MUTUAL FUND INVESTMENT TRUST, 485BPOS, 1999-04-30

MUTUAL FUND INVESTMENT TRUST
485BPOS, 1999-04-30

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999

FILE NOS. 33-9421
811-5526
=============================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 \x\

PRE-EFFECTIVE AMENDMENT NO. \ \

POST-EFFECTIVE AMENDMENT NO. 26 \x\

AND/OR

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 \x\

AMENDMENT NO. 30 \x\

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

MUTUAL FUND INVESTMENT TRUST (formerly AVESTA Trust)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

One Chase Manhattan Plaza, Third Floor
New York, New York 10081
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)

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

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 492-1600

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

George Martinez, Esq.
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
(NAME AND ADDRESS OF AGENT FOR SERVICE)

COPY TO:
GARY S. SCHPERO, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE

NEW YORK, NEW YORK 10017

It is proposed that this filing will become effective:

\X\ immediately upon filing pursuant \ \ on pursuant to paragraph (b)
to paragraph (b)

\ \ 60 days after filing pursuant to \ \ on April 30, 1999 pursuant to
paragraph (a)(1) paragraph (a)(1)

1
<PAGE>

\ \ 75 days after filing pursuant \ \ on pursuant to paragraph
to paragraph (a)(2) (a)(2) of Rule 485

If appropriate, check the following box:

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

Registrant has previously elected, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, to register an indefinite number of units of
beneficial interest for sale under the Securities Act of 1933. Registrant's
Rule 24f-2 Notice for the fiscal year 1998 was filed on or about March 25, 1999.
================================================================================

<PAGE>

MUTUAL FUND INVESTMENT TRUST
Registration Statement on Form N-1A

CROSS-REFERENCE SHEET
Pursuant to Rule 495(a) Under the Securities Act of 1933

Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption

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

Captions apply to all
Prospectuses except where
indicated in parenthesis.
Parenthesis indicate captions
for Institutional Shares
Prospectuses

1 Front Cover Page *

2(a) Expense Summary *

(b) Not Applicable *
3(a) Financial Highlights *
(b) Not Applicable *
(c) Performance Information *
4(a)(b) Other Information Concerning *
the Fund; Fund Objective;
Investment Policies
(c) Fund Objective; Investment *
Policies
(d) Not Applicable *
5(a) Management *
(b) Management *
(c)(d) Management; Other Information *
Concerning the Fund
(e) Other Information Concerning *
the Fund; Back Cover Page
(f) Other Information Concerning *
the Fund
(g) Not Applicable *
5A Not Applicable *
6(a) Other Information Concerning *
the Fund
(b) Not Applicable *
(c) Not Applicable *

3
<PAGE>

Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
---------- ------------------ -----------------------

(d) Not Applicable *

(e)(f) About Your Investment; How to *
Buy, Sell and Exchange Shares (How to Purchase, Redeem and
Exchange Shares); How Distributions Are Made; Tax
Information; Other Information Concerning the Fund.

(f) How Distributions are Made; *
Tax Information
(g) How Distributions are Made; Tax Matters
Tax Information
(h) About Your Investment; How to *
Buy, Sell and Exchange Shares
(How to Purchase, Redeem and
Exchange Shares); Other
Information Concerning the
Fund
7(a) How to Buy, Sell and Exchange *
Shares (How to Purchase,
Redeem and Exchange Shares)
(b) How the Fund Values its *
Shares; How to Buy, Sell and
Exchange Shares (How to
Purchase, Redeem and Exchange
Shares)
(c) Not Applicable *
(d) How to Buy, Sell and Exchange *
Shares (How to Purchase,
Redeem and Exchange Shares)
(e) Management; Other Information *
Concerning the Fund
(f) Other Information Concerning *
the Fund
8(a) How to Buy, Sell and Exchange *
Shares (How to Purchase,
Redeem and Exchange Shares)
(b) How to Buy, Sell and Exchange *
Shares (How to Purchase,
Redeem and Exchange Shares)

<PAGE>

Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
---------- ------------------ -----------------------

(c) How to Buy, Sell and Exchange *
Shares (How to Purchase,
Redeem and Exchange Shares)
(d) How to Buy, Sell and Exchange *
Shares (How to Purchase,
Redeem and Exchange Shares)
9 Not Applicable *
10 * Front Cover Page
11 * Front Cover Page

12 * Not Applicable
13(a)(b) Fund Objective; Investment Investment Policies and
Policies Restrictions

14(c) * Management of the Trust and
Funds or Portfolios

(b) * Not Applicable
(c) * Management of the Trust and
Funds or Portfolios

15(a) * Not Applicable
(b) * General Information

16(a) Management Management of the Trust and
Funds or Portfolios
(b) Management Management of the Trust and
Funds or Portfolios

(c) Other Information Concerning Management of the Trust and
the Fund Funds or Portfolios
(d) Management Management of the Trust and
Funds or Portfolios

(e) * Not Applicable

(f) How to Buy, Sell and Exchange Management of the Trust and
Shares (How to Purchase, Funds or Portfolios
Redeem and Exchange Shares);
Other Information Concerning
the Fund
(g) * Not Applicable

(h) * Management of the Trust and
Funds or Portfolios;
Independent Accountants
(i) * Not Applicable

<PAGE>

Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
---------- ------------------ -----------------------

17 Investment Policies Investment Policies and
Restrictions
18(a) Other Information Concerning General Information
the Fund; How to Buy, Sell
and Exchange Shares (How to
Purchase, Redeem and Exchange
Shares)

(b) * Not Applicable

19(a) How to Buy, Sell and Exchange Purchases, Redemptions and
Shares (How to Purchase, Exchanges
Redeem and Exchange Shares)
(b) How the Fund Values its Determination of Net Asset
Shares; How to Buy, Sell and Value
Exchange Shares (How to
Purchase, Redeem and Exchange
Shares)

21(a) * Management of the Trust and
Funds or Portfolios

(b) * Management of the Trust and
Funds or Portfolios
(c) * Not Applicable

22 * Performance Information
23 * Not Applicable

6
<PAGE>

CHASE FUNDS
PREMIER SHARES

CHASE MONEY MARKET FUND

CHASE SHORT-INTERMEDIATE TERM
U.S. GOVERNMENT SECURITIES FUND

CHASE U.S. GOVERNMENT SECURITIES FUND

CHASE INTERMEDIATE TERM BOND FUND

CHASE INCOME FUND

CHASE BALANCED FUND

CHASE EQUITY INCOME FUND

CHASE CORE EQUITY FUND

CHASE EQUITY GROWTH FUND

CHASE SMALL CAPITALIZATION FUND

PROSPECTUS APRIL 30, 1999

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of shares of this Fund or determined if
this prospectus is accurate or complete. It is a crime to state otherwise.

