MUTUAL FUND SELECT TRUST, 485BPOS, 2000-11-28

MUTUAL FUND SELECT TRUST
485BPOS, 2000-11-28

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<PAGE>

As filed via EDGAR with the Securities and Exchange Commission on November 28,
2000.

File No. 811-7841
Registration No. 333-13319
--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | |

Pre-Effective Amendment No. 2 | |

Post-Effective Amendment No. 5 |X|

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | |

Amendment No. 7 |X|

-------------------------------
MUTUAL FUND SELECT TRUST
(Exact Name of Registrant as Specified in Charter)

1211 Avenue of the Americas, 41st Floor
New York, New York 10036
--------------------------------------------------
(Address of Principal Executive Office)

Registrant's Telephone Number, including Area Code: (212) 492-1600

Copies to:

George Martinez, Esq. Peter Eldridge, Esq. Sarah E. Cogan, Esq.
BISYS Fund Services, Inc. Chase Manhattan Bank Simpson Thacher & Bartlett
3435 Stelzer Road 270 Park Avenue 425 Lexington Avenue
Columbus, Ohio 43219 New York, New York 10017 New York, New York 10017

--------------------------------------------------------------------------------
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

<TABLE>
<S> <C> <C> <C>
[X] Immediately upon filing pursuant to [ ] on ( ) pursuant to
paragraph (b) paragraph (b)
[ ] 60 days after filing pursuant to [ ] on ( ) pursuant to
paragraph (a)(1) paragraph (a)(1)
[ ] 75 days after filing pursuant to [ ] on ( ) pursuant to
paragraph (a)(2) paragraph (a)(2) rule 485.
</TABLE>

If appropriate, check the following box:

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

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

The Registrant has registered an indefinite number or amount of its shares of
common stock for each of its series of shares under the Securities Act of 1933
pursuant to Rule 24f-2 under the Investment Company Act of 1940 on December 23,
1996 and the Rule 24f-2 Notice for the Registrant's fiscal year ended August 31,
1999 was filed on November 27, 2000.

<PAGE>

PROSPECTUS DECEMBER 1, 2000

Chase Vista
Select Funds

SELECT
INTERMEDIATE
TAX FREE INCOME
FUND

SELECT TAX FREE
INCOME FUND

SELECT NEW YORK
INTERMEDIATE TAX FREE
INCOME FUND

SELECT
NEW JERSEY
TAX FREE INCOME
FUND

The Securities and Exchange Commission
has not approved or disapproved these
securities or determined if this
prospectus is truthful or complete.
Any representation to the contrary is
a criminal offense.

[LOGO]
PSCVST-1-1299

<PAGE>

----------------------------------------------------
INFORMATION ABOUT THE FUNDS
----------------------------------------------------
SELECT INTERMEDIATE TAX FREE INCOME FUND 1

SELECT TAX FREE INCOME FUND 7

SELECT NEW YORK INTERMEDIATE
TAX FREE INCOME FUND 13

SELECT NEW JERSEY TAX FREE INCOME FUND 19

----------------------------------------------------
FUND MANAGEMENT
----------------------------------------------------

THE INVESTMENT ADVISER 26

PORTFOLIO MANAGERS 27

----------------------------------------------------
HOW YOUR ACCOUNT WORKS 28
----------------------------------------------------

WHO MAY BUY THESE SHARES 28

BUYING FUND SHARES 29

SELLING FUND SHARES 29

OTHER INFORMATION CONCERNING THE FUNDS 30

----------------------------------------------------
DISTRIBUTIONS AND TAXES 30
----------------------------------------------------

----------------------------------------------------
WHAT THE TERMS MEAN 32
----------------------------------------------------

----------------------------------------------------
FINANCIAL HIGHLIGHTS OF THE FUNDS 33
----------------------------------------------------

----------------------------------------------------
MORE INFORMATION Back cover

<PAGE>

--------------------------------------------------------------------------------
CHASE VISTA SELECT INTERMEDIATE TAX FREE INCOME FUND
--------------------------------------------------------------------------------

[Start Sidebar]
The Fund's objective

The Fund seeks to provide monthly dividends, which are excluded from gross
income, and to protect the value of your investment by investing primarily in
municipal obligations.

[End Sidebar]

THE FUND'S APPROACH

As a fundamental policy, the Fund normally invests at least 80% of its assets in
municipal obligations whose interest payments are:

- excluded from gross income

- excluded from the federal alternative minimum tax on individuals

The Fund invests in securities that are rated as investment grade by Moody's
Investors Service, Inc., Standard & Poor's Corporation or Fitch Investors
Service Inc. It may also invest in unrated securities which the advisers believe
are of comparable quality.

The Fund may also invest in derivatives, inverse floaters and interest rate
caps, zero coupon securities and forward commitments. These instruments may
be used to increase the Fund's income or gain. Derivatives, which are
financial instruments whose value is based on another security, index or
exchange rate, might also be used to hedge various market risks.

The Fund seeks to develop an appropriate portfolio by comparing, among other
factors, credit quality, yields and call provisions of different municipal
issuers, and examining structural changes along the yield curve in an attempt to
maximize investment returns while minimizing risk. The average dollar-weighted
maturity of the Fund's portfolio will be between three and 10 years.

1
<PAGE>

CHASE VISTA SELECT INTERMEDIATE TAX FREE INCOME FUND

Under normal market conditions, the Fund reserves the right to invest up to 20%
of its total assets in securities that pay interest subject to federal income
tax or the federal alternative minimum tax on individuals. To temporarily defend
the value of its assets during unusual market conditions, the Fund may exceed
this limit.

No more than 25% of total assets may be invested in any one industry, other than
governments and public authorities.

The Fund may invest in money market funds so that it can easily convert
investments into cash without losing a significant amount of money in the
process.

The Fund may also invest in municipal lease obligations. These allow the Fund to
participate in municipal lease agreements and installment purchase contracts.

The Fund may invest up to 25% of its total assets in municipal lease obligations
backed by letters of credit or guarantees from U.S. and foreign banks and other
foreign institutions.

There may be times when there are not enough securities available to meet the
Fund's needs. On these occasions, the Fund may invest in repurchase agreements
or Treasury securities that may be subject to federal income tax.

The Fund may change any of its non-fundamental investment policies--including
its investment objective--without shareholder approval.

[Start Sidebar]

FREQUENCY OF TRADING

HOW FREQUENTLY THE FUND BUYS AND SELLS SECURITIES WILL VARY FROM YEAR TO YEAR,
DEPENDING ON MARKET CONDITIONS.

[End Sidebar]

2
<PAGE>

THE MAIN INVESTMENT RISKS

All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some specific risks of investing in the Select
Intermediate Tax Free Income Fund.

The principal value of fixed income investments tends to fall when prevailing
interest rates rise.

A municipality that gets into financial trouble could find it difficult to make
interest and principal payments, which would hurt the Fund's returns and its
ability to preserve capital and liquidity. A number of issuers have a recent
history of significant financial difficulties. More than 5% of the Fund's assets
may be invested in any one municipality, which could increase this risk.

Under some circumstances, municipal lease obligations might not pay interest
unless the state or municipal legislature authorizes money for that purpose.
Some securities, including municipal lease obligations, carry additional risks.
For example, they may be difficult to trade or interest payments may be tied
only to a specific stream of revenue.

Normally, the Fund may invest up to 20% of its total assets in securities whose
interest is subject to the federal alternative minimum tax. Consult your tax
professional for more information.

Since some municipal obligations may be secured or guaranteed by banks and other
institutions, the risk to the Fund could increase if the banking or financial
sector suffers an economic downturn.

The Fund may invest in municipal obligations backed by foreign institutions.
This could carry more risk than securities backed by U.S. institutions, because
of political or economic insta-

3
<PAGE>

CHASE VISTA SELECT INTERMEDIATE TAX FREE INCOME FUND

bility, the imposition of government controls, or regulations that don't match
U.S. standards.

The value of zero coupon securities and inverse floaters tends to fluctuate
according to interest rate changes significantly more than the value of ordinary
interest-paying debt securities. The price of a security with an interest rate
cap will change more often and to a greater degree than a municipal security
without it.

A forward commitment could lose value if the underlying security falls in value
before the settlement date or if the other party fails to meet its obligation to
complete the transaction.

Derivatives may be more risky than other types of investments because they may
respond more to changes in economic conditions than other types of investments.
If they are used for non-hedging purposes, they could cause losses that are
significantly more than the Fund's original investment.

The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities. In addition, more than 25% of the Fund's assets may be
invested in securities that rely on similar projects for their income stream. As
a result, the Fund could be more susceptible to developments that affect those
projects.

[Start Sidebar]

INVESTMENTS IN THE FUND ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, THE CHASE MANHATTAN BANK AND ARE NOT INSURED OR GUARANTEED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY.

[End Sidebar]

4
<PAGE>

THE FUND'S PAST PERFORMANCE

This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's shares has varied from year to year. This provides
some indication of the risk of investing in the Fund. The table shows the
average annual return over the past one, five and ten years. It compares that
performance to the Lehman Municipal Bond 3-10 Year Blend Index, a widely
recognized market benchmark, and the Lipper Intermediate Municipal Debt Funds
Index, representing the performance of the 30 largest intermediate municipal
income funds.

On January 1, 1997, the Fund received the assets of a common trust fund which
had been maintained by Chase in a tax-free reorganization. The performance of
the Fund before that date is based on the historical performance of that common
trust fund. The historical performance of shares of the predecessor common trust
fund has been adjusted to reflect the Fund's expense levels (absent
reimbursements) that were in place at the time the Fund received the common
trust fund assets. For more information, see the Fund's Statement of Additional
Information.

The calculations assume that all dividends and distributions are reinvested in
the Fund. Some of the companies that provide services to the Fund have in the
past agreed not to collect some expenses and to reimburse others. Without these
agreements, the performance figures would be lower than those shown.

[CHART]

<TABLE>
<CAPTION>
YEAR-BY-YEAR RETURNS

PAST PERFORMANCE DOES NOT PREDICT HOW THIS FUND WILL PERFORM IN THE FUTURE.
--------------------------------------------------------------------------------
<S> <C>
1990 6.72%
1991 12.20%
1992 8.71%
1993 11.78%
1994 -3.96%
1995 14.39%
1996 3.76%
1997 8.21%
1998 6.56%
1999 -0.55%
--------------------------------------------------------------------------------
</TABLE>

THE TOTAL RETURN FOR THE FUND FROM JANUARY 1, 2000 TO SEPTEMBER 30, 2000 WAS
4.89%.

--------------------------------------------------------------------------------
BEST QUARTER 5.92%
--------------------------------------------------------------------------------
1ST QUARTER, 1995

--------------------------------------------------------------------------------
WORST QUARTER -3.52%
--------------------------------------------------------------------------------
1ST QUARTER, 1994

5
<PAGE>

CHASE VISTA SELECT INTERMEDIATE TAX FREE INCOME FUND

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDING DECEMBER 31, 1999

PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
SELECT INTERMEDIATE TAX FREE
INCOME FUND -0.55% 6.35% 6.64%
--------------------------------------------------------------------------------------
LEHMAN MUNICIPAL BOND
3-10 YEAR BLEND INDEX 0.30% 6.30% 6.42%
--------------------------------------------------------------------------------------
LIPPER INTERMEDIATE MUNICIPAL
DEBT FUNDS INDEX -1.37% 5.59% 5.90%
--------------------------------------------------------------------------------------
</TABLE>

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT):
--------------------------------------------------------------------------------
NONE
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)*

------------------------------------------------------------------------------------
MANAGEMENT DISTRIBUTION OTHER TOTAL ANNUAL FUND
FEES (12B-1) FEES EXPENSES OPERATING EXPENSES
------------------------------------------------------------------------------------
<S> <C> <C> <C>
0.30% None 0.45%# 0.75%#
------------------------------------------------------------------------------------
</TABLE>

*THE TABLE IS BASED ON EXPENSES INCURRED IN THE MOST RECENT FISCAL YEAR.

#RESTATED FROM THE MOST RECENT FISCAL YEAR TO REFLECT CURRENT EXPENSE
ARRANGEMENTS.

THE TABLE DOES NOT REFLECT CHARGES OR CREDITS WHICH YOU MIGHT INCUR IF YOU
INVEST THROUGH A FINANCIAL INSTITUTION.

EXAMPLE This example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds. The example assumes:

- you invest $10,000

- you sell all your shares at the end of the period

- your investment has a 5% return each year

- you reinvested all your dividends, and

- the Fund's operating expenses are not waived and remain the same as shown
above.

Although your actual costs may be higher or lower, based on these assumptions,
your costs would be:

<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$77 $240 $417 $930
------------------------------------------------------------------------------------
</TABLE>

6
<PAGE>

--------------------------------------------------------------------------------
CHASE VISTA SELECT TAX FREE INCOME FUND
--------------------------------------------------------------------------------

[Start Sidebar]

The Fund's objective

The Fund seeks to provide monthly dividends that are excluded from gross income
and to protect the value of your investment by investing primarily in municipal
obligations.

[End Sidebar]

THE FUND'S APPROACH

As a fundamental policy, the Fund normally invests at least 80% of its assets in
municipal obligations whose interest payments are:

- excluded from gross income

- excluded from the federal alternative minimum tax on individuals

The Fund may also invest in derivatives, inverse floaters and interest rate
caps, zero coupon securities and forward commitments. These instruments may be
used to increase the Fund's income or gain. Derivatives, which are financial
instruments whose value is based on another security, index or exchange rate,
might also be used to hedge various market risks.

There is no restriction on the maturity of the Fund's portfolio or on any
individual security in the portfolio.

7
<PAGE>

CHASE VISTA SELECT TAX FREE INCOME FUND

No more than 25% of total assets may be invested in any one industry, other than
governments and public authorities.

The Fund may invest in money market funds so that it can easily convert
investments into cash without losing a significant amount of money in the
process.

The Fund may also invest in municipal lease obligations. These allow the Fund to
participate in municipal lease agreements and installment purchase contracts.

The Fund may invest up to 25% of its total assets in municipal lease obligations
backed by letters of credit or guarantees from U.S. and foreign banks and other
foreign institutions.

The Fund may change any of its non-fundamental investment policies--including
its investment objective--without shareholder approval.

[Start Sidenote]

FREQUENCY OF TRADING

HOW FREQUENTLY THE FUND BUYS AND SELLS SECURITIES WILL VARY FROM YEAR TO YEAR,
DEPENDING ON MARKET CONDITIONS.

[End Sidebar]

8
<PAGE>

THE MAIN INVESTMENT RISKS

All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some specific risks of investing in the Select
Tax Free Income Fund.

The principal value of fixed income investments tends to fall when prevailing
interest rates rise.

Normally, the Fund may invest up to 20% of its total assets in securities whose
interest is subject to the federal alternative minimum tax. Consult your tax
professional for more information.

Since some municipal obligations may be secured or guaranteed by banks and other
institutions, the risk to the Fund could increase if the banking or financial
sector suffers an economic downturn.

The Fund may invest in municipal obligations backed by foreign institutions.
This could carry more risk than securities backed by U.S. institutions, because
of political or economic instability,

9
<PAGE>

CHASE VISTA SELECT TAX FREE INCOME FUND

the imposition of government controls, or regulations that don't match U.S.
standards.

A forward commitment could lose value if the underlying security falls in value
before the settlement date or if the other party fails to meet its obligation to
complete the transaction.

[Start Sidebar]

[End Sidebar]

10
<PAGE>

THE FUND'S PAST PERFORMANCE

This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's shares has varied from year to year. This provides
some indication of the risk of investing in the Fund. The table shows the
average annual return over the past one, five and ten years. It compares that
performance to the Lehman Municipal Bond Index, a widely recognized market
benchmark, and the Lipper General Municipal Debt Funds Index, representing the
performance of the 30 largest municipal income funds.

[CHART]

<TABLE>
<CAPTION>
YEAR-BY-YEAR RETURNS

PAST PERFORMANCE DOES NOT PREDICT HOW THIS FUND WILL PERFORM IN THE FUTURE.
--------------------------------------------------------------------------------
<S> <C>
1990 7.36%
1991 11.48%
1992 9.13%
1993 11.32%
1994 -3.88%
1995 14.44%
1996 4.09%
1997 9.11%
1998 6.49%
1999 -3.26%
--------------------------------------------------------------------------------
</TABLE>

THE TOTAL RETURN FOR THE FUND FROM JANUARY 1, 2000 TO SEPTEMBER 30, 2000 WAS
6.59%.

--------------------------------------------------------------------------------
BEST QUARTER 5.72%
--------------------------------------------------------------------------------
1ST QUARTER, 1995
--------------------------------------------------------------------------------
WORST QUARTER -3.29%
--------------------------------------------------------------------------------
1ST QUARTER, 1994
--------------------------------------------------------------------------------

11
<PAGE>

CHASE VISTA SELECT TAX FREE INCOME FUND

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS

FOR THE PERIODS ENDING DECEMBER 31, 1999

PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
SELECT TAX FREE INCOME FUND -3.26% 6.01% 6.46%
--------------------------------------------------------------------------------------
LEHMAN MUNICIPAL BOND INDEX -2.06% 6.91% 6.89%
--------------------------------------------------------------------------------------
LIPPER GENERAL MUNICIPAL DEBT
FUNDS INDEX -4.07% 6.14% 6.29%
--------------------------------------------------------------------------------------
</TABLE>

FEES AND EXPENSES

This table describes the fees that you may pay if you buy and hold shares of the
Fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT):
-------------------------------------------------------------------------------
NONE
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)*

MANAGEMENT DISTRIBUTION OTHER TOTAL ANNUAL FUND
FEES (12B-1) FEES EXPENSES OPERATING EXPENSES
-------------------------------------------------------------------------------
<S> <C> <C> <C>
0.30% NONE 0.45%# 0.75%#
-------------------------------------------------------------------------------
</TABLE>

*THE TABLE IS BASED ON EXPENSES INCURRED IN THE MOST RECENT FISCAL YEAR.

#RESTATED FROM THE MOST RECENT FISCAL YEAR TO REFLECT CURRENT EXPENSE
ARRANGEMENTS.

THE TABLE DOES NOT REFLECT CHARGES OR CREDITS WHICH YOU MIGHT INCUR IF YOU
INVEST THROUGH A FINANCIAL INSTITUTION.

EXAMPLE This example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds. The example assumes:

- you invest $10,000

- you sell all your shares at the end of the period

- your investment has a 5% return each year

- you reinvested all your dividends, and

- the Fund's operating expenses are not waived and remain the same as shown
above.

Although your actual costs may be higher or lower, based on these assumptions,
your costs would be:

<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$77 $240 $417 $930
---------------------------------------------------------------------------
</TABLE>

<PAGE>

--------------------------------------------------------------------------------
CHASE VISTA SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND
--------------------------------------------------------------------------------

[Start Sidebar]

The Fund's
objective

The Fund seeks to provide monthly dividends that are excluded from gross income
and are exempt from New York State and New York City personal income taxes. It
also seeks to protect the value of your investment.

[End Sidebar]

THE FUND'S APPROACH

As a fundamental policy, the Fund normally invests at least 80% of its assets in
New York municipal obligations whose interest payments are:

- excluded from gross income and exempt from New York State and New York City
income taxes

- excluded from the federal alternative minimum tax on individuals

New York municipal obligations are those issued by New York State, its political
subsidiaries, as well as Puerto Rico, other U.S. territories and their political
subdivisions.

The Fund may also invest in derivatives, inverse floaters and interest rate
caps, zero coupon securities and forward commitments. These instruments may be
used to increase the Fund's income or gain. Derivatives, which are financial
instruments whose value is based on another security, index or exchange rate,
might also be used to hedge various market risks.

13
<PAGE>

CHASE VISTA SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND

The average dollar-weighted maturity of the Fund's portfolio will be between
three and 10 years.

Under normal market conditions, the Fund reserves the right to invest up to 20%
of its total assets in securities that pay interest subject to federal income
tax, the federal alternative minimum tax on individuals or New York State and
New York City personal income taxes. To temporarily defend the value of its
assets during unusual market conditions, the Fund may exceed this limit.

No more than 25% of total assets may be invested in any one industry, other than
governments and public authorities.

The Fund may invest in money market funds so that it can easily convert
investments into cash without losing a significant amount of money in the
process.

The Fund may also invest in municipal lease obligations. These allow the Fund to
participate in municipal lease agreements and installment purchase contracts.

The Fund may invest up to 25% of its total assets in municipal lease obligations
backed by letters of credit or guarantees from U.S. and foreign banks and other
foreign institutions.

The Fund may change any of its non-fundamental investment policies--including
its investment objective--without shareholder approval.

FREQUENCY OF TRADING
How frequently the Fund buys and sells securities will vary from year to year,
depending on market conditions.

14
<PAGE>

THE MAIN INVESTMENT RISKS

All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some specific risks of investing in the Select
New York Intermediate Tax Free Income Fund.

The principal value of fixed income investments tends to fall when prevailing
interest rates rise.

The Fund invests primarily in New York State and its municipalities and public
authorities. A number of municipal issuers, including the State of New York and
New York City, have a history of financial problems. If the state, or any of the
local government bodies, gets into financial trouble, it could have trouble
paying interest and principal. This would hurt the Fund's returns and its
ability to preserve capital and liquidity. If more than 5% of the Fund's assets
are invested in any one municipality, this risk could increase.

Normally, the Fund may invest up to 20% of its total assets in securities whose
interest is subject to the federal alternative minimum tax. Consult your tax
professional for more information.

Since some municipal obligations may be secured or guaranteed by banks and other
institutions, the risk to the Fund could increase if the banking or financial
sector suffers an economic downturn.

15
<PAGE>

CHASE VISTA SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND

The Fund may invest in municipal obligations backed by foreign institutions.
This could carry more risk than securities backed by U.S. institutions, because
of political or economic instability, the imposition of government controls, or
regulations that don't match U.S. standards.

The value of zero coupon securities, inverse floaters and interest rate caps
tends to fluctuate according to interest rate changes significantly more than
the value of ordinary interest-paying debt securities. The price of a security
with an interest rate cap will be more volatile than a municipal security
without one.

A forward commitment could lose value if the underlying security falls in value
before the settlement date or if the other party fails to meet its obligation to
complete the transaction.

Investments in the Fund are not bank deposits or obligations of, or guaranteed
or endorsed by, The Chase Manhattan Bank and are not insured or guaranteed by
the Federal Deposit Insurance Corporation, Federal Reserve Board or any other
government agency.

16
<PAGE>

THE FUND'S PAST PERFORMANCE

This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's shares has varied from year to year. This provides
some indication of the risk of investing in the Fund. The table shows the
average annual return over the past one, five and ten years. It compares that
performance to the Lehman New York Municipal Bond Index and the Lehman Municipal
Bond Index, both widely recognized market benchmarks, and the Lipper New York
Municipal Debt Funds Index, representing the performance of the 30 largest New
York municipal income funds.

YEAR-BY-YEAR RETURNS
Past performance does not predict how this
Fund will perform in the future.

[Start Bar Chart]

[End Bar Chart]

The total return for the Fund from January 1, 2000
to September 30, 2000 was 5.58%.

---------------------------------------
BEST QUARTER 5.82%
---------------------------------------
1st quarter 1995

---------------------------------------
WORST QUARTER -4.27%
---------------------------------------
1st quarter, 1994

17
<PAGE>

CHASE VISTA SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND

AVERAGE ANNUAL TOTAL RETURNS

For the periods ending December 31, 1999

<TABLE>
<CAPTION>
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
SELECT NEW YORK INTERMEDIATE
TAX FREE INCOME FUND -1.41% 6.25% 6.20%
-----------------------------------------------------------------------------------
LEHMAN MUNICIPAL BOND INDEX -2.06% 6.91% 6.89%
-----------------------------------------------------------------------------------
LEHMAN NEW YORK MUNICIPAL
BOND INDEX -2.03% 7.15% 7.36%@
-----------------------------------------------------------------------------------
LIPPER NEW YORK MUNICIPAL DEBT
FUNDS INDEX -4.96% 5.82% 6.13%
-----------------------------------------------------------------------------------
</TABLE>

@ Reflects the average annual return since inception (June 30, 1993). The
benchmark lacks ten years of history.

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT):

-------------------------------------------------------------------------------
NONE
-------------------------------------------------------------------------------

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)*

<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT DISTRIBUTION OTHER FUND OPERATING
FEES (12B-1) FEES EXPENSES EXPENSES
--------------------------------------------------------------------------
<S> <C> <C> <C>
0.30% None 0.48%# 0.78%#
--------------------------------------------------------------------------
</TABLE>

* The table is based on expenses incurred in the most recent fiscal year.

# Restated from the most recent fiscal year to reflect current expense
arrangements.

The actual Other Expenses are expected to be 0.45% and Total Annual Fund
Operating Expenses are not expected to exceed 0.75%. That is because The Chase
Manhattan Bank (Chase) and some of the Fund's other service providers have
volunteered not to collect a portion of their fees and to reimburse others.
Chase and these other service providers may terminate this arrangement at any
time.

The table does not reflect charges or credits which you might incur if you
invest through a financial institution.

EXAMPLE This example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds. The example assumes:

- you invest $10,000

- you sell all your shares at the end of the period

- your investment has a 5% return each year

- you reinvested all your dividends, and

- the Fund's operating expenses are not waived and remain the same as shown
above.

Although your actual costs may be higher or lower, based on these assumptions,
your costs would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
<S> <C> <C> <C>
$80 $249 $433 $966
-------------------------------------------------------------------------------
</TABLE>

18
<PAGE>

--------------------------------------------------------------------------------
CHASE VISTA SELECT NEW JERSEY TAX FREE INCOME FUND
--------------------------------------------------------------------------------

[Start Sidebar]

THE FUND'S
OBJECTIVE

The Fund seeks to provide monthly dividends that are excluded from gross income
and are exempt from the New Jersey gross income tax, that state's personal
income tax.

[End Sidebar]

THE FUND'S APPROACH

As a fundamental policy, the Fund normally invests at least 80% of its assets in
New Jersey municipal obligations whose interest payments are:

- excluded from gross income and exempt from New Jersey income taxes

- excluded from the federal alternative minimum tax on individuals

New Jersey municipal obligations are those issued by the State of New Jersey,
its political subsidiaries, as well as Puerto Rico, other U.S. territories and
their political subdivisions.

The Fund may also invest in derivatives, inverse floaters and interest rate
caps, zero coupon securities and forward commitments. These instruments may be
used to increase the Fund's income or gain. Derivatives, which are financial
instruments whose value is based on another security, index or exchange rate,
might also be used to hedge various market risks.

19
<PAGE>

CHASE VISTA SELECT NEW JERSEY TAX FREE INCOME FUND

There is no restriction on the maturity of the Fund's portfolio or on any
individual security in the portfolio.

Under normal market conditions, the Fund reserves the right to invest up to 20%
of its total assets in securities that pay interest subject to federal income
tax, the federal alternative minimum tax on individuals or New Jersey personal
income taxes. To temporarily defend the value of its assets during unusual
market conditions, the Fund may exceed this limit.

No more than 25% of total assets may be invested in any one industry, other than
governments and public authorities.

The Fund may invest in money market funds so that it can easily convert
investments into cash without losing a significant amount of money in the
process.

The Fund may also invest in municipal lease obligations. These allow the Fund to
participate in municipal lease agreements and installment purchase contracts.

The Fund may invest up to 25% of its total assets in municipal lease obligations
backed by letters of credit or guarantees from U.S. and foreign banks and other
foreign institutions.

The Fund may change any of its non-fundamental investment policies--including
its investment objective--without shareholder approval.

FREQUENCY OF TRADING
How frequently the Fund buys and sells securities will vary from year to year,
depending on market conditions.

20
<PAGE>

THE MAIN INVESTMENT RISKS

All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some specific risks of investing in the Select
New Jersey Tax Free Income Fund.

The principal value of fixed income investments tends to fall when prevailing
interest rates rise.

The Fund invests primarily in the State of New Jersey and its municipalities and
public authorities. If the state, or any of the local government bodies, gets
into financial trouble, it could have trouble paying interest and principal.
This would hurt the Fund's returns and its ability to preserve capital and
liquidity. If more than 5% of the Fund's assets are invested in any one
municipality, this risk could increase.

Normally, the Fund may invest up to 20% of its total assets in securities whose
interest is subject to the federal alternative minimum tax. Consult your tax
professional for more information.

Since some municipal obligations may be secured or guaranteed by banks and other
institutions, the risk to the Fund could increase if the banking or financial
sector suffers an economic downturn.

The Fund may invest in municipal obligations backed by foreign institutions.
This could carry more risk than securities backed by U.S.

21
<PAGE>

CHASE VISTA SELECT NEW JERSEY TAX FREE INCOME FUND

institutions, because of political or economic instability, the imposition of
government controls, or regulations that don't match U.S. standards.

The value of zero coupon securities, inverse floaters and interest rate caps
tends to fluctuate according to interest rate charges significantly more than
the value of ordinary interest-paying debt securities. The price of a security
with an interest rate cap will be more volatile than a municipal security
without one.

A forward commitment could lose value if the underlying security falls in value
before the settlement date or if the other party fails to meet its obligation to
complete the transaction.

22
<PAGE>

THE FUND'S PAST PERFORMANCE

This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's shares has varied from year to year. This provides
some indication of the risk of investing in the Fund. The table shows the
average annual return over the past year, five years and since the Fund was
launched. It compares that performance to the Lehman Municipal Bond Index,
Lehman 7-Year Municipal Bond Index and Lehman Quality Intermediate Index, widely
recognized market benchmarks, and the Lipper New Jersey Municipal Debt Funds
Average, representing the average performance of a universe of actively managed
New Jersey municipal income funds.

YEAR-BY-YEAR RETURNS

Past performance does not predict how this
Fund will perform in the future.

[Start Bar Chart]

[End Bar Chart]

The total return for the Fund from January 1, 2000
to September 30, 2000 was 6.19%.

--------------------------------------
BEST QUARTER 4.70%
--------------------------------------

1st quarter, 1995

--------------------------------------
WORST QUARTER -2.60%
--------------------------------------
1st quarter, 1994

23
<PAGE>

CHASE VISTA SELECT NEW JERSEY TAX FREE INCOME FUND

AVERAGE ANNUAL TOTAL RETURNS
For the periods ending December 31, 1999

<TABLE>
<CAPTION>
SINCE
INCEPTION
PAST 1 YEAR PAST 5 YEARS (5/1/90)
------------------------------------------------------------------------------
<S> <C> <C> <C>
SELECT NEW JERSEY TAX FREE
INCOME FUND -1.93% 5.26% 5.76%
------------------------------------------------------------------------------
LEHMAN MUNICIPAL BOND INDEX -2.06% 6.91% 7.17%
------------------------------------------------------------------------------
LEHMAN 7-YEAR MUNICIPAL
BOND INDEX -0.14% 6.35% 6.82%
------------------------------------------------------------------------------
LEHMAN QUALITY INTERMEDIATE
INDEX 0.29% 6.24% 4.98%@
------------------------------------------------------------------------------
LIPPER NEW JERSEY MUNICIPAL
DEBT FUNDS AVERAGE -4.61% 5.59% 6.36%
------------------------------------------------------------------------------
</TABLE>

@ Reflects the average annual return since inception (June 30, 1993). The
benchmark lacks ten years of history.

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT):
------------------------------------------------------------------------------
NONE
------------------------------------------------------------------------------

ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)*

<TABLE>
<CAPTION>
------------------------------------------------------------------------------
TOTAL ANNUAL
MANAGEMENT DISTRIBUTION OTHER FUND OPERATING
FEES (12B-1) FEES EXPENSES EXPENSES
------------------------------------------------------------------------------
<S> <C> <C> <C>
0.30% None 0.64%# 0.94%#
</TABLE>

* The table is based on expenses incurred in the most recent fiscal year.

# Restated from the most recent fiscal year to reflect current expense
arrangements.

The table does not reflect charges or credits which you might incur if you
invest through a financial institution.

24
<PAGE>

EXAMPLE This example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds. The example assumes:

- you invest $10,000

- you sell all your shares at the end of the period

- your investment has a 5% return each year

- you reinvested all your dividends, and

- the Fund's operating expenses are not waived and remain the same as shown
above.

Although your actual costs may be higher or lower, based on these assumptions,
your costs would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
<S> <C> <C> <C>
$96 $300 $520 $1,155
-----------------------------------------------------------------------------
</TABLE>

25
<PAGE>

--------------------------------------------------------------------------------
THE INVESTMENT ADVISER
--------------------------------------------------------------------------------

The Chase Manhattan Bank (Chase) is the investment adviser
to each Fund. Chase is a wholly owned subsidiary of The Chase Manhattan
Corporation (CMC), a bank holding company. Chase and its predecessors have more
than a century of money management experience.

For the fiscal year ended August 31, 2000, Chase received management fees at the
annual rate of 0.24% of the average daily net assets of the Select Intermediate
Tax Free Income Fund, Select Tax Free Income Fund, Select New York Intermediate
Tax Free Income Fund and Select New Jersey Tax Free Income Fund.

Chase Fleming Asset Management (USA) Inc. (CFAM (USA)) is the sub-adviser to all
the Funds. It makes the day to day investment decisions for the Funds. Chase
pays CFAM (USA) a sub-advisory fee for it's services. CFAM (USA) is a wholly
owned subsidiary of Chase. CFAM (USA) provides discretionary investment services
to institutional clients and is located at 1211 Avenue of the Americas, New
York, NY 10036.

26
<PAGE>

THE INVESTMENT ADVISER

PORTFOLIO MANAGERS

TAX FREE INCOME FUND NEW YORK
INTERMEDIATE TAX FREE INCOME FUND
AND NEW JERSEY TAX FREE INCOME FUND

Pamela Hunter and Richard Taormina are responsible for the day-to-day management
of these two Funds. Ms. Hunter is a Managing Director at Chase and heads the
team providing tax exempt strategy, research and portfolio managment. She has
been employed at Chase and its predecessors since 1980. Mr. Taormina is a
Municipal Portfolio Manager and Analyst at Chase. He joined the company in
October 1997. Before joining Chase, he was a Senior Municipal Bond Trader at The
Vanguard Group of Investment Companies, beginning in 1990.

INTERMEDIATE TAX FREE INCOME FUND

Ms. Hunter and Carolyn J. Gill are responsible for the day-to-day management of
the Select Intermediate Tax Free Income Fund. Ms. Gill is a Vice President and
Senior Portfolio Manager at Chase. She has been employed at Chase and its
predecessors since 1986.

27
<PAGE>

--------------------------------------------------------------------------------
HOW YOUR ACCOUNT WORKS
--------------------------------------------------------------------------------

WHO MAY BUY THESE SHARES

Only qualified investors may buy shares. Qualified Fund investors are trusts,
fiduciary accounts and investment management clients of Chase, other financial
institutions or their affiliates. The financial institution must have an
agreement with the Funds to buy and sell shares.

Financial institutions may set other eligibility requirements, including minimum
investments. They must maintain at least $5 million in an account with one or
more Chase Vista Select Funds on behalf of their clients. If you are no longer a
qualified investor, your financial institution may redeem your shares or allow
you to keep holding your shares through a separate account. If you hold Fund
shares through a separate account, you may incur additional fees. The Funds may
refuse to sell Fund shares to any institution.

28
<PAGE>

HOW YOUR ACCOUNT WORKS

BUYING FUND SHARES

THROUGH YOUR FINANCIAL INSTITUTIOM
Tell Chase or your financial institution which Funds you want to buy. Your
financial institution is responsible for forwarding orders in a timely manner.
Your financial institution may impose different minimum investments and earlier
deadlines to buy shares.

The price of the shares is based on the net asset value per share (NAV). NAV is
the value of everything a Fund owns, minus everything it owes, divided by the
number of shares held by investors. If the account administrator at your
financial institution receives your order in proper form before the New York
Stock Exchange closes regular trading (or the institution's earlier deadline, if
any) and the order, along with payment in federal funds, is received by the
Funds before they close for business, your order will be confirmed at that day's
net asset value. Each Fund calculates its NAV once each day at the close of
regular trading on the New York Stock Exchange (normally 4 p.m. Eastern time.)
Each fund generally values its assets at their market value but may use fair
value if market prices are unavailable.

You can buy shares on any business day that the Federal Reserve Bank of New York
and the New York Stock Exchange are open.

You must provide a Social Security Number or Taxpayer Identification Number when
you open an account.

Each Fund has the right to refuse any purchase order or to stop offering shares
for sale at any time.

The Fund will not issue certificates for shares.

SELLING FUND SHARES

THROUGH YOUR FINANCIAL INSTITUTION
Tell your financial institution which Funds you want to sell. You must supply
the names of the registered shareholders on your account and your account
number. Your financial institution is responsible for sending the Funds all
necessary documents and may charge you for this service.

You can sell some or all of your shares on any day the Chase Vista Select Funds
Service Center is accepting purchase orders. You'll receive the next NAV
calculated after the Chase Vista Funds Service Center receives your order in
proper form from your financial institution. If the Fund receives your order
before the New York Stock Exchange closes regular trading, you will receive that
day's net asset value.

The Funds generally send proceeds of the sale in federal funds to your financial
institution on the business day after the Fund receives your request in proper
form.

Under unusual circumstances, the Funds may stop accepting orders to sell shares
or postpone payment for more than seven days, as federal securities laws permit.

29
<PAGE>

CHASE VISTA FUND NAME

OTHER INFORMATION CONCERNING THE FUNDS

You may authorize your financial institution to act on redemption and transfer
instructions received by phone. If someone trades on your account by phone, your
financial institution has a responsibility to take all reasonable precautions to
confirm that the instructions are genuine. If your financial institution fails
to use such reasonable precautions, it may be liable for any losses due to
unauthorized or fraudulent instructions. Investors agree, however, that they
will not hold the Funds or their financial institution or any of their agents
liable for any losses or expenses arising from any sales request, if reasonable
precautions are taken.

Your financial institution may offer other services. These could include special
procedures for buying and selling Fund shares, such as pre-authorized or
systematic buying and selling plans. Each financial institution may establish
its own terms and conditions for these services.

The Funds have agreements with certain shareholder servicing agents (including
Chase) under which the shareholder servicing agents have agreed to provide
certain support services to their customers. For performing these services, each
shareholder servicing agent receives an annual fee of up to 0.25% of the average
daily net assets of the Shares of each Fund held by investors serviced by the
shareholder servicing agent.

Chase and its affiliates and the Funds and their affiliates, agents and
subagents may share information about shareholders and their accounts with each
other and with others unless this sharing is prohibited by contract. This
information can be used for a variety of purposes, including offering investment
and insurance products to shareholders.

Vista Fund Distributors, Inc. (VFD), a subsidiary of The BISYS Group, Inc., is
the Funds' distributor. VFD is unaffiliated with Chase.

DISTRIBUTIONS AND TAXES

Each Fund can earn income and it can realize capital gain. The Funds deduct any
expenses then pay out these earnings to shareholders as distributions.

The Funds declare dividends daily and distribute any net investment income
(other than short-term capital gains) at least monthly. Each Fund distributes
net capital gain at least annually. You have three options for your
distributions. You may: reinvest all of them in additional Fund shares without a
sales charge; take distributions of net investment income in cash or as a
deposit in a pre-assigned bank account and reinvest distributions of net capital
gain in additional shares; or take all distributions in cash or as a deposit in
a pre-assigned bank account.

If your financial institution does not offer distribution reinvestment or if you
don't select an option when you open your account, we'll pay all dis-

30
<PAGE>

HOW YOUR ACCOUNT WORKS

tributions in cash. The taxation of dividends won't be affected by
the form in which you receive them.

Dividends of net investment income are usually taxable as ordinary income at the
federal, state and local levels. Dividends of tax-exempt interest income are not
subject to federal income taxes, but will generally be subject to state and
local taxes. However, for the New York Intermediate Tax Free Income Fund, New
York residents will not have to pay New York State or New York City personal
income taxes on tax-exempt income from New York municipal obligations.
Similarly, for the New Jersey Tax Free Income Fund, New Jersey residents will
not have to pay New Jersey personal income taxes on tax-exempt income from New
Jersey municipal obligations. The state or municipality where you live may not
charge you state or local taxes on tax-exempt interest earned on certain bonds.
Dividends earned on bonds issued by the U.S. government and its agencies may
also be exempt from some types of state and local taxes.

If you receive distributions of net capital gain, the tax rate will be
based on how long the Fund held a particular asset, not on how long you have
owned your shares. If you buy shares just before a distribution, you will pay
tax on the entire amount of the taxable distribution you receive, even thought
the NAV will be higher on that date because it includes the distribution amount.

Early in each calendar year, each Fund will send you a notice showing the amount
of distributions you received in the preceding year and the tax status of those
distributions.

The above is a general summary of the tax implications of investing in the
Funds. Please consult your tax adviser to see how investing in the Funds will
affect your own tax situation.

31
<PAGE>

CHASE VISTA FUND NAME

WHAT THE TERMS MEAN

DEBT SECURITIES: securities used by issuers, such as governmental entities and
corporations, to borrow money. The issuer usually pays a fixed, variable or
floating rate of interest and repays the amount borrowed at the maturity date of
the security. However, if a borrower issues a zero coupon debt security, it does
not make regular interest payments.

DISTRIBUTION FEE: a fee that covers the cost of the distribution system used to
sell shares to the public.

DOLLAR-WEIGHTED AVERAGE MATURITY: The average maturity of the Fund is the
average amount of time until the issuers of the debt securities in the Fund's
portfolio must pay off the principal amount of the debt. "Dollar weighted" means
the larger the dollar value of the debt security in the Fund's portfolio, the
more weight it gets in calculating this average.

INVESTMENT ADVISORY FEE: a fee paid to the investment adviser to manage the Fund
and make decisions about buying and selling the Fund's investments.

OTHER EXPENSES: miscellaneous items, including transfer agency, custody and
registration fees.

REPURCHASE AGREEMENTS: a type of short-term investment in which a dealer sells
securities to the Fund and agrees to buy them back later at a set price. In
effect, the dealer is borrowing the Fund's money for a short time, using the
securities as collateral.

SHAREHOLDER SERVICE FEE: a fee to cover the cost of paying shareholder-
servicing agents to provide certain support services for your account.

32
<PAGE>

--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

The Financial Highlights table is intended to help you
understand the Fund's financial performance for the periods since shares were
first offered. The total returns in the table represent the rate an investor
would have earned or lost on an investment in the Funds (assuming reinvestment
of all dividends and distributions).

The following tables provide selected per share data and ratios for one Share
outstanding throughout each period shown.

This information is supplemented by financial statements including accompanying
notes appearing in the Fund's Annual Report to Shareholders for the year ended
August 31, 2000, which is incorporated by reference into the SAI. Shareholders
may obtain a copy of this annual report by contacting the Fund or their
Shareholder Servicing Agent.

The financial statements, which include the financial highlights have been
audited by PricewaterhouseCoopers LLP, independent accountants, whose report
thereon is included in the Annual Report to Shareholders.

