(b) Commencement of operations.
(c) Not annualized.
(d) Expense ratios before waiver of fees and reimbursement of expenses (if any)
by the investment adviser and administrators.
(e) Annualized.
(f) Amount represents less than $0.01 per share.

25
<PAGE>

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

TOTAL RETURN BOND FUND

<TABLE>
<CAPTION>
Year Ended
March 31,
---------------- Ten Months Ended Year Ended January 16, 1995(b)
1999 1998 March 31, 1997(a) May 31, 1996 To May 31, 1995
------- ------- ----------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 7.51 $ 7.16 $ 7.18 $ 7.47 $ 7.00
------- ------- ------- ------ ------
Investment Operations:
Net Investment Income.. 0.42 0.44 0.37 0.48 0.18
Net Realized and
Unrealized Gain
(loss)................ 0.03 0.41 0.01 (0.17) 0.47
------- ------- ------- ------ ------
Total from Investment
Operations............ 0.45 0.85 0.38 0.31 0.65
------- ------- ------- ------ ------
Distributions:
From Net Investment
Income................ (0.42) (0.44) (0.37) (0.48) (0.18)
From Net Realized
Gains................. (0.20) (0.06) (0.03) (0.12) --
In Excess of Net
Realized Gains........ (0.02) -- -- -- --
------- ------- ------- ------ ------
Total Distributions.... (0.64) (0.50) (0.40) (0.60) (0.18)
------- ------- ------- ------ ------
Net Asset Value, End of
Period................. $ 7.32 $ 7.51 $ 7.16 $ 7.18 $ 7.47
======= ======= ======= ====== ======
Total Return............ 6.07% 12.21% 5.29%(c) 4.20% 9.40%(c)
Ratios and Supplemental
Data:
Ratios to Average Net
Assets
Net Expenses........... 0.50% 0.50% 0.50%(e) 0.32% 0.12%(e)
Gross Expenses(d)...... 0.89% 0.90% 0.92%(e) 1.33% 1.93%(e)
Net Investment Income.. 5.53% 5.95% 6.08%(e) 6.47% 7.09%(e)
Portfolio Turnover
Rate................... 234% 196% 200%(e) 127% 84%(e)
Net Assets at End of
Period (in millions)... $251.61 $167.71 $138.40 $65.02 $24.91
</TABLE>
- ------
Notes:
(a) The Fund changed its fiscal year end to March 31.
(b) Commencement of operations.
(c) Not annualized.
(d) Expense ratios before waiver of fees and reimbursement of expenses (if any)
by the investment adviser and administrators.
(e) Annualized.

26
<PAGE>

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

INTERNATIONAL EQUITY FUND

<TABLE>
<CAPTION>
Year Ended
March 31,
--------------- Ten Months Ended Year Ended January 24, 1995(b)
1999 1998 March 31, 1997(a) May 31, 1996 To May 31, 1995
------- ------ ----------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 9.67 $ 9.03 $ 8.99 $ 7.88 $ 7.00
------- ------ ------ ------ ------
Investment Operations:
Net Investment Income.. 0.16 0.09 0.01 0.09 0.08
Net Realized and
Unrealized Gain
(loss)................ (0.79) 0.79 0.21 1.20 0.80
------- ------ ------ ------ ------
Total from Investment
Operations............ (0.63) 0.88 0.22 1.29 0.88
------- ------ ------ ------ ------
Distributions:
From Net Investment
Income................ (0.16) (0.07) (0.06) (0.12) 0.00
In Excess of Net
Investment Income..... 0.00 (0.02) (0.03) 0.00 0.00
From Net Realized
Gains................. (0.30) (0.15) (0.09) (0.06) 0.00
In Excess of Net
Realized Gains........ (0.13) -- -- -- --
------- ------ ------ ------ ------
Total Distributions.... (0.59) (0.24) (0.18) (0.18) 0.00
------- ------ ------ ------ ------
Net Asset Value, End of
Period................. $ 8.45 $ 9.67 $ 9.03 $ 8.99 $ 7.88
======= ====== ====== ====== ======
Total Return............ (6.60)% 9.90% 2.41%(c) 16.58% 12.57%(c)
Ratios and Supplemental
Data:
Ratios to Average Net
Assets
Net Expenses........... 0.90% 0.90% 0.90%(e) 0.60% 0.25%(e)
Gross Expenses(d)...... 1.53% 1.43% 1.49%(e) 2.05% 3.32%(e)
Net Investment Income.. 1.18% 1.05% 0.45%(e) 1.71% 3.47%(e)
Portfolio Turnover
Rate................... 107% 52% 45%(e) 19% 8%(e)
Net Assets at End of
Period (in millions)... $ 78.80 $40.45 $38.47 $24.52 $ 8.80
</TABLE>
- ------
Notes:
(a) The Fund changed its fiscal year end to March 31.
(b) Commencement of Operations.
(c) Not annualized.
(e) Annualized.
(d) Expense ratios before waiver of fees and reimbursement of expenses (if any)
by the investment adviser and administrators.

27
<PAGE>

Excelsior Institutional Trust

Investment Adviser
United States Trust Company of New York
114 W. 47th Street
New York, New York 10036

U.S. Trust Company
225 High Ridge Road
East Building
Stamford, Connecticut 06905

Distributor
Edgewood Services, Inc.
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-5829

More information about each Fund is available without charge through the fol-
lowing:

Statement of Additional Information (SAI)
The SAI dated August 1, 1999 includes detailed information about Excelsior In-
stitutional Trust. The SAI is on file with the SEC and is incorporated by ref-
erence into this prospectus. This means that the SAI, for legal purposes, is a
part of this prospectus.

Annual and Semi-Annual Reports
These reports contain additional information about the Funds' investments. The
Annual Report also lists each Fund's holdings and contains information from the
Fund's managers about strategies, and recent market conditions and trends.

To Obtain More Information:
By Telephone: Call (800) 909-1989 (from overseas, call (617) 557-1755)

By Mail: Excelsior Institutional Trust, P.O. Box 2798, Boston, Massachusetts
02208-2798

By Internet: http://www.excelsiorfunds.com

From the SEC: You can also obtain the SAI or the Annual and Semi-Annual re-
ports, as well as other information about Excelsior Institutional Trust, from
the SEC's website ("http://www.sec.gov"). You may review and copy documents at
the SEC Public Reference Room in Washington, DC (for information call 1-800-
SEC-0330). You may request documents by mail from the SEC, upon payment of a
duplicating fee, by writing to: Securities and Exchange Commission, Public Ref-
erence Section, Washington, DC 20549-6009. Excelsior Institutional Trust's In-
vestment Company Act registration number is 811-8490.
<PAGE>

[LOGO APPEARS HERE]
Excelsior Domestic Equity Funds

Prospectus

August 1, 1999

Excelsior Funds, Inc.

Excelsior Institutional Trust

Blended Equity Fund
Large Cap Growth Fund
Optimum Growth Fund
Small Cap Fund
Value and Restructuring Fund
Value Equity Fund
Energy and Natural Resources Fund
Real Estate Fund

Investment Adviser
United States Trust Company of New York
U.S. Trust Company

The Securities and Exchange Commission has not approved or disapproved any Fund
shares or determined whether this prospectus is accurate or complete. It is a
crime for anyone to tell you otherwise.

[LOGO OF EXCELSIOR FUNDS APPEARS HERE]
<PAGE>

Table of Contents

Excelsior Funds, Inc. and Excelsior Institutional Trust are mutual fund fami-
lies that offer shares in separate investment portfolios which have individual
investment goals and strategies. This prospectus gives you important informa-
tion about the Blended Equity, Large Cap Growth, Small Cap, Value and Restruc-
turing, Energy and Natural Resources, and Real Estate Funds of Excelsior Funds,
Inc. and the Optimum Growth and Value Equity Funds of Excelsior Institutional
Trust (each, a Fund) that you should know before investing. The Optimum Growth
and Value Equity Funds offer two classes of shares: Shares, which are offered
in this prospectus, and Institutional Shares, which are offered in a separate
prospectus. Please read this prospectus and keep it for future reference.

<TABLE>
<CAPTION>
Page
<S> <C>
Blended Equity Fund.................................................. 4
Large Cap Growth Fund................................................ 6
Optimum Growth Fund.................................................. 8
Small Cap Fund....................................................... 10
Value and Restructuring Fund......................................... 12
Value Equity Fund.................................................... 14
Energy and Natural Resources Fund.................................... 16
Real Estate Fund..................................................... 18
More Information About Risk.......................................... 20
Each Fund's Other Investments........................................ 21
The Investment Adviser and Portfolio Managers........................ 21
Purchasing, Selling and Exchanging Fund Shares....................... 22
Distribution of Fund Shares.......................................... 25
Dividends, Distributions and Taxes................................... 25
Financial Highlights................................................. 26
How to Obtain More Information About Excelsior Funds................. Back Cover
</TABLE>
<PAGE>

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

Information Common to All Funds
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.