[LOGO]

CHASE FUNDS(Service Mark)

PSCF2-1-499

<PAGE>

CONTENTS

1 Chase Money Market Fund
5 Chase Short-Intermediate Term

U.S. Government Securities Fund
11 Chase U.S. Government Securities Fund
17 Chase Intermediate Term Bond Fund
23 Chase Income Fund
29 Chase Balanced Fund
35 Chase Equity Income Fund
40 Chase Core Equity Fund
45 Chase Equity Growth Fund
50 Chase Small Capitalization Fund
55 Fund management The Funds Investment Advisor

57 HOW YOUR ACCOUNT WORKS

57 Buying Fund shares

58 Selling Fund shares
58 Exchanging Fund shares

58 Other information concerning the Funds

59 DISTRIBUTIONS AND TAXES

61 FINANCIAL HIGHLIGHTS

72 WHAT THE TERMS MEAN

CHASE MONEY MARKET FUND

<PAGE>

THE FUND'S OBJECTIVE

The Fund aims to provide the highest possible level of current income while
still maintaining liquidity and preserving capital.

THE FUND'S MAIN INVESTMENT STRATEGY

The Fund invests in high quality, short-term money market instruments which are
issued and payable in U.S. dollars. The Fund principally invests in:

o high quality commercial paper and other short-term debt securities,
including floating and variable rate demand notes of U.S. and foreign
corporations

o debt securities issued or guaranteed by qualified banks. These are:
o U.S. banks with more than $1billion in total assets and foreign

branches of these banks

o foreign banks with the equivalent of more than $10 billion in total
assets and which have branches or agencies in the U.S.

o other U.S. or foreign commercial banks which the Fund's advisers
judge to have comparable credit standing

o securities issued or guaranteed by the U.S. Government, its agencies or
authorities

o asset-backed securities
o repurchase agreements.

The dollar weighted average maturity of the Fund will be 90 days or less and the
Fund will buy only those instruments which have remaining maturities of 397 days
or less.

The Fund may invest any portion of its assets in debt securities issued or
guaranteed by U.S. banks and their foreign branches. These include certificates
of deposit, time deposits and bankers' acceptances.

<PAGE>

CHASE MONEY MARKET FUND

The Fund seeks to maintain a net asset value of $1.00 per share.

The Fund invests only in securities issued and payable in U.S. dollars. Each
investment must have the highest short-term rating from at least two national
rating organizations, or one such rating if only one organization rates that
security. Alternatively, the security may have a guarantee that has such a
rating. If the security is not rated, it must be considered of comparable
quality by the Fund's advisers.

The Fund seeks to develop an appropriate portfolio by considering the
differences in yields among securities of different maturities, market sectors
and issuers.

The Fund may change any of its 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. High trading activity generally means higher
transaction costs.

THE MAIN INVESTMENT RISKS

The Fund attempts to keep its net asset value constant, but there's no guarantee
it will be able to do so.

The value of money market investments tends to fall when prevailing interest
rates rise, although they're generally less sensitive to interest rate changes
than longer-term securities.

Repurchase agreements involve some risk to the Fund if the other party does not
live up to its obligations under the agreement.

The Fund's ability to concentrate its investments in the banking industry could
increase risks. The profitability of banks depends largely on the availability
and cost of funds, which can change depending upon economic conditions. Banks
are also exposed to losses if borrowers get into financial trouble and can't
repay their loans.

Investments in foreign banks and other foreign issuers may be riskier than
investments in the United States. That could be, in part, because of difficulty
converting investments into cash, political and economic instability, the
imposition of government controls, or regulations that don't match U.S.

standards.

Although the Fund seeks to be fully invested, it may at times hold some of its
assets in cash. This would hurt the Fund's performance.

The Fund, like any business, could be affected if the computer systems on which
it relies fail to properly process information beginning January 1, 2000. The
Fund's advisers are updating their own systems and encouraging service providers
to do the same, but there's no guarantee these systems will work properly. Year
2000 problems could also hurt issuers whose securities the Fund holds or
securities markets generally.

Securities in the Fund's portfolio may not earn as high a current income as
longer term or lower quality securities.

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. Although the Cash Management Money Market Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.

<PAGE>

THE FUND'S PAST PERFORMANCE

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

YEAR-BY-YEAR RETURNS

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

[bar chart goes here]

Horizontal axis: Year

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Vertical axis: Return (%)

18.26 1.34 24.16 5.32 6.01 -2.27 23.83 11.31 23.67 25.15

BEST QUARTER 2.05% 4th quarter, 1989

WORST QUARTER 0.62% 2nd quarter, 1993

AVERAGE ANNUAL TOTAL RETURNS
For the periods ending December 31, 1998

Past 1 year Past 5 years Past 10 years
<S> <C> <C> <C>

PREMIER CLASS SHARES 5.20% 4.60% 5.34%
</TABLE>

<PAGE>

CHASE MONEY MARKET FUND

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)*

TOTAL
ANNUAL
FUND

MANAGEMENT DISTRIBUTION OTHER OPERATING
FEE (12B-1) FEES EXPENSES EXPENSES

PREMIER CLASS 0.30% NONE 0.29% 0.59%
SHARES

[Footnote]

* The table is based on expenses incurred in the most recent fiscal year. The
actual Other expenses are currently expected to be 0.20% and Total annual Fund
operating expenses are expected not to exceed .50%. That's 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 end this arrangement at any time.
The table does not reflect charges or credits 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:

o you invest $10,000

o you sell all your shares at the end of the period o your investment has a 5%
return each year, and

o 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 COST WOULD BE:

NUMBER OF YEARS: 1 3 5 10
COSTS: $60 $189 $329 $738

<PAGE>

CHASE SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND

THE FUNDS OBJECTIVE

The Fund aims to provide as high a level of current income as is consistent with
preservation of capital.