33
<PAGE>

FINANCIAL HIGHLIGHTS

CHASE VISTA SELECT INTERMEDIATE TAX FREE INCOME FUND

Dividends from net investment income 0.46 0.52 0.56 0.39
Distributions from capital gains 0.06 0.12 0.21 --
------ ------ ------ ------
Total distributions 0.52 0.64 0.77 0.39
---------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.46 $10.42 $10.93 $10.85
---------------------------------------------------------------------------------------------------------

TOTAL RETURN 5.54% 1.15% 8.08% 4.58%
=========================================================================================================
RATIOS/SUPPLEMENTAL DATA:
---------------------------------------------------------------------------------------------------------
Net assets, end of period (millions) $694 $729 $717 $631
---------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets# 0.57% 0.03% 0.02% 0.02%
---------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets# 4.49% 4.81% 5.10% 5.40%
---------------------------------------------------------------------------------------------------------
Ratio of expenses without waivers, reimbursements
and earnings credits to average net assets# 0.66% 0.50% 0.50% 0.50%
---------------------------------------------------------------------------------------------------------
Ratio of net investment income without waivers,
reimbursements and earnings credits to average
net assets# 4.40% 4.34% 4.62% 4.92%
---------------------------------------------------------------------------------------------------------
Portfolio turnover rate 60% 62% 71% 60%
---------------------------------------------------------------------------------------------------------
</TABLE>

*Commencement of operations.
#Short periods have been annualized.

34
<PAGE>

FINANCIAL HIGHLIGHTS

CHASE VISTA SELECT TAX FREE INCOME FUND

TOTAL RETURN 6.11% (0.63%) 8.99% 4.86%
=========================================================================================================
RATIOS/SUPPLEMENTAL DATA:
---------------------------------------------------------------------------------------------------------
Net assets, end of period (millions) $753 $744 $761 $677
---------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets# 0.57% 0.03% 0.02% 0.02%
---------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets# 4.98% 5.25% 5.39% 5.73%
---------------------------------------------------------------------------------------------------------
Ratio of expenses without waivers, reimbursements
and earnings credits to average net assets# 0.66% 0.50% 0.50% 0.49%
---------------------------------------------------------------------------------------------------------
Ratio of net investment income without waivers,
reimbursements and earnings credits to average
net assets# 4.89% 4.78% 4.91% 5.26%
---------------------------------------------------------------------------------------------------------
Portfolio turnover rate 35% 39% 47% 48%
---------------------------------------------------------------------------------------------------------
</TABLE>

*Commencement of operations.
#Short periods have been annualized.

35
<PAGE>

FINANCIAL HIGHLIGHTS

CHASE VISTA SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND

<TABLE>
<CAPTION>
Year Year Year 1/1/97*
ended ended ended through
8/31/00 8/31/99 8/31/98 8/31/97
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $6.91 $7.29 $7.15 $7.09
---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.31 0.35 0.37 0.26
Net gain or losses in securities
(both realized and unrealized) 0.10 (0.31) 0.21 0.06
------ ------ ------ ------
Total from investment operations 0.41 0.04 0.58 0.32
------ ------ ------ ------
Less distributions:
Dividends from net investment income 0.31 0.35 0.37 0.26
Distributions from capital gains -- 0.07 0.07 --
------ ------ ------ ------
Total distributions 0.31 0.42 0.44 0.26
---------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.01 $6.91 $7.29 $7.15
---------------------------------------------------------------------------------------------------------
TOTAL RETURN 6.13% 0.38% 8.37% 4.62%
=========================================================================================================
RATIOS/SUPPLEMENTAL DATA:
---------------------------------------------------------------------------------------------------------
Net assets, end of period (millions) $277 $295 $283 $235
---------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets# 0.58% 0.04% 0.03% 0.03%
---------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets# 4.48% 4.85% 5.08% 5.52%
---------------------------------------------------------------------------------------------------------
Ratio of expenses without waivers, reimbursements
and earnings credits to average net assets# 0.70% 0.53% 0.53% 0.53%
---------------------------------------------------------------------------------------------------------
Ratio of net investment income without waivers,
reimbursements and earnings credits to average
net assets# 4.36% 4.36% 4.58% 5.02%
---------------------------------------------------------------------------------------------------------
Portfolio turnover rate 46% 39% 66% 32%
---------------------------------------------------------------------------------------------------------
</TABLE>

*Commencement of operations.
#Short periods have been annualized.

36
<PAGE>

FINANCIAL HIGHLIGHTS

CHASE VISTA SELECT NEW JERSEY TAX FREE INCOME FUND

<TABLE>
<CAPTION>
Year Year Year 1/1/97*
ended ended ended through
8/31/00 8/31/99 8/31/98 8/31/97
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.61 $10.24 $10.04 $9.99
---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.44 0.49 0.52 0.37
Net gain or losses in securities
(both realized and unrealized) 0.12 (0.45) 0.24 0.05
------ ------ ------ ------
Total from investment operations 0.56 0.04 0.76 0.42
------ ------ ------ ------
Less distributions:
Dividends from net investment income 0.44 0.49 0.52 0.37
Distributions from capital gains -- 0.18 0.04 --
------ ------ ------ ------
Total distributions 0.44 0.67 0.56 0.37
---------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.73 $9.61 $10.24 $10.04
---------------------------------------------------------------------------------------------------------
TOTAL RETURN 6.08% 0.37% 7.82% 4.20%
=========================================================================================================
RATIOS/SUPPLEMENTAL DATA:
---------------------------------------------------------------------------------------------------------
Net assets, end of period (millions) $73 $68 $71 $64
---------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets# 0.59% 0.04% 0.02% 0.02%
---------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets# 4.67% 4.94% 5.16% 5.52%
---------------------------------------------------------------------------------------------------------
Ratio of expenses without waivers, reimbursements
and earnings credits to average net assets# 0.82% 0.63% 0.63% 0.57%
---------------------------------------------------------------------------------------------------------
Ratio of net investment income without waivers,
reimbursements and earnings credits to average
net assets# 4.44% 4.35% 4.55% 4.97%
---------------------------------------------------------------------------------------------------------
Portfolio turnover rate 48% 24% 60% 14%
---------------------------------------------------------------------------------------------------------
</TABLE>

*Commencement of operations.
#Short periods have been annualized.

37
<PAGE>

HOW TO REACH US

MORE INFORMATION

You'll find more information about the Funds in the following documents:

ANNUAL AND SEMI-ANNUAL REPORTS

Our annual and semi-annual reports contain more information about each Fund's
investments and performance. The annual report also includes details about
the market conditions and investment strategies that had a significant effect
on each Fund's performance during the last fiscal year.

STATEMENT OF ADDITIONAL
INFORMATION (SAI)

The SAI contains more detailed information about the Funds and their policies.
By law, it's considered to be part of this prospectus.

You can get a free copy of these documents and other information, or ask us
any questions, by calling us at 1-800-34-VISTA or writing to:

CHASE VISTA FUND SERVICE CENTER
P.O. BOX 419392
KANSAS CITY, MO 64141-6392

If you buy your shares through The Chase Manhattan Bank or another
institution, you should contact that institution directly for more
information. You can also find information on-line at www.chasevista.com on
the Internet.

You can write or e-mail the SEC's Public Reference Room and ask them to mail
you information about the Funds, including the SAI. They'll charge you a
copying fee for this service. You can also visit the Public Reference Section
and copy the documents while you're there.

PUBLIC REFERENCE SECTION OF THE SEC
WASHINGTON, DC 20549-0102
1-202-942-8090
E-MAIL: [email protected]

Reports, a copy of the SAI and other information about the Funds is also
available on the SEC's website at http://www.sec.gov.

The Fund's Investment Company Act File No. is 811-7843

Chase Vista Funds Fulfillment Center
393 Manley Street
West Bridgewater, MA 02379-1039

<PAGE>

[LOGO]
CHASE VISTA FUNDS

STATEMENT OF
ADDITIONAL INFORMATION
DECEMBER 1, 2000

SELECT INTERMEDIATE TAX FREE INCOME FUND
SELECT TAX FREE INCOME FUND
SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND
SELECT NEW JERSEY TAX FREE INCOME FUND

1211 AVENUE OF THE AMERICAS, 41ST FLOOR, NEW YORK, NEW YORK 10036

This Statement of Additional Information sets forth information which
may be of interest to investors but which is not necessarily included in the
Prospectuses offering shares of the Funds. This Statement of Additional
Information should be read in conjunction with the Prospectus offering shares of
Select Intermediate Tax Free Income Fund, Select Tax Free Income Fund, Select
New York Intermediate Tax Free Income Fund and Select New Jersey Tax Free Income
Fund. Any reference to a "Prospectus" in this Statement of Additional
Information is a reference to the foregoing Prospectuses. Copies of the
Prospectus may be obtained by an investor without charge by contacting Vista
Fund Distributors, Inc. ("VFD"), the Funds' distributor (the "Distributor"), at
the above-listed address.

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.

For more information about the Funds, simply call or write the Vista Select
Service Center at:

1-800-622-4273
VISTA SELECT SERVICE CENTER
P.O. BOX 419392
KANSAS CITY, MO 64141

MFST-SAI-1200

<PAGE>

TABLE OF CONTENTS PAGE
--------------------------------------------------------------------------------
<S> <C>
The Funds................................................................. 3

Investment Policies and Restrictions...................................... 3

Performance Information................................................... 16

Determination of Net Asset Value.......................................... 20

Purchases and Redemptions................................................. 20

Tax Matters............................................................... 20

Management of the Trust and the Funds..................................... 26

Independent Accountants................................................... 35

Certain Regulatory Matters................................................ 35

General Information....................................................... 36

Appendix A--Description of Certain Obligations Issued or Guaranteed by
U.S. Government Agencies or Instrumentalities.......................... A-1

Appendix B--Description of Ratings........................................ B-1

Appendix C--Special Investment Considerations Relating to
New York Municipal Obligations......................................... C-1

Appendix D--Special Investment Considerations Relating to
New Jersey Municipal Obligations....................................... D-1
</TABLE>

2
<PAGE>

THE FUNDS

Mutual Fund Select Trust (the "Trust") is an open-end management
investment company which was organized as a business trust under the laws of the
Commonwealth of Massachusetts on October 1, 1996. The Trust presently consists
of 4 separate series (the "Funds"). All of the Funds are non-diversified, as
such term is defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). The shares of the Funds are collectively referred to in this
Statement of Additional Information as the "Shares."

The Board of Trustees of the Trust provides broad supervision over the
affairs of the Trust including the Funds. The Chase Manhattan Bank ("Chase") is
the investment adviser for the Funds. Chase also serves as the Trust's
administrator (the "Administrator") and supervises the overall administration of
the Trust, including the Funds. A majority of the Trustees of the Trust are not
affiliated with the investment adviser or sub-advisers.

Effective as of December 29, 1997, Select New York Tax Free Income Fund
changed its name to Select New York Intermediate Tax Free Income Fund.

INVESTMENT POLICIES AND RESTRICTIONS

INVESTMENT POLICIES

The Prospectuses set forth the various investment policies applicable to
each Fund. The following information supplements and should be read in
conjunction with the related sections of each Prospectus. As used in this
Statement of Additional Information, with respect to those Funds and policies
for which they apply, the terms "Municipal Obligations" and "tax-exempt
securities" have the meanings given to them in the relevant Fund's Prospectus.
For descriptions of the securities ratings of Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P") and Fitch Investors Service,
Inc. ("Fitch"), see Appendix B. For a general discussion of special investment
considerations relating to investing in (i) New York and (ii) New Jersey
Municipal Obligations, see Appendices C and D, respectively.

The management style used for the Funds emphasizes several key factors.
Portfolio managers consider the security quality--that is, the ability of the
debt issuer to make timely payments of principal and interest. Also important in
the analysis is the relationship of a bond's yield and its maturity, in which
the managers evaluate the risks of investing in long-term higher-yielding
securities. Managers also use a computer model to simulate possible fluctuations
in prices and yields if interest rates change. Another step in the analysis is
comparing yields on different types of securities to determine relative
risk/reward profiles.

U.S. GOVERNMENT SECURITIES. U.S. Government Securities include (1) U.S.
Treasury obligations, which generally differ only in their interest rates,
maturities and times of issuance, including U.S. Treasury bills (maturities of
one year or less), U.S. Treasury notes (maturities of one to ten years) and U.S.
Treasury bonds (generally maturities of greater than ten years); and (2)
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Treasury, (b) the right of the issuer to borrow any
amount listed to a specific line of credit from the U.S. Treasury, (c)
discretionary authority of the U.S. Government to purchase certain obligations
of the U.S. Government agency or instrumentality or (d) the credit of the agency
or instrumentality. Agencies and instrumentalities of the U.S. Government
include but are not limited to: Federal Land Banks, Federal Financing Banks,
Banks for Cooperatives, Federal Intermediate Credit Banks, Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
National Mortgage Association, Student Loan Marketing Association, United States
Postal Service, Chrysler Corporate Loan Guarantee Board, Small Business
Administration, Tennessee Valley Authority and any other enterprise established
or sponsored by the U.S. Government. Certain U.S. Government Securities,
including U.S. Treasury bills, notes and bonds, Government National Mortgage
Association certificates and Federal Housing Administration debentures, are
supported by the full faith and credit of the United States. Other U.S.
Government Securities are

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issued or guaranteed by federal agencies or government sponsored enterprises and
are not supported by the full faith and credit of the United States. These
securities include obligations that are supported by the right of the issuer to
borrow from the U.S. Treasury, such as obligations of Federal Home Loan Banks,
and obligations that are supported by the creditworthiness of the particular
instrumentality, such as obligations of the Federal National Mortgage
Association or Federal Home Loan Mortgage Corporation. Agencies and
instrumentalities issuing such obligations include the Farm Credit System
Financial Assistance Corporation, the Federal Financing Bank, The General
Services Administration, Federal Home Loan Banks, the Tennessee Valley Authority
and the Student Loan Marketing Association. For a description of certain
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, see Appendix A.

In addition, certain U.S. Government agencies and instrumentalities
issue specialized types of securities, such as guaranteed notes of the Small
Business Administration, Federal Aviation Administration, Department of Defense,
Bureau of Indian Affairs and Private Export Funding Corporation, which often
provide higher yields than are available from the more common types of
government-backed instruments. However, such specialized instruments may only be
available from a few sources, in limited amounts, or only in very large
denominations; they may also require specialized capability in portfolio
servicing and in legal matters related to government guarantees. While they may
frequently offer attractive yields, the limited-activity markets of many of
these securities means that, if a Fund were required to liquidate any of them,
it might not be able to do so advantageously; accordingly, each Fund investing
in such securities intends normally to hold such securities to maturity or
pursuant to repurchase agreements, and would treat such securities (including
repurchase agreements maturing in more than seven days) as illiquid for purposes
of its limitation on investment in illiquid securities.

BANK OBLIGATIONS. Investments in bank obligations are limited to those
of U.S. banks (including their foreign branches) which have total assets at the
time of purchase in excess of $1 billion and the deposits of which are insured
by either the Bank Insurance Fund or the Savings and Loan Insurance Fund of the
Federal Deposit Insurance Corporation, and foreign banks (including their U.S.
branches) having total assets in excess of $10 billion (or the equivalent in
other currencies), and such other U.S. and foreign commercial banks which are
judged by the advisers to meet comparable credit standing criteria.

Bank obligations include negotiable certificates of deposit, bankers'
acceptances, fixed time deposits and deposit notes. A certificate of deposit is
a short-term negotiable certificate issued by a commercial bank against funds
deposited in the bank and is either interest-bearing or purchased on a discount
basis. A bankers' acceptance is a short-term draft drawn on a commercial bank by
a borrower, usually in connection with an international commercial transaction.
The borrower is liable for payment as is the bank, which unconditionally
guarantees to pay the draft at its face amount on the maturity date. Fixed time
deposits are obligations of branches of United States banks or foreign banks
which are payable at a stated maturity date and bear a fixed rate of interest.
Although fixed time deposits do not have a market, there are no contractual
restrictions on the right to transfer a beneficial interest in the deposit to a
third party. Fixed time deposits subject to withdrawal penalties and with
respect to which a Fund cannot realize the proceeds thereon within seven days
are deemed "illiquid" for the purposes of its restriction on investments in
illiquid securities. Deposit notes are notes issued by commercial banks which
generally bear fixed rates of interest and typically have original maturities
ranging from eighteen months to five years.

Banks are subject to extensive governmental regulations that may limit
both the amounts and types of loans and other financial commitments that may be
made and the interest rates and fees that may be charged. The profitability of
this industry is largely dependent upon the availability and cost of capital
funds for the purpose of financing lending operations under prevailing money
market conditions. Also, general economic conditions play an important part in
the operations of this industry and exposure to credit losses arising from
possible financial difficulties of borrowers might affect a bank's ability to
meet its obligations. Bank obligations may be general obligations of the parent
bank or may be limited to the issuing branch by the terms of the specific
obligations or by government regulation. Investors should also be aware that
securities

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of foreign banks and foreign branches of United States banks may involve foreign
investment risks in addition to those relating to domestic bank obligations.

REPURCHASE AGREEMENTS. A Fund will enter into repurchase agreements only
with member banks of the Federal Reserve System and securities dealers believed
creditworthy, and only if fully collateralized by securities in which such Fund
is permitted to invest. Under the terms of a typical repurchase agreement, a
Fund would acquire an underlying debt instrument for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase the instrument and the Fund to resell the instrument at a fixed price
and time, thereby determining the yield during the Fund's holding period. This
procedure results in a fixed rate of return insulated from market fluctuations
during such period. A repurchase agreement is subject to the risk that the
seller may fail to repurchase the security. Repurchase agreements are considered
under the 1940 Act to be loans collateralized by the underlying securities. All
repurchase agreements entered into by a Fund will be fully collateralized at all
times during the period of the agreement in that the value of the underlying
security will be at least equal to 100% of the amount of the loan, including the
accrued interest thereon, and the Fund or its custodian or sub-custodian will
have possession of the collateral, which the Board of Trustees believes will
give it a valid, perfected security interest in the collateral. Whether a
repurchase agreement is the purchase and sale of a security or a collateralized
loan has not been conclusively established. This might become an issue in the
event of the bankruptcy of the other party to the transaction. In the event of
default by the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities would not be owned by a Fund, but
would only constitute collateral for the seller's obligation to pay the
repurchase price. Therefore, a Fund may suffer time delays and incur costs in
connection with the disposition of the collateral. The Board of Trustees
believes that the collateral underlying repurchase agreements may be more
susceptible to claims of the seller's creditors than would be the case with
securities owned by a Fund. Repurchase agreements will give rise to income which
will not qualify as tax-exempt income when distributed by a Fund. Repurchase
agreements maturing in more than seven days are treated as illiquid for purposes
of the Funds' restrictions on purchases of illiquid securities. Repurchase
agreements are also subject to the risks described below with respect to
stand-by commitments.

REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve
sales of portfolio securities of a Fund to member banks of the Federal Reserve
System or securities dealers believed creditworthy, concurrently with an
agreement by such Fund to repurchase the same securities at a later date at a
fixed price which is generally equal to the original sales price plus interest.
A Fund retains record ownership and the right to receive interest and principal
payments on the portfolio security involved.

FORWARD COMMITMENTS. In order to invest a Fund's assets immediately,
while awaiting delivery of securities purchased on a forward commitment basis,
short-term obligations that offer same-day settlement and earnings will normally
be purchased. Although short-term investments will normally be in tax-exempt
securities or Municipal Obligations, short-term taxable securities or
obligations may be purchased if suitable short-term tax-exempt securities or
Municipal Obligations are not available. When a commitment to purchase a
security on a forward commitment basis is made, procedures are established
consistent with the General Statement of Policy of the Securities and Exchange
Commission concerning such purchases. Since that policy currently recommends
that an amount of the respective Fund's assets equal to the amount of the
purchase be held aside or segregated to be used to pay for the commitment, a
separate account of such Fund consisting of cash, cash equivalents or high
quality debt securities equal to the amount of such Fund's commitments will be
established at such Fund's custodian bank. For the purpose of determining the
adequacy of the securities in the account, the deposited securities will be
valued at market value. If the market value of such securities declines,
additional cash, cash equivalents or highly liquid securities will be placed in
the account daily so that the value of the account will equal the amount of such
commitments by the respective Fund.

Although it is not intended that such purchases would be made for
speculative purposes, purchases of securities on a forward commitment basis may
involve more risk than other types of purchases. Securities

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<PAGE>

purchased on a forward commitment basis and the securities held in the
respective Fund's portfolio are subject to changes in value based upon the
public's perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Purchasing securities on a forward
commitment basis can involve the risk that the yields available in the market
when the delivery takes place may actually be higher or lower than those
obtained in the transaction itself. On the settlement date of the forward
commitment transaction, the respective Fund will meet its obligations from then
available cash flow, sale of securities held in the separate account, sale of
other securities or, although it would not normally expect to do so, from sale
of the forward commitment securities themselves (which may have a value greater
or lesser than such Fund's payment obligations). The sale of securities to meet
such obligations may result in the realization of capital gains or losses, which
are not exempt from federal, state or local taxation.

To the extent a Fund engages in forward commitment transactions, it will
do so for the purpose of acquiring securities consistent with its investment
objective and policies and not for the purpose of investment leverage, and
settlement of such transactions will be within 90 days from the trade date.

ILLIQUID SECURITIES. For purposes of its limitation on investments in
illiquid securities, each Fund may elect to treat as liquid, in accordance with
procedures established by the Board of Trustees, certain investments in
restricted securities for which there may be a secondary market of qualified
institutional buyers as contemplated by Rule 144A under the Securities Act of
1933, as amended (the "Securities Act") and commercial obligations issued in
reliance on the so-called "private placement" exemption from registration
afforded by Section 4(2) of the Securities Act ("Section 4(2) paper"). Rule 144A
provides an exemption from the registration requirements of the Securities Act
for the resale of certain restricted securities to qualified institutional
buyers. Section 4(2) paper is restricted as to disposition under the federal
securities laws, and generally is sold to institutional investors such as a Fund
who agree that they are purchasing the paper for investment and not with a view
to public distribution. Any resale of Section 4(2) paper by the purchaser must
be in an exempt transaction.

One effect of Rule 144A and Section 4(2) is that certain restricted
securities may now be liquid, though there is no assurance that a liquid market
for Rule 144A securities or Section 4(2) paper will develop or be maintained.
The Trustees have adopted policies and procedures for the purpose of determining
whether securities that are eligible for resale under Rule 144A and Section 4(2)
paper are liquid or illiquid for purposes of the limitation on investment in
illiquid securities. Pursuant to those policies and procedures, the Trustees
have delegated to the advisers the determination as to whether a particular
instrument is liquid or illiquid, requiring that consideration be given to,
among other things, the frequency of trades and quotes for the security, the
number of dealers willing to sell the security and the number of potential
purchasers, dealer undertakings to make a market in the security, the nature of
the security and the time needed to dispose of the security. The Trustees will
periodically review the Funds' purchases and sales of Rule 144A securities and
Section 4(2) paper.

STAND-BY COMMITMENTS. When a Fund purchases securities it may also
acquire stand-by commitments with respect to such securities. Under a stand-by
commitment, a bank, broker-dealer or other financial institution agrees to
purchase at a Fund's option a specified security at a specified price.

The stand-by commitments that may be entered into by the Funds are
subject to certain risks, which include the ability of the issuer of the
commitment to pay for the securities at the time the commitment is exercised,
the fact that the commitment is not marketable by a Fund, and that the maturity
of the underlying security will generally be different from that of the
commitment.

FLOATING AND VARIABLE RATE SECURITIES; PARTICIPATION CERTIFICATES.
Floating and variable rate demand instruments permit the holder to demand
payment upon a specified number of days' notice of the unpaid principal balance
plus accrued interest either from the issuer or by drawing on a bank letter of
credit, a guarantee or insurance issued with respect to such instrument.
Investments by the Funds in floating or

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<PAGE>

variable rate securities normally will involve industrial development or revenue
bonds that provide for a periodic adjustment in the interest rate paid on the
obligation and may, but need not, permit the holder to demand payment as
described above. While there is usually no established secondary market for
issues of these types of securities, the dealer that sells an issue of such
security frequently will also offer to repurchase the securities at any time at
a repurchase price which varies and may be more or less than the amount the
holder paid for them.

The terms of these types of securities provide that interest rates are
adjustable at intervals ranging from daily to up to six months and the
adjustments are based upon the prime rate of a bank or other short-term rates,
such as Treasury Bills or LIBOR (London Interbank Offered Rate), as provided in
the respective instruments. The Funds will decide which floating or variable
rate securities to purchase in accordance with procedures prescribed by Board of
Trustees of the Trust in order to minimize credit risks.

The securities in which the Funds may be invested include participation
certificates, issued by a bank, insurance company or other financial
institution, in securities owned by such institutions or affiliated
organizations ("Participation Certificates"). A Participation Certificate gives
a Fund an undivided interest in the security in the proportion that the Fund's
participation interest bears to the total principal amount of the security and
generally provides the demand feature described below. Each Participation
Certificate is backed by an irrevocable letter of credit or guaranty of a bank
(which may be the bank issuing the Participation Certificate, a bank issuing a
confirming letter of credit to that of the issuing bank, or a bank serving as
agent of the issuing bank with respect to the possible repurchase of the
certificate of participation) or insurance policy of an insurance company that
the Board of Trustees of the Trust has determined meets the prescribed quality
standards for a particular Fund.

A Fund may have the right to sell the Participation Certificate back to
the institution and draw on the letter of credit or insurance on demand after
the prescribed notice period, for all or any part of the full principal amount
of the Fund's participation interest in the security, plus accrued interest. The
institutions issuing the Participation Certificates would retain a service and
letter of credit fee and a fee for providing the demand feature, in an amount
equal to the excess of the interest paid on the instruments over the negotiated
yield at which the Participation Certificates were purchased by a Fund. The
total fees would generally range from 5% to 15% of the applicable prime rate or
other short-term rate index. With respect to insurance, a Fund will attempt to
have the issuer of the Participation Certificate bear the cost of any such
insurance, although the Funds retain the option to purchase insurance if deemed
appropriate. Obligations that have a demand feature permitting a Fund to tender
the obligation to a foreign bank may involve certain risks associated with
foreign investment. A Fund's ability to receive payment in such circumstances
under the demand feature from such foreign banks may involve certain risks such
as future political and economic developments, the possible establishments of
laws or restrictions that might adversely affect the payment of the bank's
obligations under the demand feature and the difficulty of obtaining or
enforcing a judgment against the bank.

The advisers have been instructed by the Board of Trustees to monitor on
an ongoing basis the pricing, quality and liquidity of the floating and variable
rate securities held by the Funds, including Participation Certificates, on the
basis of published financial information and reports of the rating agencies and
other bank analytical services to which the Funds may subscribe. Although these
instruments may be sold by a Fund, it is intended that they be held until
maturity. Participation Certificates will only be purchased by a Fund if, in the
opinion of counsel to the issuer, interest income on such instruments will be
tax-exempt when distributed as dividends to shareholders of such Fund.

Past periods of high inflation, together with the fiscal measures
adopted to attempt to deal with it, have seen wide fluctuations in interest
rates, particularly "prime rates" charged by banks. While the value of the
underlying floating or variable rate securities may change with changes in
interest rates generally, the floating or variable rate nature of the underlying
floating or variable rate securities should minimize changes in

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<PAGE>

value of the instruments. Accordingly, as interest rates decrease or increase,
the potential for capital appreciation and the risk of potential capital
depreciation is less than would be the case with a portfolio of fixed rate
securities. A Fund's portfolio may contain floating or variable rate securities
on which stated minimum or maximum rates, or maximum rates set by state law,
limit the degree to which interest on such floating or variable rate securities
may fluctuate; to the extent it does, increases or decreases in value may be
somewhat greater than would be the case without such limits. Because the
adjustment of interest rates on the floating or variable rate securities is made
in relation to movements of the applicable banks' "prime rates" or other
short-term rate adjustment indices, the floating or variable rate securities are
not comparable to long-term fixed rate securities. Accordingly, interest rates
on the floating or variable rate securities may be higher or lower than current
market rates for fixed rate obligations of comparable quality with similar
maturities.

The maturity of variable rate securities is deemed to be the longer of
(i) the notice period required before a Fund is entitled to receive payment of
the principal amount of the security upon demand or (ii) the period remaining
until the security's next interest rate adjustment. If variable rate securities
are not redeemed through the demand feature, they mature on a specified date
which may range up to thirty years from the date of issuance.

ZERO COUPON AND STRIPPED OBLIGATIONS. The principal and interest
components of United States Treasury bonds with remaining maturities of longer
than ten years are eligible to be traded independently under the Separate
Trading of Registered Interest and Principal of Securities ("STRIPS") program.
Under the STRIPS program, the principal and interest components are separately
issued by the United States Treasury at the request of depository financial
institutions, which then trade the component parts separately. The interest
component of STRIPS may be more volatile than that of United States Treasury
bills with comparable maturities.

Zero coupon obligations are sold at a substantial discount from their
value at maturity and, when held to maturity, their entire return, which
consists of the amortization of discount, comes from the difference between
their purchase price and maturity value. Because interest on a zero coupon
obligation is not distributed on a current basis, the obligation tends to be
subject to greater price fluctuations in response to changes in interest rates
than are ordinary interest-paying securities with similar maturities. The value
of zero coupon obligations appreciates more than such ordinary interest-paying
securities during periods of declining interest rates and depreciates more than
such ordinary interest-paying securities during periods of rising interest
rates. Under the stripped bond rules of the Internal Revenue Code of 1986, as
amended, investments in zero coupon obligations will result in the accrual of
interest income on such investments in advance of the receipt of the cash
corresponding to such income.

Zero coupon securities may be created when a dealer deposits a U.S.
Treasury or federal agency security with a custodian and then sells the coupon
payments and principal payment that will be generated by this security
separately. Proprietary receipts, such as Certificates of Accrual on Treasury
Securities, Treasury Investment Growth Receipts and generic Treasury Receipts,
are examples of stripped U.S. Treasury securities separated into their component
parts through such custodial arrangements.

ADDITIONAL POLICIES REGARDING DERIVATIVE AND RELATED TRANSACTIONS

INTRODUCTION. As explained more fully below, the Funds may employ
derivative and related instruments as tools in the management of portfolio
assets. Put briefly, a "derivative" instrument may be considered a security or
other instrument which derives its value from the value or performance of other
instruments or assets, interest or currency exchange rates, or indexes. For
instance, derivatives include futures, options, forward contracts, structured
notes and various other over-the-counter instruments.

Like other investment tools or techniques, the impact of using
derivatives strategies or similar instruments depends to a great extent on how
they are used. Derivatives are generally used by portfolio managers

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in three ways: First, to reduce risk by hedging (offsetting) an investment
position. Second, to substitute for another security particularly where it is
quicker, easier and less expensive to invest in derivatives. Lastly, to
speculate or enhance portfolio performance. When used prudently, derivatives can
offer several benefits, including easier and more effective hedging, lower
transaction costs, quicker investment and more profitable use of portfolio
assets. However, derivatives also have the potential to significantly magnify
risks, thereby leading to potentially greater losses for a Fund.

Each Fund may invest its assets in derivative and related instruments
subject only to the Fund's investment objective and policies and the requirement
that the Fund maintain segregated accounts consisting of liquid assets, such as
cash, U.S. Government securities, or other high-grade debt obligations (or, as
permitted by applicable regulation, enter into certain offsetting positions) to
cover its obligations under such instruments with respect to positions where
there is no underlying portfolio asset so as to avoid leveraging the Fund.

The value of some derivative or similar instruments in which the Funds
invest may be particularly sensitive to changes in prevailing interest rates or
other economic factors, and--like other investments of the Funds--the ability of
a Fund to successfully utilize these instruments may depend in part upon the
ability of the advisers to forecast interest rates and other economic factors
correctly. If the advisers accurately forecast such factors and have taken
positions in derivative or similar instruments contrary to prevailing market
trends, the Funds could be exposed to the risk of a loss. The Funds might not
employ any or all of the strategies described herein, and no assurance can be
given that any strategy used will succeed.

Set forth below is an explanation of the various derivatives strategies
and related instruments the Funds may employ along with risks or special
attributes associated with them. This discussion is intended to supplement the
Funds' current prospectuses as well as provide useful information to prospective
investors.

RISK FACTORS. As explained more fully below and in the discussions of
particular strategies or instruments, there are a number of risks associated
with the use of derivatives and related instruments. There can be no guarantee
that there will be a correlation between price movements in a hedging vehicle
and in the portfolio assets being hedged. An incorrect correlation could result
in a loss on both the hedged assets in a Fund and the hedging vehicle so that
the portfolio return might have been greater had hedging not been attempted. The
advisers may accurately forecast interest rates, market values or other economic
factors in utilizing a derivatives strategy. In such a case, the Fund may have
been in a better position had it not entered into such strategy. Hedging
strategies, while reducing risk of loss, can also reduce the opportunity for
gain. In other words, hedging usually limits both potential losses as well as
potential gains. Strategies not involving hedging may increase the risk to a
Fund. Certain strategies, such as yield enhancement, can have speculative
characteristics and may result in more risk to a Fund than hedging strategies
using the same instruments. There can be no assurance that a liquid market will
exist at a time when a Fund seeks to close out an option, futures contract or
other derivative or related position. Many exchanges and boards of trade limit
the amount of fluctuation permitted in option or futures contract prices during
a single day; once the daily limit has been reached on particular contract, no
trades may be made that day at a price beyond that limit. In addition, certain
instruments are relatively new and without a significant trading history. As a
result, there is no assurance that an active secondary market will develop or
continue to exist. Finally, over-the-counter instruments typically do not have a
liquid market. Lack of a liquid market for any reason may prevent a Fund from
liquidating an unfavorable position. Activities of large traders in the futures
and securities markets involving arbitrage, "program trading," and other
investment strategies may cause price distortions in these markets. In certain
instances, particularly those involving over-the-counter transactions, forward
contracts there is a greater potential that a counterparty or broker may default
or be unable to perform on its commitments. In the event of such a default, a
Fund may experience a loss.

SPECIFIC USES AND STRATEGIES. Set forth below are explanations various
strategies involving derivatives and related instruments which may be used by
the Funds.

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OPTIONS ON SECURITIES AND SECURITIES INDEXES. The Funds may PURCHASE,
SELL or EXERCISE call and put options on (i) securities, (ii) securities
indexes, and (iii) debt instruments.

Although in most cases these options will be exchange-traded, the Funds
may also purchase, sell or exercise over-the-counter options. Over-the-counter
options differ from exchange-traded options in that they are two-party contracts
with price and other terms negotiated between buyer and seller. As such,
over-the-counter options generally have much less market liquidity and carry the
risk of default or nonperformance by the other party.

One purpose of purchasing put options is to protect holdings in an
underlying or related security against a substantial decline in market value.
One purpose of purchasing call options is to protect against substantial
increases in prices of securities a Fund intends to purchase pending its ability
to invest in such securities in an orderly manner. A Fund may also use
combinations of options to minimize costs, gain exposure to markets or take
advantage of price disparities or market movements. For example, a Fund may sell
put or call options it has previously purchased or purchase put or call options
it has previously sold. These transactions may result in a net gain or loss
depending on whether the amount realized on the sale is more or less than the
premium and other transaction costs paid on the put or call option which is
sold. A Fund may write a call or put option in order to earn the related premium
from such transactions. Prior to exercise or expiration, an option may be closed
out by an offsetting purchase or sale of a similar option.

In addition to the general risk factors noted above, the purchase and
writing of options involve certain special risks. During the option period, a
fund writing a covered call (i.e., where the underlying securities are held by
the fund) has, in return for the premium on the option, given up the opportunity
to profit from a price increase in the underlying securities above the exercise
price, but has retained the risk of loss should the price of the underlying
securities decline. The writer of an option has no control over the time when it
may be required to fulfill its obligation as a writer of the option. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver the underlying securities at the exercise price. The Funds will not
write uncovered options.

If a put or call option purchased by a Fund is not sold when it has
remaining value, and if the market price of the underlying security, in the case
of a put, remains equal to or greater than the exercise price or, in the case of
a call, remains less than or equal to the exercise price, such Fund will lose
its entire investment in the option. Also, where a put or call option on a
particular security is purchased to hedge against price movements in a related
security, the price of the put or call option may move more or less than the
price of the related security. There can be no assurance that a liquid market
will exist when a Fund seeks to close out an option position. Furthermore, if
trading restrictions or suspensions are imposed on the options markets, a Fund
may be unable to close out a position.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Funds may
purchase or sell (i) interest-rate futures contracts, (ii) futures contracts on
specified instruments or indices, and (iii) options on these futures contracts
("futures options").

The futures contracts and futures options may be based on various
instruments or indices in which the Funds may invest such as foreign currencies,
certificates of deposit, Eurodollar time deposits, securities indices, economic
indices (such as the Consumer Price Indices compiled by the U.S. Department of
Labor).

Futures contracts and futures options may be used to hedge portfolio
positions and transactions as well as to gain exposure to markets. For example,
a Fund may sell a futures contract--or buy a futures option--to protect against
a decline in value, or reduce the duration, of portfolio holdings. Likewise,
these instruments may be used where a Fund intends to acquire an instrument or
enter into a position. For

10
<PAGE>

example, a Fund may purchase a futures contract--or buy a futures option--to
gain immediate exposure in a market or otherwise offset increases in the
purchase price of securities or currencies to be acquired in the future.
Futures options may also be written to earn the related premiums.

When writing or purchasing options, the Funds may simultaneously enter
into other transactions involving futures contracts or futures options in order
to minimize costs, gain exposure to markets, or take advantage of price
disparities or market movements. Such strategies may entail additional risks in
certain instances. Funds may engage in cross-hedging by purchasing or selling
futures or options on a security different from the security position being
hedged to take advantage of relationships between the two securities.

Investments in futures contracts and options thereon involve risks
similar to those associated with options transactions discussed above. The Funds
will only enter into futures contracts or options on futures contracts which are
traded on a U.S. or foreign exchange or board of trade, or similar entity, or
quoted on an automated quotation system.

FORWARD CONTRACTS. A Fund may also use forward contracts to hedge
against changes in interest-rates, increase exposure to a market or otherwise
take advantage of such changes. An interest-rate forward contract involves the
obligation to purchase or sell a specific debt instrument at a fixed price at a
future date.

INTEREST RATE TRANSACTIONS. The Funds may employ interest rate
management techniques, including transactions in options (including yield curve
options), futures, options on futures, forward exchange contracts, and interest
rate swaps.

A Fund will only enter into interest rate swaps on a net basis, i.e.,
the two payment streams are netted out, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments. Interest rate swaps do
not involve the delivery of securities, other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate swaps is limited to
the net amount of interest payments that a Fund is contractually obligated to
make. If the other party to and interest rate swap defaults, a Fund's risk of
loss consists of the net amount of interest payments that the Fund is
contractually entitled to receive. Since interest rate swaps are individually
negotiated, each Fund expects to achieve an acceptable degree of correlation
between its portfolio investments and its interest rate swap position.

A Fund may enter into interest rate swaps to the maximum allowed limits
under applicable law. A Fund will typically use interest rate swaps to shorten
the effective duration of its portfolio. Interest rate swaps involve the
exchange by a Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed rate payments for floating rate
payments.

STRUCTURED PRODUCTS. The Funds may invest in interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of certain debt obligations. This type of restructuring involves
the deposit with or purchase by an entity, such as a corporation or trust, or
specified instruments (such as commercial bank loans) and the issuance by that
entity of one or more classes of securities ("structured products") backed by,
or representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued structured
products to create securities with different investment characteristics such as
varying maturities, payment priorities and interest rate provisions, and the
extent of the payments made with respect to structured products is dependent on
the extent of the cash flow on the underlying instruments. A Fund may invest in
structured products which represent derived investment positions based on
relationships among different markets or asset classes.

The Funds may also invest in other types of structured products,
including, among others, inverse floaters, spread trades and notes linked by a
formula to the price of an underlying instrument. Inverse floaters have coupon
rates that vary inversely at a multiple of a designated floating rate (which
typically is determined by reference to an index rate, but may also be
determined through a dutch auction or a remarketing agent or by reference to
another security) (the "reference rate"). As an example, inverse floaters may

11
<PAGE>

constitute a class of CMOs with a coupon rate that moves inversely to a
designated index, such as LIBOR (London Interbank Offered Rate) or the cost of
Funds Index. Any rise in the reference rate of an inverse floater (as a
consequence of an increase in interest rates) causes a drop in the coupon rate
while any drop in the reference rate of an inverse floater causes an increase in
the coupon rate. A spread trade is an investment position relating to a
difference in the prices or interest rates of two securities where the value of
the investment position is determined by movements in the difference between the
prices or interest rates, as the case may be, of the respective securities. When
a Fund invests in notes linked to the price of an underlying instrument, the
price of the underlying security is determined by a multiple (based on a
formula) of the price of such underlying security. A structured product may be
considered to be leveraged to the extent its interest rate varies by a magnitude
that exceeds the magnitude of the change in the index rate of interest. Because
they are linked to their underlying markets or securities, investments in
structured products generally are subject to greater volatility than an
investment directly in the underlying market or security. Total return on the
structured product is derived by linking return to one or more characteristics
of the underlying instrument. Because certain structured products of the type in
which the Fund anticipates it will invest may involve no credit enhancement, the
credit risk of those structured products generally would be equivalent to that
of the underlying instruments. A Fund is permitted to invest in a class of
structured products that is either subordinated or unsubordinated to the right
of payment of another class. Subordinated structured products typically have
higher yields and present greater risks than unsubordinated structured products.
Although a Fund's purchase of subordinated structured products would have
similar economic effect to that of borrowing against the underlying securities,
the purchase will not be deemed to be leverage for purposes of a Fund's
fundamental investment limitation related to borrowing and leverage.

Certain issuers of structured products may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, a Fund's investments in
these structured products may be limited by the restrictions contained in the
1940 Act. Structured products are typically sold in private placement
transactions, and there currently is no active trading market for structured
products. As a result, certain structured products in which the Income Funds
invest may be deemed illiquid and subject to their limitation on illiquid
investments.

Investments in structured products generally are subject to greater
volatility than an investment directly in the underlying market or security. In
addition, because structured products are typically sold in private placement
transactions, there currently is no active trading market for structured
products.

ADDITIONAL RESTRICTIONS ON THE USE OF FUTURES AND OPTION CONTRACTS. None
of the Funds is a "commodity pool" (i.e., a pooled investment vehicle which
trades in commodity futures contracts and options thereon and the operator of
which is registered with the CFTC) and futures contracts and futures options
will be purchased, sold or entered into only for bona fide hedging purposes,
provided that a Fund may enter into such transactions for purposes other than
bona fide hedging if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open contracts and options would not exceed 5% of
the liquidation value of the Fund's portfolio, provided, further, that, in the
case of an option that is in-the-money, the in-the-money amount may be excluded
in calculating the 5% limitation.

When a Fund purchases a futures contract, an amount of cash or liquid
securities will be deposited in a segregated account with such Fund's custodian
so that the amount so segregated, plus the initial deposit and variation margin
held in the account of its broker, will at all times equal the value of the
futures contract, thereby insuring that the use of such futures is unleveraged.

The Funds' ability to engage in the transactions described herein may be
limited by the current federal income tax requirement that a Fund derive less
than 30% of its gross income from the sale or other disposition of securities
held for less than three months.

In addition to the foregoing requirements, the Board of Trustees has
adopted an additional restriction on the use of futures contracts and options
thereon, requiring that the aggregate market value of the futures contracts held
by a Fund not exceed 50% of the market value of its total assets. Neither this
restriction nor any policy with respect to the above-referenced restrictions,
would be changed by the Board of Trustees without considering the policies and
concerns of the various federal and state regulatory agencies.