Each Fund has its own investment goal and strategies for reaching that goal.
The investment managers invest Fund assets in a way that they believe will help
a Fund achieve its goal. Still, investing in each Fund involves risk and there
is no guarantee that a Fund will achieve its goal. An investment manager's
judgments about the markets, the economy, or companies may not anticipate ac-
tual market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job an investment manager does, you could lose money on your investment in
the Fund, just as you could with other investments. A Fund share is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance Cor-
poration (FDIC) or any government agency.

The Adviser's Equity Investment Philosophy
The Adviser manages each of the Fund's investments with a view toward long-term
success. To achieve this success, the Adviser utilizes two fundamental invest-
ment strategies, value and growth. The Adviser believes that, over the long-
term, the blending of these strategies will result in reduced volatility. These
strategies are combined with "longer-term investment themes" to assess the in-
vestment potential of individual companies. Specific investment selection is a
"bottom-up" approach, guided by these strategies and themes to ensure proper
diversification, risk control and market focus.

Growth
This long-term strategy consists of buying and holding equity securities of
companies which it believes to be of high quality and high growth potential.
Typically, these companies are industry leaders with the potential to domi-
nate their markets by being low-cost, high-quality producers of products or
services. Usually these companies have an identifiable competitive advantage.
The Adviser believes that the earnings growth rate of these companies is the
primary determinant of their stock prices and that efficient markets will re-
ward consistently above average earnings growth with greater-than-average
capital appreciation over the long-term.

3
<PAGE>

Blended Equity Fund
- -------------------------------------------------------------------------------

FUND SUMMARY

INVESTMENT GOAL Long-term
capital appreciation

INVESTMENT FOCUS Common stocks
of U.S. companies

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT
STRATEGY Invests in common
stocks that the Adviser
believes are undervalued in
the market

INVESTOR PROFILE Investors
seeking growth of capital, and
who are willing to accept the
risks of investing in equity
securities

Investment Objective
The Blended Equity Fund seeks long-term capital appreciation by investing in
companies that represent good long-term values not currently recognized in the
market prices of their securities.

Investment Strategy of the Blended Equity Fund
The Blended Equity Fund invests at least 65% of its assets in large capitaliza-
tion (i.e., companies with market capitalizations over $5 billion) common
stocks of U.S. and, to a lesser extent, foreign companies that the Adviser be-
lieves have value that is not currently reflected in their market prices. The
Adviser generally diversifies the Fund's investments over a variety of indus-
tries and types of companies. The Fund may invest in companies of any size, in-
cluding small, high growth companies.

The Adviser takes a long-term approach to managing the Fund and tries to iden-
tify companies with characteristics that will lead to future earnings growth or
recognition of their true value. The Adviser looks for companies that are posi-
tioned to provide solutions to or benefit from complex social and economic
trends, or whose products are early in their life cycle and will experience ac-
celerating growth in the future. In addition, the Adviser invests a smaller
portion of the Fund's assets in a quantitatively selected segment of large cap-
italization U.S. companies designed to complement the Fund's core holdings by
reducing portfolio volatility and further diversifying the Fund. In considering
whether to sell one or more portfolio holdings, the Adviser will generally seek
to minimize the tax impact of any such sale(s).

Principal Risks of Investing in the Blended Equity Fund
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Fund's equity se-
curities may fluctuate substantially from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic
trends and developments. The prices of securities issued by such companies may
suffer a decline in response. These factors contribute to price volatility,
which is the principal risk of investing in the Fund.

The Fund is also subject to the risk that undervalued common stocks may
underperform other segments of the equity markets or the equity markets as a
whole.

4
<PAGE>

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

This bar chart shows changes in the Fund's performance from year to year.

[BAR CHART APPEARS HERE]
1989 27.65%
1990 -12.28%
1991 34.98%
1992 16.56%
1993 16.34%
1994 0.22%
1995 28.93%
1996 19.88%
1997 29.73%
1998 28.70%

Best Quarter Worst Quarter
24.92% (25.56)%
(12/31/85) (12/31/87)

The Fund's performance for the six month period ending June 30, 1999 was
10.79%.

This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Standard & Poor's 500 Composite Stock
Price Index.

<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Blended Equity Fund 28.70% 20.90% 18.10%
Standard & Poor's 500 Composite Stock Price Index 28.58% 24.04% 19.21%
</TABLE>

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C> <C>
Management Fees 0.75%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.22%
Total Other Expenses 0.62%
- --------------------------------------------------
Total Annual Fund Operating Expenses 1.37%*
</TABLE>

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Advis-
er's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administra-
tive servicing fee paid by the Fund. The Adviser may discontinue all or part
of these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses for the last fiscal year were 0.95%. For more information
about these fees, see "Investment Adviser."

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------
<S> <C> <C> <C> <C>
$139 $434 $750 $1,646
</TABLE>

5
<PAGE>

Large Cap Growth Fund
[LOGO APPEARS HERE]
- --------------------------------------------------------------------------------

FUND SUMMARY

INVESTMENT GOAL Long-term
growth of capital

INVESTMENT FOCUS Common stocks
of large U.S. companies

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT
STRATEGY Invests in common
stocks of large companies that
the Adviser believes have
above-average growth prospects

INVESTOR PROFILE Investors
seeking growth of capital, and
who are willing to accept the
risks of investing in equity
securities of larger companies

Investment Objective
The Large Cap Growth Fund seeks superior, risk-adjusted total return by invest-
ing in larger companies whose growth prospects, in the opinion of the Adviser,
appear to exceed that of the overall market. This objective may be changed
without shareholder approval.

Investment Strategy of the Large Cap Growth Fund
The Large Cap Growth Fund invests at least 65% of its assets in common stocks
of large U.S. companies with market capitalizations over $5 billion that the
Adviser believes have above-average growth prospects.

The Adviser takes a long-term approach to managing the Fund and invests in com-
panies with characteristics that it believes will lead to future earnings
growth or recognition of their true value. In selecting particular investments,
the Adviser applies a bottom-up investment approach designed to identify the
best companies in the most rapidly growing industries. Frequently, these are
well established companies that are positioned to provide solutions to or bene-
fit from complex social and economic trends. However, the Fund also may invest
in smaller, high growth companies when the Adviser expects their earnings to
grow at an above-average rate.

Principal Risks of Investing in the Large Cap Growth Fund
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Fund's equity se-
curities may fluctuate substantially from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic
trends and developments. The prices of securities issued by such companies may
suffer a decline in response. These factors contribute to price volatility,
which is the principal risk of investing in the Fund.

The Fund also may be subject to risks particular to its investments in smaller
capitalization companies. These risks are discussed in greater detail in the
section entitled "More Information About Risk."

The Fund is also subject to the risk that large capitalization growth stocks
may underperform other segments of the equity markets or the equity markets as
a whole.

6
<PAGE>

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

This bar chart shows changes in the Fund's performance from year to year.

[BAR CHART APPEARS HERE]

Best Quarter Worst Quarter
39.37% (9.28)%
(12/31/98) (9/30/98)

The Fund's performance for the six month period ending June 30, 1999 was
21.16%.

This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Standard & Poor's 500 Composite Stock
Price Index.

<TABLE>
<CAPTION>
Since
1 Year Inception
- ----------------------------------------------
<S> <C> <C>
Large Cap Growth Fund 67.04% 52.41%*
Standard & Poor's 500
Composite Stock Price Index 28.58% 25.08%**
</TABLE>

* Since October 1, 1997 **Since September 30, 1997

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C> <C>
Management Fees 0.75%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.29%
Total Other Expenses 0.69%
- --------------------------------------------------
Total Annual Fund Operating Expenses 1.44%*
</TABLE>

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Advis-
er's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administra-
tive servicing fee paid by the Fund. The Adviser may discontinue all or part
of these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses for the last fiscal year were 1.04%. For more information
about these fees, see "Investment Adviser."