THE FUND'S MAIN INVESTMENT STRATEGY

Under normal market conditions, the Fund will invest at least 70% of its total
assets in debt securities issued or guaranteed by the U.S. Government and its
agencies or authorities, and in repurchase agreements involving these
securities.

The Fund may invest in mortgage-related securities issued or guaranteed by
certain agencies of the U.S. Government. These may include investments in
collateralized mortgage obligations and principal-only and interest-only
stripped mortgage-backed securities.

To reduce volatility, under normal market conditions, the Fund maintains a
dollar-weighted average maturity for the overall portfolio of between two and
five years. This is because the prices of shorter-term securities tend to be
less volatile than the prices of longer-term securities. There is no restriction
on the maturity of any individual security in the portfolio. The Fund's adviser
adjusts the average maturity of the Fund based on its outlook for the economy.

<PAGE>

CHASE SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND

When making investment decisions for the Fund, the Fund's adviser considers many
factors in addition to current yield, including preservation of capital,
maturity and yield to maturity. The Fund's adviser will adjust the Fund's
investments in certain securities or types of securities based on its analysis
of changing economic conditions and trends. The Fund's adviser may sell one
security and buy another security of comparable quality and maturity to take
advantage of what it believes to be short-term differences in market values or
yields.

The Fund may invest in floating rate securities, whose interest rate adjusts
automatically whenever a specified interest rate changes, and in variable rate
securities, whose interest rates are changed periodically.

The Fund may enter into "dollar rolls" in which the Fund sells mortgage-backed
securities and at the same time contracts to buy back very similar securities on
a future date. It may also buy asset-backed securities. These receive a stream
of income from a particular asset, such as credit card receivables.

The Fund may also invest in high-quality, short-term money market instruments,
repurchase agreements and derivatives, which are investments that have a value
based on another investment, exchange rate or index. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.

To temporarily defend its assets during unusual market conditions, the Fund may
invest any portion of its assets in high quality money market instruments and
repurchase agreements.

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.

<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
Short-Intermediate Term U.S. Government Securities Fund.

The value of fixed income investments such as bonds tends to fall when
prevailing interest rates rise. Such a drop in value could be worse if the Fund
invests a larger portion of its assets in debt securities with longer
maturities. That's because long-term debt securities are more sensitive to
interest rate changes than other fixed-income securities.

When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-backed securities. That's because the prepayment features on some
mortgage-related securities make them more sensitive to interest rate changes.
Mortgage-related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be lower
than on the original mortgage security. When interest rates are rising, the
value of fixed-income securities with prepayment features are likely to decrease
as much or more than securities without prepayment features. In addition, the
value of mortgage-related securities with prepayment features may not increase
as much as other fixed-income securities when interest rates fall.

Collateral mortgage obligations are issued in multiple classes, and each class
may have its own interest rate and/or final payment date. A class with an
earlier final payment date may have certain preferences in receiving principal
payments or earning interest. As a result, the value of some classes in which
the Fund invests may be more volatile.

The value of interest-only and principal-only mortgage backed securities is more
volatile than other types of mortgage-related securities. That's because they
are very sensitive not only to changes in interest rates, but also to the rate
of prepayments. A rapid or unexpected increase in prepayments can significantly
depress the price of interest-only securities, while a rapid or unexpected
decrease could have the same effect on principal-only securities. In addition,
these instruments may be illiquid.

While the principal and payments on certain of the Fund's portfolio securities
may be guaranteed, this does not mean that the market value of the security, or
the value of Fund shares, is guaranteed.

The Fund's performance will depend on the credit quality of its investments.
While U.S. Government securities are generally of high quality, a government
security that is not backed by the full faith and credit of the U.S. Treasury
may be affected by the creditworthiness of the agency or authority that issued
it.

Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.

<PAGE>

CHASE SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND

Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.

If the interest rate on floating and variable rate securities falls, the Fund's
yield may decline and it may lose the opportunity for capital appreciation.

Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its part of the agreement.

Derivatives may be more risky than other types of investments and could cause
losses that exceed the Fund's original investment.

If the Fund temporarily departs from its investment policies to defend its
assets, it may not achieve its investment objectives.

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

<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 Premier Class shares has varied from year to year.
This provides some indication of the risks of investing in the Fund. The table
shows the average annual return over the past year, five years and since
inception. It compares that performance to the Lehman 1-3 Year Government Index
and the Lehman Intermediate Government Index.

The Lehman 1-3 Year Government Index consists of U.S. Treasury and agency
securities with maturities of one to three years. The Lehman Intermediate
Government Index consists of U.S. Treasury and agency securities with maturities
of one to 10 years.

YEAR-BY-YEAR RETURNS

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

[bar chart goes here]

Horizontal axis: Year

1994 1995 1996 1997 1998

Vertical axis: Return (%)

- -1.05 12.01 2.68 6.30 7.35

BEST QUARTER: 4.21% 3rd quarter, 1998

WORST QUARTER -1.35% 1st quarter, 1994

AVERAGE ANNUAL TOTAL RETURNS
For the periods ending December 31, 1998

PAST 1 YEAR PAST 5 YEARS SINCE

INCEPTION

(4/1/93)

PREMIER CLASS SHARES 7.35% 5.36% 5.08%
LEHMAN 1-3 YEAR GOV'T INDEX 6.96% 5.96% 5.73%
LEHMAN INT GOV'T INDEX 8.44% 6.45% 6.36%

</TABLE>

<PAGE>

CHASE SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND

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)*

TOTAL
ANNUAL
FUND

MANAGEMENT DISTRIBUTION OTHER OPERATING
FEE (12B-1) FEES EXPENSES EXPENSES

PREMIER CLASS SHARES 0.50% NONE 0.61% 1.11%

[Footnote]

* The table is based on expenses incurred in the most recent fiscal year. The
actual Management fee is currently expected to be 0.14% and Total annual Fund
operating expenses are expected not to exceed 0.75%. That's 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 end this arrangement at any time.
The table does not reflect charges or credits 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:

o you invest $10,000

o you sell all your shares at the end of the period
o your investment has a 5% return each year, and

o 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 COST WOULD BE:

NUMBER OF YEARS: 1 3 5 10
COSTS $113 $353 $612 $1,352

<PAGE>

CHASE U.S. GOVERNMENT SECURITIES FUND

THE FUND'S OBJECTIVE

The Fund aims to provide current income while emphasizing preservation of
capital.