12
<PAGE>

INVESTMENT RESTRICTIONS

The Funds have adopted the following investment restrictions which may
not be changed without approval by a "majority of the outstanding shares" of a
Fund which, as used in this Statement of Additional Information, means the vote
of the lesser of (i) 67% or more of the shares of a Fund present at a meeting,
if the holders of more than 50% of the outstanding shares of a Fund are present
or represented by proxy, or (ii) more than 50% of the outstanding shares of a
Fund.

Each Fund may not:

(1) borrow money, except that each Fund may borrow money for
temporary or emergency purposes, or by engaging in reverse repurchase
transactions, in an amount not exceeding 33-1/3% of the value of its
total assets at the time when the loan is made and may pledge, mortgage
or hypothecate no more than 1/3 of its net assets to secure such
borrowings. Any borrowings representing more than 5% of a Fund's total
assets must be repaid before the Fund may make additional investments;

(2) make loans, except that each Fund may: (i) purchase and hold
debt instruments (including without limitation, bonds, notes, debentures
or other obligations and certificates of deposit, bankers' acceptances
and fixed time deposits) in accordance with its investment objectives
and policies; (ii) enter into repurchase agreements with respect to
portfolio securities; and (iii) lend portfolio securities with a value
not in excess of one-third of the value of its total assets;

(3) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or repurchase agreements secured thereby) if, as a
result, more than 25% of the Fund's total assets would be invested in
the securities of companies whose principal business activities are in
the same industry. Notwithstanding the foregoing, with respect to a
Fund's permissible futures and options transactions in U.S. Government
securities, positions in options and futures shall not be subject to
this restriction;

(4) purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments but this shall
not prevent a Fund from (i) purchasing or selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities or (ii) engaging in forward purchases or sales of
foreign currencies or securities;

(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
a Fund from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate business).
Investments by a Fund in securities backed by mortgages on real estate
or in marketable securities of companies engaged in such activities are
not hereby precluded;

(6) issue any senior security (as defined in the 1940 Act),
except that (a) a Fund may engage in transactions that may result in the
issuance of senior securities to the extent permitted under applicable
regulations and interpretations of the 1940 Act or an exemptive order;
(b) a Fund may acquire other securities, the acquisition of which may
result in the issuance of a senior security, to the extent permitted
under applicable regulations or interpretations of the 1940 Act; and (c)
subject to the restrictions set forth above, a Fund may borrow money as
authorized by the 1940 Act. For purposes of this restriction, collateral
arrangements with respect to a Fund's permissible options and futures
transactions, including deposits of initial and variation margin, are
not considered to be the issuance of a senior security; or

(7) underwrite securities issued by other persons except insofar
as a Fund may technically be deemed to be an underwriter under the
Securities Act of 1933 in selling a portfolio security.

13
<PAGE>

In addition, as a matter of fundamental policy, notwithstanding any
other investment policy or restriction, a Fund may seek to achieve its
investment objective by investing all of its investable assets in another
investment company having substantially the same investment objective and
policies as the Fund. For purposes of investment restriction (5) above, real
estate includes Real Estate Limited Partnerships. For purposes of investment
restriction (3) above, industrial development bonds, where the payment of
principal and interest is the ultimate responsibility of companies within the
same industry, are grouped together as an "industry." Investment restriction (3)
above, however, is not applicable to investments by a Fund in municipal
obligations where the issuer is regarded as a state, city, municipality or other
public authority since such entities are not members of any "industry."

In addition, each Fund is subject to the following nonfundamental
investment restrictions which may be changed without shareholder approval:

(1) Each Fund may not, with respect to 50% of its assets, hold
more than 10% of the outstanding voting securities of any issuer.

(2) Each Fund may not make short sales of securities, other than
short sales "against the box," or purchase securities on margin except
for short-term credits necessary for clearance of portfolio
transactions, provided that this restriction will not be applied to
limit the use of options, futures contracts and related options, in the
manner otherwise permitted by the investment restrictions, policies and
investment program of a Fund. The Funds have no current intention of
making short sales against the box.

(3) Each Fund may not purchase or sell interests in oil, gas or
mineral leases.

(4) Each Fund may not invest more than 15% of its net assets in
illiquid securities.

(5) Each Fund may not write, purchase or sell any put or call
option or any combination thereof, provided that this shall not prevent
(i) the writing, purchasing or selling of puts, calls or combinations
thereof with respect to portfolio securities or (ii) with respect to a
Fund's permissible futures and options transactions, the writing,
purchasing, ownership, holding or selling of futures and options
positions or of puts, calls or combinations thereof with respect to
futures.

(6) Each Fund may invest up to 5% of its total assets in the
securities of any one investment company, but may not own more than 3%
of the securities of any one investment company or invest more than 10%
of its total assets in the securities of other investment companies.

For purposes of the Funds' investment restrictions, the issuer of a
tax-exempt security is deemed to be the entity (public or private) ultimately
responsible for the payment of the principal of and interest on the security.

In order to permit the sale of its shares in certain states, a Fund may
make commitments more restrictive that the investment policies and limitations
described above and in its Prospectus. Should a Fund determine that any such
commitment is no longer in its best interests, it will revoke the commitment by
terminating sales of its shares in the state involved.

If a percentage or rating restriction on investment or use of assets set
forth herein or in a Prospectus is adhered to at the time, later changes in
percentage or ratings resulting from any cause other than actions by a Fund will
not be considered a violation. If the value of a Fund's holdings of illiquid
securities at any time exceeds the percentage limitation applicable at the time
of acquisition due to subsequent fluctuations in value or other reasons, the
Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity.

14
<PAGE>

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

Specific decisions to purchase or sell securities for a Fund are made by
a portfolio manager who is an employee of the adviser or sub-adviser to such
Fund and who is appointed and supervised by senior officers of such adviser or
sub-adviser. Changes in the Funds' investments are reviewed by the Board of
Trustees. The Funds' portfolio managers may serve other clients of the advisers
in a similar capacity. Money market instruments are generally purchased in
principal transactions.

The frequency of a Fund's portfolio transactions--the portfolio turnover
rate--will vary from year to year depending upon market conditions. Because a
high turnover rate may increase transaction costs and the possibility of taxable
short-term gains, the advisers will weigh the added costs of short-term
investment against anticipated gains. Each Fund will engage in portfolio trading
if its advisers believe a transaction, net of costs (including custodian
charges), will help it achieve its investment objective.

The Funds' portfolio turnover rates for the three most recent fiscal
years were as follows:

YEAR ENDED AUGUST 31,
--------------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Select Intermediate Tax Free Income Fund 71% 62% 60%
Select Tax Free Income Fund 47% 39% 35%
Select New York Intermediate Tax Free Income Fund 66% 39% 46%
Select New Jersey Tax Free Income Fund 60% 24% 48%
</TABLE>

Under the advisory agreement and the sub-advisory agreements, the adviser and
sub-advisers shall use their best efforts to seek to execute portfolio
transactions at prices which, under the circumstances, result in total costs or
proceeds being the most favorable to the Funds. In assessing the best overall
terms available for any transaction, the adviser and sub-advisers consider all
factors they deem relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, research services provided to the adviser or sub-advisers,
and the reasonableness of the commissions, if any, both for the specific
transaction and on a continuing basis. The adviser and sub-advisers are not
required to obtain the lowest commission or the best net price for any Fund on
any particular transaction, and are not required to execute any order in a
fashion either preferential to any Fund relative to other accounts they manage
or otherwise materially adverse to such other accounts.

Debt securities are traded principally in the over-the-counter market
through dealers acting on their own account and not as brokers. In the case of
securities traded in the over-the-counter market (where no stated commissions
are paid but the prices include a dealer's markup or markdown), the adviser or
sub-adviser to a Fund normally seeks to deal directly with the primary market
makers unless, in its opinion, best execution is available elsewhere. In the
case of securities purchased from underwriters, the cost of such securities
generally includes a fixed underwriting commission or concession. From time to
time, soliciting dealer fees are available to the adviser or sub-adviser on the
tender of a Fund's portfolio securities in so-called tender or exchange offers.
Such soliciting dealer fees are in effect recaptured for the Funds by the
adviser and sub-advisers. At present, no other recapture arrangements are in
effect.

Under the advisory and sub-advisory agreements and as permitted by
Section 28(e) of the Securities Exchange Act of 1934, the adviser or
sub-advisers may cause the Funds to pay a broker-dealer which provides brokerage
and research services to the adviser or sub-advisers, the Funds and/or other
accounts for which they exercise investment discretion an amount of commission
for effecting a securities transaction for the Funds in excess of the amount
other broker-dealers would have charged for the transaction if they determine in
good faith that the total commission is reasonable in relation to the value of
the brokerage and research services provided by the executing broker-dealer
viewed in terms of either that particular transaction or their overall
responsibilities to accounts over which they exercise investment discretion. Not
all of such services are useful or of value in advising the Funds. The adviser
and sub-advisers report to the Board of

15
<PAGE>

Trustees regarding overall commissions paid by the Funds and their
reasonableness in relation to the benefits to the Funds. The term "brokerage and
research services" includes advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or of purchasers or sellers of securities, furnishing
analyses and reports concerning issues, industries, securities, economic factors
and trends, portfolio strategy and the performance of accounts, and effecting
securities transactions and performing functions incidental thereto such as
clearance and settlement.

The management fees that the Funds pay to the adviser will not be
reduced as a consequence of the adviser's or sub-advisers' receipt of brokerage
and research services. To the extent the Funds' portfolio transactions are used
to obtain such services, the brokerage commissions paid by the Funds will exceed
those that might otherwise be paid by an amount which cannot be presently
determined. Such services would be useful and of value to the adviser or
sub-advisers in serving one or more of their other clients and, conversely, such
services obtained by the placement of brokerage business of other clients would
be useful to the adviser and sub-advisers in carrying out their obligations to
the Funds. While such services are not expected to reduce the expenses of the
adviser or sub-advisers, they would, through use of the services, avoid the
additional expenses which would be incurred if they should attempt to develop
comparable information through their own staff.

In certain instances, there may be securities that are suitable for one
or more of the Funds as well as one or more of the adviser's or sub-advisers'
other clients. Investment decisions for the Funds and for other clients are made
with a view to achieving their respective investment objectives. It may develop
that the same investment decision is made for more than one client or that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. In executing portfolio transactions for a Fund, the
adviser or sub-advisers may, to the extent permitted by applicable laws and
regulations, but shall not be obligated to, aggregate the securities to be sold
or purchased with those of other Funds or their other clients if, in the
adviser's or sub-advisers' reasonable judgment, such aggregation (i) will result
in an overall economic benefit to the Fund, taking into consideration the
advantageous selling or purchase price, brokerage commission and other expenses,
and trading requirements, and (ii) is not inconsistent with the policies set
forth in the Trust's registration statement and the Fund's Prospectus and
Statement of Additional Information. In such event, the adviser or a sub-adviser
will allocate the securities so purchased or sold, and the expenses incurred in
the transaction, in an equitable manner, consistent with its fiduciary
obligations to the Fund and such other clients. It is recognized that in some
cases this system could have a detrimental effect on the price or volume of the
security as far as a Fund is concerned. However, it is believed that the ability
of the Funds to participate in volume transactions will generally produce better
executions for the Funds.

PERFORMANCE INFORMATION

From time to time, a Fund may use hypothetical investment examples and
performance information in advertisements, shareholder reports or other
communications to shareholders. Because such performance information is based on
past investment results, it should not be considered as an indication or
representation of the performance of a Fund in the future. From time to time,
the performance and yield of a Fund may be quoted and compared to those of other
mutual funds with similar investment objectives, unmanaged investment accounts,
including savings accounts, or other similar products and to stock or other
relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the performance of a Fund may be compared to data prepared by
Lipper Analytical Services, Inc. or Morningstar Mutual Funds on Disc, widely
recognized independent services which monitor the performance of mutual funds.
Performance and yield data as reported in national financial publications
including, but not limited to, Money Magazine, Forbes, Barron's, The

16
<PAGE>

Wall Street Journal and The New York Times, or in local or regional
publications, may also be used in comparing the performance and yield of a Fund.
A Fund's performance may be compared with indices such as the Lehman Brothers
Government/Credit Bond Index, the Lehman Brothers Government Bond Index, the
Lehman Government Bond 1-3 Year Index and the Lehman Aggregate Bond Index; the
S&P 500 Index, the Dow Jones Industrial Average or any other commonly quoted
index of common stock prices; and the Russell 2000 Index and the NASDAQ
Composite Index. Additionally, a Fund may, with proper authorization, reprint
articles written about such Fund and provide them to prospective shareholders.

A Fund may provide period and average annual "total rates of return."
The "total rate of return" refers to the change in the value of an investment in
a Fund over a period (which period shall be stated in any advertisement or
communication with a shareholder) based on any change in net asset value per
share including the value of any shares purchased through the reinvestment of
any dividends or capital gains distributions declared during such period. One-,
five-, and ten-year periods will be shown, unless the Fund has been in existence
for a shorter-period.

Unlike some bank deposits or other investments which pay a fixed yield
for a stated period of time, the yields and the net asset values of shares of a
Fund will vary based on market conditions, the current market value of the
securities held by a Fund and changes in the Fund's expenses. The advisers, the
Administrator, the Distributor and other service providers may voluntarily waive
a portion of their fees on a month-to-month basis. In addition, the Distributor
may assume a portion of a Fund's operating expenses on a month-to-month basis.
These actions would have the effect of increasing the net income (and therefore
the yield and total rate of return) of shares of a Fund during the period such
waivers are in effect. These factors and possible differences in the methods
used to calculate the yields and total rates of return should be considered when
comparing the yields or total rates of return of shares of a Fund to yields and
total rates of return published for other investment companies and other
investment vehicles.

In connection with the conversion of various common trust funds
maintained by Chase into the Vista Select funds (the "CTF Conversion"), which
occurred on December 31, 1997, the Intermediate Tax Free Income Fund was
established to receive the assets of The Intermediate-Term Tax-Exempt Bond Fund
of Chemical Bank, the New Jersey Tax Free Income Fund was established to receive
the assets of The New Jersey Municipal Bond Fund of Chemical Bank, the New York
Intermediate Tax Free Income Fund was established to receive the assets of the
New York Tax-Exempt Income Fund of The Chase Manhattan Bank and the Tax Free
Income Fund was established to receive the assets of The Tax-Exempt Bond Fund of
Chemical Bank and the Tax-Exempt Income Fund of The Chase Manhattan Bank.

Performance results presented for the Intermediate Tax Free Income Fund,
New Jersey Tax Free Income Fund, New York Intermediate Tax Free Income Fund and
Tax Free Income Fund will be based upon the performance of The Intermediate-Term
Tax-Exempt Bond Fund of Chemical Bank, The New Jersey Municipal Bond Fund of
Chemical Bank, the New York Tax-Exempt Income Fund of The Chase Manhattan Bank
and The Tax-Exempt Bond Fund of Chemical Bank, respectively, for periods prior
to the consummation of the CTF Conversion.

Advertising or communications to shareholders may contain the views of
the advisers as to current market, economic, trade and interest rate trends, as
well as legislative, regulatory and monetary developments, and may include
investment strategies and related matters believed to be of relevance to a Fund.

Advertisements for the Vista funds may include references to the asset
size of other financial products made available by Chase, such as the offshore
assets of other funds.

17
<PAGE>

TOTAL RATE OF RETURN

A Fund's total rate of return for any period will be calculated by (a)
dividing (i) the sum of the net asset value per share on the last day of the
period and the net asset value per share on the last day of the period of shares
purchasable with dividends and capital gains declared during such period with
respect to a share held at the beginning of such period and with respect to
shares purchased with such dividends and capital gains distributions, by (ii)
the public offering price per share on the first day of such period, and (b)
subtracting 1 from the result. The average annual rate of return quotation will
be calculated by (x) adding 1 to the period total rate of return quotation as
calculated above, (y) raising such sum to a power which is equal to 365 divided
by the number of days in such period, and (z) subtracting 1 from the result.

The average annual total rate of return figures for the following Funds,
reflecting the initial investment and assuming the reinvestment of all
distributions (but excluding the effects of any applicable sales charges) for
the one, five and ten year periods ended August 31, 2000 were as follows:

ONE FIVE TEN
FUND YEAR YEARS YEARS
---- ---- ----- -----
<S> <C> <C> <C>
Select Intermediate Tax Free Income Fund 5.54% 5.35% 6.99%
Select Tax Free Income Fund 6.11% 5.54% 6.90%
Select New York Intermediate Tax Free Income Fund 6.13% 5.42% 6.77%
Select New Jersey Tax Free Income Fund 6.08% 4.84% 6.04%
</TABLE>

Performance presented in the table above and in each table that follows includes
the performance of their respective predecessor funds for periods prior to the
consummation of the CTF Reorganization. Performance presented for each of these
Funds for periods prior to the consummation of the CTF Reorganization is based
on the historical performance of shares of its predecessor fund, adjusted to
reflect historical expenses at the levels projected (absent reimbursements) for
that Fund at the time of the CTF Reorganization.

The Funds may also from time to time include in advertisements or other
communications a total return figure that is not calculated according to the
formula set forth above in order to compare more accurately the performance of a
Fund with other measures of investment return.

YIELD QUOTATIONS

Any current "yield" quotation for a class of shares of a Fund shall
consist of an annualized hypothetical yield, carried at least to the nearest
hundredth of one percent, based on a thirty calendar day period and shall be
calculated by (a) raising to the sixth power the sum of 1 plus the quotient
obtained by dividing the Fund's net investment income earned during the period
by the product of the average daily number of shares outstanding during the
period that were entitled to receive dividends and the maximum offering price
per share on the last day of the period, (b) subtracting 1 from the result, and
(c) multiplying the result by 2.

Any taxable equivalent yield quotation of shares of a Fund shall be
calculated as follows. If the entire current yield quotation for such period is
tax-exempt, the tax equivalent yield will be the current yield quotation (as
determined in accordance with the appropriate calculation described above)
divided by 1 minus a stated income tax rate or rates. If a portion of the
current yield quotation is not tax-exempt, the tax equivalent yield will be the
sum of (a) that portion of the yield which is tax-exempt divided by 1 minus a
stated income tax rate or rates and (b) the portion of the yield which is not
tax-exempt.

18
<PAGE>

THIRTY-DAY TAX EQUIVALENT
YIELD THIRTY-DAY YIELD
AS OF 8/31/00 AS OF 8/31/00
------------- -------------
<S> <C> <C>
Select Intermediate Tax Free Income Fund 4.06% 6.72%
Select Tax Free Income Fund 4.39% 7.27%
Select New York Intermediate Tax Free Income Fund 4.08% 7.56%
Select New Jersey Tax Free Income Fund 4.19% 7.41%
</TABLE>

The tax equivalent yields assume a federal income tax rate of 39.6% for
the Intermediate Tax Free Income Fund and Tax Free Income Fund, a combined New
York State, New York City and federal income tax rate of 46.05% for the New York
Intermediate Tax Free Income Fund and a combined New Jersey State and federal
income tax rate of 43.45% for the New Jersey Tax Free Income Fund.

NON-STANDARDIZED PERFORMANCE RESULTS

The table below reflects the net change in the value of an assumed
initial investment of $10,000 in the Funds (including the predecessor common
trust funds) for the ten-year period ending August 31, 2000.

TOTAL
VALUE
-----
<S> <C>
Select Intermediate Tax Free Income Fund $19,649
Select Tax Free Income Fund 19,480
Select New York Intermediate Tax Free Income Fund 19,259
Select New Jersey Tax Free Income Fund 17,981
</TABLE>

The values reflect an assumption that capital gain distributions and
income dividends, if any, have been invested in additional shares of the same
class. From time to time, the Funds may provide these performance results in
addition to the total rate of return quotations required by the Securities and
Exchange Commission. As discussed more fully in the Prospectuses, neither these
performance results, nor total rate of return quotations, should be considered
as representative of the performance of the Funds in the future. These factors
and the possible differences in the methods used to calculate performance
results and total rates of return should be considered when comparing such
performance results and total rate of return quotations of the Funds with those
published for other investment companies and other investment vehicles.

CERTAIN INFORMATION REGARDING UNREALIZED APPRECIATION

Because each Fund is the successor to one or more common trust funds,
the assets of which it acquired on a tax-free basis at the time the Fund
commenced operations, a Fund's portfolio may include net unrealized appreciation
comparable to that of a mutual fund which has been in existence for the life of
the predecessor common trust fund or funds. As of August 31, 2000 each Fund's
pro forma net unrealized appreciation, and the percentage of each Fund's pro
forma net assets that this appreciation represents, in each case unaudited,
would be as follows:

PERCENTAGE
UNREALIZED OF NET
GAIN ASSETS
---- ------
<S> <C> <C>
Select Intermediate Tax Free Income Fund $16,011,968 2.31%
Select Tax Free Income Fund 17,797,870 2.36%
Select New York Intermediate Tax Free Income Fund 6,243,066 2.26%
Select New Jersey Tax Free Income Fund 1,227,720 1.69%
</TABLE>

19
<PAGE>

DETERMINATION OF NET ASSET VALUE

As of the date of this Statement of Additional Information, the New York
Stock Exchange is open for trading every weekday except for the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. In addition to
the days listed above (other than Good Friday), Chase is closed for business on
the following holidays: Martin Luther King Day, Columbus Day and Veteran's Day.

Each Fund calculates its NAV once each day at the close of regular
trading on the New York Stock Exchange. Bonds and other fixed income securities
(other than short-term obligations) in a Fund's portfolio are valued on the
basis of valuations furnished by a pricing service, the use of which has been
approved by the Board of Trustees. In making such valuations, the pricing
service utilizes both dealer-supplied valuations and electronic data processing
techniques that take into account appropriate factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics and other market data, without exclusive
reliance upon quoted prices or exchange or over-the-counter prices, since such
valuations are believed to reflect more accurately the fair value of such
securities. Short-term obligations which mature in 60 days or less are valued at
amortized cost, which constitutes fair value as determined by the Board of
Trustees. Futures and option contracts that are traded on commodities or
securities exchanges are normally valued at the settlement price on the exchange
on which they are traded. Portfolio securities (other than short-term
obligations) for which there are no such quotations or valuations are valued at
fair value as determined in good faith by or at the direction of the Board of
Trustees.

Interest income on long-term obligations in a Fund's portfolio is
determined on the basis of coupon interest accrued plus amortization of discount
(the difference between acquisition price and stated redemption price at
maturity) and premiums (the excess of purchase price over stated redemption
price at maturity). Interest income on short-term obligations is determined on
the basis of interest and discount accrued less amortization of premium.

PURCHASES AND REDEMPTIONS

The Fund has established certain procedures and restrictions, subject to
change from time to time, for purchase, redemption, and exchange orders,
including procedures for accepting telephone instructions and effecting
automatic investments and redemptions. The Funds' Transfer Agent may defer
acting on a financial institution's instructions until it has received them in
proper form. In addition, the privileges described in the Prospectuses are not
available until a completed and signed account application has been received by
the Transfer Agent.

Subject to compliance with applicable regulations, each Fund has
reserved the right to pay the redemption price of its Shares, either totally or
partially, by a distribution in kind of readily marketable portfolio securities
(instead of cash). The securities so distributed would be valued at the same
amount as that assigned to them in calculating the net asset value for the
shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash. The Trust has filed an election under Rule 18f-1 committing to pay in
cash all redemptions by a shareholder of record up to amounts specified by the
rule (approximately $250,000).

TAX MATTERS

The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the respective Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or their shareholders, and the
discussions here and in each Fund's Prospectus are not intended as substitutes
for careful tax planning.

20
<PAGE>

QUALIFICATION AS A REGULATED INVESTMENT COMPANY

Each Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, each Fund is not subject to federal
income tax on the portion of its net investment income (i.e., its investment
company taxable income, as that term is defined in the Code, without regard to
the deduction for dividends paid), and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) that it distributes to
shareholders, provided that it distributes at least 90% of its net investment
income and at least 90% of its tax-exempt income (net of expenses allocable
thereto) for the taxable year (the "Distribution Requirement"), and satisfies
certain other requirements of the Code that are described below. Under the
current view of the Internal Revenue Service, if a Fund invests all of its
assets in another open-end management investment company which is classified as
a partnership for federal income tax purposes, such Fund will be deemed to own a
proportionate share of the income of the portfolio into which it contributes all
of its assets for purposes of determining whether such Fund satisfies the
Distribution Requirement and the other requirements necessary to qualify as a
regulated investment company (e.g., Income Requirement (hereinafter defined),
etc.).

In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies (the "Income Requirement").

In addition to satisfying the requirements described above, each Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.

Each Fund may engage in hedging or derivatives transactions involving
foreign currencies, forward contracts, options and futures contracts (including
options, futures and forward contracts on foreign currencies) and short sales.
See "Additional Policies Regarding Derivative and Related Transactions." Such
transactions will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (that
is, may affect whether gains or losses are ordinary or capital), accelerate
recognition of income of the Fund and defer recognition of certain of the Fund's
losses. These rules could therefore affect the character, amount and timing of
distributions to shareholders. In addition, these provisions (1) will require a
Fund to "mark-to-market" certain types of positions in its portfolio (that is,
treat them as if they were closed out) and (2) may cause a Fund to recognize
income without receiving cash with which to pay dividends or make distributions
in amounts necessary to satisfy the Distribution Requirement and avoid the 4%
excise tax (described below). Each Fund intends to monitor its transactions,
will make the appropriate tax elections and will make the appropriate entries in
its books and records when it acquires any option, futures contract, forward
contract or hedged investment in order to mitigate the effect of these rules.

21
<PAGE>

If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.

EXCISE TAX ON REGULATED INVESTMENT COMPANIES

A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election"))(Tax-exempt
interest on municipal obligations is not subject to the excise tax). The balance
of such income must be distributed during the next calendar year. For the
foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.

Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that a Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.

FUND DISTRIBUTIONS

Each Fund anticipates distributing substantially all of its net
investment income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for federal income tax
purposes, but they will not qualify for the 70% dividends-received deduction for
corporate shareholders of a Fund.

A Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares.

Under current legislation, the maximum rate of tax on long-term capital
gains of individuals is 20% (10% for gains otherwise taxed at 15%) for long-term
capital gains realized with respect to capital assets held for more than 12
months. Additionally, beginning after December 31, 2000, the maximum tax rate
for capital assets with a holding period beginning after that date and held for
more than five years will be 18%.

Conversely, if a Fund elects to retain its net capital gain, the Fund
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If a Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
of record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit for
his pro rata share of tax paid by the Fund on the gain, and will increase the
tax basis for his shares by an amount equal to the deemed distribution less the
tax credit.

22
<PAGE>

Each Fund intends to qualify to pay exempt-interest dividends by
satisfying the requirement that at the close of each quarter of the Fund's
taxable year at least 50% of the its total assets consists of tax-exempt
municipal obligations. Distributions from a Fund will constitute exempt-interest
dividends to the extent of its tax-exempt interest income (net of expenses and
amortized bond premium). Exempt-interest dividends distributed to shareholders
of a Fund are excluded from gross income for federal income tax purposes.
However, shareholders required to file a federal income tax return will be
required to report the receipt of exempt-interest dividends on their returns.
Moreover, while exempt-interest dividends are excluded from gross income for
federal income tax purposes, they may be subject to alternative minimum tax
("AMT") in certain circumstances and may have other collateral tax consequences
as discussed below. Distributions by a Fund of any investment company taxable
income or of any net capital gain will be taxable to shareholders as discussed
above.

AMT is imposed in addition to, but only to the extent it exceeds, the
regular tax and is computed at a maximum marginal rate of 28% for noncorporate
taxpayers and 20% for corporate taxpayers on the excess of the taxpayer's
alternative minimum taxable income ("AMTI") over an exemption amount. In
addition, under the Superfund Amendments and Reauthorization Act of 1986, a tax
is imposed for taxable years beginning after 1986 and before 1996 at the rate of
0.12% on the excess of a corporate taxpayer's AMTI (determined without regard to
the deduction for this tax and the AMT net operating loss deduction) over $2
million. Exempt-interest dividends derived from certain "private activity"
municipal obligations issued after August 7, 1986 will generally constitute an
item of tax preference includable in AMTI for both corporate and noncorporate
taxpayers. In addition, exempt-interest dividends derived from all municipal
obligations, regardless of the date of issue, must be included in adjusted
current earnings, which are used in computing an additional corporate preference
item (i.e., 75% of the excess of a corporate taxpayer's adjusted current
earnings over its AMTI (determined without regard to this item and the AMT net
operating loss deduction)) includable in AMTI.

Exempt-interest dividends must be taken into account in computing the
portion, if any, of social security or railroad retirement benefits that must be
included in an individual shareholder's gross income and subject to federal
income tax. Further, a shareholder of a Fund is denied a deduction for interest
on indebtedness incurred or continued to purchase or carry shares of the Fund.
Moreover, a shareholder who is (or is related to) a "substantial user" of a
facility financed by industrial development bonds held by a Fund will likely be
subject to tax on dividends paid by the Fund which are derived from interest on
such bonds. Receipt of exempt-interest dividends may result in other collateral
federal income tax consequences to certain taxpayers, including financial
institutions, property and casualty insurance companies and foreign corporations
engaged in a trade or business in the United States. Prospective investors
should consult their own tax advisers as to such consequences.

Distributions by a Fund that do not constitute ordinary income
dividends, exempt-interest dividends or capital gain dividends will be treated
as a return of capital to the extent of (and in reduction of) the shareholder's
tax basis in his shares; any excess will be treated as gain from the sale of his
shares, as discussed below.

Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of a Fund reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Fund, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.

23
<PAGE>

Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.

A Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the Fund that it is not subject to backup withholding or that it is a
corporation or other "exempt recipient."

SALE OR REDEMPTION OF SHARES

A shareholder will recognize gain or loss on the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of a Fund will be considered capital gain
or loss and will be long-term capital gain or loss if the shares were held for
longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be disallowed to the
extent of the amount of exempt-interest dividends received on such shares and
(to the extent not disallowed) will be treated as a long-term capital loss to
the extent of the amount of capital gain dividends received on such shares.

FOREIGN SHAREHOLDERS

Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from a Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.

If the income from a Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, dividends paid to a foreign
shareholder from net investment income will be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate) upon the gross amount of the dividend.
Such a foreign shareholder would generally be exempt from U.S. federal income
tax on gains realized on the sale of shares of the Fund and capital gain
dividends and amounts retained by the Fund that are designated as undistributed
capital gains.

If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.

In the case of foreign noncorporate shareholders, a Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of its
foreign status.

The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.

24
<PAGE>

STATE AND LOCAL TAX MATTERS

Depending on the residence of the shareholder for tax purposes,
distributions may also be subject to state and local taxes or withholding taxes.
Most states provide that a RIC may pass through (without restriction) to its
shareholders state and local income tax exemptions available to direct owners of
certain types of U.S. government securities (such as U.S. Treasury obligations).
Thus, for residents of these states, distributions derived from a Fund's
investment in certain types of U.S. government securities should be free from
state and local income taxes to the extent that the interest income from such
investments would have been exempt from state and local income taxes if such
securities had been held directly by the respective shareholders themselves.
Certain states, however, do not allow a RIC to pass through to its shareholders
the state and local income tax exemptions available to direct owners of certain
types of U.S. government securities unless the RIC holds at least a required
amount of U.S. government securities. Accordingly, for residents of these
states, distributions derived from a Fund's investment in certain types of U.S.
government securities may not be entitled to the exemptions from state and local
income taxes that would be available if the shareholders had purchased U.S.
government securities directly. Shareholders' dividends attributable to a Fund's
income from repurchase agreements generally are subject to state and local
income taxes, although states and regulations vary in their treatment of such
income. The exemption from state and local income taxes does not preclude states
from asserting other taxes on the ownership of U.S. government securities. To
the extent that a Fund invests to a substantial degree in U.S. government
securities which are subject to favorable state and local tax treatment,
shareholders of such Fund will be notified as to the extent to which
distributions from the Fund are attributable to interest on such securities.
Rules of state and local taxation of ordinary income dividends and capital gain
dividends from RICs may differ from the rules for U.S. federal income taxation
in other respects. Shareholders are urged to consult their tax advisers as to
the consequences of these and other state and local tax rules affecting
investment in a Fund.

EFFECT OF FUTURE LEGISLATION

The foregoing general discussion of U.S. federal income tax consequences
is based on the Code and the Treasury Regulations issued thereunder as in effect
on the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.

25
<PAGE>

MFST
MANAGEMENT OF THE TRUST AND THE FUNDS

TRUSTEES AND OFFICERS

The Trustees and the Trust officers and their principal occupations for
at least the past five years are set forth below. Their titles may have varied
during that period.

FERGUS REID, III--Chairman of the Trust. Chairman and Chief Executive
Officer, Lumelite Corporation, since September 1985; Trustee, Morgan Stanley
Funds. Age: 68. Address: 202 June Road, Stamford, CT 06903.

*H. RICHARD VARTABEDIAN--Trustee and President of the Trust. Investment
Management Consultant; formerly, Senior Investment Officer, Division Executive
of the Investment Management Division of The Chase Manhattan Bank, N.A.,
1980-1991. Age: 64. Address: P.O. Box 296, Beach Road, Hendrick's Head,
Southport, ME 04576.

WILLIAM J. ARMSTRONG--Trustee. Retired; formerly Vice President and
Treasurer, Ingersoll-Rand Company (Woodcliff Lake, New Jersey). Age: 58.
Address: 287 Hampshire Ridge, Park Ridge, NJ 07656.

JOHN R.H. BLUM--Trustee. Attorney in private practice; formerly a
Partner in the law firm of Richards, O'Neil & Allegaert; Commissioner of
Agriculture--State of Connecticut, 1992-1995. Age: 71. Address: 322 Main Street,
Lakeville, CT 06039.

STUART W. CRAGIN, JR.--Trustee. Retired; formerly President, Fairfield
Testing Laboratory, Inc. He has previously served in a variety of marketing,
manufacturing and general management positions with Union Camp Corp., Trinity
Paper & Plastics Corp., and Conover Industries. Age: 67. Address: 108 Valley
Road, Cos Cob, CT 06807.

ROLAND R. EPPLEY, JR.--Trustee. Retired; formerly President and Chief
Executive Officer, Eastern States Bankcard Association Inc. (1971-1988);
Director, Janel Hydraulics, Inc.; formerly Director of The Hanover Funds, Inc.
Age: 68. Address: 105 Coventry Place, Palm Beach Gardens, FL 33418.

JOSEPH J. HARKINS--Trustee. Retired; formerly Commercial Sector
Executive and Executive Vice President of The Chase Manhattan Bank, N.A. from
1985 through 1989. He has been employed by Chase in numerous capacities and
offices since 1954. Director of Blessings Corporation, Jefferson Insurance
Company of New York, Monticello Insurance Company and National. Age: 69.
Address: 257 Plantation Circle South, Ponte Vedra Beach, FL 32082.

*SARAH E. JONES--Trustee. President and Chief Operating Officer of Chase
Manhattan Funds Corp.; formerly Managing Director for the Global Asset
Management and Private Banking Division of The Chase Manhattan Bank. Age: 47.
Address: 1211 Avenue of the Americas, 41st Floor, New York, NY 10036.

W.D. MACCALLAN--Trustee. Director of The Adams Express Co. and Petroleum
& Resources Corp. Retired; formerly Chairman of the Board and Chief Executive
Officer of The Adams Express Co. and Petroleum & Resources Corp.; formerly
Director of The Hanover Funds, Inc. and The Hanover Investment Funds, Inc. Age:
73. Address: 624 East 45th Street, Savannah, GA 31405.

GEORGE E. MCDAVID--Trustee. Retired; formerly President, Houston
Chronicle Publishing Company. Age: 70. Address: P.O. Box 2558, Houston, TX
77252.

W. PERRY NEFF--Trustee. Independent Financial Consultant; Director of
North America Life Assurance Co., Petroleum & Resources Corp. and The Adams
Express Co.; formerly Director and Chairman of The Hanover Funds, Inc.; Formerly
Director, Chairman and President of The Hanover Investment Funds, Inc. Age: 73.
Address: RR 1 Box 102, Weston, VT 05181.

26
<PAGE>

*LEONARD M. SPALDING, JR.--Trustee. Retired; formerly Executive Vice
President and Chief Executive Officer for Chase Mutual Funds Corp.; President
and Chief Executive Officer of Vista Capital Management in 1993; and formerly
Chief Investment Executive of The Chase Manhattan Private Bank. Age: 65.
Address: 2025 Lincoln Park Road, Springfield, KY 40069.

RICHARD E. TEN HAKEN--Trustee; Chairman of the Audit Committee. Formerly
District Superintendent of Schools, Monroe No. 2 and Orleans Counties, New York;
Chairman of the Board and President, New York State Teachers' Retirement System.
Age: 66. Address: 4 Barnfield Road, Pittsford, NY 14534.

IRVING L. THODE--Trustee. Retired; formerly Vice President of Quotron
Systems. He has previously served in a number of executive positions with
Control Data Corp., including President of its Latin American Operations, and
General Manager of its Data Services business. Age: 69. Address: 80 Perkins
Road, Greenwich, CT 06830.

MARTIN R. DEAN--Treasurer and Assistant Secretary. Vice President,
Administration Services, BISYS Fund Services, Inc.; formerly Senior Manager,
KPMG Peat Marwick (1987-1994). Age: 37. Address: 3435 Stelzer Road, Columbus, OH
43219.

LISA HURLEY--Secretary. Senior Vice President and General Counsel, BISYS
Fund Services, Inc.; formerly Counsel to Moore Capital Management and General
Counsel to Global Asset Management and Northstar Investments Management. Age:
45. Address: 90 Park Avenue, New York, NY 10016.

VICKY M. HAYES--Assistant Secretary. Vice President and Global Marketing
Manager, Vista Fund Distributors, Inc.; formerly Assistant Vice President,
Alliance Capital Management and held various positions with J. & W. Seligman &
Co. Age: 37. Address: 1211 Avenue of the Americas, 41st Floor, New York, NY
10036.

ALAINA METZ--Assistant Secretary. Chief Administrative Officer, BISYS
Fund Services Inc.; formerly Supervisor, Blue Sky Department, Alliance Capital
Management L.P. Age: 33. Address: 3435 Stelzer Road, Columbus, OH 43219.

----------
* Asterisks indicate those Trustees that are "interested persons" (as defined in
the 1940 Act). Mr. Reid is not an interested person of the Trust's investment
advisers or principal underwriter, but may be deemed an interested person of the
Trust solely by reason of being an officer of the Trust.

The Board of Trustees of the Trust presently has an Audit Committee. The
members of the Audit Committee are Messrs. Ten Haken (Chairman), Armstrong,
Eppley, MacCallan and Thode. The function of the Audit Committee is to recommend
independent auditors and monitor accounting and financial matters. The Audit
Committee met two times during the fiscal period ended August 31, 2000.

The Trustees and officers of the Trust appearing in the table above also
serve in the same capacities with respect to Mutual Fund Trust, Mutual Fund
Variable Annuity Trust, Mutual Fund Group, Mutual Fund Select Group, Mutual Fund
Investment Trust, Mutual Fund Master Investment Trust, Capital Growth Portfolio,
Growth and Income Portfolio and International Equity Portfolio (these entities,
together with the Trust, are referred to below as the "Vista Funds").

REMUNERATION OF TRUSTEES AND CERTAIN EXECUTIVE OFFICERS:

Each Trustee is reimbursed for expenses incurred in attending each
meeting of the Board of Trustees or any committee thereof. Each Trustee who
is not an affiliate of the advisers is compensated for his or her services
according to a fee schedule which recognizes the fact that each Trustee also
serves as a Trustee of other investment companies advised by the advisers.
Each Trustee receives a fee, allocated among all investment companies for
which the Trustee serves, which consists of an annual retainer component and
a meeting component.

27
<PAGE>

SELECT SELECT SELECT
INTERMEDIATE SELECT NEW YORK INTERMEDIATE NEW JERSEY
TAX FREE INCOME TAX FREE INCOME TAX FREE INCOME TAX FREE INCOME
FUND FUND FUND FUND
---- ---- ---- ----
<S> <C> <C> <C> <C>
Fergus Reid, III, Trustee $2,684 $2,785 $1,085 $255
H. Richard Vartebedian, Trustee 1,871 1,942 757 176
William J. Armstrong, Trustee 1,266 1,313 512 120
John R.H. Blum, Trustee 1,406 1,456 568 130
Stuart W. Cragin, Jr., Trustee 1,266 1,313 512 120
Roland R. Eppley, Jr., Trustee 1,250 1,301 506 119
Joseph J. Harkins, Trustee 1,250 1,297 506 116
Sarah E. Jones, Trustee -- -- -- --
W.D. MacCallan, Trustee 1,231 1,276 498 117
George E. McDavid, Trustee 470 498 191 46
W. Perry Neff, Trustee 1,249 1,295 505 116
Leonard M. Spalding, Jr., Trustee 1,266 1,313 512 120
Richard E. Ten Haken, Trustee 1,372 1,422 555 129
Irving L. Thode, Trustee 1,250 1,297 505 118

PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS ACCRUED FROM
BY THE FUND COMPLEX (1) FUND COMPLEX (2)
----------------------- ----------------
<S> <C> <C>
Fergus Reid, III, Trustee $110,091 $202,750
H. Richard Vartebedian, Trustee 86,791 134,350
William J. Armstrong, Trustee 41,781 90,000
John R.H. Blum, Trustee 79,307 98,750
Stuart W. Cragin, Jr., Trustee 55,742 89,000
Roland R. Eppley, Jr., Trustee 58,206 87,500
Joseph J. Harkins, Trustee 75,554 90,500
Sarah E. Jones, Trustee -- --
W.D. MacCallan, Trustee 77,769 87,500
George E. McDavid, Trustee -- 62,250
W. Perry Neff, Trustee 74,269 88,000
Leonard M. Spalding, Jr., Trustee 35,335 89,000
Richard E. Ten Haken, Trustee 60,398 98,000
Irving L. Thode, Trustee 64,503 89,000
</TABLE>

----------

(1) Data reflects total benefits accrued by Mutual Fund Group, Mutual Fund
Select Group, Capital Growth Portfolio, Growth and Income Portfolio and
International Equity Portfolio for the fiscal year ended October 31, 2000 and by
the Trust, Mutual Fund Trust, and Mutual Fund Variable Annuity Trust for the
fiscal year ended August 31, 2000.

(2) Data reflects total estimated compensation earned during the period January
1, 2000 to December 31, 2000 for service as a Trustee to the Trust, Mutual Fund
Group, Mutual Fund Trust, Mutual Fund Variable Annuity Trust, Mutual Fund Select
Group, Mutual Fund Investment Trust, Mutual Fund Master Investment Trust,
Capital Growth Portfolio, Growth and Income Portfolio and International Equity
Portfolio.

As of August 31, 2000, the Trustees and officers as a group owned
less than 1% of each Fund's outstanding shares, all of which were acquired
for investment purposes. For the fiscal year ended August 31, 2000, the Trust
paid its disinterested Trustees fees and expenses for all the meetings of the
Board and any committees attended in the aggregate amount of approximately
$51,000, which amount was then apportioned among the Funds comprising the
Trust.