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------
<S> <C> <C> <C> <C>
$147 $456 $787 $1,724
</TABLE>

7
<PAGE>

Optimum Growth Fund
[LOGO APPEARS HERE]
- --------------------------------------------------------------------------------

FUND SUMMARY

INVESTMENT GOAL Superior,
risk-adjusted total return

INVESTMENT FOCUS Common stocks
of U.S. companies

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT
STRATEGY Invests in common
stocks that the Adviser
believes have strong growth
prospects

INVESTOR PROFILE Investors
seeking total return, and who
are willing to accept the
risks of investing in equity
securities

INVESTMENT OBJECTIVE
The Optimum Growth Fund seeks superior, risk-adjusted total return. This objec-
tive may be changed without shareholder approval.

INVESTMENT STRATEGY OF THE OPTIMUM GROWTH FUND
The Optimum Growth Fund invests at least 65% of its assets in common stocks of
U.S. companies that the Adviser believes have growth prospects that exceed
those of the overall market. The Fund generally invests in mid- to large-capi-
talization companies (i.e., companies with market capitalizations over $1.5
billion) in a variety of industries.

PRINCIPAL RISKS OF INVESTING IN THE OPTIMUM GROWTH FUND
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Fund's equity se-
curities may fluctuate substantially from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic
trends and developments. The prices of securities issued by such companies may
suffer a decline in response. These factors contribute to price volatility,
which is the principal risk of investing in the Fund.

The Fund is also subject to the risk that medium to large capitalization U.S.
stocks may underperform other segments of the equity markets or the equity mar-
kets as a whole.

The Fund also may be subject to risks particular to its investment in medium
capitalization companies. These risks are discussed in greater detail in the
section entitled "More Information About Risk."

8
<PAGE>

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

This bar chart shows changes in the performance of the Fund's Shares from year
to year.

[BAR CHART APPEARS HERE]
1997 33.08%
1998 64.66%

Best Quarter Worst Quarter
36.33% (6.08)%
(12/31/98) (9/30/98)

The Fund's performance for the six month period ending June 30, 1999 was
19.35%.

This table compares the average annual total returns of the Fund's Shares for
the periods ended December 31, 1998 to those of the Russell 1000 Growth Index.

<TABLE>
<CAPTION>
Since
1 Year Inception
- ----------------------------------------------
<S> <C> <C>
Optimum Growth Fund (Shares) 64.66% 37.49%*
Russell 1000 Growth Index 38.65% 31.62%**
</TABLE>

* Since July 3, 1996 **Since June 30, 1996

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C> <C>
Management Fees 0.65%
Distribution (12b-1) Fees 0.35%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.27%
Total Other Expenses 0.67%
- --------------------------------------------------
Total Annual Fund Operating Expenses 1.67%*
</TABLE>

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Advis-
er's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administra-
tive servicing fee paid by the Fund. The Adviser may discontinue all or part
of these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses for the last fiscal year were 1.05%. For more information
about these fees, see "Investment Adviser" and "Distribution of Fund Shares."

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------
<S> <C> <C> <C> <C>
$170 $526 $907 $1,976
</TABLE>

9
<PAGE>

Small Cap Fund
[LOGO APPEARS HERE]
- --------------------------------------------------------------------------------

FUND SUMMARY

INVESTMENT GOAL Capital
appreciation

INVESTMENT FOCUS Equity
securities of small cap U.S.
issuers

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT
STRATEGY Investing in equity
securities of smaller
companies that are expected to
achieve substantial long-term
earnings growth

INVESTOR PROFILE Investors
seeking capital appreciation,
and who are willing to
tolerate the risks of
investing in smaller companies

INVESTMENT OBJECTIVE
The Small Cap Fund seeks long-term capital appreciation by investing primarily
in companies with capitalization of $1.5 billion or less.

INVESTMENT STRATEGY OF THE SMALL CAP FUND
The Small Cap Fund invests at least 65% of its assets in equity securities of
smaller U.S.-based companies that are in the early stages of development and
which the Adviser believes have the potential to achieve substantial long-term
earnings growth.

In selecting investments for the Fund, the Adviser applies a bottom-up invest-
ment approach designed to identify innovative companies whose potential is not
yet reflected in their market values. Generally, the Fund invests in companies
with market capitalizations of $1.5 billion or less, but the Adviser also con-
siders to a lesser degree larger or more mature companies engaged in new or
higher growth operations that the Adviser believes will result in accelerated
earnings growth.

PRINCIPAL RISKS OF INVESTING IN THE SMALL CAP FUND
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Fund's equity se-
curities may fluctuate substantially from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic
trends and developments. The prices of securities issued by such companies may
suffer a decline in response. These factors contribute to price volatility,
which is the principal risk of investing in the Fund.

The Fund is also subject to the risk that small capitalization growth stocks
may underperform other segments of the equity markets or the equity markets as
a whole.

10
<PAGE>

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

This bar chart shows changes in the Fund's performance from year to year.

[BAR CHART APPEARS HERE]
1993 27.91%
1994 5.30%
1995 22.81%
1996 -2.30%
1997 14.21%
1998 -12.38%

Best Quarter Worst Quarter
21.58% (24.77)%
(12/31/98) (9/30/98)

The Fund's performance for the six month period ending June 30, 1999 was 9.73%.

This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Russell 2000 Index.

<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
- --------------------------------------------
<S> <C> <C> <C>
Small Cap Fund (12.38)% 4.80% 8.34%*
Russell 2000
Index (2.56)% 11.87% 13.01%*
</TABLE>

* Since December 31, 1992

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C> <C>
Management Fees 0.60%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.34%
Total Other Expenses 0.74%
- --------------------------------------------------
Total Annual Fund Operating Expenses 1.34%*
</TABLE>

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Advis-
er's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administra-
tive servicing fee paid by the Fund. The Adviser may discontinue all or part
of these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses for the last fiscal year were 0.94%. For more information
about these fees, see "Investment Adviser."

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------
<S> <C> <C> <C> <C>
$136 $425 $734 $1,613
</TABLE>

11
<PAGE>

Value and Restructuring Fund
[LOGO APPEARS HERE]
- -------------------------------------------------------------------------------

FUND SUMMARY

INVESTMENT GOAL Long-term
capital appreciation

INVESTMENT FOCUS Equity
securities of U.S. issuers

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT
STRATEGY Investing in common
stocks of companies which the
Adviser believes are
undervalued by the market and
whose share price are expected
to benefit from the value
created through restructuring
or industry consolidation

INVESTOR PROFILE Investors
seeking long-term capital
appreciation, and who are
willing to bear the risks of
investing in equity securities

INVESTMENT OBJECTIVE
The Value and Restructuring Fund seeks long-term capital appreciation by in-
vesting in companies which will benefit from their restructuring or redeploy-
ment of assets and operations in order to become more competitive or profit-
able.

INVESTMENT STRATEGY OF THE VALUE AND RESTRUCTURING FUND
The Value and Restructuring Fund invests at least 65% of its assets in common
stocks of U.S. and, to a lesser extent, foreign companies whose share price, in
the opinion of the Adviser, does not reflect the economic value of the
company's assets, but where the Adviser believes restructuring efforts or in-
dustry consolidation will serve to highlight the true value of the company.

In choosing investments for the Fund, the Adviser looks for companies where re-
structuring activities, such as consolidations, outsourcing, spin-off or reor-
ganization, will offer significant value to the issuer and increase its invest-
ment potential. The Adviser may select companies of any size for the Fund and
the Fund invests in a diversified group of companies across a number of differ-
ent industries.

PRINCIPAL RISKS OF INVESTING IN THE VALUE AND RESTRUCTURING FUND
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Fund's equity se-
curities may fluctuate substantially from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic
trends and developments. The prices of securities issued by such companies may
suffer a decline in response. These factors contribute to price volatility,
which is the principal risk of investing in the Fund.

The Fund is also subject to the risk that equity securities of issuers expected
to experience a restructuring or business combination may underperform other
segments of the equity markets or the equity markets as a whole.

12
<PAGE>

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

This bar chart shows changes in the Fund's performance from year to year.

[BAR CHART APPEARS HERE]
1993 39.95%
1994 2.6%
1995 38.8%
1996 25.05%
1997 33.56%
1998 10.32%

Best Quarter Worst Quarter
22.88% (20.46)%
(12/31/98) (9/30/98)

The Fund's performance for the six month period ending June 30, 1999 was
22.30%.

This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Russell 1000 Value Index.

<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
- --------------------------------------------
<S> <C> <C> <C>
Value and
Restructuring Fund 10.32% 21.26% 24.22%*
Russell 1000 Value
Index 15.63% 20.85% 20.39%*
</TABLE>

* Since December 31, 1992

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C> <C>
Management Fees 0.60%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.33%
Total Other Expenses 0.73%
- --------------------------------------------------
Total Annual Fund Operating Expenses 1.33%*
</TABLE>

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Advis-
er's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administra-
tive servicing fee paid by the Fund. The Adviser may discontinue all or part
of these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses for the last fiscal year were 0.93%. For more information
about these fees, see "Investment Adviser."