THE FUND'S MAIN INVESTMENT STRATEGY

Under normal market conditions, the average portfolio maturity of the Fund is
between five and 15 years. There is no restriction on the maturity of any
individual security in the portfolio. The Fund's adviser will adjust the
maturity based on its outlook for the economy.

<PAGE>

CHASE U.S. GOVERNMENT SECURITIES FUND

To temporarily defend its assets during unusual market conditions, the Fund may
invest any portion of its assets in high quality money market instruments and
repurchase agreements.

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.

<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 U.S.

Government Securities Fund.

When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-backed securities. That's because the prepayment features on some
mortgage-related securities make them more sensitive to interest rate changes.
Mortgage-related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be lower
than on the original mortgage security. When interest rates are rising, the
value of fixed- income securities with prepayment features are likely to
decrease as much or more than securities without prepayment features. In
addition, the value of mortgage-related securities with prepayment features may
not increase as much as other fixed-income securities when interest rates fall.

The value of interest-only and principal-only mortgage-backed securities is more
volatile than other types of mortgage-related securities. That's because they
are very sensitive not only to changes in interest rates, but also to the rate
of prepayments. A rapid or unexpected increase in prepayments can significantly
depress the price of interest-only securities, while a rapid or unexpected
decrease could have the same effect on principal-only securities. In addition,
these instruments may be illiquid.

While the principal and payments on certain of the Fund's portfolio securities
may be guaranteed, this does not mean that the market value of the security, or
the value of Fund shares, is guaranteed.

Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.

<PAGE>

CHASE U.S. GOVERNMENT SECURITIES FUND

Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.

If the interest rate on floating and variable rate securities falls, the Fund's
yield may decline and it may lose the opportunity for capital appreciation.

Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its part of the agreement.

Derivatives may be more risky than other types of investments and could cause
losses that exceed the Fund's original investment.

If the Fund temporarily departs from its investment policies to defend its
assets, it may not achieve its investment objectives.

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

<PAGE>

THE FUND'S PAST PERFORMANCE

The Lehman Brothers Government Index consists of the Lehman Brothers Treasury
Bond Index and the Lehman Brothers Agency Bond Index. It includes Treasury bonds
and fixed income securities issued by the U.S. Government and its agencies.

Lipper General U.S. Government Funds Index represents performance of the 30
largest U.S. government securities funds.

YEAR-BY-YEAR RETURNS

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

[bar chart goes here]

Horizontal axis: Year

1994 1995 1996 1997 1998

Vertical axis: Return (%)

- -8.39% 30.11% -1.89% 9.55% 9.28%

BEST QUARTER 10.36% 2nd quarter, 1995
WORST QUARTER -6.79% 1st quarter, 1996

AVERAGE ANNUAL TOTAL RETURNS
For the periods ending December 31, 1998

SINCE

PAST 1 PAST 5 INCEPTION
YEAR YEARS (4/1/93)

PREMIER CLASS SHARES 9.28% 6.96% 7.64%
LEHMAN BROS. GOV'T INDEX 9.85% 7.18% 7.28%
LIPPER GENERAL U.S. GOV'T

FUNDS INDEX 7.85% 6.02% 6.04%

<PAGE>

CHASE U.S. GOVERNMENT SECURITIES FUND

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)*

TOTAL
ANNUAL
FUND

MANAGEMENT DISTRIBUTION OTHER OPERATING
FEE (12B-1) FEES EXPENSES EXPENSES

PREMIER CLASS SHARES 0.50% NONE 3.50% 4.00%

* The table is based on expenses incurred in the most recent fiscal year. The
actual Management fee is currently expected to be 0.00%, Other Expenses are
expected to be 0.75%, and Total annual Fund operating expenses are expected not
to exceed 0.75%. That's 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
end this arrangement at any time. The table does not reflect charges or credits
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:

o you invest $10,000

o you sell all your shares at the end of the period
o your investment has a 5% return each year, and

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

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

YOUR COST WOULD BE:

NUMBER OF YEARS 1 3 5 10
COSTS $402 $1,218 $2,051 $4,206

<PAGE>

CHASE INTERMEDIATE TERM BOND FUND

THE FUND'S OBJECTIVE

The Fund aims to invest in securities that earn current income while also
considering stability of principal.

THE FUND'S MAIN INVESTMENT STRATEGY

The Fund seeks current income by investing primarily in fixed income securities.
Under normal market conditions, the Fund will invest at least 70% of its total
assets in bonds and notes of domestic and foreign issuers, U.S. Government
securities and mortgage-related securities .

To help reduce the risk of loss of principal, all of the Fund's investments in
debt securities will be investment grade, which means a rating of Baa or higher
by Moody's Investors Service, Inc., BBB or higher by Standard & Poor's
Corporation, or the equivalent by another national rating organization or
unrated securities of comparable quality. The Fund's investment in preferred
stock will be based on the adviser's judgment of the quality of the securities.

The average portfolio maturity of the Fund is between three and 10 years. When
the Fund purchases fixed income securities, they usually will have a maturity of
greater than one year. The Fund's adviser will adjust the maturity based on its
outlook for the economy.

<PAGE>

CHASE INTERMEDIATE TERM BOND FUND

another security of comparable quality and maturity to take advantage of what it
believes to be short-term differences in market values or yields.

The Fund may invest in mortgage-related securities issued by governmental
entities and private issuers. These may include investments in collateralized
mortgage obligations and principal-only and interest-only stripped
mortgage-backed securities.

The Fund may invest up to 30% of its total assets in foreign debt securities,
including Depositary Receipts. These investments may include debt securities
issued or guaranteed by foreign governments and international organizations such
as The World Bank.