28
<PAGE>

VISTA FUNDS RETIREMENT PLAN FOR ELIGIBLE TRUSTEES

The Trustees have instituted a Retirement Plan for Eligible Trustees
(the "Plan") pursuant to which each Trustee (who is not an employee of any of
the Funds advised by the advisers, the advisers, administrator or distributor or
any of their affiliates) may be entitled to certain benefits upon retirement
from the Board of Trustees. Pursuant to the Plan, the normal retirement date is
the date on which the eligible Trustee has attained age 65 and has completed at
least five years of continuous service with one or more of the investment
companies advised by the adviser or sub-adviser (collectively, the "Covered
Funds"). Each Eligible Trustee is entitled to receive from the Covered Funds an
annual benefit commencing on the first day of the calendar quarter coincident
with or following his date of retirement equal to the sum of 8% of the highest
annual compensation received from the Covered Funds multiplied by the number of
such Trustee's years of service (not in excess of 10 years) completed with
respect to any of the Covered Funds and (ii) 4% of the highest annual
compensation received from the Covered Funds for each year of service in excess
of 10 years, provided that no Trustee's annual benefit will exceed the highest
annual compensation received by that Trustee from the Covered Funds. Such
benefit is payable to each eligible Trustee in monthly installments for the life
of the Trustee.

Set forth below in the table are the estimated annual benefits payable
to an eligible Trustee upon retirement assuming various compensation and years
of service classifications. As of August 31, 2000, the estimated credited years
of service for Messrs. Reid, Vartabedian, Armstrong, Blum, Cragin, Eppley,
Harkins, MacCallan, McDavid, Neff, Spalding, Ten Haken, Thode and Ms. Jones are
15, 8, 12, 15, 7, 11, 10, 10, 2, 15, 2, 15, 7 and 0, respectively.

HIGHEST ANNUAL COMPENSATION PAID BY ALL VISTA FUNDS
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$80,000 $100,000 $120,000 $140,000 $160,000 $200,000

YEARS OF
SERVICE ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
-------- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
16 $80,000 $100,000 $120,000 $140,000 $160,000 $200,000
14 76,800 96,000 115,200 134,400 153,600 192,000
12 70,400 88,000 105,600 123,200 140,800 176,000
10 64,000 80,000 96,000 112,000 128,000 160,000
8 51,200 64,000 76,800 89,600 102,400 128,000
6 38,400 48,000 57,600 67,200 76,800 96,000
4 25,600 32,000 38,400 44,800 51,200 64,000
</TABLE>

The Trustees have also instituted a Deferred Compensation Plan for
Eligible Trustees (the "Deferred Compensation Plan") pursuant to which each
Trustee (who is not an employee of any of the Covered Funds, the advisers,
administrator or distributor or any of their affiliates) may enter into
agreements with the Covered Funds whereby payment of the Trustee's fees are
deferred until the payment date elected by the Trustee (or the Trustee's
termination of service). The deferred amounts are invested in shares of Vista
funds selected by the Trustee. The deferred amounts are paid out in a lump sum
or over a period of several years as elected by the Trustee at the time of
deferral. If a deferring Trustee dies prior to the distribution of amounts held
in the deferral account, the balance of the deferral account will be distributed
to the Trustee's designated beneficiary in a single lump sum payment as soon as
practicable after such deferring Trustee's death.

Messrs. Ten Haken, Thode and Vartabedian have each executed a deferred
compensation agreement for the 2000 calendar year. Their total estimated
contributions for the calendar year are $39,200, $80,100 and $134,350,
respectively.

29
<PAGE>

The Declaration of Trust provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices or with
respect to any matter unless it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best interest
of the Trust. In the case of settlement, such indemnification will not be
provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, that such officers or
Trustees have not engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.

ADVISER AND SUB-ADVISERS

Chase acts as investment adviser to the Funds pursuant to an Investment
Advisory Agreement (the "Advisory Agreement"). Subject to such policies as the
Board of Trustees may determine, Chase is responsible for investment decisions
for the Funds. Pursuant to the terms of the Advisory Agreement, Chase provides
the Funds with such investment advice and supervision as it deems necessary for
the proper supervision of the Funds' investments. The advisers continuously
provide investment programs and determine from time to time what securities
shall be purchased, sold or exchanged and what portion of the Funds' assets
shall be held uninvested. The advisers to the Funds furnish, at their own
expense, all services, facilities and personnel necessary in connection with
managing the investments and effecting portfolio transactions for the Funds. The
Advisory Agreement for the Funds will continue in effect from year to year only
if such continuance is specifically approved at least annually by the Board of
Trustees or by vote of a majority of a Fund's outstanding voting securities and
by a majority of the Trustees who are not parties to the Advisory Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on such Advisory Agreement.

Under the Advisory Agreement, the adviser may utilize the specialized
portfolio skills of all its various affiliates, thereby providing the Funds with
greater opportunities and flexibility in accessing investment expertise.

Pursuant to the terms of the Advisory Agreement and the sub-advisers'
agreements with the adviser, the adviser and sub-advisers are permitted to
render services to others. Each advisory agreement is terminable without penalty
by the Trust on behalf of the Funds on not more than 60 days', nor less than 30
days', written notice when authorized either by a majority vote of a Fund's
shareholders or by a vote of a majority of the Board of Trustees of the Trust,
or by the adviser or sub-adviser on not more than 60 days', nor less than 30
days', written notice, and will automatically terminate in the event of its
"assignment" (as defined in the 1940 Act). The advisory agreements provide that
the adviser or sub-adviser under such agreement shall not be liable for any
error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution of portfolio transactions
for the respective Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties thereunder.

In the event the operating expenses of the Funds, including all
investment advisory, administration and sub-administration fees, but
excluding brokerage commissions and fees, taxes, interest and extraordinary
expenses such as litigation, for any fiscal year exceed the most restrictive
expense limitation applicable to the Funds imposed by the securities laws or
regulations thereunder of any state in which the shares of the Funds are
qualified for sale, as such limitations may be raised or lowered from time to
time, the adviser shall reduce its advisory fee (which fee is described
below) to the extent of its share of such excess expenses. The amount of any
such reduction to be borne by the adviser shall be deducted from the monthly
advisory fee otherwise payable with respect to the Funds during such fiscal
year; and if such amounts should exceed the monthly fee, the adviser shall
pay to a Fund its share of such excess expenses no later than the last day of
the first month of the next succeeding fiscal year.

30
<PAGE>

Under the Advisory Agreement, Chase may delegate a portion of its
responsibilities to a sub-adviser. In addition, the Advisory Agreement provides
that Chase may render services through its own employees or the employees of one
or more affiliated companies that are qualified to act as an investment adviser
of the Fund and are under the common control of Chase as long as all such
persons are functioning as part of an organized group of persons, managed by
authorized officers of Chase.

Chase, on behalf of the Funds, has entered into an investment
sub-advisory agreement with Chase Fleming Asset Management (USA), Inc. ("CFAM
(USA)"). With respect to the day-to-day management of the Funds, under the
subadvisory agreement, the sub-adviser makes decisions concerning, and places
all orders for, purchases and sales of securities and helps maintain the records
relating to such purchases and sales. The sub-adviser may, in its discretion,
provide such services through its own employees or the employees of one or more
affiliated companies that are qualified to act as an investment adviser to the
Company under applicable laws and are under the common control of Chase;
provided that (i) all persons, when providing services under the sub-advisory
agreement, are functioning as part of an organized group of persons, and (ii)
such organized group of persons is managed at all times by authorized officers
of the sub-adviser. This arrangement will not result in the payment of
additional fees by the Funds.

Chase, a wholly-owned subsidiary of The Chase Manhattan Corporation, a
registered bank holding company, is a commercial bank offering a wide range of
banking and investment services to customers throughout the United States and
around the world. Also included among the Chase accounts are commingled trust
funds and a broad spectrum of individual trust and investment management
portfolios. These accounts have varying investment objectives.

CFAM (USA) is a wholly-owned operating subsidiary of the Adviser. CFAM
(USA) is registered with the Securities and Exchange Commission as an investment
adviser and provides discretionary investment advisory services to institutional
clients, and the same individuals who serve as portfolio managers for CFAM (USA)
also serve as portfolio managers for Chase.

In consideration of the services provided by the adviser pursuant to the
Advisory Agreement, the adviser is entitled to receive from each Fund an
investment advisory fee computed daily and paid monthly based on a rate equal to
a percentage of such Fund's average daily net assets specified in the relevant
Prospectuses. However, the adviser may voluntarily agree to waive a portion of
the fees payable to it on a month-to-month basis. For its services under its
sub-advisory agreement, CFAM (USA) will be entitled to receive with respect to
each such Fund, such compensation, payable by the adviser out of its advisory
fee, as is described in the relevant Prospectuses.

For the three most recent fiscal years, the Advisor earned advisory
fees, and voluntarily waived the amounts in parentheses as follows:

YEAR ENDED AUGUST 31,
----------------------------------------------------------------------------------
1998 1999 2000
-------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Select Intermediate Tax
Free Income Fund $1,982,640 $(1,982,640) $2,200,196 $(2,200,196) $2,110,334 $(429,387)
Select Tax Free
Income Fund 2,147,587 (2,147,587) 2,293,913 (2,293,913) 2,201,223 (438,381)
Select New York
Intermediate Tax Free
Income Fund 767,510 (767,510) 879,846 (879,846) 853,972 (173,688)
Select New Jersey
Tax Free Income Fund 201,511 (201,511) 209,497 (209,497) 202,307 (40,020)
</TABLE>

31
<PAGE>

ADMINISTRATOR

Pursuant to an Administration Agreement (the "Administration
Agreement"), Chase serves as administrator of the Funds. Chase provides certain
administrative services to the Funds, including, among other responsibilities,
coordinating the negotiation of contracts and fees with, and the monitoring of
performance and billing of, the Funds' independent contractors and agents;
preparation for signature by an officer of the Trust of all documents required
to be filed for compliance by the Trust with applicable laws and regulations
excluding those of the securities laws of various states; arranging for the
computation of performance data, including net asset value and yield; responding
to shareholder inquiries; and arranging for the maintenance of books and records
of the Funds and providing, at its own expense, office facilities, equipment and
personnel necessary to carry out its duties. Chase in its capacity as
administrator does not have any responsibility or authority for the management
of the Funds, the determination of investment policy, or for any matter
pertaining to the distribution of Fund shares.

Under the Administration Agreement Chase is permitted to render
administrative services to others. The Administration Agreement will continue in
effect from year to year with respect to each Fund only if such continuance is
specifically approved at least annually by the Board of Trustees or by vote of a
majority of such Fund's outstanding voting securities and, in either case, by a
majority of the Trustees who are not parties to the Administration Agreement or
"interested persons" (as defined in the 1940 Act) of any such party. The
Administration Agreement is terminable without penalty by the Trust on behalf of
each Fund on 60 days' written notice when authorized either by a majority vote
of such Fund's shareholders or by vote of a majority of the Board of Trustees,
including a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust, or by Chase on 60 days' written notice,
and will automatically terminate in the event of its "assignment" (as defined in
the 1940 Act). The Administration Agreement also provides that neither Chase nor
its personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the administration of the Funds, except for willful
misfeasance, bad faith or gross negligence in the performance of its or their
duties or by reason of reckless disregard of its or their obligations and duties
under the Administration Agreement.

In addition, the Administration Agreement provides that, in the event
the operating expenses of any Fund, including all investment advisory,
administration and sub-administration fees, but excluding brokerage commissions
and fees, taxes, interest and extraordinary expenses such as litigation, for any
fiscal year exceed the most restrictive expense limitation applicable to that
Fund imposed by the securities laws or regulations thereunder of any state in
which the shares of such Fund are qualified for sale, as such limitations may be
raised or lowered from time to time, Chase shall reduce its administration fee
(which fee is described below) to the extent of its share of such excess
expenses. The amount of any such reduction to be borne by Chase shall be
deducted from the monthly administration fee otherwise payable to Chase during
such fiscal years; and if such amounts should exceed the monthly fee, Chase
shall pay to such Fund its share of such excess expenses no later than the last
day of the first month of the next succeeding fiscal year.

In consideration of the services provided by Chase pursuant to the
Administration Agreement, Chase receives from each Fund a fee computed daily and
paid monthly at an annual rate equal to 0.10% of each of the Fund's average
daily net assets, on an annualized basis for the Fund's then-current fiscal
year. Chase may voluntarily waive a portion of the fees payable to it with
respect to each Fund on a month-to-month basis.

32
<PAGE>

For the three most recent fiscal years, the Administrator earned
administration fees, and voluntarily waived the amounts in parentheses:

YEAR ENDED AUGUST 31,
----------------------------------------------------------------------
1998 1999 2000
--------------------- -------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Select Intermediate
Tax Free Income Fund $663,008 $(663,008) $733,399 $(733,399) $703,443 $(143,129)
Select Tax Free Income Fund 718,084 (718,084) 764,638 (764,638) 733,739 (146,127)
Select New York Intermediate
Tax Free Income Fund 256,686 (256,686) 293,282 (293,282) 284,657 (57,896)
Select New Jersey
Tax Free Income Fund 67,376 (67,376) 69,832 (69,832) 67,436 (13,340)
</TABLE>

DISTRIBUTION AND SUB-ADMINISTRATION AGREEMENT

The Trust has entered into a Distribution and Sub-Administration
Agreement (the "Distribution Agreement") with the Distributor, pursuant to which
the Distributor acts as the Funds' exclusive underwriter, provides certain
administration services and promotes and arranges for the sale of Shares. The
Distributor is a wholly-owned subsidiary of BISYS Fund Services, Inc. The
Distribution Agreement provides that the Distributor will bear the expenses of
printing, distributing and filing prospectuses and statements of additional
information and reports used for sales purposes, and of preparing and printing
sales literature and advertisements not paid for by the Distribution Plans. The
Trust pays for all of the expenses for qualification of the shares of each Fund
for sale in connection with the public offering of such shares, and all legal
expenses in connection therewith. In addition, pursuant to the Distribution
Agreement, the Distributor provides certain sub-administration services to the
Trust, including providing officers, clerical staff and office space.

The Distribution Agreement is currently in effect and will continue in
effect with respect to each Fund only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority of
such Fund's outstanding voting securities and, in either case, by a majority of
the Trustees who are not parties to the Distribution Agreement or "interested
persons" (as defined in the 1940 Act) of any such party. The Distribution
Agreement is terminable without penalty by the Trust on behalf of each Fund on
60 days' written notice when authorized either by a majority vote of such Fund's
shareholders or by vote of a majority of the Board of Trustees of the Trust,
including a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust, or by the Distributor on 60 days' written
notice, and will automatically terminate in the event of its "assignment" (as
defined in the 1940 Act). The Distribution Agreement also provides that neither
the Distributor nor its personnel shall be liable for any act or omission in the
course of, or connected with, rendering services under the Distribution
Agreement, except for willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations or duties.

In the event the operating expenses of any Fund, including all
investment advisory, administration and sub-administration fees, but excluding
brokerage commissions and fees, taxes, interest and extraordinary expenses such
as litigation, for any fiscal year exceed the most restrictive expense
limitation applicable to that Fund imposed by the securities laws or regulations
thereunder of any state in which the shares of such Fund are qualified for sale,
as such limitations may be raised or lowered from time to time, the Distributor
shall reduce its sub-administration fee with respect to such Fund (which fee is
described below) to the extent of its share of such excess expenses. The amount
of any such reduction to be borne by the Distributor shall be deducted from the
monthly sub-administration fee otherwise payable with respect to such Fund
during such fiscal year; and if such amounts should exceed the monthly fee, the
Distributor shall pay to such Fund its share of such excess expenses no later
than the last day of the first month of the next succeeding fiscal year.

33
<PAGE>

In consideration of the sub-administration services provided by the
Distributor pursuant to the Distribution Agreement, the Distributor receives an
annual fee, payable monthly, of 0.05% of the net assets of each Fund. The
Distributor may voluntarily agree to from time to time waive a portion of the
fees payable to it under the Distribution Agreement with respect to each Fund on
a month-to-month basis.

For the three most recent fiscal years, the Distributor earned
sub-administration fees, and voluntarily waived the amounts in parentheses:

YEAR ENDED AUGUST 31,
----------------------------------------------------------------------
1998 1999 2000
-------------------- --------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Select Intermediate
Tax Free Income Fund $328,312 $(328,312) $366,699 $(336,565) $351,721 $(61,545)
Select Tax Free Income Fund 355,710 (355,710) 382,319 (351,277) 366,870 (62,835)
Select New York Intermediate
Tax Free Income Fund 127,069 (127,069) 146,641 (134,589) 142,328 (78,737)
Select New Jersey
Tax Free Income Fund 33,379 (33,379) 34,916 (34,916) 33,718 (24,963)
</TABLE>

SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN

Effective January 3, 2000, the Trust adopted an Administrative Services
Plan which, among other things, provides that the Trust on behalf of the Funds
may obtain the services of one or more Shareholder Servicing Agents. The Trust
has entered into shareholder servicing agreements (a "Servicing Agreement") with
each Shareholder Servicing Agent to provide certain services including but not
limited to the following: answer customer inquiries regarding account status and
history, the manner in which purchases and redemptions of shares may be effected
for the Fund as to which the Shareholder Servicing Agent is so acting and
certain other matters pertaining to the Fund; assist shareholders in designating
and changing dividend options, account designations and addresses; provide
necessary personnel and facilities to establish and maintain shareholder
accounts and records; assist in processing purchase and redemption transactions;
arrange for the wiring of funds; transmit and receive funds in connection with
customer orders to purchase or redeem shares; verify and guarantee shareholder
signatures in connection with redemption orders and transfers and changes in
shareholder-designated accounts; furnish (either separately or on an integrated
basis with other reports sent to a shareholder by a Shareholder Servicing Agent)
quarterly and year-end statements and confirmations of purchases and
redemptions; transmit, on behalf of the Fund, proxy statements, annual reports,
updated prospectuses and other communications to shareholders of the Fund;
receive, tabulate and transmit to the Fund proxies executed by shareholders with
respect to meetings of shareholders of the Fund; and provide such other related
services as the Fund or a shareholder may request. Shareholder servicing agents
may be required to register pursuant to state securities law. Shareholder
Servicing Agents may subcontract with other parties for the provision of
shareholder support services.

Each Shareholder Servicing Agent may voluntarily agree from time to time
to waive a portion of the fees payable to it under its Servicing Agreement with
respect to each fund on a month-to-month basis. Fees payable to the Shareholder
Servicing Agents (all of which currently are related parties) and the amounts
voluntarily waived for the period from January 3, 2000 through August 31, 2000
were as follows:

01/03/00
THROUGH
08/31/00
-----------------------
<S> <C> <C>
Select Intermediate
Tax Free Income Fund $1,155,992 $ --
Select Tax Free Income Fund 1,218,359 --
Select New York Intermediate
Tax Free Income Fund 468,231 --
Select New Jersey
Tax Free Income Fund 112,246 (50,976)
</TABLE>

34
<PAGE>

Shareholder servicing agents may offer additional services to their
customers, including specialized procedures and payment for the purchase and
redemption of Fund shares, such as pre-authorized or systematic purchase and
redemption programs, "sweep" programs, cash advances and redemption checks. Each
Shareholder Servicing Agent may establish its own terms and conditions,
including limitations on the amounts of subsequent transactions, with respect to
such services. Certain Shareholder Servicing Agents may (although they are not
required by the Trust to do so) credit to the accounts of their customers from
whom they are already receiving other fees amounts not exceeding such other fees
or the fees for their services as Shareholder Servicing Agents.

For shareholders that bank with Chase, Chase may aggregate investments
in the Chase Vista Funds with balances held in Chase bank accounts for purposes
of determining eligibility for certain bank privileges that are based on
specified minimum balance requirements, such as reduced or no fees for certain
banking services or preferred rates on loans and deposits. Chase and certain
broker-dealers and other Shareholder Servicing Agents may, at their own expense,
provide gifts such as computer software packages, guides and books related to
investment or additional Fund shares valued up to $250 to their customers that
invest in the Chase Vista Funds.

Chase and/or the Distributor may from time to time, at their own expense
out of compensation retained by them from the Fund or other sources available to
them, make additional payments to certain selected dealers or other Shareholder
Servicing Agents for performing administrative services for their customers.
These services include maintaining account records, processing orders to
purchase, redeem and exchange Fund shares and responding to certain customer
inquiries. The amount of such compensation may be up to an additional 0.10%
annually of the average net assets of the Fund attributable to shares if the
Fund held by customers of such Shareholder Servicing Agents. Such compensation
does not represent an additional expense to the Fund or its shareholders, since
it will be paid by Chase and/or the Distributor.

The Trust has also entered into a Transfer Agency Agreement with DST
Systems, Inc. ("DST") pursuant to which DST acts as transfer agent for the
Trust. DST's address is 210 West 10th Street, Kansas City, MO 64105.

Pursuant to a Custodian Agreement, Chase acts as the custodian of the
assets of each Fund for which Chase receives such compensation as is from time
to time agreed upon by the Trust and Chase. As custodian, Chase provides
oversight and record keeping for the assets held in the portfolios of each Fund.
Chase also provides fund accounting services for the income, expenses and shares
outstanding for the Funds. Chase is located at 3 Metrotech Center, Brooklyn, NY
11245. For additional information, see the Prospectuses.

INDEPENDENT ACCOUNTANTS

The financial statements incorporated herein by reference from the
Trust's Annual Reports to Shareholders for the fiscal year ended August 31,
2000, and the related financial highlights which appear in the Prospectuses,
have been incorporated herein and included in the Prospectuses in reliance on
the reports of PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New
York, New York 10036, independent accountants of the Funds, given on the
authority of said firm as experts in accounting and auditing.
PricewaterhouseCoopers LLP provides the Funds with audit services, tax return
preparation and assistance and consultation with respect to the preparation of
filings with the Securities and Exchange Commission.

CERTAIN REGULATORY MATTERS

Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of any
of the Funds, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of securities so purchased. Chase and its
affiliates deal, trade and invest for their own accounts in U.S. Government
obligations, municipal obligations and

35
<PAGE>

commercial paper and are among the leading dealers of various types of U.S.
Government obligations and municipal obligations. Chase and its affiliates may
sell U.S. Government obligations and municipal obligations to, and purchase them
from, other investment companies sponsored by the Funds' distributor or
affiliates of the distributor. Chase will not invest any Fund assets in any U.S.
Government obligations, municipal obligations or commercial paper purchased from
itself or any affiliate, although under certain circumstances such securities
may be purchased from other members of an underwriting syndicate in which Chase
or an affiliate is a non-principal member. This restriction my limit the amount
or type of U.S. Government obligations, municipal obligations or commercial
paper available to be purchased by any Fund. Chase has informed the Funds that
in making its investment decision, it does not obtain or use material inside
information in the possession of any other division or department of Chase,
including the division that performs services for the Trust as custodian, or in
the possession of any affiliate of Chase. Shareholders of the Funds should be
aware that, subject to applicable legal or regulatory restrictions, Chase and
its affiliates may exchange among themselves certain information about the
shareholder and his account. Transactions with affiliated broker-dealers will
only be executed on an agency basis in accordance with applicable federal
regulations.

GENERAL INFORMATION

DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES

Mutual Fund Select Trust is an open-end, management investment company
organized as Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on October 1, 1996. Because each of the Funds comprising the Trust
are "non-diversified", more than 5% of any of the assets of each Fund may be
invested in the obligations of any single issuer, which may make the value of
the shares in such a Fund more susceptible to certain risks than shares of a
diversified mutual fund. The fiscal year-end of the Funds in the Trust is August
31.

The Trust currently consists of 4 series of shares of beneficial
interest, par value $.001 per share. The Trust has reserved the right to create
and issue additional series or classes. Each share of a series or class
represents an equal proportionate interest in that series or class with each
other share of that series or class. The shares of each series or class
participate equally in the earnings, dividends and assets of the particular
series or class. Expenses of the Trust which are not attributable to a specific
series or class are allocated among all the series in a manner believed by
management of the Trust to be fair and equitable. Shares have no pre-emptive or
conversion rights. Shares when issued are fully paid and non-assessable, except
as set forth below. Shareholders are entitled to one vote for each share held.
Shares of each series or class generally vote together, except when required
under federal securities laws to vote separately on matters that may affect a
particular class, such as the approval of distribution plans for a particular
class.

Each Fund currently issues a single class of shares but may, in the
future, offer other classes of shares. The categories of investors that are
eligible to purchase shares may be different for each class of Fund shares.
Other classes of Fund shares may be subject to differences in sales charge
arrangements, ongoing distribution and service fee levels, and levels of certain
other expenses, which will affect the relative performance of the different
classes.

Any person entitled to receive compensation for selling or servicing
shares of a Fund may receive different levels of compensation for selling one
particular class of shares rather than another.

The Trust is not required to hold annual meetings of shareholders but
will hold special meetings of shareholders of a series or class when, in the
judgment of the Trustees, it is necessary or desirable to submit matters for a
shareholder vote. Shareholders have, under certain circumstances, the right to
communicate with other shareholders in connection with requesting a meeting of
shareholders for the purpose of removing one or more Trustees. Shareholders also
have, in certain circumstances, the right to remove one or more Trustees without
a meeting. No material amendment may be made to the Trust's Declaration of Trust
without the affir-

36
<PAGE>

mative vote of the holders of a majority of the outstanding shares of each
portfolio affected by the amendment. Shares have no preemptive or conversion
rights. Shares, when issued, are fully paid and non-assessable, except as set
forth below. Any series or class may be terminated (i) upon the merger or
consolidation with, or the sale or disposition of all or substantially all of
its assets to, another entity, if approved by the vote of the holders of
two-thirds of its outstanding shares, except that if the Board of Trustees
recommends such merger, consolidation or sale or disposition of assets, the
approval by vote of the holders of a majority of the series' or class'
outstanding shares will be sufficient, or (ii) by the vote of the holders of a
majority of its outstanding shares, or (iii) by the Board of Trustees by written
notice to the series' or class' shareholders. Unless each series and class is so
terminated, the Trust will continue indefinitely.

Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust and
provides for indemnification and reimbursement of expenses out of the Trust
property for any shareholder held personally liable for the obligations of the
Trust. The Trust's Declaration of Trust also provides that the Trust shall
maintain appropriate insurance (for example, fidelity bonding and errors and
omissions insurance) for the protection of the Trust, its shareholders,
Trustees, officers, employees and agents covering possible tort and other
liabilities. Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.

The Trust's Declaration of Trust further provides that obligations of
the Trust are not binding upon the Trustees individually but only upon the
property of the Trust and that the Trustees will not be liable for any action or
failure to act, errors of judgment or mistakes of fact or law, but nothing in
the Declaration of Trust protects a Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.

The Board of Trustees has adopted a code of ethics addressing personal
securities transactions by investment personnel and access persons and other
related matters. The code has been designated to address potential conflicts of
interest that can arise in connection with personal trading activities of such
persons. Persons subject to the code are generally permitted to engage in
personal securities transactions, subject to certain prohibitions, pre-clearance
requirements and blackout periods.

PRINCIPAL HOLDERS

As of November 16, 2000, the following owned of record, directly or
indirectly, 5% or more of the outstanding shares of the Funds.

<TABLE>
<S> <C>
SELECT INTERMEDIATE TAX FREE INCOME
Balsa & Co. ....................................................... 85.04%
Mutual Funds Unit 16 HCB 340
P.O. Box 2558
Houston, TX 77252-2558

Penlin & Co. ...................................................... 11.01%
C/O The Chase Manhattan Bank
Attn: Mutual FDS/T-C
PO Box 31412
Rochester, NY 14603-1412

SELECT NEW JERSEY TAX FREE INCOME
Balsa & Co. ....................................................... 84.31%
Mutual Funds Unit 16 HCB 340
P.O. Box 2558
Houston, TX 77252-2558
</TABLE>

37
<PAGE>

Penlin & Co. .......................................................... 7.53%
C/O The Chase Manhattan Bank
Attn: Mutual FDS/T-C
P.O. Box 31412
Rochester, NY 14603-1412

SELECT NEW YORK INTERMEDIATE TAX FREE INCOME
Balsa & Company ...................................................... 43.49%
Mutual Funds Unit 16 HCB 340
P.O. Box 2558
Houston, TX 77252-2558

Penlin & Co. ......................................................... 40.51%
C/O The Chase Manhattan Bank
Attn: Mutual FDS/T-C
PO Box 31412
Rochester, NY 14603-1412

Liva & Company ....................................................... 10.18%
C/O Chase Manhattan Bank N/A
Attn: Mutual Fund Operations
PO Box 31412
Rochester, NY 14603-1412

SELECT TAX FREE INCOME
Balsa & Co. .......................................................... 78.18%
Mutual Funds Unit 16 HCB 340
P.O. Box 2558
Houston, TX 77252-2558

Penlin & Co .......................................................... 15.62%
C/O The Chase Manhattan Bank
Attn: Mutual FDS/T-C
PO Box 31412
Rochester, NY 14603-1412
</TABLE>

FINANCIAL STATEMENTS

The Annual Report to Shareholders of each Fund, including the report of
independent accountants, financial highlights and financial statements for the
fiscal year-ended August 31, 2000 contained therein, are incorporated by
reference.

SPECIMEN COMPUTATIONS OF OFFERING PRICES PER SHARE

<TABLE>
<S> <C>
SELECT INTERMEDIATE TAX FREE INCOME FUND
Net Asset Value and Redemption Price per Share of Beneficial Interest at August 31, 2000 .................. $10.46

SELECT TAX FREE INCOME FUND
Net Asset Value and Redemption Price per Share of Beneficial Interest at August 31, 2000 .................. $ 6.25

SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND
Net Asset Value and Redemption Price per Share of Beneficial Interest at August 31, 2000 .................. $ 7.01

SELECT NEW JERSEY TAX FREE INCOME FUND
Net Asset Value and Redemption Price per Share of Beneficial Interest at August 31, 2000 .................. $ 9.73
</TABLE>

38
<PAGE>

APPENDIX A

DESCRIPTION OF CERTAIN OBLIGATIONS
ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES OR INSTRUMENTALITIES

FEDERAL FARM CREDIT SYSTEM NOTES AND BONDS--are bonds issued by a
cooperatively owned nationwide system of banks and associations supervised by
the Farm Credit Administration, an independent agency of the U.S.
Government. These bonds are not guaranteed by the U.S. Government.

MARITIME ADMINISTRATION BONDS--are bonds issued and provided by the
Department of Transportation of the U.S. Government and are guaranteed by the
U.S. Government.

FNMA BONDS--are bonds guaranteed by the Federal National Mortgage
Association. These bonds are not guaranteed by the U.S. Government.

FHA DEBENTURES--are debentures issued by the Federal Housing
Administration of the U.S. Government and are guaranteed by the U.S. Government.

FHA INSURED NOTES--are bonds issued by the Farmers Home Administration
of the U.S. Government and are guaranteed by the U.S. Government.

GNMA CERTIFICATES--are mortgage-backed securities which represent a
partial ownership interest in a pool of mortgage loans issued by lenders such
as mortgage bankers, commercial banks and savings and loan associations. Each
mortgage loan included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration and therefore
guaranteed by the U.S. Government. As a consequence of the fees paid to GNMA
and the issuer of GNMA Certificates, the coupon rate of interest of GNMA
Certificates is lower than the interest paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates. The average life of a GNMA
Certificate is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities. Prepayments of principal by
mortgagors and mortgage foreclosures may result in the return of the greater
part of principal invested far in advance of the maturity of the mortgages in
the pool. Foreclosures impose no risk to principal investment because of the
GNMA guarantee. As the prepayment rate of individual mortgage pools will vary
widely, it is not possible to accurately predict the average life of a
particular issue of GNMA Certificates. The yield which will be earned on GNMA
Certificates may vary form their coupon rates for the following reasons: (i)
Certificates may be issued at a premium or discount, rather than at par; (ii)
Certificates may trade in the secondary market at a premium or discount after
issuance; (iii) interest is earned and compounded monthly which has the
effect of raising the effective yield earned on the Certificates; and (iv)
the actual yield of each Certificate is affected by the prepayment of
mortgages included in the mortgage pool underlying the Certificates.
Principal which is so prepaid will be reinvested, although possibly at a
lower rate. In addition, prepayment of mortgages included in the mortgage
pool underlying a GNMA Certificate purchased at a premium could result in a
loss to a Fund. Due to the large amount of GNMA Certificates outstanding and
active participation in the secondary market by securities dealers and
investors, GNMA Certificates are highly liquid instruments. Prices of GNMA
Certificates are readily available from securities dealers and depend on,
among other things, the level of market rates, the Certificate's coupon rate
and the prepayment experience of the pool of mortgages backing each
Certificate. If agency securities are purchased at a premium above principal,
the premium is not guaranteed by the issuing agency and a decline in the
market value to par may result in a loss of the premium, which may be
particularly likely in the event of a prepayment. When and if available, U.S.
Government obligations may be purchased at a discount from face value.

FHLMC CERTIFICATES and FNMA CERTIFICATES--are mortgage-backed bonds
issued by the Federal Home Loan Mortgage Corporation and the Federal National
Mortgage Association, respectively, and are guaranteed by the U.S.
Government.

GSA PARTICIPATION CERTIFICATES--are participation certificates issued by
the General Services Administration of the U.S. Government and are guaranteed by
the U.S. Government.

A-1
<PAGE>

NEW COMMUNITIES DEBENTURES--are debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development Act
of 1970, the payment of which is guaranteed by the U.S. Government.

PUBLIC HOUSING BONDS--are bonds issued by public housing and urban
renewal agencies in connection with programs administered by the Department of
Housing and Urban Development of the U.S. Government, the payment of which is
secured by the U.S. Government.

PENN CENTRAL TRANSPORTATION CERTIFICATES--are certificates issued by
Penn Central Transportation and guaranteed by the U.S. Government.

SBA DEBENTURES--are debentures fully guaranteed as to principal and
interest by the Small Business Administration of the U.S. Government.

WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY BONDS--are bonds issued
by the Washington Metropolitan Area Transit Authority. Some of the bonds issued
prior to 1993 are guaranteed by the U.S. Government.

FHLMC BONDS--are bonds issued and guaranteed by the Federal Home Loan
Mortgage Corporation. These bonds are not guaranteed by the U.S. Government.

FEDERAL HOME LOAN BANK NOTES AND BONDS--are notes and bonds issued by
the Federal Home Loan Bank System and are not guaranteed by the U.S. Government.

STUDENT LOAN MARKETING ASSOCIATION ("SALLIE MAE") NOTES AND BONDS--are
notes and bonds issued by the Student Loan Marketing Association and are not
guaranteed by the U.S. Government.

D.C. ARMORY BOARD BONDS--are bonds issued by the District of Columbia
Armory Board and are guaranteed by the U.S. Government.

EXPORT-IMPORT BANK CERTIFICATES--are certificates of beneficial interest
and participation certificates issued and guaranteed by the Export-Import Bank
of the U.S. and are guaranteed by the U.S. Government.

In the case of securities not backed by the "full faith and credit" of
the U.S. Government, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the U.S. Government itself in the event the agency or
instrumentality does not meet its commitments.

Investments may also be made in obligations of U.S. Government agencies
or instrumentalities other than those listed above.

A-2
<PAGE>

APPENDIX B

DESCRIPTION OF RATINGS*

The ratings of Moody's and Standard & Poor's represent their opinions as
to the quality of various Municipal Obligations. It should be emphasized,
however, that ratings are not absolute standards of quality. Consequently,
Municipal Obligations with the same maturity, coupon and rating may have
different yields while Municipal Obligations of the same maturity and coupon
with different ratings may have the same yield.

DESCRIPTION OF MOODY'S
FOUR HIGHEST MUNICIPAL BOND RATINGS:

Aaa--Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.

A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Baa--Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

DESCRIPTION OF MOODY'S THREE HIGHEST RATINGS
OF STATE AND MUNICIPAL NOTES:

Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade ("MIG"). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature-variable rate demand obligation or commercial paper programs; such
ratings will be designated as "VMIG." Short-term ratings on issues with demand
features are differentiated by the use of the VMIG symbol to reflect such
characteristics as payment upon periodic demand rather than fixed maturity dates
and payment relying on external liquidity. Symbols used are as follows:

MIG-1/VMIG-1--Notes bearing this designation are of the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.

MIG-2/VMIG-2--Notes bearing this designation are of high quality, with
margins of protection ample although not so large as in the preceding group.

MIG-3/VMIG-3--Notes bearing this designation are of favorable quality,
where all security elements are accounted for but there is lacking the
undeniable strength of the preceding grade, liquidity and cash flow protection
may be narrow and market access for refinancing is likely to be less well
established.

----------
* As described by the rating agencies. Ratings are generally given to securities
at the time of issuance. While the rating agencies may from time to time revise
such ratings, they undertake no obligation to do so.

B-1
<PAGE>

DESCRIPTION OF STANDARD & POOR'S FOUR HIGHEST MUNICIPAL BOND RATINGS:
----------
AAA--Bonds rated AAA have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
----------
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
----------
A--Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
----------
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
----------
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

DESCRIPTION OF STANDARD & POOR'S
RATINGS OF MUNICIPAL NOTES AND TAX-EXEMPT DEMAND BONDS:

A Standard & Poor's note rating reflects the liquidity concerns and
market access risks unique to notes. Notes due in 3 years or less will likely
receive a note rating. Notes maturing beyond 3 years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assessment.

--Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).

--Source of Payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).

Note rating symbols are as follows:

SP-1--Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.

SP-2--Satisfactory capacity to pay principal and interest.

SP-3--Speculative capacity to pay principal and interest.

Standard & Poor's assigns "dual" ratings to all long-term debt issues
that have as part of their provisions a demand or double feature.

The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/B-1+"). For the newer "demand notes," S&P's note
rating symbols, combined with the commercial paper symbols, are used (for
example, "SP-1+/A-1+").

DESCRIPTION OF STANDARD & POOR'S
TWO HIGHEST COMMERCIAL PAPER RATINGS:

A--Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.

B-2
<PAGE>

A-1--This rating indicates a fund has strong capacity to meet its
financial commitments. Standard &Poor's rate it in the highest category. Within
this category, certain obligors are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its financial commitments is
extremely stong.

A-2--This rating indicates a fund has satisfactory capacity to meet its
financial commitments. However it is somewhat more susceptible to the adverse
affects of changes in circumstances and economic conditions than obligors in the
highest rating category.

DESCRIPTION OF MOODY'S
TWO HIGHEST COMMERCIAL PAPER RATINGS:

Moody's Commercial Paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1, Prime-2 and Prime-3.

ISSUERS RATED PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
(1) leading market positions in well-established industries; (2) high rates of
return on funds employed; (3) conservative capitalization structures with
moderate reliance on debt and ample asset protection; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
and (5) well-established access to a range of financial markets and assured
sources of alternate liquidity.

ISSUERS RATED PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

DESCRIPTION OF FITCH'S RATINGS OF MUNICIPAL NOTES
AND TAX-EXEMPT DEMAND BONDS

MUNICIPAL BOND RATINGS

The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take into
consideration special features of the issuer, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's financial strength and
credit quality.

AAA--Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.

AA--Bonds rated AA are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1.

A--Bonds rated A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.

B-3
<PAGE>

BBB--Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse consequences on
these bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for bonds
with higher ratings.

Plus and minus signs are used by Fitch to indicate the relative position
of a credit within a rating category. Plus and minus signs, however, are not
used in the AAA category.

SHORT-TERM RATINGS

Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.

Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the existence
of liquidity necessary to meet the issuer's obligations in a timely manner.

F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.

F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.

F-2--Good Credit Quality. Issues carrying this rating have satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.

F-3--Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, although near term adverse changes could cause these securities to be
rated below investment grade.

B-4
<PAGE>

APPENDIX C

SPECIAL INVESTMENT CONSIDERATIONS RELATING TO
NEW YORK MUNICIPAL OBLIGATIONS

Some of the significant financial considerations relating to the
investments of the Select New York Intermediate Tax Free Income Fund in New York
municipal securities are summarized below. The following information constitutes
only a brief summary, does not purport to be a complete description and is
largely based on information drawn from official statements relating to
securities offerings of New York municipal obligations available as of the date
of this Statement of Additional Information. The accuracy and completeness of
the information contained in such offering statements has not been independently
verified.

NEW YORK STATE

NEW YORK STATE FINANCING ACTIVITIES. There are a number of methods by
which New York State (the "State") may incur debt. Under the State Constitution,
the State may not, with limited exceptions for emergencies, undertake long-term
general obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
New York State Legislature (the "Legislature") and approved by the voters. There
is no limitation on the amount of long-term general obligation debt that may be
so authorized and subsequently incurred by the State. With the exception of
general obligation housing bonds (which must be paid in equal annual
installments or installments that result in substantially level or declining
debt service payments, within 50 years after issuance, commencing no more than
three years after issuance), general obligation bonds must be paid in equal
annual installments or installments that result in substantially level or
declining debt service payments, within 40 years after issuance, beginning not
more than one year after issuance of such bonds.

The State may undertake short-term borrowings without voter approval (i)
in anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes ("TRANs"), and (ii) in anticipation of the receipt of
proceeds from the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes ("BANs"). TRANs must mature within one year from their dates
of issuance and may not be refunded or refinanced beyond such period. BANS may
only be issued for the purposes and within the amounts for which bonds may be
issued pursuant to voter authorizations. Such BANs must be paid from the
proceeds of the sale of bonds in anticipation of which they were issued or from
other sources within two years of the date of issuance or, in the case of BANs
for housing purposes, within five years of the date of issuance.

The State may also, pursuant to specific constitutional authorization,
directly guarantee certain public authority obligations. The State Constitution
provides for the State guarantee of the repayment of certain borrowings for
designated projects of the New York State Thruway Authority, the Job Development
Authority and the Port Authority of New York and New Jersey. The State has never
been called upon to make any direct payments pursuant to such guarantees. The
State-guaranteed bonds of the Port Authority of New York and New Jersey were
fully retired on December 31, 1996. State-guaranteed bonds issued by the Thruway
Authority were fully retired on July 1, 1995.

In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.

C-1
<PAGE>

The State employs additional long-term financing mechanisms,
lease-purchase and contractual-obligation financing, which involve obligations
of public authorities or municipalities that are State-supported but not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the New York Local Government
Assistance Corporation ("LGAC") to restructure the way the State makes certain
local aid payments.

The State participates in the issuance of Certificates of Participation
("COPs") in a pool of leases entered into by the State's Office of General
Services on behalf of several State departments and agencies interested in
acquiring operational equipment, or in certain cases, real property. Legislation
enacted in 1986 established restrictions upon and centralized State control,
through the Comptroller and the Director of the Budget, over the issuance of
COPs representing the State's contractual obligation, subject to annual
appropriation by the Legislature and availability of money, to make installment
or lease-purchase payments for the State's acquisition of such equipment or real
property.

The State also employs moral obligation financing. Moral obligation
financing generally involves the issuance of debt by a public authority to
finance a revenue-producing project or other activity. The debt is secured by
project revenues and statutory provisions requiring the State, subject to
appropriation by the Legislature, to make up any deficiencies which may occur in
the issuer's debt service reserve fund. There has never been a default on any
moral obligation debt of any public authority although there can be no assurance
that such a default will not occur in the future.

Payments of debt service on State general obligation and
State-guaranteed bonds and notes are legally enforceable obligations of the
State. The State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees although there can be no assurance that such
a default or call will not occur in the future.

The proposed 1997-98 through 2002-2003 Capital Program and Financing
Plan was released with the 1998-99 Executive Budget on January 20, 1998. As part
of the Plan, changes were proposed to the State's 1997-98 borrowing plan,
including: delay of the issuance of COPs to finance welfare information systems
through 1998-99 to permit a thorough assessment of needs; and the elimination of
issuances for the CEFAP to reflect the proposed conversion of that bond-financed
program pay-as-you-go financing.