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------
<S> <C> <C> <C> <C>
$135 $421 $729 $1,601
</TABLE>

13
<PAGE>

Value Equity Fund
[LOGO APPEARS HERE]
- --------------------------------------------------------------------------------

FUND SUMMARY

INVESTMENT GOAL Long-term
capital appreciation

INVESTMENT FOCUS Common stocks
of U.S. companies

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT
STRATEGY Investing in common
stocks that the Adviser
believes are undervalued by
the market

INVESTOR PROFILE Investors
seeking growth of capital, and
who are willing to accept the
risks of investing in equity
securities

Investment Objective
The Value Equity Fund seeks long-term capital appreciation. This objective may
be changed without shareholder approval.

Investment Strategy of the Value Equity Fund
The Value Equity Fund invests at least 65% of its assets in common stocks of
U.S. and, to a lesser extent, foreign companies that the Adviser believes are
undervalued at current market prices. The Adviser generally diversifies the
Fund's investments over a variety of industries and the Fund may invest in com-
panies of any size, including small, high growth companies.

The Fund is also subject to the risk that its undervalued equity securities may
underperform other segments of the equity markets or the equity markets as a
whole.

14
<PAGE>

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

This bar chart shows changes in the performance of the Fund's Shares from year
to year.

[BAR CHART APPEARS HERE]
1998 20.11%

Best Quarter Worst Quarter
23.85% (16.39)%
(12/31/98) (9/30/98)

The Fund's performance for the six month period ending June 30, 1999 was
17.64%.

This table compares the average annual total returns of the Fund's Shares for
the periods ended December 31, 1998 to those of the Russell 1000 Value Index.

<TABLE>
<CAPTION>
Since
1 Year Inception
- ------------------------------------------------
<S> <C> <C>
Value Equity Fund (Shares) 20.11% 24.66%*

Russell 1000 Value Index 15.63% 25.02%**
</TABLE>

* Since January 15, 1997 **Since December 31, 1996

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C> <C>
Management Fees 0.65%
Distribution (12b-1) Fees 0.35%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.33%
Total Other Expenses 0.73%
- --------------------------------------------------
Total Annual Fund Operating Expenses 1.73%*
</TABLE>

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Advis-
er's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administra-
tive servicing fee paid by the Fund. The Adviser may discontinue all or part
of these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses for the last fiscal year were 1.05%. For more information
about these fees, see "Investment Adviser" and "Distribution of Fund Shares."

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------
<S> <C> <C> <C> <C>
$176 $545 $939 $2,041
</TABLE>

15
<PAGE>

Energy and Natural Resources Fund
[LOGO APPEARS HERE]
- -------------------------------------------------------------------------------

FUND SUMMARY

INVESTMENT GOAL Long-term
capital appreciation

INVESTMENT FOCUS Equity
securities of U.S. and foreign
energy and natural resources
companies

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT
STRATEGY Investing in equity
securities of U.S. and foreign
issuers engaged in the energy
and natural resources groups
of industries

INVESTOR PROFILE Investors
seeking long-term growth of
capital, and who are willing
to accept the risks of
investing in a non-diversified
portfolio of energy and
natural resources companies

Investment Objective
The Energy and Natural Resources Fund seeks long-term capital appreciation by
investing primarily in companies that are in the energy and other natural re-
sources groups of industries. The Fund may also invest, to a more limited ex-
tent, in gold and other precious metal bullion and coins.

Investment Strategy of the Energy and Natural Resources Fund
The Energy and Natural Resources Fund invests at least 65% of its assets in eq-
uity securities of U.S. and, to a lesser extent, foreign companies engaged in
the energy and natural resources industries. These companies include those en-
gaged in the discovery, development, production or distribution of energy or
other natural resources and companies that develop technologies and furnish en-
ergy and natural resource supplies and services to these companies. In select-
ing investments for the Fund, the Adviser takes a long-term approach and seeks
to identify companies whose value is not recognized in the prices of their se-
curities or with characteristics that will lead to above-average earnings
growth.

Energy companies normally will constitute a significant portion of the Fund's
investments, and the Fund typically invests at least 50% of its assets in crude
oil, petroleum and natural gas companies. The Fund also may invest a portion of
its assets in precious metals, such as gold bullion, and companies engaged in
the production of precious metals. The Fund invests in companies of any size,
including small, high growth companies.

Principal Risks of Investing in the Energy and Natural Resources Fund
The Fund is subject to the risk that the securities of issuers engaged in the
energy and natural resources industries that the Fund purchases will
underperform other market sectors or the market as a whole. To the extent that
the Fund's investments are concentrated in issuers conducting business in the
same industry, the Fund is subject to legislative or regulatory changes, ad-
verse market conditions and/or increased competition affecting that industry.
The values of natural resources are affected by numerous factors including
events occurring in nature and international politics. For instance, events in
nature (such as earthquakes or fires in prime natural resources areas) and po-
litical events (such as coups or military confrontations) can affect the over-
all supply of a natural resource and thereby the value of companies involved in
such natural resource.

Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Fund's equity se-
curities may fluctuate substantially from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic
trends and developments. The prices of securities issued by such companies may
suffer a decline in response. These factors contribute to price volatility,
which is the principal risk of investing in the Fund.

16
<PAGE>

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

The Fund is non-diversified, which means that it may invest in the securities
of relatively few issuers. As a result, the Fund may be more susceptible to a
single adverse economic or political/regulatory occurrence affecting one or
more of these issuers, and may experience increased volatility due to its in-
vestments in those securities.

This bar chart shows changes in the Fund's performance from year to year.

[BAR CHART APPEARS HERE]
1993 14.69%
1994 -2.70%
1995 20.11%
1996 38.38%
1997 18.31%
1998 -15.87%

Best Quarter Worst Quarter
20.04% (13.83)%
(9/30/97) (9/30/98)

The Fund's performance for the six month period ending June 30, 1999 was
28.67%.

This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Standard & Poor's 500 Composite Stock
Price Index.

<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Energy and Natural Resources Fund (15.87)% 9.99% 10.76%*
Standard & Poor's 500 Composite Stock Price Index 28.58% 24.04% 21.60%*
</TABLE>

* Since December 31, 1992

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C> <C>
Management Fees 0.60%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.38%
Total Other Expenses 0.78%
- --------------------------------------------------
Total Annual Fund Operating Expenses 1.38%*
</TABLE>

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Advis-
er's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administra-
tive servicing fee paid by the Fund. The Adviser may discontinue all or part
of these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses for the last fiscal year were 0.98%. For more information
about these fees, see "Investment Adviser."

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------
<S> <C> <C> <C> <C>
$140 $437 $755 $1,657
</TABLE>

17
<PAGE>

Real Estate Fund
- --------------------------------------------------------------------------------

FUND SUMMARY

INVESTMENT GOAL Current income
and long-term capital
appreciation

INVESTMENT FOCUS Equity
securities of companies
engaged in the real estate
business

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT
STRATEGY Investing in equity
securities of real estate
investment trusts (REITs) and
other issuers engaged in the
real estate industry

INVESTOR PROFILE Investors
seeking current income and
long-term growth of capital,
and who are willing to accept
the risks of investing in a
non-diversified portfolio of
real estate issuers

Investment Objective
The Real Estate Fund seeks current income and long-term capital appreciation by
investing in real estate investment trusts and other companies principally en-
gaged in the real estate business. This objective may be changed without share-
holder approval.

Investment Strategy of the Real Estate Fund
The Real Estate Fund invests at least 65% of its assets in REITs and other pub-
licly-traded equity securities of U.S. and, to a lesser extent, foreign compa-
nies engaged in the real estate industry. REITs pool investors' funds for in-
vestment directly in real estate (equity REITs), real estate loans (mortgage
REITs), or a combination of the two (hybrid REITs). The Fund intends to invest
primarily in equity and hybrid REITs. REITs generally are income producing in-
vestments. The Fund also invests in other issuers engaged in the real estate
business, such as developers, mortgage lenders and servicers, construction com-
panies and building material suppliers.

The Adviser takes a long-term approach to managing the Fund and seeks to iden-
tify companies with characteristics that will lead to above-average earnings
growth. The Adviser analyzes demographic and macroeconomic factors to determine
regional allocations. Based on its regional allocations, the Adviser selects
particular investments based on its analysis of valuation relative to under-
lying real estate values.