To temporarily defend its assets during unusual market conditions, the Fund may
invest any portion of its assets in high quality money market instruments and
repurchase agreements.

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.

<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
Intermediate Term Bond Fund.

Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.

Investments in foreign securities may be riskier than investments in the U.S.
They may be affected by political, social and economic instability. Some
securities may be harder to trade without incurring a loss and may be difficult
to convert into cash. There may be less public information available, differing
settlement procedures, or regulations and standards that don't match U.S.
standards. Some countries may nationalize or expropriate assets or impose
exchange controls. If the Fund were to invest in a security which is not
denominated in U.S. dollars, it also would be subject to currency exchange risk.

<PAGE>

CHASE INTERMEDIATE TERM BOND FUND

These risks increase when investing in issuers located in developing countries.

The Fund's performance will depend on the credit quality of its investments.
Securities which are rated Baa by Moody's or BBB by S&P may have fewer
protective provisions and are generally more risky than higher rated securities.
The issuer may have trouble making principal and interest payments when
difficult economic conditions exist.

Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.

If the interest rate on floating and variable rate securities falls, the Fund's
yield may decline and it may lose the opportunity for capital appreciation.

Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its part of the agreement.

Derivatives may be more risky than other types of investments and could cause
losses that exceed the Fund's original investment.

If the Fund departs from its investment policies during temporary defensive
periods, it may not achieve its investment objective.

The Fund, like any business, could be affected if the computer systems on which
it relies fail to properly process information beginning January 1, 2000. The
Fund's advisers are updating their own systems and encouraging service provider
to do the same, but there's no guarantee these systems will work properly. Year
2000 problems could also hurt issuers whose securities the Fund holds or
securities markets generally.

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

<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 Premier Class 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
inception. It compares that performance to the Lehman Brothers Intermediate
Government/Corporate Index and the Lehman Brothers Aggregate Index.

The Lehman Brothers Intermediate Government/Corporate Index consists of U.S.
Treasury and agency securities, corporate and Yankee bonds with maturities of
1-10 years. The Lehman Brothers Aggregate Index consists of the Lehman Brothers
Government/Corporate Index U.S. Treasury and agency securities, corporate bonds
and mortgage-backed securities with maturities of 1-30 years.

YEAR-BY-YEAR RETURNS

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

[bar chart goes here]

Horizontal axis: Year

1995 1996 1997 1998

Vertical axis: Return (%)

16.79% 1.86% 7.26% 7.63%

BEST QUARTER 5.99% 2nd quarter, 1995
WORST QUARTER -2.15% 1st quarter, 1996

<PAGE>

CHASE INTERMEDIATE TERM BOND FUND

AVERAGE ANNUAL TOTAL RETURNS
For the periods ending December 31, 1998

SINCE
PAST 1 INCEPTION

YEAR (10/3/94)

PREMIER CLASS SHARES 7.63% 7.64%
LEHMAN INTERMEDIATE GOV'T/CORP INDEX 8.44% 8.27%
LEHMAN AGGREGATE INDEX 8.69% 9.46%

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)*

TOTAL ANNUAL

FUND

MANAGEMENT DISTRIBUTION OTHER OPERATING
FEE (12B-1) FEES EXPENSES EXPENSES

PREMIER CLASS SHARES 0.50% NONE 0.70% 1.20%

* The table is based on expenses incurred in the most recent fiscal year. The
actual Management fee is currently expected to be 0.05% and Total annual Fund
operating expenses are expected not to exceed 0.75%. That's 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 end this arrangement at any time.
The table does not reflect charges or credits 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:

o you invest $10,000

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

o your investment has a 5% return each year, and

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

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

YOUR COST WOULD BE:

NUMBER OF YEARS 1 3 5 10
COSTS $122 $381 $660 $1,455

<PAGE>

CHASE INCOME FUND

THE FUND'S OBJECTIVE

The Fund aims to invest in securities that earn a high level of current income,
while also considering safety of principal.

THE FUND'S MAIN INVESTMENT STRATEGY

The Fund seeks a high level of current income by investing in fixed income
securities. Under normal market conditions, the Fund will invest at least 70% of
its total assets in bonds and notes of domestic and foreign issuers, U.S.
Government securities and mortgage-related securities .

The average portfolio maturity of the Fund is between five and 15 years. When
the Fund purchases fixed income securities, they usually will have a maturity of
greater than one year. The Fund's adviser will adjust the maturity based on its
outlook for the economy.

<PAGE>

CHASE INCOME FUND

adviser may sell one security and buy another security of comparable quality and
maturity to take advantage of what it believes to be short-term differences in
market values or yields.

The Fund may invest up to 30% of its total assets in foreign securities,
including Depositary Receipts. These investments may include debt securities
issued or guaranteed by foreign governments and international organizations such
as The World Bank.

To temporarily defend its assets during unusual market conditions, the Fund may
invest any portion of its assets in high quality money market instruments and
repurchase agreements.

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

[LOGO]

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.

<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 Income
Fund.

Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.

<PAGE>

CHASE INCOME FUND

denominated in U.S. dollars, it also would be subject to currency exchange risk.
These risks increase when investing in issuers located in developing countries.

Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.

If the interest rate on floating and variable rate securities falls, the Fund's
yield may decline and it may lose the opportunity for capital appreciation.

Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its part of the agreement.

Derivatives may be more risky than other types of investments and could cause
losses that exceed the Fund's original investment.

If the Fund departs from its investment policies during temporary defensive
periods, it may not achieve its investment objective.

[LOGO]

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

<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 Premier Class shares has varied from year to year.
This provides some indication of the risks of investing in the Fund. The table
shows the average annual return over the past year, five years and ten years. It
compares that performance to the Lehman Brothers Government/Corporate Index.

The Lehman Brothers Government/Corporate Index is an unmanaged index that
consists of U.S. Treasury and agency securities, and corporate and Yankee bonds
with maturities of 1-30 years.

Lipper Corporate Debt A Rated Funds Index represents performance of the largest
30 A rated corporate debt funds.