In addition to the arrangements described above, State law provides for
the creation of State municipal assistance corporations, which are public
authorities established to aid financially troubled localities. The Municipal
Assistance Corporation for The City of New York ("MAC") was created to provide
financing assistance to New York City (the "City"). To enable MAC to pay debt
service on its obligations, MAC receives, subject to annual appropriation by the
Legislature, receipts from the 4% New York State Sales Tax for the benefit of
New York City, the State-imposed stock transfer tax and, subject to certain
prior liens, certain local assistance payments otherwise payable to the City.
The legislation creating MAC also includes a moral obligation provision. Under
its enabling legislation, MAC's authority to issue bonds and notes (other than
refunding bonds and notes) expired on December 31, 1984. In 1995, the State
created the Municipal Assistance Corporation for the City of Troy ("Troy MAC").
The bonds issued by Troy MAC, however, do not include moral obligation
provisions.

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THE 1998-99 STATE FINANCIAL PLAN. The State's 1998-99 fiscal year
commenced on April 1, 1998 and ends on March 31, 1999. The debt component of the
State's budget for the 1998-99 fiscal year was adopted by the Legislature on
March 30, 1998, and the remainder of the budget was adopted by the Legislature
on April 18, 1998. The State Financial Plan for the 1998-99 fiscal year (the
"State Financial Plan") was released on June 25, 1998 and was based on the
State's budget as enacted by the Legislature and signed into law by the
Governor. The State Financial Plan is updated in July, October and January. The
State Financial Plan was projected to be balanced on acash basis; however there
can be no assurance that the State Financial Plan will continue to be in
balance. Total General Fund receipts and transfers from other funds were
projected to be $37.56 billion, while total General Fund disbursements and
transfers to other funds were projected to be $36.78 billion. After adjustments
for comparability, the adopted 1998-99 budget projected a year-over-year
increase in General Fund disbursements of 7.1 percent. General Fund
disbursements in 1998-99 were projected to grow by $2.43 billion over 1997-98
levels, or $690 million more than proposed in the Governor's Executive Budget,
as amended. The change in General Fund disbursements from the Executive Budget
to the enacted budget reflects legislative additions (net of the value of the
Governor's vetoes), actions taken at the end of the regular legislative session
and spending that was originally anticipated to occur in 1997-98 but is now
expected to occur in 1998-99. The 1998-99 increase in General fund spending has
primarily taken the form of additional local assistance ($1.88 billion). The
largest annual increases are for educational programs, Medicaid, other health
and social welfare programs and community projects grants.

Resources used to fund these additional expenditures include increased
revenues projected for 1998-99, increased resources produced in the 1997-98
fiscal year that are to be utilized in 1998-99 reestimates of social service,
fringe benefit and other spending, and certain non-recurring resources.

The State's enacted budget includes several new multi-year tax reduction
initiatives, including acceleration of State-funded property and local income
tax relief for senior citizens under the School Tax Relief Program ("STAR"),
expansion of the child care income tax credit for middle-income families, a
phased-in reduction of the general business tax and reduction of several other
taxes and fees, including an accelerated phase-out of assessments on medical
providers. The enacted budget also provides for significant increases in
spending for public schools, special education programs and the State and City
university systems. It also allocates $50 million for a new Debt Reduction
Reserve Fund ("DRRF") that may eventually be used to pay debt service costs on
or to prepay outstanding State-supported bonds.

The 1998-99 State Financial Plan projects a closing balance in the
General Fund of $1.42 billion that is comprised of a reserve of $761 million
available for future needs, a balance of $400 million in the Tax Stabilization
Reserve Fund ("TSRF"), a balance of $158 million in the Community Projects Fund
("CPF") and a balance of $100 million in the Contingency Reserve Fund ("CRF").
The TSRF can be used in the event of an unanticipated General Fund cash
operating deficit, as provided under the State Constitution and State Finance
Law. The CPF is used to finance various legislative and executive initiatives.
The CRF provides resources to help finance any extraordinary litigation costs
during the fiscal year.

Many complex political, social and economic forces influence the State's
economy and finances, which may in turn affect the State's Financial Plan. These
forces may affect the State unpredictably from fiscal year to fiscal year and
are influenced by governments, institutions and organizations that are not
subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic
forecasts, however, have frequently failed to predict accurately the timing and
magnitude of changes in the national and the State economies.

The State Financial Plan included actions that would have an effect on
the budget outlook for State fiscal year 1998-99 and beyond. The DOB estimated
that the 1998-99 State Financial Plan contained actions that provide
non-recurring resources or savings totaling approximately $64 million, the
largest of which is a retroactive reimbursement of federal welfare claims. The
balance is composed of various other actions, primarily the transfer of unused
special revenue fund balances to the General Fund.

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Despite recent budgetary surpluses recorded by the State, State actions
affecting the level of receipts and disbursements, the relative strength of the
State and regional economy, actions of the federal government and other factors
have created structural budget gaps for the State. These gaps resulted from a
significant disparity between recurring revenues and the costs of maintaining or
increasing the level of support for State programs. To address a potential
imbalance in any given fiscal year, the State is required to take actions to
increase receipts and/or reduce disbursements as it enacts the budget for that
year, and under the State Constitution, the Governor is required to propose a
balanced budget each year. There can be no assurance, however, that the
Legislature will enact the Governor's proposals or that the State's actions will
be sufficient to preserve budgetary balance in a given fiscal year or to align
recurring receipts and disbursements in future fiscal years. For example, the
fiscal effects of tax reductions adopted in the last several fiscal years
(including 1998-99) are projected to grow more substantially beyond the 1998-99
fiscal year, with the incremental annual cost of all currently enacted tax
reductions estimated at over $4 billion by the time they are fully effective in
State fiscal year 2002-03. These actions will place pressure on future budget
balance in New York State.

The State Division of Budget ("DOB") believes that its projections of
receipts and disbursements relating to the current State Financial Plan, and the
assumptions on which they are based, are reasonable. Actual results, however,
could differ materially and adversely from the projections set forth in this
Annual Information Statement, and those projections may be changed materially
and adversely from time to time. In the past, the State has taken management
actions and made use of internal sources to address potential State Financial
Plan shortfalls, and DOB believes it could take similar actions should variances
occur in its projections for the current fiscal year.

OUTYEAR PROJECTIONS OF RECEIPTS AND DISBURSEMENTS. In recent years, the
State has closed projected budget gaps of $5.0 billion (1995-96), $3.9 billion
(1996-97), $2.3 billion (1997-98) and less than $1 billion (1998-99). The State,
as a part of the 1998-99 Executive Budget projections submitted to the
Legislature in February 1998, projected a 1999-00 General Fund budget gap of
approximately $1.7 billion and a 2000-01 gap of $3.7 billion. As a result of
changes made in the 1998-99 enacted budget, the 1999-00 gap is now expected to
be roughly $1.3 billion, or about $400 million less than previously projected,
after application of reserves created as part of the 1998-99 budget process.
Such reserves would not be available against subsequent year imbalances.

Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. However, the State's projections in 1999-00 currently assume actions
to achieve $600 million in lower disbursements and $250 million in additional
receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of the
current round of contracts at the end of the 1998-99 fiscal year. Sustained
growth in the State's economy and continued declines in welfare case load and
health care costs would also produce additional savings in the State Financial
Plan. Finally, various federal actions, including the potential benefit effect
on State Tax receipts from changes to the federal tax treatment of capital
gains, would potentially provide significant benefits to the State over the next
several years. The State expects that the 1999-00 Financial Plan will achieve
savings from initiatives by State agencies to deliver services more efficiently,
workforce management efforts, maximization of federal and non-General Fund
spending offsets, and other actions necessary to bring projected disbursements
and receipts into balance.

The State will formally update its outyear projections of receipts and
disbursements for the 2000-01 and 2001-02 fiscal years as a part of the 1999-00
Executive Budget process, as required by law. The revised expectations for years
2000-01 and 2001-02 will reflect the cumulative impact of tax reductions and
spending commitments enacted over the last several years as well as new 1999-00
Executive Budget recommendations. The STAR program, which dedicates a portion of
personal income tax receipts to fund school

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tax reductions, has a significant impact on General Fund receipts. STAR is
projected to reduce personal income tax revenues available to the General Fund
by an estimated $1.3 billion in 2000-01. Disbursement projections for the
outyears currently assume additional outlays for school aid, Medicaid, welfare
reform, mental health community reinvestment and other multi-year spending
commitments in law.

Uncertainties with regard to the economy, as well as the outcome of
certain litigation now pending against the State, could produce adverse effects
on the State's projections of receipts and disbursements. For example, changes
to current levels of interest rates or deteriorating world economic conditions
could have an adverse effect on the State economy and produce results in the
current fiscal year that are worse than predicted. Similarly, adverse judgments
in legal proceedings against the State could exceed amounts reserved in the
1998-99 Financial Plan for payment of such judgments and produce additional
unbudgeted costs to the State.

In recent years, the State has failed to adopt a budget prior to the
beginning of its fiscal year. A delay in the adoption of the State's budget
beyond the statutory April 1 deadline could delay the projected receipt by the
City of State aid, and there can be no assurance that State budgets in future
fiscal years will be adopted by the April 1 statutory deadline.

YEAR 2000 COMPLIANCE. New York State is currently addressing "Year 2000"
data processing compliance issues. The Year 2000 compliance issue ("Y2K") arises
because most computer software programs allocate two digits to the data field
for "year"on the assumption that the first two digits will be "19". Y2K could
impact both the ability to enter data into computer programs and the ability of
such programs to correctly process data.

In 1996, the State created the Office for Technology ("OFT") to help
address statewide technology issues, including the Year 2000 issue. OFT has
estimated that investments of at least $140 million will be required to bring
approximately 350 State mission-critical and high-priority computer systems not
otherwise scheduled for replacement into Year 2000 compliance, and the State is
planning to spend $100 million in the 1998-99 fiscal year for this purpose. The
enacted budget also continues funding for major systems scheduled for
replacement, including the State payroll, civil service, tax and finance and
welfare management systems, for which Year 2000 compliance is included as a part
of the project.

OFT is monitoring compliance on a quarterly basis and is providing
assistance and assigning resources to accelerate compliance for mission critical
systems, with most compliance testing expected to be completed by mid-1999.
There can be no guarantee, however, that all of the State's mission-critical and
high-priority computer systems will be Year 2000 compliant and that there will
not be an adverse impact upon State operations or State finances as a result.

GOVERNMENT FUNDS COMPRISING THE STATE FINANCIAL PLAN. Four governmental
fund types comprise the State Financial Plan: the General fund, the Special
Revenue Funds, the Capital Projects funds and the Debt Service funds.

The General Fund. The General Fund is the principal operating fund of
the State and is used to account for all financial transactions, except those
required to be accounted for in another fund. It is the State's largest fund and
receives almost all State taxes and other resources not dedicated to particular
purposes. General Fund moneys are also transferred to other funds, primarily to
support certain capital projects and debt service payments in other fund types.
In the State's 1998-99 fiscal year, the General Fund was expected by the State
to account for approximately 47.6 percent of all governmental funds
disbursements and 70.1 percent of total State Funds disbursements.

The General Fund was projected to be balanced on a cash basis for the
1998-99 fiscal year, however there can be no assurance that the General Fund
will remain balanced for the entire fiscal year. Total

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receipts were projected to be $37.56 billion, an increase of $3.01 billion from
the $34.55 billion recorded in 1997-98. The disbursement total projected for
fiscal year 1998-99 included $34.36 billion in tax receipts, $1.40 billion in
miscellaneous receipts and $1.80 billion in transfers from other funds.

The transfer of a portion of the surplus recorded in 1997-98 to 1998-99
exaggerates the "real" growth in State receipts from year to year by depressing
reported 1997-98 figures and inflating 1998-99 projections. Conversely, the
incremental cost of tax reductions newly effective in 1998-99 and the impact of
statutes earmarking certain tax receipts to other funds work to depress apparent
growth below the underlying growth in receipts attributable to expansion of the
State's economy. On an adjusted basis, State tax revenues in the 1998-99 fiscal
year were projected to grow at approximately 7.5 percent, following an adjusted
growth of roughly nine percent in the 1997-98 fiscal year. Fund disbursements
were projected to be $36.78 billion, an increase of $2.43 billion over the total
amount disbursed and transferred in the 1997-98 fiscal year.

SPECIAL REVENUE FUNDS: Special Revenue Funds are used to account for the
proceeds of specific revenue sources such as federal grants that are legally
restricted, either by the Legislature or outside parties, to expenditures for
specified purposes. Although activity in this fund type was expected to comprise
approximately 41 percent of total governmental funds receipts and disbursements
in the 1998-99 fiscal year, about three-quarters of that activity relates to
federally-funded programs.

Total disbursements for programs supported by Special Revenue Funds were
projected at $29.97 billion, an increase of $2.32 billion or 8.4 percent from
1997-98. Federal grants account for approximately three-quarters of all spending
in the Special Revenue fund type. Disbursements from federal funds were
estimated at $21.78 billion, an increase of $1.12 billion or 5.4 percent. The
single largest program in this Fund group is Medicaid, which was projected at
$13.65 billion, an increase of $465 million or 3.5 percent above last year.
Federal support for welfare programs was projected at $2.53 billion, similar to
1997-98. The remaining growth in federal funds was due primarily to the new
Child Health Plus program, estimated at $197 million in 1998-99. This program
will expand health insurance coverage to children of indigent families.

State special revenue spending was projected to be $8.19 billion, an
increase of $1.20 billion or 17.2 percent from last year's levels. Most of this
projected increase in spending was due to the $704 million cost of the first
phase of the STAR program, as well as $231 million in additional operating
assistance for mass transportation and $113 million for the State share of the
new Child Health Plus program.

CAPITAL PROJECTS FUNDS: Capital Projects Funds account for the financial
resources used in the acquisition, construction or rehabilitation of major State
capital facilities and for capital assistance grants to certain local
governments or public authorities. This fund type consists of the Capital
Projects Fund, which is supported by tax dollars transferred from the General
Fund and various other capital funds established to distinguish specific capital
construction purposes supported by other revenues. In the 1998-99 fiscal year,
activity in these funds was expected to comprise 5.5 percent of total
governmental receipts and disbursements.

Capital Projects Funds spending in fiscal year 1998-99 was projected at
$4.14 billion, an increase of $575 million or 16.1 percent from last year. The
major components of this expected growth were transportation and environmental
programs, including continued increased spending for 1996 Clean Water/Clean Air
Bond Act projects and higher projected disbursements from the Environmental
Protection Fund (EPF). Another significant component of this projected increase
is in the area of public protection, primarily for facility rehabilitation and
construction of additional prison capacity.

DEBT SERVICE FUNDS: Debt Service Funds are used to account for the
payment of principal of, and interest on, long-term debt of the State and to
meet commitments under lease-purchase and other contractual-obligation financing
arrangements. These Funds were expected to comprise 3.8 percent of total

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governmental fund receipts and disbursements in the 1998-99 fiscal year.
Receipts in these Funds in excess of debt service requirements are transferred
to the General Fund and Special Revenue Funds, pursuant to law.

The Debt Service Fund type consists of the General Debt Service Fund,
which is supported primarily by tax dollars transferred from the General Fund,
and other funds established to accumulate moneys for the payment of debt
service. Total disbursements from the Debt Service Fund type were estimated at
$3.36 billion in 1998-99, an increase of $275 million or 8.9 percent from
1997-98 levels. Of the increase, $102 million was dedicated to transportation
purposes, including debt service on bonds issued for State and local highway and
bridge programs financed through the New York State Thruway Authority and
supported by the Dedicated Highway and Bridge Trust Fund. Another $45 million
was for education purposes, including State and City University programs
financed through the Dormitory Authority of the State of New York (DASNY). The
remainder was for a variety of programs in such areas as mental health and
corrections and for general obligation financings.

PRIOR FISCAL YEARS. New York State's financial operations have improved
during recent fiscal years. During the period 1989-90 through 1991-92, the State
incurred General Fund operating deficits that were closed with receipts from the
issuance of TRANs. A national recession, followed by the lingering economic
slowdown in the New York and regional economy, resulted in repeated shortfalls
in receipts and three budget deficits during those years. During its last six
fiscal years, however, the State has recorded balanced budgets on a cash basis,
with positive fund balances as described below. There can be no assurance,
however, that such trends will continue.

FISCAL YEAR 1997-98. The State ended its 1997-98 fiscal year on March
31, 1998 in balance on a cash basis, with a General Fund cash surplus as
reported by DOB of approximately $2.04 billion. The cash surplus was derived
primarily from higher-than-anticipated receipts and lower spending on welfare,
Medicaid and other entitlement programs.

The General Fund had a closing balance of $638 million, an increase of
$205 million from the prior fiscal year. The balance was held in three accounts
within the General Fund: the TSRF, the CRF and the CPF. The TSRF closing balance
was $400 million, following a required deposit of $15 million (repaying a
transfer made in 1991-92) and an extraordinary deposit of $68 million made from
the 1997-98 surplus. The CRF closing balance was $68 million, following a $27
million deposit from the surplus. The CPF, which finances legislative
initiatives, closed the fiscal year with a balance of $170 million, an increase
of $95 million. The General Fund closing balance did not include $2.39 billion
in the tax refund reserve account, of which $521 million was made available as a
result of the LGAC financing program and was required to be on deposit on March
31, 1998.

General Fund receipts and transfers from other funds for the 1997-98
fiscal year (including net tax refund reserve account activity) totaled $34.55
billion, an annual increase of $1.51 billion, or 4.57 percent over 1996-97.
General Fund disbursements and transfers to other funds were $34.35 billion, an
annual increase of $1.45 billion or 4.41 percent.

FISCAL YEAR 1996-97. The State ended its 1996-97 fiscal year on March
31, 1997 in balance on a cash basis, with a General Fund cash surplus as
reported by DOB of approximately $1.42 billion. The cash surplus was derived
primarily from higher-than-expected revenues and lower-than-expected spending
for social services programs.

The General Fund closing fund balance was $433 million, an increase of
$146 million from the 1995-96 fiscal year. Of that amount, $317 million was in
the TSRF, after a required deposit of $15 million and an additional deposit of
$65 million in 1996-97. In addition, $41 million was deposited in the CRF. The
remaining $75 million reflected amounts then on deposit in the Community
Projects Fund. The General Fund closing fund

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balance did not include $1.86 billion in the tax refund reserve account, of
which $521 million was made available as a result of the LGAC financing program
and was required to be on deposit as of March 31, 1997.

General Fund receipts and transfers from other funds for the 1996-97
fiscal year totaled $33.04 billion, an increase of 0.7 percent from the previous
fiscal year (including net tax refund reserve account activity). General Fund
disbursements and transfers to other funds totaled $32.90 billion for the
1996-97 fiscal year, an increase of 0.7 percent from the 1995-96 fiscal year.

FISCAL YEAR 1995-96. The State ended its 1995-96 fiscal year on March
31, 1996 with a General Fund cash surplus of $445 million, as reported by DOB .
The cash surplus was derived from higher-than expected receipts, savings
generated through agency cost controls and lower-than-expected welfare spending.
The DOB reported that revenues exceeded projections by $270 million, while
spending for social service programs was lower than forecast by $120 million and
all other spending was lower by $55 million. From the resulting benefit of $445
million, a $65 million voluntary deposit was made into the TSRF, and $380
million was used to reduce 1996-97 Financial Plan liabilities by accelerating
1996-97 payments, deferring 1995-96 revenues, and making a deposit to the tax
refund reserve account.

The General Fund closing Fund balance was $287 million, an increase of
$129 million from 1994-95 levels. The $129 million change in Fund balance is
attributable to a $65 million voluntary deposit to the TSRF, a $15 million
required deposit to the TSRF, a $40 million deposit to the CRF and a $9 million
deposit to the Revenue Accumulation Fund. The closing Fund balance included $237
million on deposit in the TSRF. In addition, $41 million was on deposit in the
CRF. The remaining $9 million reflected amounts then on deposit in the Revenue
Accumulation Fund. That Fund was created to hold certain tax receipts
temporarily before their deposit to other accounts. The General fund closing
balance did not include $678 million in the tax refund reserve account of which
$521 million was made available as a result of the LGAC financing program and
was refinanced to be on deposit as of March 31, 1996.

General Fund receipts and transfers from other funds (including net
refund reserve account activity) totaled $32.81 billion, which is a decrease of
1.1 percent from 1994-95 levels. This decrease reflects the impact of tax
reductions enacted and effective in both 1994 and 1995. General Fund
disbursements and transfers totaled $32.68 billion for the 1995-96 fiscal year,
which is a decrease of 2.2 percent from 1994-95 levels.

CASH-BASIS RESULTS FOR THE NON-GENERAL FUNDS OVER THE LAST 3 YEARS.
Activity in the three other governmental funds has remained relatively stable
over the last three fiscal years, with federally-funded programs comprising
approximately two-thirds of these funds. The most significant change in the
structure of these funds has been the redirection of a portion of
transportation-related revenues from the General Fund to two new dedicated funds
in the Special Revenue and Capital Projects fund types. These revenues are used
to support the capital programs of the Department of Transportation and the MTA.

In the Special Revenue Funds, disbursements increased from $26.26
billion to $27.65 billion over the last three years, primarily as a result of
increased costs for the federal share of Medicaid. Other activity reflected
dedication of taxes to a new fund for mass transportation, new lottery games,
and new fees for criminal justice programs.

Disbursements in the Capital Projects Funds declined from $3.97 billion
to $3.56 billion over the last three years, as spending for miscellaneous
capital programs decreased, partially offset by increases for mental hygiene,
health and environmental programs. The composition of this Fund type's receipts
also changed as the dedicated transportation taxes began to be deposited,
general obligation bond proceeds declined substantially, federal grants remained
stable, and reimbursements from public authority bonds (primarily transportation
related) increased.

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Activity in the Debt Service Funds reflected increased use of bonds
during the three-year period for improvements to the State's capital facilities
and the continued costs of the LGAC fiscal reform program. The increases were
moderated by the refunding savings achieved by the State over the last several
years using strict present value savings criteria. The growth in LGAC debt
service was offset by reduced short-term borrowing costs reflected in the
General Fund.

GAAP-BASIS RESULTS. State law requires the State to update its projected
financial results on a GAAP-basis on or before September first of each year.

PROJECTED GAAP-BASIS RESULTS FOR FISCAL YEAR 1998-99. The State based
its GAAP projections on the cash estimates in the First Quarterly Update to the
Financial Plan and the actual results for the 1997-98 fiscal year as reported by
the State Comptroller on July 28, 1998.

On March 31, 1998, the State recorded, on a GAAP-basis, its first-ever,
accumulated positive balance in its General Fund. This "accumulated surplus" was
$567 million. The improvement in the State's GAAP position is attributable, in
part, to the cash surplus recorded at the end of the State's 1997-98 fiscal
year. Much of that surplus is reserved for future requirements, but a portion is
being used to meet spending needs in 1998-99. Thus, the State expects some
deterioration in its GAAP position, but expects to maintain a positive GAAP
balance through the end of the current fiscal year.

The 1998-99 GAAP-basis General Fund Financial Plan shows expected tax
revenues of $33.1 billion and miscellaneous revenues of $2.6 billion to finance
expenditures of $36.1 billion and net financing uses of $156 million. The
General Fund accumulated surplus is projected to be $27 million at the end of
1998-99.

GAAP-BASIS RESULTS FOR FISCAL YEAR 1997-98. The State completed its
1997-98 fiscal year with a combined Governmental Funds operating surplus of
$1.80 billion, which included an operating surplus in the General Fund of $1.56
billion, in Capital Projects Funds of $232 million and in Special Revenue Funds
of $49 million, offset in part by an operating deficit of $43 million in Debt
Service Funds.

GENERAL FUND. The State reported a General Fund operating surplus of
$1.56 billion for the 1997-98 fiscal year, as compared to an operating surplus
of $1.93 billion for the 1996-97 fiscal year. As a result, the State reported an
accumulated surplus of $567 million in the General Fund for the first time since
it began reporting its operations on a GAAP-basis. The 1997-98 fiscal year
operating surplus reflects several major factors, including the cash-basis
operating surplus resulting from the higher-than-anticipated personal income tax
receipts, an increase in taxes receivable of $681 million, an increase in other
assets of $195 million and a decrease in pension liabilities of $144 million.
This was partially offset by an increase in payables to local governments of
$270 million and tax refunds payable of $147 million.

Revenues increased $617 million (1.8 percent) over the prior fiscal
year, with increases in personal income, consumption and use and business taxes.
Decreases were reported for other taxes, federal grants and miscellaneous
revenues. Personal income taxes grew $746 million, an increase of nearly 4.2
percent. The increase in personal income taxes resulted from strong employment
and wage growth and the strong performance by the financial markets during 1997.
Consumption and use taxes increased $334 million or 5.0 percent as a result of
increased consumer confidence. Business taxes grew $28 million, an increase of
0.5 percent. Other taxes fell primarily because revenue for estate and gift
taxes decreased. Miscellaneous revenues decreased $380 million, or 12. 7
percent, due to a decline in receipts from the Medical Malpractice Insurance
Association and medical provider assessments.

Expenditures increased $137 million (0.4 percent) from the prior fiscal
year, with the largest increases occurring in State aid for education and social
services spending. Education expenditures grew $391 million (3.6 percent) due
mainly to an increase in spending for municipal and community colleges. Social
services expenditures increased $233 million (2.6 percent) due mainly to program
growth. Increases in other State aid

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spending were offset by a decline in general purpose aid of $235 million (27.8
percent) due to statutory changes in the payment schedule. Increases in personal
and non-personal service costs were offset by a decrease in pension contribution
of $660 million, a result of the refinancing of the State's pension amortization
that occurred in 1997.

Net other financing sources decreased $841 million (68.2 percent) due to
the nonrecurring use of bond proceeds ($769 million) provided by DASNY to pay
the outstanding pension amortization liability incurred in 1997.

SPECIAL REVENUE, DEBT SERVICE AND CAPITAL PROJECTS FUNDS. An operating
surplus of $49 million was reported for the Special Revenue Funds for the
1997-98 fiscal year, which increased the accumulated fund balance to $581
million. Revenues rose by $884 million over the prior fiscal year (3.3 percent)
as a result of increases in tax and federal grant revenues. Expenditures
increased by $795 million (3.3 percent) as a result of increased costs for local
assistance grants. Net other financing uses decreased $105 million (3.3
percent).

Debt Service Funds ended the 1997-98 fiscal year with an operating
deficit of $43 million and, as a result, the accumulated fund balance declined
to $1.86 billion. Revenues increased $246 million (10.6 percent) as a result of
increases in dedicated taxes. Debt service expenditures increased $341 million
(14.4 percent). Net other financing sources increased $89 million (401.3
percent) due primarily to savings achieved through advance refundings of
outstanding bonds.

An operating surplus of $232 million was reported in the Capital
Projects Funds for the State's 1997-98 fiscal year and, as a result, the
accumulated deficit in this fund type decreased to $381 million. Revenues
increased $180 million (8.6 percent) primarily as a result of a $54 million
increase in dedicated tax revenues and an increase of $101 million in federal
grants for transportation and local waste water treatment projects. Net other
financing sources increased by $100 million primarily as a result of a decrease
in transfers to certain public benefit corporations engaged in housing programs.

GAAP-BASIS RESULTS FOR FISCAL YEAR 1996-97. The State completed its
1996-97 fiscal year with a combined governmental funds operating surplus of $2.1
billion, which included an operating surplus in the General Fund of $1.9
billion, in the Capital Projects Funds of $98 million and in the Special Revenue
Funds of $65 million, offset in part by an operating deficit of $37 million in
the Debt Service Funds.

GENERAL FUND. The State reported a General Fund operating surplus of
$1.93 billion for the 1996-97 fiscal year, as compared to an operating surplus
of $380 million for the prior fiscal year. The 1996-97 fiscal year GAAP
operating surplus reflects several major factors, including the cash basis
operating surplus, the benefit of bond proceeds which reduced the State's
pension liability, an increase in taxes receivable of $493 million, and a
reduction in tax refund liabilities of $196 million. This was offset by an
increased payable to local governments of $244 million.

Revenues increased $1.91 billion (nearly 6.0 percent) over the prior
fiscal year with increases in all revenue categories. Personal income taxes grew
$620 million, an increase of nearly 3.6 percent, despite the implementation of
scheduled tax cuts. The increase in personal income taxes was caused by moderate
employment and wage growth and the strong financial markets during 1996.
Consumption and use taxes increased $179 million or 2.7 percent as a result of
increased consumer confidence. Business taxes grew $268 million, an increase of
5.6 percent, primarily as a result of the strong financial markets during 1996.
Other taxes increased primarily because revenues from estate and gift taxes
increased. Miscellaneous revenues increased $743 million, a 33.1 percent
increase, because of legislated increases in receipts from the Medical Local
Practice Insurance Association and from medical provider assessments.

Expenditures increased $830 million (2.6 percent) from the prior fiscal
with the largest increase occurring in pension contributions and State aid for
education spending. Pension contribution expenditures increased $514 million
(198.2 percent), primarily because the State paid off its 1984-85 and 1985-86
pension amortization liability. Education expenditures grew $351 million (3.4
percent), due mainly to an increase in spending for support for public schools
and physically handicapped children, offset by a reduction in

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spending for municipal and community colleges. Modest increases in other State
aid spending was offset by a decline in social services expenditures of $157
million (1.7 percent). Social services spending continues to decline because of
cost containment strategies and declining caseloads.

Net other financing sources increased $475 million (62.6 percent), due
mainly to bond proceeds provided by the Documentary Authority of the State of
New York (DASNY) to pay the outstanding pension amortization, offset by
elimination of prior year LGAC proceeds.

SPECIAL REVENUE, DEBT SERVICE AND CAPITAL PROJECTS FUNDS. An operating
surplus of $65 million was reported for the Special Revenue Funds for the
1996-97 fiscal year, increasing the accumulated fund balance to $532 million.
Revenues increased $583 million over the prior fiscal year (2.2 percent) as a
result of increases in tax and lottery revenues. Expenditures increased $384
million (1.6 percent) as a result of increased costs for departmental
operations. Net other financing sources decreased $275 million (8.0 percent),
primarily because of declines in amounts transferred to other funds.

Debt Service Funds ended the 1996-97 fiscal year with an operating
deficit of $37 million and, as a result, the accumulated fund balance declined
to $1.90 billion. Revenues increased $102 million (4.6 percent) because of
increases in both dedicated taxes and mental hygiene patient fees. Debt service
expenditures increased $47 million (2.0 percent). Net other financing sources
decreased $277 million (92.6 percent) due primarily to an increase in payments
on advance refundings.

An operating surplus of $98 million was reported in the Capital Projects
Funds for the State's 1996-97 fiscal year, and, as a result, the accumulated
fund deficit decreased to $614 million. Revenues increased $100 million (5.0
percent) primarily because a larger share of the real estate transfer tax was
shifted to the Environmental Protection Fund and federal grant revenues
increased for transportation and local waste water treatment projects.
Expenditures decreased $359 million (10.0 percent) because of declines in
capital grants for education, housing and regional development programs and
capital construction spending. Net other financing sources decreased by $637
million as a result of a decrease in proceeds from financing arrangements.

GAAP-BASIS RESULTS FOR FISCAL YEAR 1995-96. The State completed its
1995-96 fiscal year with a combined Governmental Funds operating surplus of $432
million, which included an operating surplus in the General Fund of $380
million, in the Capital Projects Funds of $276 million and in the Debt Service
Funds of $185 million, offset in part by an operating deficit of $409 million in
the Special Revenue Funds.

GENERAL FUND. The State reported a General Fund operating surplus of
$380 million for the 1995-96 fiscal year, as compared to an operating deficit of
$1.43 billion for the prior fiscal year. The 1995-96 fiscal year surplus
reflects several major factors, including the cash-basis surplus and the benefit
of $529 million in LGAC Bond Annual Information Statement June 26, 1998 proceeds
which were used to fund various local assistance programs. This was offset in
part by a $437 million increase in tax refund liability primarily resulting from
the effects of ongoing tax reductions and (to a lesser extent) changes in
accrual measurement policies, and increases in various other expenditure
accruals.

Revenues increased $530 million (nearly 1.7 percent) over the prior
fiscal year with an increase in personal income taxes and miscellaneous revenues
offset by decreases in business and other taxes. Personal income taxes grew $715
million, an increase of 4.3 percent. The increase in personal income taxes was
caused by moderate employment and wage growth and the strong financial markets
during 1995. Business taxes declined $295 million or 5.8 percent, resulting
primarily from changes in the tax law that modified the distribution of taxes
between the General Fund and other fund types, and reduced business tax
liability. Miscellaneous revenues increased primarily because of an increase in
receipts from medical provider assessments.

Expenditures decreased $716 million (2.2 percent) from the prior fiscal
year with the largest decrease Occurring in State aid for social services
program and State operations spending. Social services expenditures

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decreased $739 million (7.5 percent) due mainly to implementation of cost
containment strategies by the State and local governments, and reduced
caseloads. General purpose and health and environment expenditures grew $139
million (20.2 percent) and $121 million (33.3 percent), respectively. Health and
environment spending increased as a result of increases enacted in 1995-96. In
State operations, personal service costs and fringe benefits declined $241
million (3.8 percent) and $55 million (3.6 percent), respectively, due to
staffing reductions. The decline in non-personal service costs of $170 million
(8.6 percent) was caused by a decline in the litigation accrual. Pension
contributions increased $103 million (66.4 percent) as a result of the return to
the aggregate cost method used to determine employer contributions.

Net other financing sources nearly tripled, increasing $561 million, due
primarily to an increase in bonds issued by LGAC, a transfer from the Mass
Transportation Operating Assistance Fund and transfers from public benefit
corporations.

SPECIAL REVENUE, DEBT SERVICE AND CAPITAL PROJECTS FUNDS. An operating
deficit of $409 million was reported for Special Revenue Funds for the 1995-96
fiscal year which deceased the accumulated fund balance to $532 million.
Revenues increased $1.45 billion over the prior fiscal year (5.8 percent) as a
result of increases in federal grants and lottery revenues. Expenditures
increased $1.21 billion (5.4 percent) as a result of increased costs for social
services programs and an increase in the distribution of lottery proceeds to
school districts. Other financing uses increased $693 million (25.1 percent)
primarily because of an increase in federal reimbursements transferred to other
funds.

Debt Service Funds ended the 1995-96 fiscal year with an operating
surplus of over $185 million and, as a result, the accumulated fund balance
increased to $1.94 billion. Revenues increased $10 million (0.5 percent) because
of increases in both dedicated taxes and mental hygiene patient fees. Debt
service expenditures increased $201 million (9.5 percent). Net other financing
sources increased threefold to $299 million, due primarily to increases in
patient reimbursement revenues.

An operating surplus of $276 million was reported in the Capital
Projects Funds for the State's 1995-96 fiscal year and, as a result, the
accumulated deficit fund balance in this fund type decreased to $712 million.
Revenues increased $260 million (14.9 percent) primarily because a larger share
of the petroleum business tax was shifted from the General Fund to the Dedicated
Highway and Bridge Trust Fund, and due to an increase in federal grant revenues
for transportation and local waste water treatment projects. Capital Projects
Funds expenditures increased $194 million (5.7 percent) in State fiscal year
1995-96 because of increased expenditures for education and health and
environmental projects. Net other financing sources increased by $577 million as
a result of an increased in proceeds from financing arrangements.

Due to changing economic conditions and information, public statements
or reports regarding the State Financial Plan and its constituent funds may be
released by the Governor, members of the Legislature, and their respective
staffs, as well as others involved in the budget process from time to time.
Those statements or reports may contain predictions, projections or other items
of information relating to the State's financial condition, including potential
operating results for the current fiscal year and projected baseline gaps for
future fiscal years, that may vary materially and adversely from the information
provided herein.

STATE FINANCIAL PLAN CONSIDERATIONS. The economic and financial
condition of the State may be affected by various financial, social, economic
and political factors. These factors can be very complex, may vary from fiscal
year to fiscal year, and are frequently the result of actions taken not only by
the State and its agencies and instrumentalities, but also by entities, such as
the federal government, that are not under the control of the State. For
example, various proposals relating to federal tax and spending policies that
are currently being publicly discussed and debated could, if enacted, have a
significant impact on the State's financial condition in the current and future
fiscal years. Because of the uncertainty and unpredictability of the changes,
their impact cannot, as a practical matter, be included in the assumptions
underlying the State's projections at this time.

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The State Financial Plan is based upon forecasts of national and State
economic activity developed through both internal analysis and review of State
and national economic forecasts prepared by commercial forecasting services and
other public and private forecasters. Economic forecasts have frequently failed
to predict accurately the timing and magnitude of changes in the national and
the State economies. Many uncertainties exist in forecasts of both the national
and State economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, federal fiscal and monetary policies,
the level of interest rates, and the condition of the world economy, which could
have an adverse effect on the State. There can be no assurance that the State
economy will not experience results in the current fiscal year that are worse
than predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.

Projections of total State receipts in the State Financial Plan are
based on the State tax structure in effect during the fiscal year and on
assumptions relating to basic economic factors and their historical
relationships to State tax receipts. In preparing projections of State receipts,
economic forecasts relating to personal income, wages, consumption, profits and
employment have been particularly important. The projection of receipts from
most tax or revenue sources is generally made by estimating the change in yield
of such tax or revenue source caused by economic and other factors, rather than
by estimating the total yield of such tax or revenue source from its estimated
tax base. The forecasting methodology, however, ensures that State fiscal year
estimates for taxes that are based on a computation of annual liability, such as
the business and personal income taxes, are consistent with estimates of total
liability under such taxes.

Projections of total State disbursements are based on assumptions
relating to economic and demographic factors, levels of disbursements for
various services provided by local governments (where the cost is partially
reimbursed by the State), and the results of various administrative and
statutory mechanisms in controlling disbursements for State operations. Factors
that may affect the level of disbursements in the fiscal year include
uncertainties relating to the economy of the nation and the State, the policies
of the federal government, and changes in the demand for and use of State
services.

NATIONAL AND STATE ECONOMIC OUTLOOKS. The information below summarizes
the national and State economic situation and outlook upon which projections of
receipts and certain disbursements were made for the 1998-99 Financial Plan.

U.S. ECONOMY. The national economy grew strongly during the first
quarter of 1998 but slowed sharply in the second quarter, with the real growth
rate falling from 5.5 percent to 1.8 percent. Although continued moderation is
expected during the second half of the year, the annual growth rate for 1998 is
projected to be 3.4 percent. However, the slowing of growth within the domestic
economy, the contraction of export markets in many parts of the world and the
lack of inflationary pressure has encouraged the Federal Reserve Board ("FRB")
to commence a policy of gradually decreasing short-term interest rates. Nominal
GDP is expected to grow about 4.6 percent in 1998, more than a percentage point
slower than in 1997. Inflation, as measured by the Consumer Price Index, is
expected to be 1.7 percent in 1998. The annual rate of job growth is expected to
be 2.5 percent in 1998. The rate of growth of wages in 1998 will be 6.7 percent.
In line with the general slowdown of the overall economy that has occurred
during the year, personal income growth is projected to decline from 5.6 percent
in 1997 to 5.0 percent in 1998.

The current outlook for the nation has deteriorated modestly from the
Budget Division's July forecast, with weaker real and nominal growth now
anticipated and a general weakening of the business profits picture for the
balance of the fiscal year. There are, however, uncertainties inherent in any
economic forecast. Consumer or business spending could be weaker than expected,
due, perhaps to further significant declines in corporate profits or equity
values. Additionally, the international economic and financial disruptions
currently being felt around the globe could worsen or take longer than
anticipated to subside. The result could be a sharp, additional reduction in
domestic economic growth. Indeed, several private sector forecasters have
indicated a heightened risk of a national recession beginning in 1999. Under
that scenario, the FRB would be likely to lower short-term interest rates faster
and further than expected in an effort to reignite the nation's

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economic engines. Alternatively, but less likely, the pace of US economic growth
could be faster if productivity or consumer spending becomes stronger than
anticipated, or if the economies of many of the countries of Asia and Latin
America recover more quickly than expected. If such growth, or a rapid rise in
labor, health or energy costs, awakens long-dormant inflationary pressures, the
FRB may reverse its current position and raise interest rates.

NEW YORK ECONOMY. The healthy growth that has characterized the New York
economy continued during the first three-quarters of 1998. According to
seasonally-adjusted employment data from the State Labor Department, New York
has added over 90,000 private-sector jobs since December 1997 and over 370,000
since December 1994. The service sector accounted for 60,000 of the 1998
increase and trade added about 15,000. The unemployment rate was 5.5 percent in
September and remains above the national rate, as it has since 1991. The State's
current rate, however, is 0.9 percentage points below the level in September
1997.

Compared with the July forecast, the DOB's current employment, income
and wage outlook is slightly higher for 1998. The forecast calls for employment
to increase about 2.0 percent in 1998. Personal income should increase about 5.0
percent in 1998 based on wage growth of around 6.2 percent.

The forecast for New York is subject to the same uncertainties as the
national forecast, as well as some specific to New York. The securities industry
is more important to the New York economy than to the national economy and,
therefore, a large change in financial market performance during the forecast
horizon could result in wage and employment levels that are significantly
different from those embodied in the forecast.

New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse, with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment and a very small share of the nation's
farming and mining activity. The State's location and its excellent air
transport facilities and natural harbors have made it an important link in
international commerce. Travel and tourism constitute an important part of the
economy. Like the rest of the nation, New York has a declining proportion of its
work force engaged in manufacturing and an increasing proportion engaged in
service industries. The following paragraphs summarize the state of major
sectors of the New York economy:

SERVICES: The services sector, which includes entertainment,
personal services, such as health care and auto repairs, and
business-related services, such as information processing, law and
accounting, is the State's leading economic sector. The services sector
accounts for more than three of every ten nonagricultural jobs in New
York and has a noticeably higher proportion of total jobs than does the
rest of the nation.

MANUFACTURING: Manufacturing employment continues to decline in
importance in New York, as in most other states, and New York's economy
is less reliant on this sector than is the nation. The principal
manufacturing industries in recent years produced printing and
publishing materials, instruments and related products, machinery,
apparel and finished fabric products, electronic and other electric
equipment, food and related products, chemicals and allied products, and
fabricated metal products.

TRADE: Wholesale and retail trade is the second largest sector in
terms of nonagricultural jobs in New York but is considerably smaller
when measured by income share. Trade consists of wholesale businesses
and retail businesses, such as department stores and eating and drinking
establishments.

FINANCE, INSURANCE AND REAL ESTATE: New York City is the nation's
leading center of banking and finance and, as a result, this is a far
more important sector in the State than in the nation as a whole.
Although this sector accounts for under one-tenth of all nonagricultural
jobs in the State, it contributes over one-sixth of all non-farm labor
and proprietors' income.

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AGRICULTURE: Farming is an important part of the economy of large
regions of the State, although it constitutes a very minor part of total
State output. Principal agricultural products of the State include milk
and dairy products, greenhouse and nursery products, apples and other
fruits, and fresh vegetables. New York ranks among the nation's leaders
in the production of these commodities.

GOVERNMENT: Federal, State and local government together are the
third largest sector in terms of nonagricultural jobs, with the bulk of
the employment accounted for by local governments. Public education is
the source of nearly one-half of total state and local government
employment.

Relative to the nation, the State has a smaller share of manufacturing
and construction and a larger share of service-related industries. The State's
finance, insurance, and real estate share, as measured by income, is
particularly large relative to the nation. The State is likely to be less
affected than the nation as a whole during an economic recession that is
concentrated in manufacturing and construction, but likely to be more affected
during a recession that is concentrated in the service-producing sector.