Principal Risks of Investing in the Real Estate Fund
The Fund is subject to the risk that the securities of issuers in the real es-
tate industry that the Fund purchases will underperform other market sectors or
the market as a whole. To the extent that the Fund's investments are concen-
trated in issuers conducting business in the same industry, the Fund is subject
to legislative or regulatory changes, adverse market conditions and/or in-
creased competition affecting that industry.

The Fund's investments in the securities of REITs and companies principally en-
gaged in the real estate industry may subject the Fund to the risks associated
with the direct ownership of real estate. Risks commonly associated with the
direct ownership of real estate include fluctuations in the value of underlying
properties and defaults by borrowers or tenants. In addition to these risks,
REITs are dependent on specialized management skills and some REITs may have
investments in relatively few properties, or in a small geographic area or a
single type of property. These factors may increase the volatility of the
Fund's investments in REITs.

18
<PAGE>

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

The Fund also may be subject to risks particular to its investments in foreign
companies. These risks are discussed in greater detail in the section entitled
"More Information About Risk."

This bar chart shows changes in the Fund's performance from year to year.

[BAR CHART APPEARS HERE]
1998 -13.55%

Best Quarter Worst Quarter
3.38% (8.87)%
(12/31/97) (9/30/98)

The Fund's performance for the six month period ending June 30, 1999 was 4.52%.

This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Morgan Stanley REIT Index.

<TABLE>
<CAPTION>
Since
1 Year Inception
- ----------------------------------------------
<S> <C> <C>
Real Estate Fund (13.55)% (8.59)%*
Morgan Stanley REIT Index (16.90)% (13.09)%**
</TABLE>

* Since October 1, 1997 **Since September 30, 1997

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C> <C>
Management Fees 1.00%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.33%
Total Other Expenses 0.73%
- --------------------------------------------------
Total Annual Fund Operating Expenses 1.73%*
</TABLE>

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Advis-
er's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administra-
tive servicing fee paid by the Fund. The Adviser may discontinue all or part
of these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses for the last fiscal year were 1.20%. For more information
about these fees, see "Investment Adviser."

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------
<S> <C> <C> <C> <C>
$176 $545 $939 $2,041
</TABLE>

19
<PAGE>

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

More Information About Risk

Equity Risk
(All Funds)--Equity securities include public and privately issued equity secu-
rities, common and preferred stocks, warrants, rights to subscribe to common
stock and convertible securities, as well as instruments that attempt to track
the price movement of equity indices. Investments in equity securities and eq-
uity derivatives in general are subject to market risks that may cause their
prices to fluctuate over time. The value of securities convertible into equity
securities, such as warrants or convertible debt, is also affected by prevail-
ing interest rates, the credit quality of the issuer and any call provision.

Small Cap Risk
(Blended Equity Fund, Large Cap Growth Fund, Small Cap Fund, Value and Restruc-
turing Fund, Value Equity Fund and Energy and Natural Resources Fund)--The
smaller capitalization companies in which the Funds may invest in may be more
vulnerable to adverse business or economic events than larger, more established
companies. In particular, these small companies may have limited product lines,
markets and financial resources, and may depend upon a relatively small manage-
ment group. Therefore, small cap stocks may be more volatile than those of
larger companies.

Mid Cap Risk
(Blended Equity Fund, Optimum Growth Fund, Value and Restructuring Fund, Value
Equity Fund and Energy and Natural Resources Fund)--The medium capitalization
companies that the Funds may invest in may be more vulnerable to adverse busi-
ness or economic events than larger companies. In particular, these companies
may have limited product lines, markets and financial resources, and may depend
on a relatively small management group. Therefore, medium capitalization on
stocks may be more volatile than those of larger companies.

Mortgage-Backed Securities
(Real Estate Fund)--Mortgage-backed securities are fixed income securities rep-
resenting an interest in a pool of underlying mortgage loans. They are sensi-
tive to changes in interest rates, but may respond to these changes differently
from other fixed income securities due to the possibility of prepayment of the
underlying mortgage loans. As a result, it may not be possible to determine in
advance the actual maturity date or average life of a mortgage-backed security.
Rising interest rates tend to discourage refinancings, with the result that the
average life and volatility of the security will increase, exacerbating its de-
crease in market price. When interest rates fall, however, mortgage-backed se-
curities may not gain as much in market value because of the expectation of ad-
ditional mortgage prepayments that must be reinvested at lower interest rates.
Prepayment risk may make it difficult to calculate the average maturity of a
portfolio of mortgage-backed securities and, therefore, to assess the volatil-
ity risk of that portfolio.

Foreign Security Risks
(All Funds)--Investments in securities of foreign companies or governments can
be more volatile than investments in U.S. companies or governments. Diplomatic,
political, or economic developments, including nationalization or appropria-
tion, could affect investments in foreign countries. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets. In ad-
dition, the value of securities denominated in foreign currencies, and of divi-
dends from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign companies or govern-
ments generally are not subject to uniform accounting, auditing, and financial
reporting standards comparable to those applicable to domestic U.S. companies
or governments. Transaction costs are generally higher than those in the U.S.
and expenses for custodial arrangements of foreign securities may be somewhat
greater than typical expenses for custodial arrangements of similar U.S. secu-
rities. Some foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is recov-
erable, the non-recovered portion will reduce the income received from the se-
curities comprising the portfolio.

Currency Risk
(All Funds)--Investments in foreign securities denominated in foreign curren-
cies involve additional risks, including:

. A Fund may incur substantial costs in connection with conversions between
various currencies.

. Only a limited market currently exists for hedging transactions relating to
currencies in certain emerging markets.

20
<PAGE>

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

providers do not properly process dates on and after January 1, 2000, and dis-
tinguish between the year 2000 and the year 1900. This is commonly known as the
"Year 2000 Problem." The Adviser and the Funds' other service providers advise
that they are taking steps to address the Year 2000 Problem with respect to the
computer systems that they use. Currently, they do not anticipate that the
transition to the 21st Century will have any material impact on their ability
to continue to service the Funds at current levels. At this time, however,
there can be no assurance that their efforts will be sufficient to avoid any
adverse impact on the Funds as a result of the Year 2000 Problem. In addition,
the Funds and their shareholders may experience losses as a result of computer
difficulties experienced by issuers of portfolio securities or third parties,
such as custodians, banks, broker-dealers or others with which the Funds do
business.

Investment Adviser
United States Trust Company of New York and U.S. Trust Company (together, U.S.
Trust or the Adviser) serve as investment adviser to each Fund. United States
Trust Company of New York is a state-chartered bank and trust company and a
member bank of the Federal Reserve System. U.S. Trust Company is a Connecticut
state bank and trust company. Each is a wholly-owned subsidiary of U.S. Trust
Corporation, a registered bank holding company.

The Adviser makes investment decisions for the Funds and continuously reviews,
supervises and administers each Fund's investment program.

The Board of Directors of Excelsior Funds, Inc. and the Board of Trustees of
Excelsior Institutional Trust supervise the Adviser and establish policies that
the Adviser must follow in its management activities.

For the fiscal year ended March 31, 1999, U.S. Trust received advisory fees, as
a percentage of average daily net assets, of:

<TABLE>
<S> <C>
Blended Equity Fund 0.69%
Large Cap Growth Fund 0.71%
Optimum Growth Fund 0.43%
Small Cap Fund 0.49%
Value and Restructuring Fund 0.48%
Value Equity Fund 0.39%
Energy and Natural Resources Fund 0.50%
Real Estate Fund 0.77%
</TABLE>

Portfolio Managers
Leigh H. Weiss and Bruce Tavel have served as the Blended Equity Fund's portfo-
lio co-managers since 1997. Mr. Weiss, a Managing Director and Senior Portfolio
Manager, has been with U.S. Trust since 1993. Prior to joining U.S. Trust, Mr.
Weiss was a portfolio manager with Goldman, Sachs & Co. Mr. Tavel, a Managing
Director and head of U.S. Trust's Structured Investments Division, has been
with U.S. Trust since 1980. Mr. Weiss and

21
<PAGE>

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Mr. Tavel are primarily responsible for the day to day management of the
Blended Equity Fund's portfolio. Research, analyses, trade execution and other
facilities provided by U.S. Trust and other personnel also play a significant
role in portfolio management and performance.