[LOGO]

YEAR-BY-YEAR RETURNS

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

[GRAPH APPEARS HERE]

1989 10.37%
1990 6.60%
1991 13.73%
1992 5.13%
1993 10.18%
1994 -4.47%
1995 18.38%
1996 1.91%
1997 8.73%
1998 9.47%

BEST QUARTER 6.34%
2nd quarter, 1989

WORST QUARTER -3.38%
1st quarter, 1994

AVERAGE ANNUAL TOTAL RETURNS

For the periods ending December 31, 1998

PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS

PREMIER CLASS SHARES 9.47% 6.52% 7.83%
LEHMAN GOV'T/CORP INDEX 9.47% 7.30% 9.33%
LIPPER CORPORATE DEBT A

RATED FUND INDEX 7.31% 6.61% 8.85%

<PAGE>

CHASE INCOME FUND

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)*

TOTAL ANNUAL

FUND

MANAGEMENT DISTRIBUTION OTHER OPERATING
FEE (12B-1 FEES) EXPENSES EXPENSES

PREMIER CLASS SHARES 0.50% NONE 0.42% 0.92%

* The table is based on expenses incurred in the most recent fiscal year. The
actual Management fee is currently expected to be 0.33%, Other Expenses are
expected to be 0.42% and Total annual Fund operating expenses are expected not
to exceed 0.75%. That's 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
end this arrangement at any time. The table does not reflect charges or credits
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:

o you invest $10,000

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

o your investment has a 5% return each year, and

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

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

YOUR COST WOULD BE:

NUMBER OF YEARS 1 3 5 10
COSTS $94 $293 $509 $1,131

<PAGE>

CHASE BALANCED FUND

THE FUND'S OBJECTIVE

The Fund aims to provide a balance of current income and growth of capital.

THE FUND'S MAIN INVESTMENT STRATEGY

The Fund seeks a balance of current income and growth by using the following
strategies:

o an active equity management style that focuses on strong earnings
momentum and profitability within the universe of growth-oriented
stocks, and

o an active fixed income management style that focuses primarily on
domestic fixed income securities.

The Fund's adviser may adjust the portion of the Fund's assets that are invested
in equity and fixed income securities depending on its analysis of general
market and economic conditions and trends, yields, interest rates and changes in
monetary policies.

The Fund seeks growth of capital by normally investing 30% to 70% of its total
assets in equity securities. The Fund invests primarily in companies with one or
more of the following characteristics:

o a projected rate of earnings growth that's equal to or greater than
the equity markets

o a return on assets and equity that's equal to or greater than the
equity markets

o above-average price/earnings ratios

o below-average dividend yield

o above-average market volatility

o a market capitalization of more than $500 million.

Market capitalization is the total market value of a company's shares. Equity
securities include common stocks and pre-

<PAGE>

CHASE BALANCED FUND

ferred stocks and securities that are convertible into common stocks.

The Fund will focus on companies with strong earnings growth and high
profitability levels. The Fund will also examine industry and company specific
characteristics. The Fund's equity portion will emphasize growth sectors of the
economy.

The Fund seeks current income by normally investing at least 25% of its total
assets in U.S. government securities and other fixed income securities,
including mortgage-backed securities. The Fund invests in fixed income
securities only if they are rated as investment grade or the adviser considers
them to be comparable to investment grade.

There is no restriction on the maturity of the Fund's debt portfolio or on any
individual security in the portfolio. The Fund's advisers will adjust the
maturity based on its outlook for the economy.

The Fund may invest up to 30% of its total assets in foreign securities,
including Depositary Receipts. Its equity investments may also include
convertible securities, which generally pay interest or dividends and which can
be converted into common or preferred stock.

The Fund's equity holdings may also include real estate investment trusts
(REITs), which are pools of investments primarily in income-producing real
estate or loans related to real estate.

The Fund may enter into "dollar rolls," in which the Fund sells mortgage-backed
securities and at the same time contracts to buy back very similar securities on
a future date. It may also buy asset-backed securities. These receive a stream
of income from a particular asset, such as credit card receivables.

The Fund may invest any portion of its assets that aren't in stocks or fixed
income securities in high quality money market instruments and repurchase
agreements. To temporarily defend its assets, the Fund may put any amount of its
assets in these types of investments.

The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.

<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 of the specific risks of investing in
Balanced Fund.

The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.

The securities of mid-capitalization companies may trade less frequently and in
smaller volumes than securities of larger, more established companies. As a
result, share price changes may be more sudden or more erratic. Mid-sized
companies may have limited product lines, markets or financial resources, and
they may depend on a small management group.

Investments in foreign securities may be riskier than investments in the U.S.
Because foreign securities are usually denominated in foreign currencies, the
value of the Fund's portfolio may be influenced by currency exchange rates and
exchange control regulations. Foreign securities may be affected by political,
social and economic instability. Some securities may be harder to trade without
incurring a loss and may be difficult to convert into cash. There may be less
public information available, differing settlement procedures, or regulations
and standards that don't match U.S. standards. Some countries may nationalize or
expropriate assets or impose exchange controls. These risks increase when
investing in issuers located in developing countries.

Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.

In early 1999, the European Monetary Union implemented a new currency called the
"euro." It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.

The value of the Fund's fixed income securities tends to fall when prevailing
interest rates rise. Such a drop could be worse if the Fund invests a larger
portion of its assets in debt securities with longer maturities. That's because
long-term debt securities are more sensitive to interest rate changes than other
fixed income securities.

When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-related securities. That's because the prepayment features on some
mortgage-related securities make them more sensitive to interest rate changes.
Mortgage related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be higher
or lower than on the original mortgage security. When interest rates are rising,
the value of fixed-income securities with prepayment features are likely to
decrease as much or more than securities without prepayment features. In
addition, while the value of fixed-income securities will generally increase
when interest rates decline, the value of mortgage-related

<PAGE>

CHASE BALANCED FUND

securities with prepayment features may not increase as much as securities
without prepayment features.

The value of interest-only and principal-only mortgage backed securities are
more volatile than other types of mortgage-related securities. That's because
they are very sensitive not only to changes in interest rates , but also to the
rate of prepayments. A rapid or unexpected increase in prepayments can
significantly depress the price of interest-only securities, while a rapid or
unexpected decrease could have the same effect on principal-only securities. In
addition, these instruments may be illiquid.

Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.

The Fund's performance will also depend on the credit quality of its
investments. Securities which are rated Baa by Moody's or BBB by S&P may have
fewer protective provisions and are generally more risky than higher rated
securities. The issuer may have trouble making principal and interest payments
when difficult economic conditions exist.

Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.

Because the interest rate changes on floating and variable rate securities, the
Fund's yield may decline and it may lose the opportunity for capital
appreciation when interest rates decline.

Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its obligations under the
agreement.

The market value of convertible securities tends to decline as interest rates
increase. Their value also tends to change whenever the market value of the
underlying common or preferred stock fluctuates.

The value of REITs will depend on the value of the underlying properties or the
underlying loans or interest. The value of REITs may decline when interest rates
rise.

If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and U.S. Government obligations, including
where the Fund is investing for temporary defensive purposes, it could reduce
the Fund's potential return.

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 exceed
the Fund's original investment.

<PAGE>

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

THE FUND'S PAST PERFORMANCE

This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Premier Class shares has varied from year to year.
This provides some indication of the risks of investing in the Fund. The table
shows the average annual return over the past year, five years and ten years. It
compares that performance to the S&P 500 Index and Lehman Brothers
Government/Corporate Index.

The S&P 500 Index is an unmanaged, broad-based index of 500 companies and is
generally considered to represent the U.S. market. The Lehman Brothers
Government/Corporate Index is an unmanaged index that consists of the Lehman
government and corporate bond indices, including U.S. Treasury and agency
securities, and corporate and Yankee bonds.

[LOGO]

YEAR-BY-YEAR RETURNS

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

[GRAPH APPEARS HERE]

1989 18.26%
1990 1.34%
1991 24.16%
1992 5.32%
1993 6.01%
1994 -2.27%
1995 23.83%
1996 11.32%
1997 23.67%
1998 25.15%

BEST QUARTER 13.34%
4th quarter, 1998

WORST QUARTER -5.37%
3rd quarter, 1990

<PAGE>

CHASE BALANCED FUND

AVERAGE ANNUAL TOTAL RETURNS
For the periods ending December 31, 1998

PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS

PREMIER CLASS SHARES 25.15% 15.82% 13.22%
S&P 500 INDEX 28.58% 24.06% 19.20%
LEHMAN BROS.

GOV'T/CORP INDEX 9.47% 7.30% 9.33%

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)*

TOTAL ANNUAL

FUND

MANAGEMENT DISTRIBUTION OTHER OPERATING
FEE (12B-1) FEES EXPENSES EXPENSES

PREMIER CLASS SHARES 0.75% NONE 0.45% 1.20%

* The table is based on expenses incurred in the most recent fiscal year. The
actual Management fee is currently expected to be 0.55% and Total annual Fund
operating expenses are expected not to exceed 1.00%. That's 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 end this arrangement at any time.
The table does not reflect charges or credits 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:

o you invest $10,000

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

o your investment has a 5% return each year, and

o 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 COST WOULD BE:

NUMBER OF YEARS 1 3 5 10
COSTS $122 $381 $660 $1,455

<PAGE>

CHASE EQUITY INCOME FUND

THE FUND'S OBJECTIVE

The Fund aims to invest in securities that provide both capital appreciation and
current income.

THE FUND'S MAIN INVESTMENT STRATEGY

The Fund uses an active equity management style which focuses on both earnings
momentum and value within the universe of income-oriented stocks. The Fund
normally invests at least 70% of its total assets in equity securities.

The Fund seeks capital appreciation by targeting companies with attractive
earnings momentum. It seeks current income by emphasizing companies with
above-average dividend yield and a consistent dividend record. The Fund also
emphasizes securities of companies with below-average market volatility and
price/earnings ratios or a market capitalization of more than $500 million. The
Fund combines growth and value styles of investing.

The Fund may also invest in investment grade debt securities. When the adviser
wishes to limit the Fund's equity investments because of adverse market
conditions, the Fund may temporarily invest any amount in investment grade debt
securities. There is no restriction on the Fund's debt portfolio or on any
individual security in the portfolio.

<PAGE>

CHASE EQUITY INCOME FUND

The Fund's equity holdings may also include real estate investment trusts
(REITs), which are pools of investments primarily in income-producing real
estate or loans related to real estate.

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.

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 of the specific risks of investing in
Equity Income Fund.

The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.

<PAGE>

Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.

The market value of convertible securities and debt securities tends to decline
as interest rates increase. Such a drop could be worse if the Fund invests a
large portion of its assets in debt securities with longer maturities. The value
of convertible securities also tends to change whenever the market value of the
underlying common or preferred stock fluctuates.

The value of REITs will depend on the value of the underlying properties or the
underlying loans or interest. The value of REITs may decline when interest rates
rise.

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

<PAGE>

CHASE EQUITY INCOME FUND

THE FUND'S PAST PERFORMANCE

This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Premier Class shares has varied from year to year.
This provides some indication of the risks of investing in the Fund. The table
shows the average annual return over the past year, five years and ten years. It
compares that performance to the S&P 500 Index. The S&P 500 Index is an
unmanaged, broad-based index of 500 companies that is generally considered to
represent the U.S. market.

Lipper Equity Income Funds Index represents performance of the largest 30 equity
income funds.