In the calendar years 1987 through 1996, the State's rate of economic
growth was somewhat slower than that of the nation. In particular, during the
1990-91 recession and post-recession period, the economy of the State, and that
of the rest of the Northeast, was more heavily damaged than that of the nation
as a whole and has been slower to recover. The total employment growth rate in
the State has been below the national average since 1987. The unemployment rate
in the State dipped below the national rate in the second half of 1981 and
remained lower until 1991; since then, it has been higher. According to data
published by the US Bureau of Economic Analysis, total personal income in the
State has risen more slowly than the national average since 1988.

State per capita personal income has historically been significantly
higher than the national average, although the ratio has varied substantially.
Because the City is a regional employment center for a multi-state region, State
personal income measured on a residence basis understates the relative
importance of the State to the national economy and the size of the base to
which State taxation applies.

Financial Plan Updates. The State is required to issue Financial Plan
updates to the cash-basis State Financial Plan in July, October, and January,
respectively. These quarterly updates reflect analysis of actual receipts and
disbursements for each respective period and revised estimates of receipts and
disbursements for the then current fiscal year.

THE JULY UPDATE. The State published first update to the cash basis
1998-99 State Financial Plan on July 30, 1998 (the "July Update"). In the
update, the State continued to project that the State Financial Plan for 1998-99
would remain in balance. The State made several revisions to the receipt
estimates in the financial Plan formulated with the enacted budget, which had
the net effect of increasing projected General fund receipts for 1998-99 to a
total of $37.81 billion, up $250 million from its original projection. The State
made no change to the disbursement projections in the 1998-99 financial Plan,
which it estimated at $36.78 billion for the 1998-99 fiscal year. The additional
receipts boosted the State's projected reserve for future needs to $1.01
billion, an increase of $250 million from the June projections. The projected
closing balance in the General fund of $1.67 billion reflected the reserve for
future needs of $1.10 billion, a balance of $400 million in the Tax
Stabilization Reserve fund, a balance of $100 million in the Contingency Reserve
fund (after a deposit of 432 million during the current fiscal year) and $158
million in the Community Projects fund.

THE MID-YEAR UPDATE. The State issued its second update to the
cash-basis 1998-99 State Financial Plan (the "Mid-Year Update") on October 30,
1997. The State ended the first six months of the 1998-99 fiscal year with a
General Fund cash balance of $5.02 billion, some $143 million higher than
projected in the cash flow accompanying te July Update to the Financial Plan.

RECEIPTS: Total receipts, including transfers from other funds, grew to
419.7 billion, through September approximately 452 million higher than expected.
This increase is comprised of additional tax revenues (approximately 422
million) and transfers from other funds ($30 million).

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DISBURSEMENTS: Total spending through the first six months of the fiscal
year was $16.27 billion, or $91 million lower than projected. This variance
results primarily from higher spending in Grants to Local Government ($27
million), offset by lower spending in State Operations ($124 million). These
variances are timing-related and should not affect total disbursements for the
fiscal year.

GENERAL FUND RECEIPTS: Total receipts for 1998-99 are projected to reach
$37.84 billion, an increase of $29 million from the amount projected in July. Of
the $37.84 billion in total receipts, taxes are projected at over $34.5 billion,
miscellaneous receipts at over 41.47 billion and transfers from other funds at
over $1.86 billion. Anticipated tax receipts have been reduced slightly, but
expected miscellaneous receipts and transfers from other funds have been
increased by enough to produce the net $29 million increase in overall
collections.

PERSONAL INCOME TAX: Total income tax receipts are projected to reach
$21.44 billion, $29 million above the amount expected in July, and nearly $3.7
billion above the amount reported for 1997-98. The net increase from the July
forecast is attributable to modest upward revisions in estimated 1997 liability
as partially offset by slightly weaker expectations for collections on current
year liability for the balance of the current year. The current estimate
reflects an anticipated deterioration in the growth of financial sector bonuses
and the resultant impact on withholding.

While gross collections under this tax are expected to grow
approximately 10 percent from 1997-98, the exceptional year-to-year change in
the estimate of receipts from this source is still significantly attributable to
the movement of the General Fund surplus available at the end of 1997-98 into
the current fiscal year. The approximately $2.4 billion impact on the
year-over-year change that results from the surplus swing is only partially
offset by the planned diversion of slightly over $700 million in income tax
receipts to the School Tax Relief (STAR) Fund in the current year to fund
statewide school property tax relief for senior citizens.

USER TAXES AND FEES: Receipts from user taxes and fees are expected to
total $7.21 billion, down $3 million fro the amount projected in July, and
approximately $170 million above the amount reported for 1997-98. The reduction
in estimated collections from the July forecast is largely the result of lower
anticipated sales and use tax collections as partially offset by modestly higher
forecasts of receipts from the cigarette, beverage and motor fuel taxes and from
motor vehicle fees.

The modest downward revision in anticipated sales tax receipts is
largely attributable to small reductions in the expected consumption of taxable
goods over the balance of the fiscal year. The small upward revisions in the
remaining sources noted above largely reflect collection experience through the
first half of the year.

BUSINESS TAXES: Business tax collections, reflecting collection
experience in September and reduced expectations for profits in the balance of
the year, are expected to reach $4.79 billion, some $157 million below the
amount anticipated in the July plan. The revised estimate for 1998-99 is some
$257 million below the amount recorded for the 1997-99 fiscal year.

The largest revision in this category from the July forecast is a $88
million reduction in anticipated receipts from the bank tax, reflecting both a
lower 1997 liability base than estimated in July as well as lower expected bank
earnings in the current year. Receipts expected under the State's general
business tax, the insurance tax and the corporation and utility tax were also
revised down, reflecting year-to-date collection experience, a weakening profits
outlook and, in the case of the utility levy, continued moderate weather.

OTHER TAXES: Receipts from other taxes are projected at $1,072 million,
an increase of $53 million from the July forecast, largely on the basis of
higher-than-projected estate tax receipts in September. Despite the new, higher
forecast, the revised estimate for the current fiscal year represents a
year-over-year net decline of $22 million from actual results in 1997-98.

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MISCELLANEOUS RECEIPTS AND TRANSFERS FROM OTHER FUNDS:
Miscellaneous receipts are projected to reach $1.47 billion, an increase of
some $70 million from the amount anticipated in July, largely as a result of
higher investment income received during the first six months of the year
and expected for the balance of 1998-99. The revised estimate for the
current year is still some $124 million below the amount recorded in the
category in the preceding fiscal year.

Transfers from other funds are expected to be over $1.86 billion,
including $1.54 billion as the portion of sales tax receipts that flows to the
General Fund after meeting the debt service requirements of the LGAC. Total
receipts in this category are expected to be some $37 million higher than
projected in July, largely as a result of a $49 million increase in the estimate
of real estate transfer tax receipts available to be transferred to the General
Fund. The upward revision largely reflects the burst of commercial sales in the
New York City real estate market. The estimate of receipts available to be
transferred from LGAC has been reduced by nearly $12 million, mirroring the
reduction expected in the estimate of sales tax received directly in the General
Fund. The estimate of available transfers from other funds is now some $156
million below the amount transferred in 1997-99.

GENERAL FUND DISBURSEMENTS. The State is making no revisions to its July
disbursement estimates, with projected General Fund disbursements for the year
still expected to total $36.78 billion. The State believes year-to-date
disbursements and the trends underlying its yearly spending estimates remain
consistent with the July update and it does not anticipate any changes that
would alter total projected disbursements for the year.

GRANTS TO LOCAL GOVERNMENTS: The State continues to project
disbursements of $25.14 billion for the year, an increase of $1.88 billion over
1997-99. An $830 million increase in cash disbursements for school aid over the
prior year is responsible for nearly half the year-over-year growth in this
category. Other significant increases include Medicaid ($144 million),
handicapped education programs ($108 million) and children and families programs
($66 million).

School aid is the largest program in terms of total spending in this
category, with disbursements of $9.7 billion expected in 1998-99. It is followed
by Medicaid ($5.6 billion), welfare ($1.6 billion), services for children and
families ($927 million) and general purpose aid to local governments ($837
million).

STATE OPERATIONS: This category accounts for the costs of running State
agencies. The State estimates $6.7 billion in spending for State Operations,
$511 million higher than 1997-98. This year-to-year growth reflects the
continuing phase-in of wage increase under existing collective bargaining
agreements, the impact of binding arbitration settlements, and the costs of
funding an extra payroll in 1998-99.

GENERAL STATE CHARGES: spending in this category, which accounts
primarily for fringe benefits of State employees, is projected to total $2.22
billion in 1998-99, a modest decrease from 1997-99.

DEBT SERVICE: Short and long-term debt service is projected at $2.14
billion, an increase of $111 million over 1997-98. For the first time, the State
plans to make a $50 million deposit to the Debt Reduction Reserve Fund.

CAPITAL PROJECTS AND ALL OTHER TRANSFERS: Spending in this category is
estimated at $592 million, a decrease of $61 million over 1997-98, reflecting
the non-recurring nature of certain items included in the prior fiscal year.

FUND BALANCE. The Financial Plan now projects a closing balance in the
General Fund of $1.7 billion. The balance is comprised of the $1.04 billion
reserve for future needs, $400 million in the Tax Stabilization Reserve Fund,
$100 million in the Contingency Reserve Fund (after a planned deposit of $32
million in 1998-99) and $158 million in the Community Projects Funds.

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OTHER GOVERNMENTAL FUNDS. Total spending from All Governmental Funds is
projected at $71.54 billion, unchanged from the July estimate. Spending is
projected at $34.07 billion for the General Fund (excluding transfers), $29.98
billion for the Special Revenue Funds, $4.14 billion for the Capital Projects
Funds, and $3.36 billion for the Debt Service Funds.

State Funds spending is estimated to total $48.58 billion. Consistent
with the General Fund and All Governmental Funds, the State is making no change
to the State Funds disbursement estimate in the July update. The State believes
year-to-date disbursements and the trends underlying its yearly spending
estimates remain consistent with the July update and its does not foresee any
changes that would significantly alter total projected disbursements for either
All Funds or State Funds for the year.

RELEVANT NEWS. On August 22, 1996, the President signed the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996 (the "1996
Welfare Act"). This new law made significant changes to welfare and other
benefit programs. Major changes included conversion of AFDC into the TANF block
grant to states, new work requirements and durational limits on recipients of
TANF and limits on assistance provided to immigrants. City expenditures as a
result of welfare reform are estimated in the Financial Plan at $49 million in
fiscal year 1998, $45 million in fiscal year 1999, $38 million in fiscal year
2000 and $44 million in fiscal year 2001. In addition, the City's naturalization
initiative, CITIZENSHIP NYC, will assist immigrants made ineligible under
Federal law to regain eligibility for benefits, by helping them through the
application process for citizenship. The Financial Plan assumes that 75% of
those immigrants who otherwise would have lost benefits will become citizens,
resulting in projected savings to the City in public assistance expenditures of
$6 million in fiscal year 1999, $24 million in fiscal year 2000 and $25 million
in fiscal year 2001. Federal legislation enacted August 5, 1997, reinstated
eligibility for even more immigrants currently on the rolls than projected. The
outyear estimates made by OMB are preliminary and depend on a variety of
factors, which are impossible to predict, including the implementation of
workfare and child care programs modified by newly enacted State law, the impact
of possible litigation challenging the law, and the impact of adverse economic
developments on welfare and other benefit programs. In accordance with the
Federal welfare reform law, the Governor submitted a State plan to the Federal
government and such plan was deemed complete as of December 2, 1996. New York
State's welfare reform, bringing the State into compliance with the 1996 Welfare
Act and making changes to the Home Relief program, was signed into law on August
20, 1997. The Governor submitted an amended State plan to the Federal
government, reflecting these changes, on September 20, 1997. Implementation of
the changes at the State level will in part determine the possible costs or
savings to the City. It is expected that OMB's preliminary estimates of
potential costs will change, based on new policies to be developed by the State
and City with respect to benefits no longer funded as Federal entitlements.

On September 11, 1997, the State Comptroller released a report entitled
"The 1997-98 Budget: Fiscal Review and Analysis" in which he identified several
risks to the State Financial Plan and estimated that the State faces a potential
imbalance in receipts and disbursements of approximately $1.5 billion for the
State's 1998-99 fiscal year and approximately $3.4 billion for the State's
1999-00 fiscal year. The 1998-99 fiscal year estimate by the State Comptroller
is within the range discussed by the Division of the Budget in the section
entitled "Outyear Projections of Receipts and Disbursements" in the Annual
Information Statement of August 15, 1997. Any increase in the 1997-98 reserve
for future needs would reduce this imbalance further and, based upon results to
date, such an outcome is considered possible. In addition, the Comptroller
identified risks in future years from an economic slowdown and from spending and
revenue actions enacted as a part of the 1997-98 budget that will add pressure
to future budget balance. The Governor is required to submit a balanced budget
each year to the State Legislature.

On August 11, 1997 President Clinton exercised his line item veto powers
to cancel a provision in the Federal Balanced Budget Act of 1997 that would have
deemed New York State's health care provider taxes to be approved by the federal
government. New York and several other states have used hospital rate

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assessments and other provider tax mechanisms to finance various Medicaid and
health insurance programs since the early 1980s. The State's process of taxation
and redistribution of health care dollars was sanctioned by federal legislation
in 1987 and 1991. However, the federal Health Care Financing Administration
(HCFA) regulations governing the use of provider taxes require the State to seek
waivers from HCFA that would grant explicit approval of the provider taxing
system now in place. The State filed the majority of these waivers with HCFA in
1995 but has yet to receive final approval.

The Balanced Budget Act of 1997 provision passed by Congress was
intended to rectify the uncertainty created by continued inaction on the State's
waiver requests. A federal disallowance of the State's provider tax system could
jeopardize up to $2.6 billion in Medicaid reimbursement received through
December 31, 1998. The President's veto message valued any potential
disallowance at $200 million. The 1997-98 Financial Plan does not anticipate any
provider tax disallowance.

On October 9, 1997 the President offered a corrective amendment to the
HCFA regulations governing such taxes. The Governor has stated that this
proposal does not appear to address all of the State's concerns, and
negotiations are ongoing between the State and HCFA. In addition, the City of
New York and other affected parties in the health care industry have filed a
lawsuit challenging the constitutionality of the President's line item veto.

On July 31, 1997, the New York State Tax Appeals Tribunal delivered a
decision involving the computation of itemized deductions and personal income
taxes of certain high income taxpayers. By law, the State cannot appeal the
Tribunal's decision. The decision will lower income tax liability attributable
to such taxpayers for the 1997 and earlier open tax years, as well as on a
prospective basis.

RATINGS AGENCIES. On October 6, 1998, Moody's Investors Service, Inc.
("Moody's") confirmed its New York State general obligation bond rating of
single-A2. On April 20, 1998, New York's general obligation bond ratings were
the lowest of any state, except Louisiana. Moody's had rated New York State at
A2, Standard & Poor's ("S&P") had given it an A and Fitch IBCA ("Fitch") had
assigned it an A-plus.

On August 28, 1997, S&P revised its ratings on the State's general
obligation bonds to A from A-, and, in addition, revised its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. S&P rated the State's general obligation bonds AA- from August 1987 to
March 1990 and A+ from November 1982 to August 1987. In March 1990, S&P lowered
its rating of all of the State's general obligation bonds from AA- to A. On
January 13, 1992, S&P lowered its rating on the State's general obligation bonds
from A to A-, and, in addition, reduced its ratings on the State's moral
obligation, lease purchase, guaranteed and contractual obligation debt. On April
26, 1993 S&P revised the rating outlook assessment to stable. On February 14,
1994, S&P revised its outlook on the State's general obligation bonds to
positive and, on August 5, 1996, confirmed its A- rating.

On February 10, 1997, Moody's confirmed its A2 rating on the State's
general obligation long-term indebtedness. On June 6, 1990, Moody's changed its
ratings on all of the State's outstanding general obligation bonds from A1 to A,
the rating having been A1 since May 27, 1986. On November 12, 1990, Moody's
confirmed the A rating. On January 6, 1992, Moody's reduced its ratings on
outstanding limited-liability State lease purchase and contractual obligations
from A to Baa1.

AUTHORITIES. The fiscal stability of the State is related in part to the
fiscal stability of its public authorities, which generally have responsibility
for financing, constructing and operating revenue-producing public benefit
facilities. Public authorities are not subject to the constitutional
restrictions on the incurrence of debt which apply to the State itself, and may
issue bonds and notes within the amounts of, and as otherwise restricted by,
their legislative authorization. The State's access to the public credit markets
could be impaired, and the market price of its outstanding debt may be
materially adversely affected, if any of its public authorities were to default
on their respective obligations. As of September 30, 1996 there were 17 public
authorities

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that had outstanding debt of $100 million or more each, and the aggregate
outstanding debt, including refunding bonds, of all state public authorities was
$75.4 billion.

There are numerous public authorities, with various responsibilities,
including those which finance, construct and/or operate revenue producing public
facilities. Public authority operating expenses and debt service costs are
generally paid by revenues generated by the projects financed or operated, such
as tolls charged for the use of highways, bridges or tunnels, rentals charged
for housing units and charges for occupancy at medical care facilities.

In addition, State legislation authorizes several financing techniques
for public authorities. Also, there are statutory arrangements providing for
State local assistance payments otherwise payable to localities to be made under
certain circumstances to public authorities. Although the State has no
obligation to provide additional assistance to localities whose local assistance
payments have been paid to public authorities under these arrangements, if local
assistance payments are so diverted, the affected localities could seek
additional State assistance.

Some authorities also receive monies from State appropriations to pay
for the operating costs of certain of their programs. As described below, the
MTA receives the bulk of this money in order to carry out mass transit and
commuter services.

The State's experience has been that if an Authority suffers serious
financial difficulties, both the ability of the State and the Authorities to
obtain financing in the public credit markets and the market price of the
State's outstanding bonds and notes may be adversely affected. The New York
State HFA, the New York State Urban Development Corporation and certain other
Authorities have in the past required and continue to require substantial
amounts of assistance from the State to meet debt service costs or to pay
operating expenses. Further assistance, possibly in increasing amounts, may be
required for these, or other, Authorities in the future. In addition, certain
other statutory arrangements provide for State local assistance payments
otherwise payable to localities to be made under certain circumstances to
certain Authorities. The State has no obligation to provide additional
assistance to localities whose local assistance payments have been paid to
Authorities under these arrangements. However, in the event that such local
assistance payments are so diverted, the affected localities could seek
additional State funds.

METROPOLITAN TRANSPORTATION AUTHORITY. The MTA oversees the operation of
the City's subway and bus lines by its affiliates, the New York City Transit
Authority and the Manhattan and Bronx Surface Transit Operating Authority
(collectively, the "TA"). The MTA operates certain commuter rail and bus lines
in the New York Metropolitan area through MTA's subsidiaries, the Long Island
Rail Road Company, the Metro-North Commuter Railroad Company and the
Metropolitan Suburban Bus Authority. In addition, the Staten Island Rapid
Transit Operating Authority, an MTA subsidiary, operates a rapid transit line on
Staten Island. Through its affiliated agency, the Triborough Bridge and Tunnel
Authority (the "TBTA"), the MTA operates certain intrastate toll bridges and
tunnels. Because fare revenues are not sufficient to finance the mass transit
portion of these operations, the MTA has depended, and will continue to depend
for operating support upon a system of State, local government and TBTA support,
and, to the extent available, Federal operating assistance, including loans,
grants and operating subsidies. If current revenue projections are not realized
and/or operating expenses exceed current projections, the TA or commuter
railroads may be required to seek additional State assistance, raise fares or
take other actions.

Since 1980, the State has enacted several taxes--including a surcharge
on the profits of banks, insurance corporations and general business
corporations doing business in the 12-county Metropolitan Transportation Region
served by the MTA and a special one-quarter of 1 percent regional sales and use
tax--that provide revenues for mass transit purposes, including assistance to
the MTA. In addition, since 1987, State law has required that the proceeds of a
one quarter of 1% mortgage recording tax paid on certain mortgages in the
Metropolitan Transportation Region be deposited in a special MTA fund for
operating

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or capital expenses. Further, in 1993 the State dedicated a portion of the State
petroleum business tax to fund operating or capital assistance to the MTA. For
the 1997-98 fiscal year, total State assistance to the MTA is projected to total
approximately $1.2 billion, an increase of $76 million over the 1996-97 fiscal
year.

State legislation accompanying the 1996-97 adopted State budget
authorized the MTA, TBTA and TA to issue an aggregate of $6.5 billion in bonds
to finance a portion of a new $12.17 billion MTA capital plan for the 1995
through 1999 calendar years (the "1995-99 Capital Program"). In July 1997, the
Capital Program Review Board approved the 1995-99 Capital Program. This plan
supersedes the overlapping portion of the MTA's 1992-96 Capital Program. This is
the fourth capital plan since the Legislature authorized procedures for the
adoption, approval and amendment of MTA capital programs and is designed to
upgrade the performance of the MTA's transportation systems by investing in new
rolling stock, maintaining replacement schedules for existing assets and
bringing the MTA system into a state of good repair. The 1995-99 Capital Program
assumes the issuance of an estimated $5.1 billion in bonds under this $6.5
billion aggregate bonding authority. The remainder of the plan is projected to
be financed through assistance from the State, the federal government, and the
City of New York, and from various other revenues generated from actions taken
by the MTA.

There can be no assurance that all the necessary governmental actions
for future capital programs will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1995-99 Capital
Program, or parts thereof, will not be delayed or reduced. If the 1995-99
Capital Program is delayed or reduced, ridership and fare revenues may decline,
which could, among other things, impair the MTA's ability to meet its operating
expenses without additional assistance.

LOCALITIES. Certain localities outside the City have experienced
financial problems and have requested and received additional State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional assistance is not included in
the projections of the State's receipts and disbursements for the State's
1998-99 fiscal year.

Fiscal difficulties experienced by the City of Yonkers resulted in the
re-establishment of the Financial Control Board for the City of Yonkers by the
State in 1984. That Board is charged with oversight of the fiscal affairs of
Yonkers. Future actions taken by the State to assist Yonkers could result in
increased State expenditures for extraordinary local assistance.

Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the City of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding.

Eighteen municipalities received extraordinary assistance during the
1996 legislative session through $50 million in special appropriations targeted
for distressed cities.

MUNICIPAL INDEBTEDNESS. Municipalities and school districts have engaged
in substantial short-term and long-term borrowings. In 1995, the total
indebtedness of all localities in the State other than the City was
approximately $19.0 billion. A small portion (approximately $102.3 million) of
that indebtedness represented borrowing to finance budgetary deficits and was
issued pursuant to State enabling legislation. State law requires the
Comptroller to review and make recommendations concerning the budgets of those
local government units other than the City authorized by State law to issue debt
to finance deficits during the period that such deficit financing is
outstanding. Eighteen localities had outstanding indebtedness for deficit
financing at the close of their fiscal year ending in 1995.

From time to time, federal expenditure reductions could reduce, or in
some cases eliminate, federal funding of some local programs and accordingly
might impose substantial increased expenditure

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requirements on affected localities. If the State, the City or any of the
Authorities were to suffer serious financial difficulties jeopardizing their
respective access to the public credit markets, the marketability of notes and
bonds issued by localities within the State could be adversely affected.
Localities also face anticipated and potential problems resulting from certain
pending litigation, judicial decisions and long-range economic trends.
Long-range potential problems of declining urban population, increasing
expenditures and other economic trends could adversely affect certain localities
and require increasing State assistance in the future.

LITIGATION. Certain litigation pending against the State or its officers
or employees could have a substantial or long-term adverse effect on State
finances. Among the more significant of these cases are those that involve: (i)
employee welfare benefit plans where plaintiffs are seeking a declaratory
judgment nullifying on the ground of federal preemption provisions of Section
2807-c of the Public Health Law and implementing regulations which impose a bad
debt and charity care allowance on all hospital bills and a 13 percent surcharge
on inpatient bills paid by employee welfare benefit plans; (ii) several
challenges to provisions of Chapter 81 of the Laws of 1995 which alter the
nursing home Medicaid reimbursement methodology; (iii) the validity of
agreements and treaties by which various Indian tribes transferred title to the
State of certain land in central and upstate New York; (iv) challenges to the
practice of using patients' Social Security benefits for the costs of care of
patients of State Office of Mental Health facilities; (v) an action against
State and City officials alleging that the present level of shelter allowance
for public assistance recipients is inadequate under statutory standards to
maintain proper housing; (vi) alleged responsibility of State officials to
assist in remedying racial segregation in the City of Yonkers; (vii) alleged
responsibility of the State Department of Environmental Conservation for a
plaintiff's inability to complete construction of a cogeneration facility in a
timely fashion and the damages suffered thereby; (viii) challenges to the
promulgation of the State's proposed procedure to determine the eligibility for
and nature of home care services for Medicaid recipients; (ix) a challenge to
the constitutionality of petroleum business tax assessments authorized by Tax
Law SS 301; (x) an action for reimbursement from the State for certain costs
arising out of the provision of preschool services and programs for children
with handicapping conditions, pursuant to Sections 4410 (10) and (11) of the
Education Law; (xi) a challenge to the constitutionality of the Clean
Water/Clean Air Bond Act of 1996 and its implementing regulations; (xii) two
challenges to regulations promulgated by the Superintendent of Insurance that
established excess medical malpractice premium rates for the 1986-87 through
1996-97 fiscal years; and (xiii) an action to compel the State to enforce sales
and excise taxes imposed on tobacco products and motor fuel sold to non-Indian
customers on Indian reservations.

Adverse developments in the proceedings described above or the
initiation of new proceedings could affect the ability of the State to maintain
balanced 1997-98 and 1998-99 State Financial Plans. In its Notes to its General
Purpose Financial Statements for the fiscal year ended March 31, 1997, the State
reports its estimated liability for awards and anticipated unfavorable judgments
at $364 million. There can be no assurance that an adverse decision in any of
the above cited proceedings would not exceed the amount that the 1997-98 and
1998-99 State Financial Plans reserve for the payment of judgments and,
therefore, could affect the ability of the State to maintain balanced plans.

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NEW YORK CITY

The fiscal health of the State may also be particularly affected by the
fiscal health of the City, which continues to require significant financial
assistance from the State. Although the City has maintained balanced budgets in
each of its last seventeen fiscal years and is projected to achieve balances
operating result for the 1998-99 fiscal year, there can be no assurance that the
gap closing actions proposed in the Financial Plan can be successfully
implemented or that the City will maintain a balanced budget in future years
without additional state aid, revenue increases or expenditure reductions.
Additional tax increases and reductions in essential City services could also
adversely affect the City's economic base. The City depends on State aid both to
enable the City to balance its budget and to meet its cash requirements. There
can be no assurance that there will not be reductions in State aid to the City
from amounts currently projected; that State budgets will be adopted by the
April 1st Statutory deadline or interim appropriations enacted; or that any such
reductions or delays will not have adverse effects on the City's cash flow or
revenues. The State could also be affected by the ability of the City to market
its securities successfully in the public credit markets. The City has achieved
balanced operating results for each of its fiscal years since 1981 as reported
in accordance with the then-applicable GAAP standards. Current law requires the
City to prepare four-year annual financial plans, which are reviewed and revised
on a quarterly basis and includes capital, revenue, and expense projections and
outlines proposed gap-closing for the years with projected budget gaps. An
annual financial report for its most recent completed fiscal year is prepared at
the end of October of each year. The City's current financial plan projects a
surplus in the 1999 fiscal year, before discretionary transfers and budget gaps
for each of the 2000, 2001 and 2002 fiscal years.

In response to the City's fiscal crisis in 1975, the State took action
to assist the City in returning to fiscal stability. Among these actions, the
State established the Municipal Assistance Corporation for the City of New York
("MAC") to provide financing assistance to the City. The State also enacted the
New York State Financial Emergency Act for The City of New York (the "Financial
Emergency Act") which, among other things, established the New York State
Financial Control Board (the "Control Board") to oversee the City's financial
affairs. The State also established the Office of the State Deputy Comptroller
for the City of New York ("OSDC") to assist the Control Board in exercising its
powers and responsibilities and a "Control Period" from 1975 to 1986 during
which the City was subject to certain statutorily-prescribed fiscal-monitoring
arrangements. Although the Control Board terminated the Control Period in 1986
when certain statutory conditions were met, thus suspending certain Control
Board powers, the Control Board, MAC and OSDC continue to exercise various
fiscal-monitoring functions over the City, and upon the occurrence or
"substantial likelihood and imminence" of the occurrence of certain events,
including, but not limited to a City operating budget deficit of more than $100
million, the Control Board is required by law to reimpose a Control Period.

Currently, the City and its "Covered Organizations" (i.e., those which
receive or may receive money from the City directly, indirectly or contingently)
operate under a four-year financial plan (the "City Financial Plan"), which the
City prepares annually and updates periodically and which includes the City's
capital revenue and expense projections and outlines proposed gap-closing
programs for years with projected budget gaps. The City's projections set forth
in the City Financial Plan are based on various assumptions and contingencies,
some of which are uncertain and may not materialize. Unforeseen developments and
changes in major assumptions could significantly affect the City's ability to
balance its budget as required by State law and to meet its annual cash flow and
financing requirements.

Although the City has balanced its budget since 1981, estimates of the
City's revenues and expenditures, which are based on numerous assumptions, are
subject to various uncertainties. If, for example, expected federal or State aid
is not forthcoming, if unforeseen developments in the economy significantly
reduce revenues derived from economically sensitive taxes or necessitate
increased expenditures for public assistance, if the City should negotiate wage
increases for its employees greater than the amounts provided for in the City's
financial plan or if other uncertainties materialize that reduce expected
revenues or increase projected expenditures, then, to avoid operating deficits,
the City may be required to implement

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additional actions, including increases in taxes and reductions in essential
City services. The City might also seek additional assistance from the State.
Unforeseen developments and changes in major assumptions could significantly
affect the City's ability to balance its budget as required by State law and to
meet its annual cash flow and financing requirements.

The staffs of the Control Board, OSDC and the City Comptroller issue
periodic reports on the City's financial plans which analyze the City's
forecasts of revenues and expenditures, cash flow, and debt service requirements
for, and financial plan compliance by, the City and its Covered Organizations.
According to recent staff reports, while economic recovery in New York City has
been slower than in other regions of the country, a surge in Wall Street
profitability resulted in increased tax revenues and generated a substantial
surplus for the City in fiscal year 1996-97. Although several sectors of the
City's economy have expanded recently, especially tourism and business and
professional services, City tax revenues remain heavily dependent on the
continued profitability of the securities industries and the course of the
national economy. These reports have also indicated that recent City budgets
have been balanced in part through the use of non-recurring resources; that the
City Financial Plan tends to rely on actions outside its direct control; that
the City has not yet brought its long-term expenditure growth in line with
recurring revenue growth; and that the City is therefore likely to continue to
face substantial gaps between forecast revenues and expenditures in future years
that must be closed with reduced expenditures and/or increased revenues. In
addition to these monitoring agencies, the Independent Budget Office ("IBO") has
been established pursuant to the City Charter to provide analysis to elected
officials and the public on relevant fiscal and budgetary issues affecting the
City.

THE 1999-2002 FINANCIAL PLAN. For the 1997 fiscal year, the City had an
operating surplus, before discretionary transfers, and achieved balanced
operating results, after discretionary transfers, in accordance with GAAP. The
1997 fiscal year is the seventeenth year that the City has achieved an operating
surplus, before discretionary transfers, and balanced operating results, after
discretionary transfers.

The most recent quarterly modification to the City's financial plan for
the 1998 fiscal year, submitted to the Control Board on June 23, 1998 (the "1998
Modification"), projects a balanced budget in accordance with GAAP for the 1998
fiscal year.

One June 26, 1998, the City released the Financial Plan for the
1999-2002 fiscal years, which relates to the City and certain entities which
receive funds from the City. The Financial Plan reflects changes since the June
1997 Financial Plan, including changes as a result of the City's expense and
capital budgets for the 1999 fiscal year, which were adopted in June, 1998, and
changes subsequent to the adopted budget. The Financial Plan projects revenues
and expenditures for the 1999 fiscal year balanced in accordance with GAAP, and
projects gaps of $1.9 billion, $2.7 billion and $2.3 billion for the 2000
through 2002 fiscal years, respectively, after implementation of a gap closing
program to reduce agency expenditures by approximately $380 million in each of
fiscal years 2000 through 2002.

Changes since the June 1997 Financial Plan include: (i) an increase in
projected tax revenue of $1.1 billion, $955 million, $897 million and $1.7
billion in the 1999 through 2002 fiscal years, respectively; (ii) a reduction in
assumed State aid of between $134 million and $142 million in each of the 1999
through 2002 fiscal years, reflecting the adopted budget for the State's 1998
fiscal year; (iii) a delay in the assumed collection of $350 million of
projected rent payments for the City's airports in the 1999 fiscal year to
fiscal years 2000 through 2002; (iv) a reduction in projected debt service
expenditures totaling $419 million, $204 million and $226 million in the 1999
through 2001 fiscal years, respectively; (v) an increase in the Board of
Education (the "BOE") spending of $345 million, $41 million, $73 million and
$208 million in the 1999 through 2002 fiscal years, respectively; (vi) an
increase in expenditures for the City's proposed drug initiatives totaling
between $167 million and $193 million in each of the 1999 through 2002 fiscal
years; (vii) other agency net spending initiatives totaling $679 million, $487
million, $492 million and $896 million in fiscal years 1999 through 2002,
respectively; and (viii) increased pension costs of $127 million in the 1999
fiscal year and

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reduced pension costs of $254 million in fiscal years from additional agency
actions totaling $1.1 billion, $936 million, $910 million and $962 million in
fiscal years 1999 through 2002, respectively, including the approximately $380
million gap closing program for each of fiscal years 2000 and 2002.

The 1998 Modification and the 1999-2002 Financial Plan include proposed
discretionary transfers in the 1998 fiscal year of approximately $2.0 billion to
pay certain debt service costs and subsidies due in the 1999 fiscal year, and a
proposed discretionary transfer in the 1999 fiscal year of $465 million to pay
debt service due in fiscal year 2000. In addition, the Financial Plan reflects
enacted and proposed tax reduction programs totaling $975 million, $1.172
billion and $1.259 billion in fiscal years 2000 through 2002, respectively,
including the elimination of the City sales tax on all clothing as of December
1, 1999, the expiration of the 12.5% personal income tax surcharge on December
31, 1998, the extension of current tax reductions for owners of cooperative and
condominium apartments starting in fiscal year 2000 and a personal income tax
credit for child care and for resident holders of Subchapter S corporations
starting in fiscal year 2000, which are subject to State legislative approval,
and reduction of the commercial rent tax commencing in fiscal year 2000.

The Financial Plan assumes (i) approval by the Governor and the State
Legislature of the extension of the 14% personal income tax surcharge, which is
scheduled to expire on December 31, 1999, and which is projected to provide
revenue of $172 million, $500 million and $514 million in the 2000, 2001 and
2002 fiscal years, respectively, and the expiration of the 12.5% personal income
tax surcharge on December 31, 1998, the expiration of which is projected to
reduce revenue by $201 million, $546 million, $568 million and $593 million in
the 1999 through 2002 fiscal years, respectively; (ii) collection of the
projected rent payments for the City's airports, totaling $15 million, $365
million, $155 million and $185 million in the 1999 through 2002 fiscal years,
respectively, which may depend on the successful completion of negotiations with
The Port Authority of New York and New Jersey (the "Port Authority") or the
enforcement of the City's rights under the existing leases through pending legal
actions; and (iii) State and Federal approval of the State and Federal
gap-closing actions assumed in the Financial Plan. The Financial Plan provides
no additional wage increases for City employees after their contracts expire in
fiscal years 2000 and 2001. In addition, the economic and financial condition of
the City may be affected by various financial, social, economic and political
factors which could have a material effect on the City.

On June 5, 1998, the City Council adopted a budget which re-allocated
expenditures from those provided in the Executive Budget in the amount of $409
million. The re-allocated expenditures, which include $116 million from the
Budget Stabilization Account, $82 million from debt service, $45 million from
pension contributions, $54 million from social services spending and $112
million from other spending, were reallocated to uses set forth in the City
Council's adopted budget. Such uses include a revised tax reduction program at a
revenue cost in the 1999 fiscal year of $45 million, additional expenditures for
various programs of $199 million and provision of $165 million to retire high
interest debt. The revised tax reduction program in the City Council's adopted
budget assumes the expiration of the 12.5% personal income tax surcharge, rather
than the implementation of the personal income tax reduction program proposed in
the Executive Budget.

On June 5, 1998, in accordance with the City Charter, the Mayor
certified to the City Council revised estimates of the City's revenues (other
than property tax) for fiscal year 1999. Consistent with this certification, the
property tax levy was estimated by the Mayor to require an increase to realize
sufficient revenue from this source to produce a balanced budget within
generally accepted accounting principles. On June 8, 1998, the City Council
adopted a property tax levy that was $237.7 million lower than the levy
estimated to be required by the Mayor. The City Council, however, maintained
that the revenue to be derived from the levy it adopted would be sufficient to
achieve a balanced budget because the property tax reserve for uncollectibles
could be reduced. Property tax bills for fiscal year 1999 were mailed by the
City's Department of Finance at the rates adopted by the City Council for fiscal
year 1998, subject to later adjustment. The City Charter provides for this
procedure in the event, as is the case this year, that budget adoption has not
been completed by June 5.

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On June 10, 1998, the Mayor vetoed $196 million of spending added in the
expense budget adopted by the City Council and $315 million added in the capital
budget adopted by the City Council. On June 16, 1998, the City Council voted to
override the Mayor's vetoes. For a description of the respective roles of the
Mayor and the City Council in the budget adoption process, see "Section III:
Government and Financial Controls--City Financial Management, Budgeting and
Controls."

COLLECTIVE BARGAINING AGREEMENTS. The Financial Plan reflects the costs
of the settlements and arbitration awards with the United Federation of Teachers
("UFT"), a coalition of unions headed by District Council 37 of the American
Federation of State, County and Municipal Employees ("District Council 37") and
other bargaining units, which together represent approximately 97% of the City's
workforce, and assumes that the City will reach agreement with its remaining
municipal unions under terms which are generally consistent with such
settlements and arbitration awards. These contracts are approximately five years
in length and have a total cumulative net increase of 13%. Assuming the City
reaches similar settlements with its remaining municipal unions, the cost of all
settlements for all City-funded employees, as reflected in the Financial Plan,
would total $459 million and $1.2 billion in the 1998 and 1999 fiscal years,
respectively, and exceed $2 billion in every fiscal year after the 1999 fiscal
year. See "Section VII: 1999-2002 Financial Plan--Assumptions--Expenditure
Assumptions--1. Personal Service Costs". The Financial Plan provides no
additional wage increases for City employees after their contracts expire in
fiscal years 2000 and 2001.

ASSUMPTIONS. The Financial Plan assumes (i) approval by the Governor and
the State Legislature of the extension of the 14% personal income tax surcharge,
which is scheduled to expire on December 31, 1999 and the extension of which is
projected to provide revenue of $168 million, $507 million, and $530 million in
the 2000, 2001, and 2002 fiscal years, respectively, and of the extension of the
12.5% personal income tax surcharge, which is scheduled to expire on December
31, 1998 the extension of which is projected to provide revenue of $187 million,
$531 million and $554 million, and $579 million in the 1999 through 2002 fiscal
years, respectively; (ii) collection of the projected rent payments for the
City's airports, totaling $365 million, $175 million, $170 million, and $70
million in the 1999 through 2002 fiscal years, respectively, which may depend on
the successful completion of negotiations with the Port Authority or the
enforcement of the City's rights under the existing leases through pending legal
actions; and (iii) State approval of the repeal of the Wicks law relating to
contracting requirements for City construction projects and the additional State
funding assumed in the Financial Plan, and State and Federal approval of the
State and Federal gap-closing actions proposed by the City in the Financial
Plan. It is expected that the Financial Plan will engender public debate which
will continue through the time the budget is scheduled to be adopted in June
1998, and that there will be alternative proposals to reduce taxes (including
the 12.5% personal income tax surcharge) and increase in spending. Accordingly,
the Financial Plan may be changed by the time the budget for the 1999 fiscal
year is adopted. Moreover, the Financial Plan provides no additional wage
increases for City employees after their contracts expire in fiscal years 2000
and 2001. In addition, the economic and financial condition of the City may be
affected by various financial, social, economic and political factors which
could have a material effect on the City.

The City's Financial Plan is based on numerous additional assumptions,
including the condition of the City's and the region's economy and a modest
employment recovery and the concomitant receipt of economically sensitive tax
revenues in the amounts projected. The Financial Plan is subject to various
other uncertainties and contingencies relating to, among other factors, the
extent, if any, to which wage increases for City employees exceed the annual
wage costs assumed for the 1998 through 2002 fiscal years; continuation of
projected interest earnings assumptions for pension fund assets and current
assumptions with respect to wages for City employees affecting the City's
required pension fund contributions; the willingness and ability of the State,
in the context of the State's current financial condition, to provide the aid
contemplated by the City Financial Plan and to take various other actions to
assist the City; the ability of HHC, BOE and other such agencies to maintain
balanced budgets; the willingness of the Federal government to provide the
amount of Federal aid contemplated in the City Financial Plan; the impact on the
City revenues and expenditures of Federal and State welfare reform and any
future legislation affecting Mepdicare or other

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entitlement programs; adoption of the City's budgets by the City Council in
substantially the forms submitted by the Mayor; the ability of the City to
implement proposed reductions in City personnel and other cost reduction
initiatives, and the success with which the City controls expenditures; the
impact of conditions in the real estate market on real estate tax revenues; the
City's ability to market its securities successfully in the public credit
markets; and unanticipated expenditures that may be incurred as a result of the
need to maintain the City's infrastructure. Certain of these assumptions have
been questioned by the City Comptroller and other public officials.

The Governor presented his 1998-1999 Executive Budget to the Legislature
on January 20, 1998. In recent years, however, the State has failed to adopt a
budget prior to the beginning of the fiscal year. A prolonged delay in the
adoption of the State's budget beyond the statutory April 1 deadline without
interim appropriations could delay the projected receipt of State aid, and there
can be no assurance that State budgets in future fiscal years will be adopted by
the April 1 statutory deadline.

CITY EMPLOYEES. Substantially all of the City's full-time employees are
members of labor unions. The Financial Emergency Act requires that all
collective bargaining agreements entered into by the City and the Covered
Organizations be consistent with the City's current financial plan, except for
certain awards arrived at through impasse procedures. During a Control Period,
and subject to the foregoing exception, the Control Board would be required to
disapprove collective bargaining agreements that are inconsistent with the
City's current financial plan.

Under applicable law, the City may not make unilateral changes in wages,
hours or working conditions under any of the following circumstances: (i) during
the period of negotiations between the City and a union representing municipal
employees concerning a collective bargaining agreement; (ii) if an impasse panel
is appointed, then during the period commencing on the date on which such panel
is appointed and ending sixty days thereafter or thirty days after it submits
its report, whichever is sooner, subject to extension under certain
circumstances to permit completion of panel proceedings; or (iii) during the
pendency of an appeal to the Board of Collective Bargaining. Although State law
prohibits strikes by municipal employees, strikes and work stoppages by
employees of the City and the Covered Organizations have occurred.