David J. Williams has served as the Value and Restructuring Fund and Value Eq-
uity Fund portfolio manager since their inceptions. Mr. Williams, a Managing
Director and Senior Portfolio Manager of the Personal Investment Division of
U.S. Trust, has been with U.S. Trust since 1987. Mr. Williams is primarily
responsible for the day to day management of the Value and Restructuring and the
Value Equity Funds' portfolios. Research, analyses, trade execution and other
facilities provided by U.S. Trust and other personnel also play a significant
role in portfolio management and performance.

Timothy Pettee and Margaret Doyle have served as the Small Cap Fund's portfolio
co-managers since 1998. Mr. Pettee, a Managing Director and Director of Equity
Research, has been with U.S. Trust since 1998. Prior to joining U.S. Trust, Mr.
Pettee was a Vice President and fund manager with Alliance Capital Management
in New York. Ms. Doyle, a Vice President in U.S. Trust's equity research divi-
sion, has been with U.S. Trust since 1998. From 1996 to 1998, Ms. Doyle was a
Vice President and Investment Officer with J&W Seligman & Co. in New York. From
1994 to 1996, Ms. Doyle was an Equity Research Analyst with Solomon Brothers,
Inc. in New York. Mr. Pettee and Ms. Doyle are primarily responsible for the
day to day management of the Small Cap Fund's portfolio. Research, analyses,
trade execution and other facilities provided by U.S. Trust and other personnel
also play a significant role in portfolio management and performance.

All investment decisions for the Large Cap Growth Fund and the Optimum Growth
Fund are made by a committee of investment professionals and no persons are
primarily responsible for making recommendations to that committee. United
States Trust Company of New York provides its investment advisory services to
the Large Cap Growth Fund and the Optimum Growth Fund primarily through its
Campbell Cowperthwait division.

Michael E. Hoover has served as the Energy and Natural Resources Fund's portfo-
lio manager since 1995. Mr. Hoover, Senior Vice President and Senior Analyst,
has been with U.S. Trust since 1989. Mr. Hoover is primarily responsible for
the day to day management of the Energy and Natural Resources Fund's portfolio.
Research, analyses, trade execution and other facilities provided by U.S. Trust
and other personnel also play a significant role in portfolio management and
performance.

Joan Ellis has served as the Real Estate Fund's portfolio manager or co-manager
since its inception. Ms. Ellis, Senior Vice President in the Investment Re-
search Division, has been with U.S. Trust since 1984. Ms. Ellis is primarily
responsible for the day to day management of the Real Estate Fund's portfolio.
Research, analyses, trade execution and other facilities provided by U.S. Trust
and other personnel also play a significant role in portfolio management and
performance.

Purchasing, Selling and Exchanging Fund Shares
This section tells you how to buy, sell (sometimes called "redeem") or exchange
shares of the Funds.

How to Purchase Fund Shares
You may purchase shares directly by:
. Mail
. Telephone
. Wire, or
. Automatic Investment Program

To purchase shares directly from us, please call (800) 446-1012 (from overseas,
call (617) 557-8280), or complete and send in the enclosed application to Ex-
celsior Funds, c/o Chase Global Funds Services Company, P.O. Box 2798, Boston,
MA 02208-2798. Unless you arrange to pay by wire or through the automatic in-
vestment program, write your check, payable in U.S. dollars, to "Excelsior
Funds" and include the name of the appropriate Fund(s) on the check. A Fund
cannot accept third-party checks, credit cards, credit card checks or cash. To
purchase shares by wire, please call us for instructions. Federal funds and
registration instructions should be wired through the Federal Reserve System
to:

The Chase Manhattan Bank
ABA #021000021
Excelsior Funds, Account Number 9102732915

For Further Credit To:
Excelsior Funds
Wire Control Number
Excelsior Funds Account Registration (including account number)

22
<PAGE>

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You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Fund shares for their customers. If you
invest through an authorized institution, you will have to follow its proce-
dures, which may be different from the procedures for investing directly. Your
institution may charge a fee for its services, in addition to the fees charged
by the Fund. You will also generally have to address your correspondence or
questions regarding a Fund to your institution.

How We Calculate NAV
NAV for one Fund share is the value of that share's portion of all of the as-
sets in the Fund.

In calculating NAV, a Fund generally values its investment portfolio at market
price. If market prices are unavailable or the Adviser thinks that they are un-
reliable, fair value prices may be determined in good faith using methods ap-
proved by the Board of Directors. Fixed income investments with remaining matu-
rities of 60 days or less generally are valued at their amortized cost which
approximates their market value.

Some Funds may hold securities that are listed on foreign exchanges. These se-
curities may trade on weekends or other days when the Funds do not calculate
NAV. As a result, the market value of a Fund's investments may change on days
when you cannot purchase or sell Fund shares.

Minimum Purchases
To purchase shares for the first time, you must invest at least $500 ($250 for
IRAs) in any Fund.

Your subsequent investments must be made in amounts of at least $50.

A Fund may accept investments of smaller amounts at its discretion.

Automatic Investment Program
If you have a checking, money market or NOW account with a bank, you may pur-
chase shares automatically through regular deductions from your account in
amounts of at least $50 per transaction.

With a $50 minimum initial investment, you may begin regularly scheduled in-
vestments once per month, on either the first or fifteenth day, or twice per
month, on both days.

How to Sell Your Fund Shares
You may sell shares directly by:
. Mail
. Telephone, or
. Systematic Withdrawal Plan

Holders of Fund shares may sell (sometimes called "redeem") shares by following
procedures established when they opened their account or accounts. If you

23
<PAGE>

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have questions, call (800) 446-1012 (from overseas, call (617) 557-8280).

You may sell your shares by sending a written request for redemption to:

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

Please be sure to indicate the number of shares to be sold, identify your ac-
count number and sign the request.

If you own your shares through an account with a broker or other institution,
contact that broker or institution to sell your shares.

If you own your shares directly and previously indicated on your account appli-
cation or arranged in writing to do so, you may sell your shares on any Busi-
ness Day by contacting a Fund directly by telephone at (800) 446-1012 (from
overseas, call (617) 557-8280). The minimum amount for telephone redemptions is
$500. We may reject a telephone redemption request if we deem it advisable to
do so.

The sale price of each share will be the next NAV determined after the Fund re-
ceives your request in good order.

Systematic Withdrawal Plan
If you have at least $10,000 in your account, you may use the systematic with-
drawal plan. Under the plan you may arrange monthly, quarterly, semi-annual or
annual automatic withdrawals from any Fund. The proceeds of each withdrawal
will be mailed to you by check or, if you have a checking or savings account
with a bank, electronically transferred to your account.

Receiving Your Money
Normally, we will send your sale proceeds within five Business Days after we
receive your request in good order. Your proceeds can be wired to your bank ac-
count (if more than $500) or sent to you by check. If you recently purchased
your shares by check, redemption proceeds may not be available until your check
has cleared (which may take up to 15 Business Days).

How to Exchange Your Shares
You may exchange your shares on any Business Day for shares of any portfolio of
Excelsior Funds, Inc. or Excelsior Tax-Exempt Funds, Inc., or for Shares of any
portfolio of Excelsior Institutional Trust. In order to protect other share-
holders, we may limit your exchanges to no more than six per year, and we may
reject any exchange request. Shares can be exchanged directly by mail, or by
telephone if you previously selected the telephone exchange option on the ac-
count application.

You may also exchange shares through your financial institution. Exchange re-
quests must be for an amount of at least $500.

If you recently purchased shares by check you may not be able to exchange your
shares until your check has cleared (which may take up to 15 Business Days).
This exchange privilege may be changed or canceled at any time upon 60 days'
notice.

When you exchange shares, you are really selling your shares and buying other
Fund shares. So, your sale price and purchase price will be based on the NAV
next

24
<PAGE>

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

calculated after the Fund receives your exchange request in good order.

Authorized Intermediaries
Certain intermediaries, such as brokers or other shareholder organizations, are
authorized to accept purchase, redemption and exchange requests for Fund
shares. These intermediaries may authorize other organizations to accept pur-
chase, redemption and exchange requests for Fund shares. These requests are
normally executed at the NAV next determined after the intermediary receives
the request in good order. Authorized intermediaries are responsible for trans-
mitting requests and delivering funds on a timely basis.

Shareholder Servicing
The Funds are permitted to pay a shareholder servicing fee to certain share-
holder organizations for providing services to their customers who hold shares
of the Funds. These services may include assisting in the processing of pur-
chase, redemption and exchange requests and providing periodic account state-
ments. The shareholder servicing fee may be up to 0.40% of the average daily
net asset value of Fund shares held by clients of a shareholder organization.

Distribution of Fund Shares
The Optimum Growth and Value Equity Funds have adopted a distribution plan that
allows Shares of the Funds to pay distribution fees for the sale and distribu-
tion of their shares in an amount not to exceed the annual rate of 0.35% of the
average daily net asset value of each Fund's outstanding shares. Currently
shares bear the expenses of such distribution fees at the annual rate of 0.25%
of the average daily value of each Fund's outstanding shares. Because these
fees are paid out of a Fund's assets continuously, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.

Dividends, Distributions and Taxes
Each Fund distributes dividends from its income quarterly.

Each Fund makes distributions of capital gains, if any, at least annually. If
you own Fund shares on a Fund's record date, you will be entitled to receive
the distribution.

Each Fund may be able to pass along a tax credit for foreign income taxes it
pays. The Fund will notify you if you are entitled to the credit.

More information about taxes is in the Statement of Additional Information.

25
<PAGE>

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Financial Highlights
The tables that follow present performance information about shares of each
Fund. This information is intended to help you understand: each Fund's finan-
cial performance for the past five years, or, if shorter, the period of the
Fund's operations. Some of this information reflects financial information for
a single Fund share. The total returns in the table represent the rate that you
would have earned (or lost) on an investment in a Fund, assuming you reinvested
all of your dividends and distributions. This information has been audited by
Ernst & Young LLP, independent public accountants. Their report, along with
each Fund's financial statements, appears in the annual report that accompanies
our Statement of Additional Information. You can obtain the annual report,
which contains more performance information, at no charge by calling (800) 446-
1012 (from overseas, call (617) 557-8280).

BLENDED EQUITY FUND

<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................. $ 36.12 $ 25.81 $ 24.43 $ 21.40 $ 19.17
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income............ 0.11 0.16 0.18 0.12 0.07
Net Gains on Securities (both
realized and unrealized)........ 6.90 12.59 2.50 5.21 2.67
------- ------- ------- ------- -------
Total From Investment
Operations...................... 7.01 12.75 2.68 5.33 2.74
------- ------- ------- ------- -------
Less Distributions
Dividends From Net Investment
Income.......................... (0.13) (0.16) (0.14) (0.11) (0.04)
Distributions From Net Realized
Gain on Investments and
Options......................... (0.49) (2.28) (1.16) (2.19) (0.47)
------- ------- ------- ------- -------
Total Distributions.............. (0.62) (2.44) (1.30) (2.30) (0.51)
------- ------- ------- ------- -------
Net Asset Value, End of Year...... $ 42.51 $ 36.12 $ 25.81 $ 24.43 $ 21.40
======= ======= ======= ======= =======
Total Return...................... 19.65% 50.82% 11.09% 26.45% 14.65%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)....................... $720.27 $594.91 $306.99 $188.57 $137.42
Ratio of Net Operating Expenses
to Average Net Assets........... 0.95% 0.99% 1.01% 1.05% 1.05%
Ratio of Gross Operating Expenses
to Average Net Assets/1/........ 1.01% 1.06% 1.06% 1.12% 1.08%
Ratio of Net Investment Income to
Average Net Assets.............. 0.29% 0.55% 0.71% 0.55% 0.36%
Portfolio Turnover Rate.......... 20.0% 28.0% 39.0% 27.0% 23.0%
</TABLE>
- ------
Notes:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

26
<PAGE>

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LARGE CAP GROWTH FUND

<TABLE>
<CAPTION>
Year
Ended
March Period Ended
31, March 31,
1999 1998/1/
------- ------------
<S> <C> <C>
Net Asset Value, Beginning of Period..................... $ 8.51 $ 7.00
------- -------
Income From Investment Operations
Net Investment Income (Loss)............................ (0.03) 0.00/2/
Net Gains or (Losses) on Securities (both realized and
unrealized)............................................ 5.82 1.51
------- -------
Total From Investment Operations........................ 5.79 1.51
------- -------
Net Asset Value, End of Period........................... $ 14.30 $ 8.51
======= =======
Total Return............................................. 68.04% 21.57%/3/
Ratios/Supplemental Data
Net Assets, End of Period (in millions)................. $251.55 $ 47.53
Ratio of Net Operating Expenses to Average Net Assets... 1.04% 1.05%/4/
Ratio of Gross Operating Expenses to Average Net
Assets/5/.............................................. 1.08% 1.20%/4/
Ratio of Net Investment Income/(Loss) to Average Net
Assets................................................. (0.53)% (0.16)%/4/
Portfolio Turnover Rate................................. 4% 12%/4/
</TABLE>
- ------
Notes:
1. Inception date of the Fund was October 1, 1997.
2. Amount represents less than $0.01 per share.
3. Not annualized.
4. Annualized.
5. Expense ratio before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

27
<PAGE>

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

OPTIMUM GROWTH FUND

<TABLE>
<CAPTION>
Year Ended
March 31, Period Ended
---------------- March 31,
1999 1998 1997/1/
------- ------- ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period........... $ 16.31 $ 10.18 $ 9.87
------- ------- --------
Income From Investment Operations
Net Investment Income......................... (0.06) (0.01) 0.02
Net Gains or (Losses) on Securities (both
realized and unrealized)..................... 11.15 6.15 0.31/2/
------- ------- --------
Total From Investment Operations.............. 11.09 6.14 0.33
------- ------- --------
Less Distributions
Dividends From Net Investment Income.......... 0.00 (0.01) (0.02)
Distributions From Net Realized Gains on
Investments and Options...................... 0.00 0.00 0.00
------- ------- --------
Total Distributions........................... 0.00 (0.01) (0.02)
------- ------- --------
Net Asset Value, End of Period................. $ 27.40 $ 16.31 $ 10.18
======= ======= ========
Total Return................................... 68.00% 60.41% 3.31%/3/
Ratios/Supplemental Data:
Net Assets at end of Period (in millions)..... $ 12.41 $ 6.60 $ 3.36
Ratio of Net Operating Expenses to Average Net
Assets....................................... 1.05% 1.05% 1.05%/5/
Ratio of Gross Operating Expenses to Average
Net Assets/4/................................ 1.26% 1.32% 1.47%/5/
Ratio of Net Investment Income (Loss) to
Average Net Assets........................... (0.34)% (0.12)% 0.33%/5/
Portfolio Turnover Rate....................... 22% 19% 20%/5/
</TABLE>
- ------
Notes:
1. Inception date of the Fund was July 3, 1996.
2. This amount does not accord with the aggregate net losses on investments be-
cause of the timing of sales and repurchases of the Shares in relation to
fluctuating market value of the investments in the Fund.
3. Not annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5. Annualized.

28
<PAGE>

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SMALL CAP FUND

<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------
1999 1998 1997 1996 1995
-------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $ 11.95 $ 8.83 $ 10.78 $ 9.77 $ 8.66
-------- ------- -------- ------- -------
Income From Investment
Operations
Net Investment Income (Loss)... 0.00 (0.01) (0.03) (0.02) (0.02)
Net Gains or (Losses) on
Securities (both realized and
unrealized)................... (2.56) 3.13 (1.43) 1.72 1.31
-------- ------- -------- ------- -------
Total From Investment
Operations.................... (2.56) 3.12 (1.46) 1.70 1.29
-------- ------- -------- ------- -------
Less Distributions
Distributions From Net Realized
Gain on Investments and
Options....................... (0.12) 0.00 (0.10) (0.69) (0.18)
Distributions in Excess of Net
Realized Gain on Investments
and Options................... 0.00 0.00 (0.39) 0.00 0.00
-------- ------- -------- ------- -------
Total Distributions............ (0.12) 0.00 (0.49) (0.69) (0.18)
-------- ------- -------- ------- -------
Net Asset Value, End of Period.. $ 9.27 $ 11.95 $ 8.83 $ 10.78 $ 9.77
======== ======= ======== ======= =======
Total Return.................... (21.41)% 35.33% (14.33)% 18.29% 15.16%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)..................... $ 43.79 $ 68.55 $ 53.26 $ 78.06 $ 47.78
Ratio of Net Operating Expenses
to Average Net Assets......... 0.94% 0.94% 0.94% 0.90% 0.96%
Ratio of Gross Operating
Expenses to Average Net
Assets/1/..................... 1.05% 1.01% 1.02% 0.98% 1.04%
Ratio of Net Investment
Income/(Loss) to Average Net
Assets........................ (0.04)% (0.14)% (0.26)% (0.17)% (0.23)%
Portfolio Turnover Rate........ 115.0% 73.0% 55.0% 38.0% 42.0%
</TABLE>
- ------
Notes:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