The 1998-2002 Financial Plan projects that the authorized number of
City-funded employees whose salaries are paid directly from City funds, as
opposed to federal or State funds or water and sewer funds, will decrease from
an estimated level of 204,685 on June 30, 1998 to an estimated level of 203,987
by June 30, 2002, before implementation of the gap closing program outlined in
the City Financial Plan.

Contracts with all of the City's municipal unions expired in the 1995
and 1996 fiscal years. The City has reached settlements with unions representing
approximately 86% of the City's work force. The City Financial Plan reflects the
costs of the settlements and assumes similar increases for all other City-funded
employees. The terms of wage settlements could be determined through the impasse
procedure in the New York City Collective Bargaining Law, which can impose a
binding settlement.

The City's pension expenditures for the 1998 fiscal year are expected to
approximate $1.5 billion. In each of fiscal years 1999 through 2002, these
expenditures are expected to approximate $1.4 billion, $1.4 billion, $1.4
billion, and $1.3 billion, respectively. Certain of the systems may provide
pension benefits of 50% to 55% of "final pay" after 20 to 25 years of service
without additional benefits for subsequent years of service. For the 1997 fiscal
year, the City's total annual pension costs, including the City's pension costs
not associated with the five major actuarial systems, plus Federal Social
Security tax payments by the City for the year, were approximately 19.04% of
total payroll costs. In addition, contributions are also made by certain
component units of the City and government units directly to the three cost
sharing multiple employer actuarial systems. The State Constitution provides
that pension rights of public employees are contractual and shall not be
diminished or impaired.

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REPORTS ON THE CITY FINANCIAL PLAN. From time to time, the Control Board
staff, MAC, OSDC, the City Comptroller and others issue reports and make public
statements regarding the City's financial condition, commenting on, among other
matters, the City's financial plans, projected revenues and expenditures and
actions by the City to eliminate projected operating deficits. Some of these
reports and statements have warned that the City may have underestimated certain
expenditures and overestimated certain revenues and have suggested that the City
may not have adequately provided for future contingencies. Certain of these
reports have analyzed the City's future economic and social conditions and have
questioned whether the City has the capacity to generate sufficient revenues in
the future to meet the costs of its expenditure increases and to provide
necessary services. It is reasonable to expect that reports and statements will
continue to be issued and to engender public comment, and it is expected that
the staff of the Control Board will issue a report on the 1998-2002 Financial
Plan in the near future.

On February 26, 1998, the City Comptroller issued a report on the 1998
fiscal year and the preliminary budget for the 1999 fiscal year, as reflected in
the 1997-2001 Financial Plan. With respect to the 1998 fiscal year, the report
identified a possible surplus of between $71 million and $293 million above the
level projected in the City's plan. The report stated that the additional
surplus reflects the possibility of the receipt of an additional $225 million of
tax revenues, and that the size of the possible surplus depends primarily on
whether the sale of the New York Coliseum for $200 million is completed. With
respect to the 1999 fiscal year, the report identified a possible gap of $153
million or a possible surplus of $269 million, depending upon whether the State
approves the extension of 12.5% personal income tax surcharge and the amount of
surplus for the 1998 fiscal year available for debt service in the 1999 fiscal
year.

The potential risks identified in the City Comptroller's report for the
1999 fiscal year include: (i) assumed payments from the Port Authority relating
to the City's claims for back rentals and an increase in future rentals, part of
which are the subject of the arbitration, totaling $335 million; (ii) State
approval of the 12.5% personal income tax surcharge beyond December 1, 1998,
which would generate $188 million in the 1999 fiscal year and which the Speaker
of the City Counsel has opposed; and (iii) the receipt of an additional $450
million of State and Federal aid assumed in the financial plan. The potential
risks are offset by potential additional resources for the 1999 fiscal year,
including the potential for an additional $150 million of State educational aid,
$150 million of additional debt service savings, $176 million in tax revenues if
the proposed sales tax reduction on clothing is not approved, $294 million of
higher than projected tax revenues and the availability in the 1999 fiscal year
of an additional $71 million to $293 million surplus from the 1998 fiscal year.
The report also noted that the City Comptroller will begin writing off
outstanding education-aid receivables that are 10 years past due, which are
estimated to be approximately $4 million in the 1998 fiscal year and $39 million
in the 1999 fiscal year, and which total $914 million for fiscal years 1989
through 1997. In addition, the report noted that City-funded expenditures for
the 1998 fiscal year are expected to exceed the ceiling established in the May
1996 agreement between the City and MAC, which would permit MAC to recover from
the City in the 1999 fiscal year an amount equal to such excess spending, up to
$125 million. Finally, the report noted that, while the City is in a relatively
strong financial position, its reliance on State and Federal aid to close its
budget gap for the 1999 fiscal year raises concerns, and that the City's
spending will again be under pressure in the event of an economic downturn. The
City Comptroller also noted (in a separate report on the City's capital debt)
that debt burden measures, such as annual debt service as a percentage of tax
revenues, debt per capita, and debt assessed value of real property, are
approaching historically high post-fiscal crises levels, which calls for
restraint in the City's capital program, while the City's infrastructure
requires additional resources.

Also on February 26, 1998, the staff of OSDC issued a report on the
Financial Plan. With respect to the 1998 fiscal year, the OSCD report noted that
the City's revenues could be $200 million greater than projected in the
Financial Plan. While noting a potential delay in the receipt of proceeds from
the sale of the New York Coliseum, the report projects that it is not likely
that those resources will be needed in the 1998 fiscal year. The report
projected potential budget gaps of $462 million, $2.6 billion, $2.7 billion, and
$2.3 billion for the 1999 through 2002 fiscal years, respectively, which include
the gaps projected in the Financial

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Plan for fiscal years 2000 through 2002 and the additional net risks identified
in the report totaling $762 million, $1.012 billion, $913 million, and $774
million for the 1999 through 2002 fiscal years, respectively, which are reduced
by the potential for greater than forecast revenues and lower than forecast
pension costs for fiscal years 2000 through 2002. The largest risks identified
in the report relate to (i) the receipt of projected Port Authority lease
payments which are the subject of arbitration and lease negotiations; (ii) City
gap-closing proposals for additional State and Federal assistance; and (iii)
State approval of a three-year extension of the City's 12.5% personal income tax
surcharge. Additional risks identified in the report include unfunded
expenditures for project READ totaling $125 million for each of the 2000 through
2002 fiscal years and the potential for additional funding needs for the City's
labor reserve, which total $104 million in the 1999 fiscal year and exceed $200
million in each of the 2000 through 2002 years, to pay for collective bargaining
increases for the Covered Organizations, which the Plan assumes the Covered
Organizations will pay instead of the City. The report noted that these risks
could be reduced if the Tax Reduction Program proposed in the Financial Plan is
not approved by the City Counsel and the State. The report also noted that: (i)
HHC faces potential budget gaps starting in the 1999 fiscal year and reflecting
the expected loss of revenues associated with the implementation of Medicaid
mandatory managed care; (ii) the Financial Plan assumes that the State will
extend the 14% personal income tax surcharge; (iii) the City faces potential
liability for State education aid owed from prior years which the City could be
required to write off if a plan is not reached to fund these claims; and (iv)
the City might be required to reimburse MAC up to $125 million on the 1999
fiscal year if the City spending limits set forth in the May 1996 agreement with
MAC are exceeded in the 1998 fiscal year. However, the report noted that actual
fiscal year 1998 spending will not be determined until October 1998, and in the
interim, City and MAC officials are discussing solutions to the reimbursement
problem.

The OSDC report noted also that, while the City's financial outlook has
improved because of actions taken by the City, Federal, and State governments
and record securities industry performance, the staff remained concerned about
the City's dependence on the securities industry and whether the City will be
able to sustain a relatively high level of spending. The report noted that
City-funded spending is projected to grow by 7.2% in fiscal year 1998 and by
4.5% in fiscal year 1999, while revenues are projected to grow by only 1.8% in
fiscal year 1999. Moreover, the report noted that while the budget gaps for
fiscal years 2000 through 2002 have been reduced, they are still large by
historical standards, and the budget makes no provisions for wage increases
after the expiration of current contacts, which, at the projected inflation
rate, would increase costs by $375 million in fiscal year 2001 and by $725
million in fiscal year 2002. Finally, the report noted that the Asian financial
and economic crises could intensify and create greater impact on financial
markets in the U.S. economy than currently anticipated, or that the Federal
Reserve Board could raise interest rates, which could adversely affect the
financial markets and the City's financial condition.

On January 13, 1998, the IBO released a report setting forth its
forecast for the City's revenues and expenditures for the 1998 through 2001
fiscal years, assuming continuation of current spending policies and tax laws.
In the report, the IBO forecasts that the City will end the 1998 fiscal year
with a surplus of $120 million, in addition to $514 million in the Budget
Stabilization Account. Additionally, the report forecasts that the City will
face gaps of $1.4 billion, $2.6 billion, and $2.8 billion in the 1999 through
2001 fiscal years, respectively, resulting from 4.8% annual growth in spending
form 1998 through 2001, compared with 2.2% annual revenue growth. The report
noted that slow revenue growth is attributable to a variety of factors,
including a gradual deceleration in economic growth through the first half of
calendar year 1999, the impact of recently enacted tax cuts and constraints on
increases in the real property tax, as well as uncertain back rent payments from
the Port Authority, while future costs for existing programs will increase to
reflect inflation and scheduled pay increases for the City employees during the
term of existing labor agreements. The report also noted that debt service and
education spending will increase rapidly, while spending for social services
rise more slowly due to lower projected caseloads.

Finally, the report noted that the new welfare law's most significant
fiscal impact is likely to occur in the years 2002 and beyond, reflecting the
full impact of the lifetime limit on welfare participation which only begins to
be felt in 2002 when the first recipients reach the five-year limit and are
assumed to be covered

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by Home Relief. In addition, the report noted that, given the constitutional
requirement to care for the needy, the 1996 Welfare Act might well prompt a
migration of benefit-seekers into the City, thereby increasing City welfare
expenditures in the long run. The report concluded that the impact of the 1996
Welfare Act on the City will ultimately depend on the decisions of State and
City officials, the performance of the local economy and the behavior of
thousands of individuals in response to the new system.

PREVIOUS REPORTS. On September 18, 1997, the City Comptroller issued a
report commenting on developments with respect to the 1998 fiscal year. The
report noted that the City's adopted budget, which is reflected in the City
Financial Plan, had assumed additional State resources of $612 million in the
1998 fiscal year, and that the approved State budget provided resources of only
$216 million for gap-closing purposes. The report further noted that, while the
City will receive $322 million more in education aid in the 1998 fiscal year
than assumed in the City's adopted budget, it is unlikely that the funding will
be entirely available for gap-closing purposes. In addition, the report noted
that the City's financial statements currently contain approximately $643
million in uncollected State education aid receivables from prior years as a
result of the failure of the State to appropriate funds to pay these claims, and
that the staff of BOE has indicated that an additional $302 million in prior
year claims is available for accrual. The report stated that the City
Comptroller maintains the position that no further accrual of prior year aid
will take place, including $75 million in aid assumed in the City's adopted
budget for the 1998 fiscal year, unless the State makes significant progress to
retire the outstanding prior year receivables. On October 28, 1997, the City
Comptroller issued a subsequent report commenting on recent developments. With
respect to the 1997 fiscal year, the report noted that the City ended the 1997
fiscal year with an operating surplus of $1.367 billion, before certain
expenditures and discretionary transfers, of which $1.362 billion was used for
expenditures due in the 1998 fiscal year. With respect to tax revenues for the
1998 fiscal year, the report noted that total tax revenues in the first quarter
of the 1998 fiscal year were $244.3 million above projections in the City
Financial Plan, excluding audit collections which were $31.2 million less than
projected. The report stated that the increased tax revenues included $110.3
million of greater than projected general property tax receipts, which resulted,
in part, from a prepayment discount program, and increased revenues from the
personal income, banking corporation, general corporation and unincorporated
business taxes. The report noted that Wall Street profits exceeded expectations
in the first half of the 1997 calendar year. However, the report noted that the
stock market in the last two weeks of October has declined as a result of
currency turmoil in Southeast Asia. The report noted that, while tax revenues in
the 1998 fiscal year should not be significantly affected by the recent stock
market decline, since there is a lag between activity on Wall Street and City
tax revenues, if the current stock market decline persists, tax revenue
forecasts for subsequent years will have to be revised downward. The report
noted that the City was not affected by the October 1987 stock market crash
until the 1990 fiscal year, when revenues from the City's business and real
estate taxes fell by 20% over the 1989 fiscal year. The report also noted that
expenditures for short-term and long-term debt issued during the first half of
the 1998 fiscal year are estimated to be between approximately $53.9 million and
$58.8 million below levels anticipated in the City's adopted budget for the 1998
fiscal year, approximately $20 million below anticipated levels in the 1999
fiscal year and approximately $30 million below anticipated levels in each of
fiscal years 2000 and 2001 due to less borrowing and lower interest rates than
assumed.

On August 25, 1997, the IBO issued a report relating to recent
developments regarding welfare reform. The report noted that Federal legislation
adopted in August 1997, modified certain aspects of the 1996 Welfare Act, by
reducing SSI eligibility restrictions for certain legal aliens residing in the
country as of August 22, 1996, resulting in the continuation of Federal
benefits, by providing funding to the states to move welfare recipients from
public assistance and into jobs and by providing continued Medicaid Coverage for
those children who lose SSI due to stricter eligibility criteria. In addition,
the report noted that the State had enacted the Welfare Reform Act of 1997
which, among other things, requires the City to achieve work quotas and other
work requirements and requires all able-bodied recipients to work after
receiving assistance for two years. The report noted that this provision could
require the City to spend substantial funds over the next several years for
workfare and day care in addition to the funding reflected in the City Financial
Plan. The report also noted that the State Welfare Reform Act of 1997
established a Food Assistance Program

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designed to replace Federal food stamp benefits for certain classes of legal
aliens denied eligibility for such benefits by the 1996 Welfare Act. The report
noted that if the City elects to participate in the Food Assistance Program, it
will be responsible for 50% of the costs for the elderly and disabled. The IBO
has stated that it will release an updated report to provide a detailed analysis
of these developments and their likely impact on the City.

On July 16, 1997, the City Comptroller issued a report on the City
Financial Plan. With respect to the 1998 fiscal year, the report identified a
possible $112 million surplus or a possible total net budget gap of up to $440
million, depending primarily on whether the tax reduction program proposed in
the City Financial Plan is implemented and the 14% personal income tax surcharge
is extended beyond December 31, 1997. The risks identified in the report for the
1998 fiscal year include (i) $178 million related to BOE, resulting primarily
from unidentified expenditure reductions and prior year State aid receivables;
(ii) State aid totaling $115 million which is assumed in the City Financial Plan
but not provided for in the Governor's Executive Budget; (iii) State approval of
the extension of the 14% personal income tax surcharge beyond December 31, 1997,
which would generate $169 million in the 1998 fiscal year; (iv) City proposals
for State aid totaling $271 million, including the acceleration of $142 million
of State revenue sharing payments from the 1999 fiscal year to the 1998 fiscal
year, which are subject to approval by the Governor and/or the State
Legislature; and (v) the assumed sale of the Coliseum for $200 million, which
may be delayed. The report noted that these risks could be partially offset by
between $597 million and $765 million in potentially available resources,
including $200 million of higher projected tax revenues, $150 million of
possible additional State education aid and the possibility that the proposed
sales tax reduction will not be enacted, which would result in $157 million of
additional tax revenues in the 1998 fiscal year. With respect to the 1998 fiscal
year, the report stated that the City has budgeted $200 million in the General
Reserve and included in the City Financial Plan a $300 million surplus to be
used in the 1999 fiscal year, making the potential $440 million budget gap
manageable. However, the report also expressed concern as to the sustainability
of profits in the securities industry.

With respect to the 1999 and subsequent fiscal years, the report
identified total net budget gaps of between $1.9 billion and $2.8 billion, $2.6
billion and $4.0 billion, and $2.4 billion and $3.8 billion for the 1999 through
2001 fiscal years, respectively, which include the gaps set forth in the City
Financial Plan. The potential risks and potential available resources identified
in the report for the 1999 through 2001 fiscal years include most of the risks
and resources identified for the 1998 fiscal year, except that the additional
risks for the 1999 through 2001 fiscal years include (i) assumed payments from
the Port Authority relating to the City's claim for back rentals and an increase
in future rentals, part of which are the subject of arbitration, totaling $350
million, $140 million and $135 million in the 1999-2001 fiscal years,
respectively; and (ii) State approval of the extension of the 12.5% personal
income tax surcharge beyond December 31, 1998, which would generate $190
million, $527 million and $554 million in the 1999 through 2001 fiscal years,
respectively.

On July 15, 1997, the staff of the Control Board issued a report
commenting on the City Financial Plan. The report stated that, while the City
should end the 1998 fiscal year with its budget in balance, the City Financial
Plan still contains large gaps beginning in the 1999 fiscal year, reflecting
revenues which are not projected to grow during the Financial Plan Period and
expenditures which are projected to grow at about the rate of inflation. The
report identified net risks totaling $485 million, $930 million, $1.2 billion
and $1.4 billion for 1998 through 2001 fiscal years, respectively, in addition
to the gaps projected in the City Financial Plan for fiscal years 1999 through
2001. The principal risks identified in the report included (i) potential tax
revenues shortfalls totaling $150 million, $300 million and $400 million for the
1999 through 2001 fiscal years, respectively, based on historical average
trends; (ii) BOE's structural gap, uncertain State funding of BOE and
implementation by BOE of various unspecified actions, totaling $163 million,
$209 million, $218 million and $218 million in the 1998 through 2001 fiscal
years, respectively; (iii) the proposed sale of certain assets in the 1998
fiscal year totaling $248 million, which could be delayed; (iv) assumed
additional State actions totaling $271 million, $121 million, $125 million and
$129 million in the 1998 through 2001 fiscal years, respectively; (v) revenues
from the extension of the 12.5% personal income tax surcharge beyond December
31, 1998, totaling $188 million, $527 million and $554 million in the 1999
through 2001 fiscal years, respectively, which requires State legislation; and
(vi) the receipt of $350 million, $140 million and $135 million from the

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Port Authority in the 1999 through 2001 fiscal years, respectively, which is the
subject of arbitration. Taking into account the risks identified in the report
and the gaps projected in the City Financial Plan, the report projected a gap of
$485 million for the 1998 fiscal year, which could be offset by available
reserves, and gaps $2.7 billion, $4.1 billion and $4.0 billion for the 1999
through 2001 fiscal years, respectively. The report also noted that (i) if the
securities industry or economy slows down to a greater extent than projected,
the City could face sudden and unpredictable changes to its forecast; (ii) the
City's entitlement reduction assumptions require a decline of historic
proportions in the number of eligible welfare recipients; (iii) the City has not
yet shown how the City's projected debt service, which would consume 20% of tax
revenues by the 1999 fiscal year, can be accommodated on a recurring basis; (iv)
the City is deferring recommended capital maintenance; and (v) continuing growth
in enrollment at BOE has helped create projected gaps of over $100 million
annually at BOE. However, the report noted that if proposed tax reductions are
not approved, additional revenue will be realized, ranging from $272 million in
the 1998 fiscal year to $481 million in the 2001 fiscal year.

On July 2, 1997, the staff of the OSDC issued a report on the City
Financial Plan. The report projected a potential surplus for the 1998 fiscal
year of $190 million, due primarily to the potential for greater than forecast
tax revenues, and projected budget gaps for the 1999 through 2001 fiscal years
which are slightly less than the gaps set forth in the City Financial Plan for
such years. The report also identified risks of $518 million, $1.1 billion, $1.3
billion and $1.4 billion for the 1998 through 2001 fiscal years, respectively.
The additional risks identified in the report relate to: (i) the receipt of Port
Authority lease payments totaling $350 million, $140 million and $135 million in
the 1999 through 2001 fiscal years, respectively; (ii) City proposals for State
aid totaling $271 million, $121 million, $125 million and $129 million in the
1998 through 2001 fiscal years, respectively, including the acceleration of $142
million of State revenue sharing payments from the 1999 fiscal year to the 1998
fiscal year, which are subject to approval by the Governor and/or the State
Legislature; (iii) the receipt of $200 million in the 1998 fiscal year in
connection with the proposed sale of the New York Coliseum; (iv) the receipt of
$47 million in the 1998 fiscal year from the sale of certain other assets; (v)
uncertain State education aid and expenditure reductions relating to BOE
totaling $325 million in each of the 1999 through 2001 fiscal years; (vi) State
approval of a three-year extension to the City's 12.5% personal income tax
surcharge, which is scheduled to expire on December 31, 1998 and which would
generate revenues of $230 million, $525 million and $550 million in the 1999
through 2001 fiscal years, respectively; and (vii) the potential for additional
funding needs for the City's labor reserve totaling $104 million, $225 million
and $231 million in the 1999 through 2001 fiscal years, respectively, to pay for
collective bargaining increases for the Covered Organizations, which the City
Financial Plan assumes will be paid for by the Covered Organizations, rather
than the City. The report also noted that the City Financial Plan assumes that
the State will extend the 14% personal income tax that is scheduled to expire in
December 1997, which would generate revenues of $200 million in the 1998 fiscal
year and $500 million annually in subsequent fiscal years, and that the City
Financial Plan makes no provision for wage increases after the expiration of
current contracts in fiscal year 2000, which would add $430 million to the 2001
fiscal year budget gap if employees receive wage increases at the projected rate
of inflation. The report noted that the City Financial Plan includes an annual
General Reserve of $200 million and sets aside an additional $300 million in the
1998 fiscal year to reduce the budget gap for the 1999 fiscal year if such funds
are not needed in the 1998 fiscal year. With respect to the gap-closing program
for the 1999 through 2001 fiscal years, the report noted that the City has
broadly outlined a program that relies heavily on unspecified agency actions,
savings from reinvention and other unspecified initiatives and uncertain State
aid and entitlement program reductions which depend on the cooperation of
others.

The report concluded that while 1997 was an unexpectedly good fiscal
year for City revenues, the City projects that the rate of spending for the 1998
fiscal year will grow substantially faster than the rate of revenues, reflecting
increasing costs for labor, debt service, Medicaid and education, and that the
gaps for the subsequent fiscal years continue to present a daunting challenge.
With respect to the economy, the report noted that the major risks to the City's
economic and revenue forecasts continue to relate to the pace of both the
national economy and activity on Wall Street, that the potential exists for a
national recession over the next four years, and that Wall Street volatility can
have a negative effect, as was apparent in 1994 when the

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Federal Reserve repeatedly raised interest rates and the profits of securities
firms fell. Other concerns identified in the report include: (i) $76 million in
retroactive claims for State education aid included in the City Financial Plan
for the 1998 fiscal year which may not be realized; (ii) a potential risk of
$698 million in State education aid owed to the City by the State for prior
years, all or a portion of which the City could be forced to write-off if
further delays occur in the State agreeing to fund these claims; and (iii) the
potential adverse impact on HHC over the long-term of the planned expansion of
managed care which emphasizes out-patient services with fixed monthly fees,
uncertainty covering projected savings from a proposal that most Medicaid
recipients be required to enroll in managed care, which is subject to approval
by the Federal Government, and the possibility that the recent Federal budget
agreement could substantially reduce aid to hospitals which serve a large number
of medically indigent patients.

On May 27, 1997, the IBO released a report analyzing the financial plan
published on May 8, 1997 (the "May Financial Plan"). In its report, the IBO
estimated gaps of $27 million, $91 million, $2.1 billion, $2.9 billion and $2.9
billion for the 1997 through 2001 fiscal years, respectively, which include the
gaps set forth in the May Financial Plan for fiscal years 1999 through 2001. The
gaps estimated in the IBO report reflect (i) uncertainty concerning the size and
timing of projected airport rents of $270 million and $215 million in the 1998
and 1999 fiscal years, respectively, which are the subject of an ongoing dispute
between the Port Authority and the City; and (ii) additional funding needs for
the City's labor reserve totaling $104 million, $224 million and $231 million in
the 1999 through 2001 fiscal years, respectively, to pay for collective
bargaining increases for the Covered Organizations, which the May Financial Plan
assumes will be paid for by the Covered Organizations, rather than the City.
These reduced revenues and increased expenditures identified in the IBO report
are substantially offset by tax revenue forecasts which exceed those in the May
Financial Plan. However, the report noted that the May Financial Plan assumes
continued strong revenue growth and that, in the event of an economic downturn,
the City will be required to increase taxes in a slow economy or reduce spending
when it is most needed. With respect to the tax reductions proposed in the May
Financial Plan, the IBO stated that the principal question is whether the City
will be able to afford the tax reductions. In addition, the report discussed
various issues with implications for the City's 1998 budget. These issues
include the reliance in the budget on a number of State legislative actions,
including (i) $294 million from legislation the City has requested to increase
State aid; (ii) $128 million in savings attributable to both a larger City share
of Federal welfare grant funds and State reforms to Medicaid; and (iii) $115
million to restore expenditure reductions proposed in the Governor's Executive
Budget. The report also noted that the City's claim for $900 million of State
reimbursement of prior year education expenditures remains unresolved, that
proposals affecting the MTA, including proposals to eliminate two-fare zones for
bus and subway riders, will result in a significant reduction in revenues for
the MTA, and that the implementation of changes in the City's computer system,
resulting from the inability of the current computer system to recognize the
year 2000, could cost the City up to $150 million to $200 million over the next
three years. In a subsequent report released on June 16, 1997, the IBO noted
that in the City Financial Plan the City had deferred to fiscal years 1999
through 2001 the assumed receipt of back airport rents, and that the tax revenue
forecasts for the 1998 fiscal year in the City Financial Plan are closer than
the forecasts in the May Financial Plan to the IBO's forecast of City tax
revenues in its May report.

On October 31, 1996, the IBO released a report assessing the costs that
could be incurred by the City in response to the 1996 Welfare Act, which, among
other things, replaces the AFDC entitlement program with TANF, imposes a
five-year time limit on TANF assistance, requires 50% of states' TANF caseload
to be employed by 2002, and restricts assistance to legal aliens. The report
noted that if the requirement that all recipients work after two years of
receiving benefits is enforced, these additional costs could be substantial
starting in 1999, reflecting costs for worker training and supervision of new
workers and increased child care costs. The report further noted that, if
economic performance weakened, resulting in an increased number of public
assistance cases, potential costs to the City could substantially increase.
States are required to develop plans during 1997 to implement the new law. The
report noted that decisions to be made by the State which will have a
significant impact on the City budget include the allocation of block grant
funds between the State and New York local governments

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such as the City and the division between the State and its local governments of
welfare costs not funded by the Federal government.

SEASONAL FINANCING. The City since 1981 has fully satisfied its seasonal
financing needs in the public credit markets, repaying all short-term
obligations within their fiscal year of issuance. The City has issued $1.075
billion of short-term obligations for the fiscal year 1998 to finance the City's
projected cash flow needs for the 1998 fiscal year. The City issued $2.4 billion
of short-term obligations in fiscal year 1997. Seasonal financing requirements
for the 1996 fiscal year increased to $2.4 billion from $2.2 billion and $1.75
billion in the 1995 and 1994 fiscal years, respectively. Seasonal financing
requirements were $1.4 billion in the 1993 fiscal year. The delay in the
adoption of the State's budget in certain past fiscal years has required the
City to issue short-term notes in amounts exceeding those expected early in such
fiscal years.

LITIGATION. The City is a defendant in a significant number of lawsuits.
Such litigation includes, but is not limited to, actions commenced and claims
asserted against the City arising out of alleged constitutional violations,
alleged torts, alleged breaches of contracts and other violations of law and
condemnation proceedings. While the ultimate outcome and fiscal impact, if any,
on the proceedings and claims are not currently predictable, adverse
determinations in certain of them might have a material adverse effect upon the
City's ability to carry out the City Financial Plan. The City is a party to
numerous lawsuits and is the subject of numerous claims and investigations. The
City has estimated that its potential future liability on account of outstanding
claims against it as of June 30, 1997 amounted to approximately $3.5 billion.
This estimate was made by categorizing the various claims and applying a
statistical model, based primarily on actual settlements by type of claim during
the preceding ten fiscal years, and by supplementing the estimated liability
with information supplied by the City's Corporation Counsel.

RATINGS AGENCIES. On August 6, 1998, as well as July 2, June 8 and May
27, Fitch rated New York City's tax-exempt general obligation bonds as "A-".
Fitch qualified that rating, stating that concerns still remained over
significant projected outyear budget funding challenges coupled with sizable
reliance on the securities industry. On July 2, 1998, Moody's revised its rating
on the New York City General Obligation Bonds to Aaa from Baa1.

On July 16, 1998, S&P increased New York City's bond rating to A-, up
one notch from BBB+, but analysts at the agency also cautioned that New York
still had room for improvement and that they were worried about the City's
rising long-term debt and the Council's plan to cut taxes by $200 million this
year and $500 million in future years. On July 7, 1998, S&P had assigned its
triple-B-plus rating to New York City general obligation bonds, stating that the
ratings had been placed on CreditWatch with positive implications.

On February 3, 1998, S&P raised its credit outlook for New York City's
outstanding general obligation bonds from stable to positive but maintained its
BBB-plus rating. The City has held this rating since July 10, 1995, when S&P
lowered its rating from A-to BBB+ and removed City bonds from CreditWatch. S&P
stated that "structural budgetary balance remains elusive because of persistent
softness in the City's economy, highlighted by weak job growth and a growing
dependence on the historically volatile financial services sector." Other
factors identified by S&P's in lowering its rating on City bonds included a
trend of using one-time measures, including debt refinancings, to close
projected budget gaps, dependence on unratified labor savings to help balance
the City Financial Plan, optimistic projections of additional federal and State
aid or mandate relief, a history of cash flow difficulties caused by State
budget delays and continued high debt levels. In 1975, S&P suspended its A
rating of City bonds. This suspension remained in effect until March 1981, at
which time the City received an investment grade rating of BBB from S&P. On July
2, 1985, S&P revised its rating of City bonds upward to BBB+ and on November 19,
1987, to A-. On July 10, 1995, S&P revised its rating of City bonds downward to
BBB+, as discussed above. On November 25, 1996, S&P issued a report which stated
that, if the City reached its debt limit without the ability to issue bonds
through other means, it would cause a deterioration in the City's infrastructure
and significant cutbacks in the capital plan which would eventually impact the
City's economy and revenues, and could have eventual negative credit
implications.

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On February 24, 1998 Moody's raised its rating for City general
obligation bonds from Baa1 to A3, based on improvement in its financial
condition and economy. Previously, on July 17, 1997, Moody's had changed its
outlook on City bonds to positive from stable. On March 1, 1996, Moody's stated
that the rating for the City's Baa1 general obligation bonds remains under
review for a possible downgrade pending the outcome of the adoption of the
City's budget for the 1997 fiscal year and in light of the status of the debate
on public assistance and Medicaid reform; the enactment of a State budget, upon
which major assumptions regarding State aid are dependent, which may be
extensively delayed; and the seasoning of the City's economy with regard to its
strength and direction in the face of a potential national economic slowdown.
Moody's ratings of City bonds were revised in November 1981 from B (in effect
since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in May
1988 to A and again in February 1991 to Baa1.

On February 3, 1998, Fitch Investors Service, Inc. ("Fitch") set its
rating of City general obligation bonds at A-, which it has maintained since
July 15, 1993. On February 28, 1996, Fitch placed the City's general obligation
bonds on FitchAlert with negative implications. On November 5, 1996, Fitch
removed the City's general obligation bonds from FitchAlert although Fitch
stated that the outlook remains negative. Since then Fitch has revised the
outlook to stable. There is no assurance that such ratings will continue for any
given period of time or that they will not be revised downward or withdrawn
entirely. Any such downward revision or withdrawal could have an adverse effect
on the market prices of the City's general obligation bonds.

On October 9, 1995, Standard & Poor's issued a report which concluded
that proposals to replace the graduated Federal income tax system with a "flat"
tax could be detrimental to the creditworthiness of certain municipal bonds. The
report noted that the elimination of Federal income tax deductions currently
available, including residential mortgage interest, property taxes and state and
local income taxes, could have a severe impact on funding methods under which
municipalities operate. With respect to property taxes, the report noted that
the total valuation of a municipality's tax base is affected by the
affordability of real estate and that elimination of mortgage interest deduction
would result in a significant reduction in affordability and, thus, in the
demand for, and the valuation of, real estate. The report noted that rapid
losses in property valuations would be felt by many municipalities, hurting
their revenue raising abilities. In addition, the report noted that the loss of
the current deduction for real property and state and local income taxes from
Federal income tax liability would make rate increases more difficult and
increase pressures to lower existing rates, and that the cost of borrowing for
municipalities could increase if the tax-exempt status of municipal bond
interest is worth less to investors. Finally, the report noted that tax
anticipation notes issued in anticipation of property taxes could be hurt by the
imposition of a flat tax, if uncertainty is introduced with regard to their
repayment revenues, until property values fully reflect the loss of mortgage and
property tax deductions.

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APPENDIX D

SPECIAL INVESTMENT CONSIDERATIONS RELATING TO
NEW JERSEY MUNICIPAL OBLIGATIONS

Some of the significant financial considerations relating to the
investments of the New Jersey Tax Free Income Fund in New Jersey municipal
securities are summarized below. The following information constitutes only a
brief summary, does not purport to be a complete description and is largely
based on information drawn from official statements relating to securities
offerings of New Jersey municipal obligations available as of the date of this
Statement of Additional Information. The accuracy and completeness of the
information contained in such offering statements has not been independently
verified.

STATE FINANCE/ECONOMIC INFORMATION. New Jersey is the ninth largest
state in population and the fifth smallest in land area. With an average of
1,077 people per square mile, it is the most densely populated of all the
states. New Jersey's economic base is diversified, consisting of a variety of
manufacturing, construction and service industries, supplemented by rural areas
with selective commercial agriculture.

Business investment expenditures and consumer spending have increased
substantially in New Jersey. While growth is likely to be slower than in the
nation, the locational advantages that have served New Jersey well for many
years will still be there. Structural changes that have been going on for years
can be expected to continue, with job creation expected to be concentrated most
heavily in the service industries.

NEW JERSEY'S BUDGET AND APPROPRIATION SYSTEM. New Jersey operates on a
fiscal year ending on June 30. The General Fund is the fund into which all New
Jersey revenues not otherwise restricted by statute are deposited and from which
appropriations are made. The largest part of the total financial operations of
New Jersey is accounted for in the General Fund, which includes revenues
received from taxes and unrestricted by statute, most federal revenues, and
certain miscellaneous revenue items. The Appropriation Acts enacted by the New
Jersey Legislature and approved by the Governor provide the basic framework for
the operation of the General Fund.

The undesignated General Fund balance was $569.2 at year end for fiscal
year 1995, $442.0 million for fiscal year 1996 and $280.5 million for fiscal
year 1997. For fiscal year 1998, the balance in the undesignated General Fund is
estimated to be $143.9 million, subject to change upon completion of the
year-end audit. The estimated balance for fiscal year 1999 is $198.9 million,
based on the amounts contained in the fiscal year 1999 Appropriations Act. The
fund balances are available for appropriation in succeeding fiscal years.

Should revenues be less than the amount anticipated in the budget for a
fiscal year, the Governor may by statutory authority prevent any expenditure
under any appropriation. No supplemental appropriation may be enacted after
adoption of an appropriations act except where there are sufficient revenues on
hand or anticipated to meet such appropriation. In the past when actual revenues
have been less than the amount anticipated in the budget, the Governor has
exercised plenary powers leading to, among other actions, a hiring freeze for
all New Jersey departments and discontinuation of programs for which
appropriations were budgeted but not yet spent.

GENERAL OBLIGATION BONDS. New Jersey finances capital projects primarily
through the sale of its general obligation bonds. These bonds are backed by the
full faith and credit of New Jersey. Tax revenues and certain other fees are
pledged to meet the principal and interest payments required to pay the debt
fully.

The aggregate outstanding general obligation bonded indebtedness of New
Jersey as of June 30, 1998 was $3.5729 billion. The appropriation for the debt
service obligation on outstanding indebtedness is $501.1 million for fiscal year
1998.

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In addition to payment from bond proceeds, capital construction can also
be funded by appropriation of current revenues on a pay-as-you-go basis. In
fiscal year 1999 the amount appropriated to this purpose is $615.6 million.

TAX AND REVENUE ANTICIPATION NOTES. In fiscal year 1992 New Jersey
initiated a program under which it issued tax and revenue anticipation notes to
aid in providing effective cash flow management to fund imbalances which occur
in the collection and disbursement of the General Fund and Property Tax Relief
Fund revenues. Such tax and revenue anticipation notes do not constitute a
general obligation of New Jersey or a debt or liability within the meaning of
the New Jersey Constitution. Such notes constitute special obligations of New
Jersey payable solely from moneys on deposit in the General Fund and Property
Tax Relief Fund and are legally available for such payment.

"MORAL OBLIGATION" FINANCING. The authorizing legislation for certain
New Jersey entities provides for specific budgetary procedures with respect to
certain obligations issued by such entities. Pursuant to such legislation, a
designated official is required to certify any deficiency in a debt service
reserve fund maintained to meet payments of principal of and interest on the
obligations, and a New Jersey appropriation in the amount of the deficiency is
to be made. However, the New Jersey Legislature is not legally bound to make
such an appropriation. Bonds issued pursuant to authorizing legislation of this
type are sometimes referred to as "moral obligation" bonds. There is no
statutory limitation on the amount of "moral obligation" bonds which may be
issued by eligible New Jersey entities.

The following table sets forth the "moral obligation" bonded
indebtedness issued by New Jersey entities as of June 30,1998.

MAXIMUM ANNUAL
DEBT SERVICE
SUBJECT TO
OUTSTANDING MORAL OBLIGATION
----------- ----------------
<S> <C> <C>
New Jersey Housing and Mortgage
Finance Agency .......................... $372,859,400.58 $35,677,988.61
South Jersey Port Corporation .............. 76,675,000.00 7,002,815.00
Higher Education Assistance Authority ...... 208,550,000.00 38,897,070.00
--------------- --------------
$658,084,400.58 $81,577,873.61
=============== ==============
</TABLE>

NEW JERSEY HOUSING AND MORTGAGE FINANCE AGENCY. Neither the New Jersey
Housing and Mortgage Finance Agency nor its predecessors, the New Jersey Housing
Finance Agency and the New Jersey Mortgage Finance Agency, have had a deficiency
in a debt service reserve fund which required New Jersey to appropriate funds to
meet its "moral obligation." It is anticipated that this agency's revenues will
continue to be sufficient to cover debt service on its bonds.

SOUTH JERSEY PORT CORPORATION. New Jersey has previously provided the
South Jersey Port Corporation (the "Corporation") with funds to cover all debt
service and property tax requirements, when earned revenues are anticipated to
be insufficient to cover these obligations. For calendar years 1990 through
1998, New Jersey has made appropriations totalling $47,785,848.25 which covered
deficiencies in revenues of the Corporation, for debt service and property tax
payments.

HIGHER EDUCATION ASSISTANCE AUTHORITY. The Higher Education Assistance
Authority ("HEAA") has not had a revenue deficiency which required New Jersey to
appropriate funds to meet its "moral obligation." It is anticipated that the
HEAA's revenues will be sufficient to cover debt service on its bonds.

OBLIGATIONS GUARANTEED BY NEW JERSEY. The New Jersey Sports and
Exposition Authority ("NJSEA") has issued New Jersey guaranteed bonds of which
$111,910,000 are outstanding as of June 30, 1998. To

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date, the NJSEA has not had a revenue deficiency requiring New Jersey to make
debt service payments pursuant to its guarantee. It is anticipated that the
NJSEA's revenues will continue to be sufficient to pay debt service on these
bonds without recourse to New Jersey's guarantee.

OBLIGATIONS SUPPORTED BY NEW JERSEY REVENUE SUBJECT TO ANNUAL
APPROPRIATION. New Jersey has entered into a number of leases and contracts
described below (collectively, the "Agreements") with several governmental
authorities to secure the financing of various New Jersey projects. Under the
terms of the Agreements, New Jersey has agreed to make payments equal to the
debt service on, and other costs related to, the obligations sold to finance the
projects. New Jersey's obligation to make payments under the Agreements is
subject to and dependent upon annual appropriations being made by the New Jersey
Legislature for such purposes. The New Jersey Legislature has no legal
obligation to enact such appropriations, but has done so to date for all such
obligations.

NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY. Pursuant to legislation, the
New Jersey Economic Development Authority ("EDA") has been authorized to issue
Economic Recovery Bonds, State Pension Funding Bonds and Market Transition
Facility Bonds. The Economic Recovery Bonds have been issued pursuant to
legislation enacted during 1992 to finance various economic development
purposes. Pursuant to that legislation, the EDA and the New Jersey Treasurer
entered into an agreement through which the EDA has agreed to undertake the
financing of certain projects and the New Jersey Treasurer has agreed to credit
to the Economic Recovery Fund from the General Fund amounts equivalent to
payments due to New Jersey under an agreement with the Port Authority of New
York and New Jersey subject to appropriation by the New Jersey Legislature.

The State Pension Funding Bonds have been issued pursuant to legislation
enacted in June 1997 to pay a portion of New Jersey's unfunded accrued pension
liability for its retirement system, which together with amounts derived from
the revaluation of pension assets pursuant to companion legislation enacted at
the same time, will be sufficient to fully fund the unfunded accrued pension
liability.

The Market Transition Facility Bonds have been issued pursuant to
legislation enacted in June 1994 to pay the current and anticipated liabilities
and expenses of the Market Transition Facility, which issued private passenger
automobile insurance policies for drivers who could not be insured by private
insurance companies on a voluntary basis.

In addition, New Jersey has entered into a number of leases with the EDA
relating to the financing of certain real property, office buildings and
equipment for (i) the New Jersey Performing Arts Center; (ii) Liberty State Park
in the City of Jersey City; (iii) various office buildings located in Trenton
known as the Trenton Office Complex; (iv) a facility located in Trenton; and (v)
certain energy saving equipment installed in various New Jersey office
buildings. The rental payments required to be made by New Jersey under these
lease agreements are, if received, sufficient to pay debt service on the bonds
issued by the EDA to finance the acquisition and construction of such projects
and other amounts payable to the EDA, including certain administrative expenses
of the EDA.

NEW JERSEY BUILDING AUTHORITY. Legislation enacted in 1981 established
the New Jersey Building Authority ("NJBA") to undertake the acquisition,
construction, renovation and rehabilitation of various New Jersey office
buildings, historic buildings and correctional facilities. The NJBA finances the
cost of such projects through the issuance of bonds, the payment of debt service
on which is made pursuant to a lease between the NJBA and New Jersey.

NEW JERSEY EDUCATIONAL FACILITIES AUTHORITY. The New Jersey Educational
Facilities Authority issues bonds pursuant to three separate legislative
programs, enacted in 1993 and 1997, to finance (i) the purchase of equipment to
be leased to institutions of higher learning; (ii) grants to New Jersey's public
and private institutions of higher education for the development, construction
and improvement of instructional, laboratory,

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communication and research facilities; and, (iii) grants to public and private
institutions of higher education to develop a technology infrastructure within
and among the State's institutions of higher education.

NEW JERSEY SPORTS AND EXPOSITION AUTHORITY. Legislation enacted in 1992
authorizes the New Jersey Sports and Exposition Authority (the "NJSEA") to issue
bonds for various purposes payable from a contract between the NJSEA and the New
Jersey Treasurer (the "NJSEA State Contract"). Pursuant to the NJSEA State
Contract, the NJSEA undertakes certain projects and the New Jersey Treasurer
credits to the NJSEA amounts from the General Fund sufficient to pay debt
service and other costs related to the bonds.