29
<PAGE>

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VALUE AND RESTRUCTURING FUND

<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 23.79 $ 15.93 $ 14.03 $10.55 $ 9.64
------- ------- ------- ------ ------
Income From Investment Operations
Net Investment Income.............. 0.13 0.10 0.13 0.10 0.07
Net Gains on Securities (both
realized and unrealized).......... 0.21 8.12 2.36 3.71 1.02
------- ------- ------- ------ ------
Total From Investment Operations... 0.34 8.22 2.49 3.81 1.09
------- ------- ------- ------ ------
Less Distributions
Dividends From Net Investment
Income............................ (0.11) (0.09) (0.12) (0.09) (0.06)
Distributions From Net Realized
Gain on Investments and Options... (0.14) (0.27) (0.47) (0.24) (0.12)
------- ------- ------- ------ ------
Total Distributions................ (0.25) (0.36) (0.59) (0.33) (0.18)
------- ------- ------- ------ ------
Net Asset Value, End of Period...... $ 23.88 $ 23.79 $ 15.93 $14.03 $10.55
======= ======= ======= ====== ======
Total Return........................ 1.48% 52.10% 18.09% 36.48% 11.49%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)......................... $594.62 $388.45 $124.01 $74.05 $30.18
Ratio of Net Operating Expenses to
Average Net Assets................ 0.93% 0.89% 0.91% 0.91% 0.98%
Ratio of Gross Operating Expenses
to Average Net Assets/1/.......... 1.07% 0.93% 0.95% 0.95% 1.08%
Ratio of Net Investment Income to
Average Net Assets................ 0.59% 0.54% 0.90% 0.88% 0.83%
Portfolio Turnover Rate............ 43.0% 30.0% 62.0% 56.0% 82.0%
</TABLE>
- ------
Notes:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

30
<PAGE>

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VALUE EQUITY FUND

<TABLE>
<CAPTION>
Year Ended
March 31, Period Ended
-------------- March 31,
1999 1998 1997/1/
------ ------ ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $16.11 $11.33 $ 12.08
------ ------ -------
Income From Investment Operations
Net Investment Income............................ 0.08 0.07 0.01
Net Gains or (Losses) on Securities (both
realized and unrealized)........................ 0.55 5.57 (0.76)
------ ------ -------
Total From Investment Operations................. 0.63 5.64 (0.75)
------ ------ -------
Less Distributions
Dividends From Net Investment Income............. (0.07) (0.06) 0.00
Distributions From Net Realized Gains on
Investments and Options......................... (1.32) (0.80) 0.00
------ ------ -------
Total Distributions.............................. (1.39) (0.86) 0.00
------ ------ -------
Net Asset Value, End of Period.................... $15.35 $16.11 $ 11.33
====== ====== =======
Total Return...................................... 4.59% 51.09% (6.21)%/2/
Ratios/Supplemental Data
Net Assets at end of Period (in millions)........ $ 125 $ 78 $ 56
Ratio of Net Operating Expenses to Average Net
Assets.......................................... 1.05% 1.05% 1.05/3/
Ratio of Gross Operating Expenses to Average Net
Assets/4/....................................... 1.32% 1.35% 1.45%/3/
Ratio of Net Investment Income to Average Net
Assets.......................................... 0.53% 0.47% 0.54%/3/
Portfolio Turnover Rate.......................... 55% 51% 64%/3/
</TABLE>
- ------
Notes:
1. Inception date of the Fund was January 15, 1997.
2. Not annualized.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

31
<PAGE>

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ENERGY AND NATURAL RESOURCES FUND

<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------
1999 1998 1997 1996 1995
-------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $ 12.66 $11.12 $ 9.55 $ 7.92 $ 7.70
-------- ------ ------ ------ ------
Income From Investment Operations
Net Investment Income............... 0.10 0.09 0.09 0.07 0.09
Net Gains or (Losses) on Securities
(both realized and unrealized)..... (1.65) 2.69 2.60 1.63 0.24
-------- ------ ------ ------ ------
Total From Investment Operations.... (1.55) 2.78 2.69 1.70 0.33
-------- ------ ------ ------ ------
Less Distributions
Dividends From Net Investment
Income............................. (0.09) (0.10) (0.09) (0.07) (0.10)
Distributions From Net Realized Gain
on Investments and Options......... 0.00 (1.07) (1.03) 0.00 (0.01)
Distributions in Excess of Net
Realized Gain on Investments and
Options............................ 0.00 (0.07) 0.00 0.00 0.00
-------- ------ ------ ------ ------
Total Distributions................. (0.09) (1.24) (1.12) (0.07) (0.11)
-------- ------ ------ ------ ------
Net Asset Value, End of Period....... $ 11.02 $12.66 $11.12 $ 9.55 $ 7.92
======== ====== ====== ====== ======
Total Return......................... (12.23)% 24.97% 28.28% 21.60% 4.28%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions).......................... $ 43.02 $46.17 $33.39 $23.29 $15.81
Ratio of Net Operating Expenses to
Average Net Assets................. 0.98% 0.99% 0.93% 0.96% 0.98%
Ratio of Gross Operating Expenses to
Average Net Assets/1/.............. 1.09% 1.07% 0.98% 1.09% 1.35%
Ratio of Net Investment Income to
Average Net Assets................. 0.97% 0.69% 0.84% 0.88% 1.18%
Portfolio Turnover Rate............. 96.0% 88.0% 87.0% 43.0% 31.0%
</TABLE>
- ------
Notes:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

32
<PAGE>

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

REAL ESTATE FUND

<TABLE>
<CAPTION>
Year
ended Period ended
March March 31,
31, 1999 1998/1/
-------- ------------
<S> <C> <C>
Net Asset Value, Beginning of Period.................... $ 7.05 $ 7.00
-------- ------
Income From Investment Operations
Net Investment Income.................................. 0.33 0.15
Net Gains or (Losses) on Securities (both realized and
unrealized)........................................... (1.55) 0.01
-------- ------
Total From Investment Operations....................... (1.22) 0.16
-------- ------
Less Distributions
Dividends From Net Investment Income................... (0.33) (0.11)
-------- ------
Total Distributions.................................... (0.33) (0.11)
-------- ------
Net Asset Value, End of Period.......................... $ 5.50 $ 7.05
======== ======
Total Return............................................ (17.55)% 2.26%/2/
Ratios/Supplemental Data
Net Assets, End of Period (in millions)................ $ 32.84 $41.17
Ratio of Net Operating Expenses to Average Net Assets.. 1.20% 1.20%/3/
Ratio of Gross Operating Expenses to Average Net
Assets/4/............................................. 1.43% 1.40%/3/
Ratio of Net Investment Income to Average Net Assets... 5.37% 5.02%/3/
Portfolio Turnover Rate................................ 28.0% 30.0%/3/
</TABLE>
- ------
Notes:
1. Inception date of the Fund was October 1, 1997.
2. Not annualized.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement at expenses (if any)
by investment adviser and administrators.

33
<PAGE>

Excelsior Funds, Inc.

Excelsior Institutional Trust

Investment Adviser
United States Trust Company of New York
114 W. 47th Street
New York, New York 10036

U.S. Trust Company
225 High Ridge Road
East Building
Stamford, Connecticut 06905

Distributor
Edgewood Services, Inc.
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-5829

More information about each Fund is available without charge through the fol-
lowing:

Statement of Additional Information (SAI)
The SAIs dated August 1, 1999 include detailed information about Excelsior
Funds, Inc. and Excelsior Institutional Trust. The SAIs are on file with the
SEC and are incorporated by reference into this prospectus. This means that the
SAIs, for legal purposes, are a part of this prospectus.

To Obtain More Information:
By Telephone: Call (800) 466-1012 (from overseas, call (617) 557-8280)

By Mail: Excelsior Funds, 73 Tremont Street, Boston, Massachusetts 02108-3913

By Internet: http://www.excelsiorfunds.com

From the SEC: You can also obtain the SAIs or the Annual and Semi-Annual
reports, as well as other information about Excelsior Funds, Inc. and Excelsior
Institutional Trust, from the SEC's website ("http://www.sec.gov"). You may
review and copy documents at the SEC Public Reference Room in Washington, DC
(for information call 1-800-SEC-0330). You may request documents by mail from
the SEC, upon payment of a duplicating fee, by writing to: Securities and
Exchange Commission, Public Reference Section, Washington, DC 20549-6009.
Excelsior Funds, Inc.'s and Excelsior Institutional Trust's Investment Company
Act registration numbers are 811-4088 and 811-8490, respectively.