STATE TRANSPORTATION SYSTEM BONDS. In July 1994, New Jersey created the
New Jersey Transportation Trust Fund Authority (the "TTFA"), an instrumentality
of New Jersey pursuant to the New Jersey Transportation Trust Fund Authority Act
of 1984, as amended (the "TTFA Act") for the purpose of funding a portion of New
Jersey's share of the cost of improvements to its transportation system.
Pursuant to the TTFA Act, the principal amount of the TTFA's bonds, notes or
other obligations which may be issued in any fiscal year generally may not
exceed $700 million plus amounts carried over from prior fiscal years. The debt
issued by the TTFA are special obligations of the TTFA payable from a contract
among the TTFA, the New Jersey Treasurer and the Commissioner of Transportation.

NEW JERSEY TRANSIT CORPORATION HUDSON-BERGEN LIGHT RAIL TRANSIT SYSTEM.
The TTFA has entered into a Standby Deficiency Agreement (the "Standby
Deficiency Agreement") with the trustee for grant anticipation notes (see
"GANS") issued by New Jersey Transit Corporation ("NJT") for the financing of
the construction of the Hudson-Bergen Light Rail Transit System. The GANS are
primarily payable from federal grant monies. To the extent that the GANS are not
paid by NJT from federal grant monies, the GANS are payable by the TTFA pursuant
to the Standby Deficiency Agreement. To date, federal grant payments have been
sufficient such that the TTFA has not been required to make payments pursuant to
the Standby Deficiency Agreement.

STATE OF NEW JERSEY CERTIFICATES OF PARTICIPATION. Beginning in April
1984, New Jersey, acting through the Director of the Division of Purchase and
Property, has entered into a series of lease purchase agreements which provide
for the acquisition of equipment, services and real property to be used by
various departments and agencies of New Jersey. Certificates of Participation in
such lease purchase agreements have been issued. A Certificate of Participation
represents a proportionate interest of the owner thereof in the lease payments
to be made by New Jersey under the terms of the lease purchase agreement.

NEW JERSEY SUPPORTED SCHOOL AND COUNTY COLLEGE BONDS. Legislation
provides for future appropriations for New Jersey Aid to local school districts
equal to debt service on bonds issued by such local school districts for
construction and renovation of school facilities (P.L. 1968, c. 177; P.L. 1971,
c. 10; and P.L. 1978, c. 74) and for New Jersey Aid to counties equal to debt
service on bonds issued by counties for construction of county college
facilities (P.L. 1971, c 12, as amended). The New Jersey Legislature has no
legal obligations to make such appropriations, but has done so to date for all
obligations issued under these laws.

COMMUNITY MENTAL HEALTH LOAN PROGRAM. The EDA issues revenue bonds from
time to time on behalf of non-profit community mental health service providers.
The payment of debt service on these revenue bonds as well as the payment of
certain other provider expenses is made by New Jersey pursuant to service
contracts between the State Department of Human Services and these providers.
The contracts have one year terms, subject to annual renewal.

LINE OF CREDIT FOR EQUIPMENT PURCHASES. New Jersey finances the
acquisition of certain equipment, services and real property to be used by
various New Jersey departments through a line of credit.

STATE PENSION FUNDING BONDS. Legislation enacted in June 1997 authorizes
the EDA to issue bonds to pay a portion of New Jersey's unfunded accrued pension
liability for New Jersey's retirement systems (the "Unfunded Accrued Pension
Liability"), which together with amounts derived from the revaluation of pension

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assets pursuant to companion legislation enacted at the same time, will be
sufficient to fully fund the Unfunded Accrued Pension Liability. The Unfunded
Accrued Pension Liability represents pension benefits earned in prior years
which, pursuant to standard actuarial practices, are not yet fully funded. On
June 30, 1997, the EDA issued $2,803,042,498.56 aggregate principal amount of
State Pension Funding Bonds, Series 1997A-1997C. The EDA and the New Jersey
Treasurer have entered into an agreement which provides for the payment to the
EDA of monies sufficient to pay debt service on the bonds. Such payments are
subject to and dependent upon appropriations being made by the New Jersey
Legislature.

MUNICIPAL FINANCE. New Jersey's local finance system is regulated by
various statutes designed to assure that all local governments and their issuing
authorities remain on a sound financial basis. Regulatory and remedial statutes
are enforced by the Division of Local Government Services (the "Division") in
the New Jersey State Department of Community Affairs.

COUNTIES AND MUNICIPALITIES. The Local Budget Law (N.J.S.A.40A:4-1 ET
SEQ.) imposes specific budgetary procedures upon counties and municipalities
("local units"). Every local unit must adopt an operating budget which is
balanced on a cash basis, and items of revenue and appropriation must be
examined by the Director of the Division of Local Government Services in the
Department of Community Affairs (the "Director"). The accounts of each local
unit must be independently audited by a registered municipal accountant. New
Jersey law provides that budgets must be submitted in a form promulgated by the
Division and further provides for limitations on estimates of tax collection and
for reserves in the event of any shortfalls in collections by the local unit.
The Division reviews all municipal and county annual budgets prior to adoption
for compliance with the Local Budget Law. The Director is empowered to require
changes for compliance with law as a condition of approval; to disapprove
budgets not in accordance with law; and, to prepare the budget of a local unit,
within the limits of the adopted budget of the previous year with suitable
adjustments for legal compliance, if the local unit fails to adopt a budget in
accordance with law. This process insures that every municipality and county
annually adopts a budget balanced on a cash basis, within limitations on
appropriations or tax levies, respectively, and making adequate provision for
principal of and interest on indebtedness falling due in the fiscal year,
deferred charges and other statutory expenditure requirements. The Director also
oversees changes to local budgets after adoption as permitted by law, and
enforces regulations pertaining to execution of adopted budgets and financial
administration. In addition to the exercise of regulatory and oversight
functions, the Division offers expert technical assistance to local units in all
aspects of financial administration, including revenue collection and cash
management procedures, contracting procedures, debt management and
administrative analysis.

The Local Government Cap Law (N.J.S.A. 40A:4-45.1 ET SEQ.) (the "Cap
Law") generally limits the year-to-year increase of the total appropriations of
any municipality and the tax levy of any county to either 5 percent or an index
rate determined annually by the Director, whichever is less. However, where the
index percentage rate exceeds 5 percent, the Cap Law permits the governing body
of any municipality or county to approve the use of a higher percentage rate up
to the index rate. Further, where the index percentage rate is less than 5
percent, the Cap Law also permits the governing body of any municipality or
county to approve the use of a higher percentage rate up to 5 percent.
Regardless of the rate utilized, certain exceptions exist to the Cap Law's
limitation on increases in appropriations. The principal exceptions to these
limitations are municipal and county appropriations to pay debt service
requirements; to comply with certain other New Jersey or federal mandates;
appropriations of private and public dedicated funds; amounts approved by
referendum; and, in the case of municipalities only, to fund the preceding
year's cash deficit or to reserve for shortfalls in tax collections, and amounts
required pursuant to contractual obligations for specified services. The Cap Law
was re-enacted in 1990 with amendments and made a permanent part of the
municipal finance system.

New Jersey law also regulates the issuance of debt by local units. The
Local Budget Law limits the amount of tax anticipation notes that may be issued
by local units and requires the repayment of such notes within 120 days of the
end of the fiscal year (six months in the case of the counties) in which issued.

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The Local Bond Law (N.J.S.A. 40A:2-1 ET SEQ.) governs the issuance of bonds and
notes by the local units. No local unit is permitted to issue bonds for the
payment of current expenses (other than Fiscal Year Adjustment Bonds described
more fully below). Local units may not issue bonds to pay outstanding bonds,
except for refunding purposes, and then only with the approval of the Local
Finance Board. Local units may issue bond anticipation notes for temporary
periods not exceeding in the aggregate approximately ten years from the date of
first issue. The debt that any local unit may authorize is limited to a
percentage of its equalized valuation basis, which is the average of the
equalized value of all taxable real property and improvements within the
geographic boundaries of the local unit, as annually determined by the Director
of the Division of Taxation, for each of the three most recent years. In the
calculation of debt capacity, the Local Bond Law and certain other statutes
permit the deduction of certain classes of debt ("statutory deductions") from
all authorized debt of the local unit ("gross capital debt") in computing
whether a local unit has exceeded its statutory debt limit. Statutory deductions
from gross capital debt consist of bonds or notes (i) authorized for school
purposes by a regional school district or by a municipality or a school district
with boundaries coextensive with such municipality to the extent permitted under
certain percentage limitations set forth in the School Bond Law (as hereinafter
defined); (ii) authorized for purposes which are self liquidating, but only to
the extent permitted by the Local Bond Law; (iii) authorized by a public body
other than a local unit the principal of and interest on which is guaranteed by
the local unit, but only to the extent permitted by law; (iv) that are bond
anticipation notes; (v) for which provision for payment has been made; or, (vi)
authorized for any other purpose for which a deduction is permitted by law.
Authorized net capital debt (gross capital debt minus statutory deductions) is
limited to 3.5 percent of the equalized valuation basis in the case of
municipalities and 2 percent of the equalized valuation basis in the case of
counties. The debt limit of a county or municipality, with certain exceptions,
may be exceeded only with the approval of the Local Finance Board.

Chapter 75 of the Pamphlet Laws of 1991, signed into law on March 28,
1991, of New Jersey required certain municipalities and permits all other
municipalities to adopt the New Jersey fiscal year in place of the existing
calendar fiscal year. Municipalities that change fiscal years must adopt a six
month transition year budget funded by Fiscal Year Adjustment Bonds. Notes
issued in anticipation of Fiscal Year Adjustment Bonds, including renewals, can
only be issued for up to one year unless the Local Finance Board permits the
municipality to renew them for a further period of time. The Local Finance Board
must confirm the actual deficit experienced by the municipality. The
municipality may then issue Fiscal Year Adjustment Bonds to finance the deficit
on a permanent basis.

SCHOOL DISTRICTS. New Jersey's school districts operate under the same
comprehensive review and regulation as do its counties and municipalities.
Certain exceptions and differences are provided, but New Jersey supervision of
school finance closely parallels that of local governments.

All New Jersey school districts are coterminous with the boundaries of
one or more municipalities. They are characterized by the manner in which the
board of education, the governing body of the school district, takes office.
Type I school districts, most commonly found in cities, have a board of
education appointed by the mayor or the chief executive officer of the
municipality constituting the school district. In a Type II school district, the
board of education is elected by the voters of the district. Nearly all regional
and consolidated school districts are Type II school districts.

The New Jersey Department of Education has been empowered with the
necessary and effective authority to abolish an existing school board and create
a State-operated school district where the existing school board has failed or
is unable to take the corrective actions necessary to provide a thorough and
efficient system of education in that school district pursuant to N.J.S.A.
18A:7A-15 ET SEQ. (the "School Intervention Act"). The State-operated school
district, under the direction of a New Jersey appointed superintendent, has all
of the powers and authority of the local board of education and of the local
district superintendent. Pursuant to the authority granted under the School
Intervention Act, on October 4, 1989, the New Jersey Board of Education ordered
the creation of a State-operated school district in the City of Jersey City.
Similarly, on August 7, 1991, the New Jersey Board of Education ordered the
creation of a

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<PAGE>

State-operated school district in the City of Paterson, and on July 5, 1995
ordered the creation of a State-operated school district in the City of Newark.

SCHOOL BUDGETS. In every school district having a board of school
estimate, the board of school estimate examines the budget request and fixes the
appropriate amounts for the next year's operating budget after a public hearing
at which the taxpayers and other interested persons shall have an opportunity to
raise objections and to be heard with respect to the budget. This board
certifies the budget to the municipal governing bodies and to the local board of
education. If the local board of education disagrees, it must appeal to the New
Jersey Commissioner of Education (the "Commissioner") to request changes.

In a Type II school district without a board of school estimate, the
elected board of education develops the budget proposal and, after public
hearing, submits it to the voters of such district for approval. Previously
authorized debt service is not subject to referendum in the annual budget
process. If approved, the budget goes into effect. If defeated, the governing
body of each municipality in the school district has until May 19 in any year to
determine the amount necessary to be appropriated for each item appearing in
such budget. Should the governing body fail to certify any amount determined by
the board of education to be necessary, the board of education may appeal the
action to the Commissioner.

The State laws governing the distribution of State aid to local school
districts limit the annual increase of a school district's net current expense
budget. The Commissioner certifies the allowable amount of increase for each
school district but may grant a higher level of increase in certain limited
instances. A school district may also submit a proposal to the voters to raise
amounts above the allowable amount of increase. If defeated, such a proposal is
subject to further review or appeal to the Commissioner only if the Commissioner
determines that additional funds are required to provide a thorough and
efficient education.

In State-operated school districts the New Jersey District
Superintendent has the responsibility for the development of the budget subject
to appeal by the governing body of the municipality to the Commissioner and the
Director of the Division of Local Government Services in the New Jersey
Department of Community Affairs. Based upon his review, the Director is required
to certify the amount of revenues which can be raised locally to support the
budget of the State-operated district. Any difference between the amount which
the Director certifies and the total amount of local revenues required by the
budget approved by the Commissioner is to be paid by New Jersey in the fiscal
year in which the expenditures are made subject to the availability of
appropriations.

SCHOOL DISTRICT BONDS. School district bonds and temporary notes are
issued in conformity with N.J.S.A 18A:24-1 ET SEQ. (the "School Bond Law"),
which closely parallels the Local Bond Law (for further information relating to
the Local Bond Law, see "MUNICIPAL FlNANCE-Counties and Municipalities" herein).
Although school districts are exempted from the 5 percent down payment provision
generally applied to bonds issued by municipalities and counties, they are
subject to debt limits (which vary depending on the type of school system
provided) and to New Jersey regulation of their borrowing. The debt limitation
on school district bonds depends upon the classification of the school district,
but may be as high as 4 percent of the average equalized valuation basis of the
constituent municipality. In certain cases involving school districts in cities
with populations exceeding 150,000, the debt limit is 8 percent of the average
equalized valuation basis of the constituent municipality, and in cities with
populations in excess of 80,000 the debt limit is 6 percent of the aforesaid
average equalized valuation.

School bonds are authorized by (i) an ordinance adopted by the governing
body of a municipality within a Type I school district; (ii) adoption of a
proposal by resolution by the board of education of a Type II school district
having a board of school estimate; (iii) adoption of a proposal by resolution by
the board of education and approval of the proposal by the legal voters of any
other Type II school district; or, (iv) adoption of a proposal by resolution by
a capital project control board for projects in a State operated school
district. If school bonds will exceed the school district borrowing capacity, a
school district (other than a

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<PAGE>

regional school district) may use the balance of the municipal borrowing
capacity. If the total amount of debt exceeds the school district's borrowing
capacity, the Commissioner and the Local Finance Board must approve the proposed
authorization before it is submitted to the voters. All authorizations of debt
in a Type II school district without a board of school estimate require an
approving referendum, except where, after hearing, the Commissioner and the New
Jersey Board of Education determine that the issuance of such debt is necessary
to meet the constitutional obligation to provide a thorough and efficient system
of public schools. When such obligations are issued, they are issued by, and in
the name of, the school district.

In Type I and II school districts with a board of school estimate, that
board examines the capital proposal of the board of education and certifies the
amount of bonds to be authorized. When it is necessary to exceed the borrowing
capacity of the municipality, the approval of a majority of the legally
qualified voters of the municipality is required, together with the approval of
the Commissioner and the Local Finance Board. When such bonds are issued for a
Type I school district, they are issued by the municipality and identified as
school bonds. When bonds are issued by a Type II school district having a board
of school estimate, they are issued by, and in the name of, the school district.

All authorizations of debt must be reported to the Division of Local
Government Services by a supplemental debt statement prior to final approval.

SCHOOL DISTRICT LEASE PURCHASE FINANCINGS. In 1982, school districts
were given an alterative to the traditional method of bond financing capital
improvements pursuant to N.J.S.A. 18A:20-4.2(f) (the "Lease Purchase Law"). The
Lease Purchase Law permits school districts to acquire a site and school
building through a lease purchase agreement with a private lessor corporation.
The lease purchase agreement does not require voter approval. The rent payments
attributable to the lease purchase agreement are subject to annual appropriation
by the school district and are required, to be included in the annual current
expense budget of the school district. Furthermore, the rent payments
attributable to the lease purchase agreement do not constitute debt of the
school district and therefore do not impact on the school district's debt
limitation. Lease purchase agreements in excess of five years require the
approval of the Commissioner and the Local Finance Board.

QUALIFIED BONDS. In 1976, legislation was enacted (P.L. 1976, c. 38 and
c. 39) which provides for the issuance by municipalities and school districts of
"qualified bonds." Whenever a local board of education or the governing body of
a municipality determines to issue bonds, it may file an application with the
Local Finance Board, and, in the case of a local board of education, the
Commissioner, to qualify bonds pursuant to P.L. 1976, c. 38 or c. 39. Upon
approval of such an application, the New Jersey Treasurer shall, in the case of
qualified bonds for school districts, withhold from the school aid payable to
such municipality or school district and, in the case of qualified bonds for
municipalities, withhold from the amount of business personal property tax
replacement revenues, gross receipts tax revenues, municipal purposes tax
assistance fund distributions, New Jersey urban aid, New Jersey revenue sharing
and any other funds appropriated as New Jersey aid and not otherwise dedicated
to specific municipal programs, payable to such municipalities, an amount
sufficient to cover debt service on such bonds. These "qualified bonds" are not
direct, guaranteed or moral obligations of New Jersey, and debt service on such
bonds will be provided by New Jersey only if the above mentioned appropriations
are made by New Jersey. Total outstanding indebtedness for "qualified bonds"
consisted of $327,981,850 by various school districts as of June 30,1998 and
$932,410,709 by various municipalities as of June 30, 1998.

NEW JERSEY SCHOOL BOND RESERVE ACT. The New Jersey School Bond Reserve
Act (N.J.S.A. 18A:56-17 ET SEQ.) establishes a school bond reserve within the
constitutionally dedicated Fund for the Support of Free Public Schools. Under
this law the reserve is maintained at an amount equal to 1.5 percent of the
aggregate outstanding bonded indebtedness of counties, municipalities or school
districts for school purposes (exclusive of bonds whose debt service is provided
by New Jersey appropriations), but not in excess of monies available in such
Fund. If a municipality, county or school district is unable to meet payment

D-8
<PAGE>

of the principal of or interest on any of its school bonds, the trustee of the
school bond reserve will purchase such bonds at the face amount thereof or pay
the holders thereof the interest due or to become due. There has never been an
occasion to call upon this Fund. New Jersey provides support of certain bonds of
counties, municipalities and school districts through various statutes.

LOCAL FINANCING AUTHORITIES. The Local Authorities Fiscal Control Law
(N.J.S.A. 40A:5A-1 ET SEQ.) provides for state supervision of the fiscal
operations and debt issuance practices of independent local authorities and
special taxing districts by the New Jersey Department of Community Affairs. The
Local Authorities Fiscal Control Law applies to all autonomous public bodies
created by counties or municipalities, which are empowered to issue bonds, to
impose facility or service charges, or to levy taxes in their districts. This
encompasses most autonomous local authorities (sewerage, municipal utilities,
parking, pollution control, improvement, etc.) and special taxing districts
(fire, water, etc.). Authorities which are subject to differing New Jersey or
federal financial restrictions are exempted, but only to the extent of that
difference.

Financial control responsibilities over local authorities and special
districts are assigned to the Local Finance Board and the Director of the
Division of Local Government Services. The Local Finance Board exercises
approval power over creation of new authorities and special districts as well as
their dissolution. The Local Finance Board reviews, conducts public hearings and
issues findings and recommendations on any proposed project financing of an
authority or district, and on any proposed financing agreement between a
municipality or county and an authority or special district. The Local Finance
Board prescribes minimum audit requirements to be followed by authorities and
special districts in the conduct of their annual audits. The Director of the
Division of Local Government Services reviews and approves annual budgets of
authorities and special districts.

LITIGATION. At any given time, there are various numbers of claims and
cases pending against the State of New Jersey, New Jersey agencies and
employees, seeking recovery of monetary damages that are primarily paid out of
the fund created pursuant to the New Jersey Tort Claims Act (N.J.S.A. 59:1-1 ET
SEQ.). New Jersey does not formally estimate its reserve representing potential
exposure for these claims and cases. New Jersey is unable to estimate its
exposure for these claims and cases.

New Jersey routinely receives notices of claim seeking substantial sums
of money. The majority of those claims have historically proven to be of
substantially less value than the amount originally claimed. Under the New
Jersey Tort Claims Act, any tort litigation against New Jersey must be preceded
by a notice of claim, which affords New Jersey the opportunity for a six-month
investigation prior to the filing of any suit against it. At any given time,
there are various numbers of claims and cases pending against the University of
Medicine and Dentistry and its employees, seeking recovery of monetary damages
that are primarily paid out of the Self Insurance Reserve Fund created pursuant
to the New Jersey Tort Claims Act. An independent study estimated an aggregate
potential exposure of $85,300,000 for tort and medical malpractice claims
pending as of December 31, 1997. In addition, at any given time, there are
various numbers of contract and other claims against the University of Medicine
and Dentistry, seeking recovery of monetary damages or other relief which, if
granted, would require the expenditure of funds. New Jersey is unable to
estimate its exposure for these claims.

Other lawsuits presently pending or threatened in which New Jersey has
the potential for either a significant loss of revenue or a significant
unanticipated expenditures include the following:

INTERFAITH COMMUNITY ORGANIZATION v. SHINN, a suit filed by a coalition
of churches and church leaders in Hudson County against the Governor, the
Commissioners of the Department of Environmental Protection and the Department
of Health, concerning chromium contamination in Liberty State Park in Jersey
City.

AMERICAN TRUCKING ASSOCIATIONS, INC. AND TRI-STATE MOTOR TRANSIT CO. v.
STATE OF NEW JERSEY, challenging the constitutionality of annual hazardous and
solid waste licensure fees collected by the Department of Environmental
Protection, seeking permanent injunction enjoining future collection of fees and
refund of all renewal fees, fines and penalties collected.

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<PAGE>

BUENA REGIONAL COMMERCIAL TOWNSHIP ET AL. v. NEW JERSEY DEPARTMENT OF
EDUCATION ET AL. This lawsuit was filed on behalf of 17 rural school districts
seeking the same type of relief as has been mandated to be provided to the poor
urban school districts in ABBOT v. BURKE, which included, without limitation,
sufficient funds to allow the school districts to spend at the average of
wealthy suburban school districts, to implement additional programs and to
upgrade school facilities. The Buena school districts are seeking to be treated
as special needs districts and to receive parity funding the ABBOT school
districts as a remedial measure. They also are seeking additional funding as may
be necessary to provide an educational equivalent to that being provided in the
ABBOT districts.

BERNER STABAUS, ET AL. v. STATE OF NEW JERSEY, ET AL. Plaintiffs, 25
middle income school districts, have filed a complaint alleging that New
Jersey's system of funding for their schools is violative of the constitutional
rights of equal protection and a thorough and efficient education.

AFFILIATED FM INSURANCE COMPANY v. STATE OF NEW JERSEY, an action by
certain members of the New Jersey Property-Liability Insurance Guaranty
Association challenging the constitutionality of assessments used for the Market
Transition Fund and seeking repayment of assessments paid since 1990. On July
28, 1997, the court denied plaintiff's application for emergent relief, denied
New Jersey's motion for summary disposition and granted plaintiff's motion to
accelerate. The Appellate Division has affirmed the assessment. Appellant's
petition for certification to the New Jersey Supreme Court has been denied.

C. F. v. TERHUNE (formally FAUVER), a class action in federal district
court by prisoners with serious mental disorders who are confined within the
facilities of the New Jersey Department of Corrections seeking injunctive relief
in the form of changes to the manner in which the mental health services are
provided to inmates.

CLEARY v. WALDMAN, the plaintiffs claim that the Medicare Catastrophic
Coverage Act, providing funds to spouses of institutionalized individuals
sufficient funds to live in the community, requires that a certain system be
used to provide the funds and another system is being used instead. Estimate of
exposure if the court were to find for the plaintiffs are in the area of $50
million per year from both New Jersey and Federal sources combined. Plaintiffs'
motion for a preliminary injunction was denied and is being appealed.
Subsequently, plaintiffs filed for class certification which was granted.

UNITED HOSPITALS v. STATE OF NEW JERSEY, 18 New Jersey hospitals are
challenging the Medicaid reimbursements made since February 1995 claiming that
New Jersey failed to comply with certain federal requirements, the
reimbursements regulations are arbitrary, capricious and unreasonable, rates
were incorrectly calculated, the hospitals were denied due process, the Medicaid
reimbursement provisions violate the New Jersey Constitution, and Medicaid State
Plan was violated by the New Jersey Department of Human Services implementation
of hospital rates in 1995 and 1996.

TRUMP HOTELS & CASINO RESORTS, INC. v. MIRAGE RESORTS, INC., the
plaintiff is suing Mirage Resorts and New Jersey in an attempt to enjoin their
efforts to build a highway and tunnel funded by Mirage Resorts and $55 million
in bonds collateralized by future casino obligations, claiming that the project
violates the New Jersey Constitution provision that requires all revenues the
state receives from gaming operations to benefit the elderly and disabled. The
plaintiff also claims (i) the failure to disclose this constitutional infirmity
is a material omission within the meaning of Rule 10b-5 of the Securities and
Exchange Act of 1934, and (ii) the defendants have sought to avoid the
requirements of the Clean Water Act, Clean Air Act, Federal Highway Act and the
New Jersey Coastal Area Facility Review Act. On May 1, 1997, the federal
district court granted the defendants' motion to dismiss, and the Third Circuit
has affirmed the District Courts determinations. In a related action, STATE OF
NEW JERSEY v. TRUMP HOTELS & CASINO RESORTS, INC., New Jersey filed a
declaratory judgment action seeking a declaration that New Jersey statutory
provisions existed that permitted use of certain funds to be used for other
purposes than the elderly or disabled. Declaratory judgment was entered in favor
of New Jersey on May 14, 1997, and the Appellate Division affirmed the decision
on April 8, 1998.

D-10
<PAGE>

UNITED ALLIANCE v. STATE OF NEW JERSEY, plaintiffs allege that the
Casino Reinvestment Development Authority funding mechanisms are illegal,
including the gross receipts tax the parking tax and the Atlantic City fund.
This matter has been placed on the inactive list. Five additional cases have
been filed in opposition to the road and tunnel project which also contain
related challenges: MEROLLA AND BRANDY v. CASINO REINVESTMENT DEVELOPMENT
AUTHORITY, MIDDLESEX COUNTY v. CASINO REINVESTMENT DEVELOPMENT AUTHORITY,
GALLAGHER v. CASINO REINVESTMENT DEVELOPMENT AUTHORITY AND GEORGE HARMS v. STATE
OF NEW JERSEY. Summary judgment has been granted in favor of the New Jersey or
its agencies in MEROLLA, MIDDLESEX AND GALLAGHER BUT THE PLAINTIFFS HAVE FILED
AN APPEAL.

BLECKER v. STATE OF NEW JERSEY, a class action filed on behalf of
providers of Medicare Part B services to Qualified Medicare Beneficiaries
seeking reimbursement for Medicare co-insurance and deductibles not paid by the
New Jersey Medicaid program from 1988 to February 10, 1995. Plaintiffs claim a
breach of contract and violation of federal civil rights laws. On August 11,
1997, New Jersey filed a motion to dismiss the matter, and, on September 15,
1997, it filed a motion for summary judgment. Both motions were granted on April
3, 1998, and the plaintiff has filed an appeal.

CAMDEN COUNTY ENERGY RECOVERY ASSOCIATES v. NEW JERSEY DEPARTMENT OF
ENVIRONMENTAL PROTECTION, the plaintiff owns and operates a resource facility in
Camden County and has filed suit seeking to have the solid waste reprocurement
process halted to clarify bid specification. The court did not halt the bid
process but did require clarifications. Co-defendant Pollution Control Financing
Authority of Camden County counterclaimed, seeking reformation of the contract
between it and the plaintiff, and cross-claimed against New Jersey for
contribution and indemnification.

COMMUNICATIONS WORKERS OF AMERICA, ET AL. v. JAMES A. DIELEUTERIO, JR.,
ET AL., appellants filed an appeal from the decision of the New Jersey Treasurer
to award a contract for the design, construction, and operation and maintenance
of the New Jersey motor vehicle inspection system. New Jersey estimates that
unless the new inspection system is operational by December 12, 1999, New Jersey
may be exposed to significant federal sanctions, including the loss of federal
transportation funds and the federal imposition of stricter pollution standards
that will restrict economic development in New Jersey.

SOJOURNER A. ET AL. v. DEPT. OF HUMAN SERVICES, plaintiffs filed a
complaint and motion for preliminary injunction, seeking damages and declaratory
and injunctive relief overturning, on New Jersey Constitutional grounds, the
"family cap" provisions of the New Jersey Work First New Jersey Act N.J.S.A.
44:10-1 ET SEQ.

RATINGS. Standard & Poor's Rating Group, Moody's Investors Service and
Fitch Investors Service, Inc. have assigned long-term ratings of AA+, Aa1 and
AA+, respectively, to New Jersey General Obligation Bonds. There is no assurance
that the ratings of New Jersey General Obligation Bonds will continue for any
given period of time or that they will not be revised downward or withdrawn
entirely. Any such downward revision or withdrawal could have an adverse effect
on the market prices of New Jersey's General Obligation Bonds.

The various political subdivisions of New Jersey are rated independently
from New Jersey by S&P and/or Moody's, if they are rated. These ratings are
based upon information supplied to the rating agency by the political
subdivision. There is no assurance that such ratings will continue for any given
period of time or that they will not be revised downward or withdrawn entirely.
Any such downward revision or withdrawal could have an adverse effect on the
market prices of bonds issued by the political subdivision.

D-11
<PAGE>

PART C

MUTUAL FUND SELECT TRUST
PART C. OTHER INFORMATION

ITEM 24. Financial Statements and Exhibits

(a) Financial statements

In Part A: Financial Highlights

In Part B: Financial Statements and the Reports thereon
for the Funds filed herein are incorporated by
reference into Part B as part of the 1997
Annual Reports to Shareholders for such Funds
as filed with the Securities and Exchange
Commission by Mutual Fund Select Trust on Form
N-30D on October 28, 1998, accession number
0000950146-98-001762, which are incorporated
into Part B by reference.

In Part C: None.

(b) Exhibits:

Exhibit
Number
- -------
1 Declaration of Trust (1)
2 By-laws. (1)
3 None.
4 None.
5(a) Form of Proposed Investment Advisory Agreement. (1)
5(b) Form of Proposed Sub-Advisory Agreement between The Chase Manhattan
Bank and Chase Asset Management, Inc.(1)
5(c) Form of Proposed Investment Subadvisory Agreement between The Chase
Manhattan Bank and Chase Asset Management (London) Limited (1)
6 Form of Proposed Distribution and Sub-Administration Agreement (1)
7(a) Form of Retirement Plan for Eligible Trustees.(2)
7(b) Form of Deferred Compensation Plan for Eligible Trustees. (2)
8 Form of Proposed Custodian Agreement. (1)
9(a) Form of Proposed Transfer Agency Agreement. (1)
9(b) Form of Proposed Administration Agreement. (1)

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<PAGE>

10 Opinion re: Legality of Securities being Registered. (4)
11 Consent of Price Waterhouse LLP (5)
12 None.
13 Form of Share Purchase Agreement. (3)
14 None.
15 None.
16 Schedule for Computation for Each Performance Quotation. (4)
18 Not Applicable
24 Powers of Attorney (4)
27 Financial Data Schedules (4)

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

(1) Filed as an exhibit to the Registration Statement on Form N-1A of the
Registrant (File No. 333-13319) as filed with the Securities and Exchange
Commission on October 2, 1996.
(2) Incorporated by reference to Amendment No. 6 to the Registration Statement
on Form N-1A of Mutual Fund Group (File No. 33-14196) as filed with the
Securities and Exchange Commission on March 23, 1990.
(3) Filed as an exhibit to Pre-Effective Amendment No. 1 as filed with the
Securities and Exchange Commission on November 15, 1996.
(4) Filed as an exhibit to Pre-Effective Amendment No. 2 as filed with the
Securities and Exchange Commission on December 19, 1996.
(5) Filed herewith.

ITEM 25. Persons Controlled by or Under Common
Control with Registrant

Not applicable

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<PAGE>

ITEM 26. Number of Holders of Securities

Number of Record Holders
Title of Series as of November 30, 1998
--------------- ------------------------

VISTA(SM) SELECT INTERMEDIATE TAX FREE INCOME FUND 51
VISTA(SM) SELECT TAX FREE INCOME FUND 48
VISTA(SM) SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND 9
VISTA(SM) SELECT NEW JERSEY TAX FREE INCOME FUND 9

ITEM 27. Indemnification

Reference is hereby made to Article V of the Registrant's Declaration
of Trust.

The Trustees and officers of the Registrant and the personnel of the
Registrant's investment adviser, administrator and distributor are insured under
an errors and omissions liability insurance policy. The Registrant and its
officers are also insured under the fidelity bond required by Rule 17g-1 under
the Investment Company Act of 1940.

Under the terms of the Registrant's Declaration of Trust, the
Registrant may indemnify any person who was or is a Trustee, officer or employee
of the Registrant to the maximum extent permitted by law; provided, however,
that any such indemnification (unless ordered by a court) shall be made by the
Registrant only as authorized in the specific case upon a determination that
indemnification of such persons is proper in the circumstances. Such
determination shall be made (i) by the Trustees, by a majority vote of a quorum
which consists of Trustees who are neither in Section 2(a)(19) of the Investment
Company Act of 1940, nor parties to the proceeding, or (ii) if the required
quorum is not obtainable or, if a quorum of such Trustees so directs, by
independent legal counsel in a written opinion. No indemnification will be
provided by the Registrant to any Trustee or officer of the Registrant for any
liability to the Registrant or shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.

Insofar as the conditional advancing of indemnification monies for
actions based upon the Investment Company Act of 1940 may be concerned, such
payments will be made only on the following conditions: (i) the advances must be
limited to amounts used, or to be used, for the preparation or presentation of a
defense to the action, including costs connected with the preparation of a
settlement; (ii) advances may be made only upon receipt of a written promise by,
or on behalf of, the recipient to repay that amount of the advance which exceeds
that amount to which it is ultimately determined that he is entitled to receive
from the Registrant by reason of indemnification; and (iii) (a) such promise
must be secured by a surety bond, other suitable

C-3

<PAGE>
insurance or an equivalent form of security which assures that any repayments
may be obtained by the Registrant without delay or litigation, which bond,
insurance or other form of security must be provided by the recipient of the
advance, or (b) a majority of a quorum of the Registrant's disinterested,
non-party Trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that the recipient of
the advance ultimately will be found entitled to indemnification.

Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of it counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

ITEM 28(a). Business and Other Connections of Investment Adviser

The Chase Manhattan Bank (the "Adviser") is a commercial bank
providing a wide range of banking and investment services.

To the knowledge of the Registrant, none of the Directors or
executive officers of the Adviser, except those described below, are or have
been, at any time during the past two years, engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
Directors and executive officers of the Adviser also hold or have held various
positions with bank and non-bank affiliates of the Adviser, including its
parent, The Chase Manhattan Corporation. Each Director listed below is also a
Director of The Chase Manhattan Corporation.

<TABLE>
<CAPTION>
Principal Occupation or Other
Position with Employment of a Substantial
Name the Adviser Nature During Past Two Years
- ---- ----------- ----------------------------
<S> <C> <C>
Thomas G. Labreque President and Chief Operating Officer Chairman, Chief Executive Officer
and Director and a Director of The Chase
Manhattan Corporation and a
Director of AMAX, Inc.

M. Anthony Burns Director Chairman of the Board, President
and Chief Executive Officer of
Ryder System, Inc.

</TABLE>

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<PAGE>

H. Laurance Fuller Director Chairman, President, Chief
Executive Officer and Director of
Amoco Corporation and Director of
Abbott Laboratories

Henry B. Schacht Director Chairman and Chief Executive
Officer of Cummins Engine
Company, Inc. and a Director of
each of American Telephone and
Telegraph Company and CBS Inc.

</TABLE>

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<PAGE>

William H. Gray III Director President and Chief Executive
Officer of the United Negro College
Fund, Inc

Frank A. Bennack, Jr. Director President and Chief Executive Officer
The Hearst Corporation

Susan V. Berresford Director President, The Ford Foundation

Melvin R. Goodes Director Chairman of the Board and Chief Executive
Officer, The Warner-Lambert Company

George V. Grune Director Retired Chairman and Chief Executive
Officer, The Reader's Digest Association,
Inc.; Chairman, The DeWitt Wallace-
Reader's Digest Fund; The Lila-Wallace
Reader's Digest Fund

William B. Harrison, Jr. Vice Chairman of the Board

Harold S. Hook Director Chairman and Chief Executive Officer,
General Corporation

Helen L. Kaplan Director Of Counsel, Skadden, Arps, Slate, Meagher
& Flom

Walter V. Shipley Chairman of the Board and
Chief Executive Officer

Andrew C. Sigler Director Chairman of the Board and Chief
Executive Officer, Champion International
Corporation

John R. Stafford Director Chairman, President and Chief Executive
Officer, American Home Products
Corporation

Marina v. N. Whitman Director Professor of Business Administration and
Public Policy, University of Michigan

</TABLE>
<PAGE>

Item 28(b)

Chase Asset Management ("CAM") is an Investment Advisor providing investment
services to institutional clients.

To the knowledge of the Registrant, none of the Directors or executive
officers of the CAM, except those described below, are or have been, at any time
during the past two years, engaged in any other business, profession, vocation
or employment of a substantial nature, except that certain Directors and
executive officers of the CAM also hold or have held various positions with bank
and non-bank affiliates of the Advisor, including its parent, The Chase
Manhattan Corporation.

Principal Occupation or Other
Position with Employment of a Substantial
Name the Sub-Advisor Nature During Past Two Years
- ---- --------------- ----------------------------

James Zeigon Chairman and Director Director of Chase Asset
Management (London) Limited

Steven Prostano Executive Vice President Chief Operating Officer and
and Chief Operating Officer Director of Chase Asset
Management (London) Limited

Mark Richardson President and Chief Investment Chief Investment Officer
Officer and Director of Chase Asset
Management (London) Limited

<PAGE>

ITEM 29. Principal Underwriters

(a) Vista Fund Distributors, Inc., a wholly-owned subsidiary of
The BISYS Group, Inc. is the underwriter for Mutual Fund Group, Mutual Fund
Trust and Mutual Fund Select Group.

(b) The following are the Directors and officers of Vista Fund
Distributors, Inc. The principal business address of each of these persons, is
listed below.

<TABLE>
<CAPTION>
Position and Offices Position and Offices
Name and Address with Distributor with the Registrant
- ---------------- -------------------- --------------------
<S> <C> <C>

Lynn J. Mangum Chairman None
150 Clove Street
Little Falls, NJ 07424

Robert J. McMullan Director and Exec. Vice President None
150 Clove Street
Little Falls, NJ 07424

Lee W. Schultheis President None
101 Park Avenue, 16th Floor
New York, NY 10178

George O. Martinez Senior Vice President None
3435 Stelzer Road
Columbus, OH 43219

Irimga McKay Vice President None
1230 Columbia Street
5th Floor, Suite 500
San Diego, CA 92101

Michael Burns Vice President/Compliance None
3435 Stelzer Road
Columbus, OH 43219

William Blundin Vice President None
125 West 55th Avenue
11th Floor
New York, NY 10019

Dennis Sheehan Vice President None
150 Clove Street
Little Falls, NJ 07424

Annamaria Porcaro Assistant Secretary None
150 Clove Street
Little Falls, NJ 97424

Robert Tuch Assistant Secretary None
3435 Stelzer Road
Columbus, OH 43219

Stephen Mintos Executive Vice President/COO None
3435 Stelzer Road
Columbus, OH 43219

Dale Smith Vice President/CFO None
3435 Stelzer Road
Columbus, OH 43219

William J. Tomko Vice President None
3435 Stelzer Road
Columbus, OH 43219
</TABLE>

C-6

<PAGE>
ITEM 30. Location of Accounts and Records

The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:

Name Address
---- -------
Vista Fund Distributors, Inc. One Chase Manhattan Plaza, Third Floor,
New York, NY 10081

DST Systems, Inc. 210 W. 10th Street,
Kansas City, MO 64105

The Chase Manhattan Bank 270 Park Avenue,
New York, NY 10017

Chase Asset Mangement, Inc. 1211 Avenue of the
Americas,
New York, NY 10036

The Chase Manhattan Bank One Chase Square,
Rochester, NY 14363

ITEM 31. Management Services

Not applicable

ITEM 32. Undertakings

(1) Registrant undertakes that its trustees shall promptly
call a meeting of shareholders of the Trust for the purpose of voting upon the
question of removal of any such trustee or trustees when requested in writing so
to do by the record holders of not less than 10 per centum of the outstanding
shares of the Trust. In addition, the Registrant shall, in certain
circumstances, give such shareholders assistance in communicating with other
shareholders of a fund as required by Section 16(c) of the Investment Company
Act of 1940.

(2) The Registrant, on behalf of the Funds, undertakes,
provided the information required by Item 5A is contained in the latest annual
report to shareholders, to furnish to each person to whom a prospectus has been
delivered, upon their request and without charge, a copy of the Registrant's
latest annual report to shareholders.

(3) Registrant undertakes to file a post-effective amendment,
using reasonably current financial statements which need not be certified,
within four to six months from the date of commencement of investment operations
for each of Vista Select Intermediate Tax Free Income Fund, Vista Select Tax
Free Income Fund, Vista Select New York Tax Free Income Fund and Vista Select
New Jersey Tax Free Income Fund.

C-7

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has certified that it meets all of the
requirements for effectiveness pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Pre-Effective Amendment to its Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and the State of New York on the 28th
day of November, 2000.

MUTUAL FUND SELECT GROUP

By /s/ H. Richard Vartabedian
--------------------------
H. Richard Vartabedian
President

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.

* Chairman and Trustee November 28, 2000
- ------------------------------
Fergus Reid, III

/s/ H. Richard Vartabedian President November 28, 2000
- ------------------------------ and Trustee
H. Richard Vartabedian

/s/ Martin R. Dean Treasurer and November 28, 2000
-------------------------------- Principal Financial
Martin R. Dean Officer

* Trustee November 28, 2000
- ------------------------------
Richard E. Ten Haken

* Trustee November 28, 2000
- ------------------------------
William J. Armstrong

* Trustee November 28, 2000
- ------------------------------
John R.H. Blum

* Trustee November 28, 2000
- ------------------------------
Joseph J. Harkins

* Trustee November 28, 2000
- ------------------------------
Stuart W. Cragin, Jr.

* Trustee November 28, 2000
- ------------------------------
Irving L. Thode

* Trustee November 28, 2000
- ------------------------------
W. Perry Neff

* Trustee November 28, 2000
- ------------------------------
Roland R. Eppley, Jr.

* Trustee November 28, 2000
- ------------------------------
W.D. MacCallan

* Trustee November 28, 2000
- ------------------------------
Sarah E. Jones

* Trustee November 28, 2000
- ------------------------------
Leonard M. Spalding

/s/ H. Richard Vartebedian Attorney-in-Fact November 28, 2000
- ------------------------------
H. Richard Vartebedian

C-8