YEAR-BY-YEAR RETURNS

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

[GRAPH APPEARS HERE]

1989 22.50%
1990 -4.40%
1991 22.10%
1992 5.61%
1993 12.34%
1994 -3.37%
1995 33.72%
1996 17.87%
1997 31.05%
1998 26.20%

BEST QUARTER 17.04%
2nd quarter, 1997

WORST QUARTER -9.88%
3rd quarter, 1990

AVERAGE ANNUAL TOTAL RETURNS

For the periods ending December 31, 1998

PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS

PREMIER CLASS SHARES 26.20% 20.28% 15.62%
S&P 500 INDEX 28.58% 24.06% 19.20%
LIPPER EQUITY INCOME INDEX 11.78% 16.62% 14.89%

<PAGE>

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)*

TOTAL ANNUAL

FUND

MANAGEMENT DISTRIBUTION OTHER OPERATING
FEE (12B-1) FEES EXPENSES EXPENSES

PREMIER CLASS SHARES 0.75% NONE 0.35% 1.10%

* The table is based on expenses incurred in the most recent fiscal year. The
actual Management fee is currently expected to be 0.65% and Total annual Fund
operating expenses are expected not to exceed 1.00%. That's 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 end this arrangement at any time.
The table does not reflect charges or credits 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:

o you invest $10,000

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

o your investment has a 5% return each year, and

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

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

YOUR COST WOULD BE:

NUMBER OF YEARS 1 3 5 10
COSTS $112 $350 $606 $1,340

<PAGE>

CHASE CORE EQUITY FUND

THE FUND'S OBJECTIVE

The Fund aims to maximize total investment return with an emphasis on long-term
capital appreciation and current income while taking reasonable risk.

THE FUND'S MAIN INVESTMENT STRATEGY

The Fund uses an active equity management style which focuses on strong earnings
momentum and profitability within the universe of S&P 500 stocks. The Fund
normally invests at least 70% of its total assets in equity securities.

The Fund seeks capital appreciation by emphasizing companies with a superior
record of earnings growth relative to the equity markets in general or a
projected rate of earnings growth that's greater than or equal to the equity
markets.

The Fund seeks to earn current income and manage risk by focusing on larger
companies with a stable record of earnings growth. In addition, it diversifies
its portfolio across all sectors of the S&P 500. The Fund also emphasizes
companies with return on assets and return on equity equal to or greater than
the equity markets.

The Fund may invest up to 30% of its total assets in foreign securities,
including Depositary Receipts. Its equity investments may include convertible
securities, which generally pay interest or dividends and which can be converted
into common or preferred stock.

<PAGE>

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

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.

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 of the specific risks of investing in Core
Equity Fund.

The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.

Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.

In early 1999, the European Monetary Union implemented a new currency called the
"euro." It is possible that the euro could increase volatility in financial

<PAGE>

CHASE CORE EQUITY FUND

markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.

The market value of convertible securities and debt securities tends to decline
as interest rates increase. Such a drop could be worse if the Fund invests a
larger portion of its assets in debt securities with longer maturities. The
value of convertible securities also tends to change whenever the market value
of the underlying common or preferred stock fluctuates.

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

<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 Premier Class shares has varied from year to year.
This provides some indication of the risks of investing in the Fund. The table
shows the average annual return over the past year, five years and since
inception. It compares that performance to the S&P 500 Index. The S&P 500 Index
is an unmanaged, broad-based index of 500 companies and is generally considered
to represent the U.S. market.

Lipper Growth & Income Funds Index represents performance of the 30 largest
growth and income funds.

YEAR-BY-YEAR RETURNS

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

[GRAPH APPEARS HERE]

1994 -4.03%
1995 25.53%
1996 22.54%
1997 33.33%
1998 30.95%

BEST QUARTER 22.97%
4th quarter, 1998

WORST QUARTER -9.55%
3rd quarter, 1998

AVERAGE ANNUAL TOTAL RETURNS

For the periods ending December 31, 1998

PAST 1 PAST 5 SINCE INCEPTION
YEAR YEARS (4/1/93)

PREMIER CLASS SHARES 30.95% 20.84% 19.46%
S&P 500 INDEX 28.58% 24.06% 21.73%
LIPPER GROWTH & INCOME

FUND INDEX 13.58% 17.83% 16.93%

<PAGE>

CHASE CORE EQUITY FUND

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)*

TOTAL ANNUAL

FUND

MANAGEMENT DISTRIBUTION OTHER OPERATING
FEE (12B-1) FEES EXPENSES EXPENSES

PREMIER CLASS SHARES 0.75% NONE 0.38% 1.13%

* The table is based on expenses incurred in the most recent fiscal year. The
actual Management fee is currently expected to be 0.62% and Total annual Fund
operating expenses are expected not to exceed 1.00%. That's 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 end this arrangement at any time.
The table does not reflect charges or credits 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:

o you invest $10,000

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

o your investment has a 5% return each year, and

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

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

YOUR COST WOULD BE:

NUMBER OF YEARS 1 3 5 10
COSTS $115 $359 $622 $1,375

<PAGE>

CHASE EQUITY GROWTH FUND

THE FUND'S OBJECTIVE

The Fund aims to provide capital appreciation. Producing current income is a
secondary objective.

THE FUND'S MAIN INVESTMENT STRATEGY

The Fund uses an active equity management style which focuses on strong earnings
momentum and profitability within the universe of growth-oriented stocks. The
Fund normally invests at least 70% of its total assets in equity securities.

The Fund seeks capital appreciation by emphasizing the growth sectors of the
economy. It looks for companies with one or more of the following
characteristics:

o a projected earnings growth rate that's greater than or equal to the
equity markets in general

o a return on assets and return on equity equal to or greater than the
equity markets

o above market average price-earnings ratios

o below-average dividend yield

o above-average market volatility

o a market capitalization of more than $500 million.

The Fund focuses on companies with strong earnings and high levels of
profitability as well as positive industry or company characteristics.

<PAGE>

CHASE EQUITY GROWTH FUND

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs
(and thus lower performance) and increase your taxable dividends.

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 of the specific risks of investing in
Equity Growth Fund.

The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.

<PAGE>

Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.

The Fund, like any business, could be affected if the computer systems on
which it relies fail to properly process information beginning January 1,
2000. The Fund's advisers are updating their own systems and encouraging
service providers to do the same, but there's no guarantee these systems
will work properly. Year 2000 problems could also hurt issuers whose
securities the Fund holds or securities markets generally.

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and
it isn't insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.

<PAGE>

CHASE EQUITY GROWTH FUND

THE FUND'S PAST PERFORMANCE

This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Premier Class shares has varied from year to year.
This provides some indication of the risks of investing in the Fund. The table
shows the average annual return over the past year, five years and ten years. It
compares that performance to the S&P 500 Index and the S&P Barra Growth Index.

The S&P 500 Index is an unmanaged, broad-based index of 500 companies and is
generally considered to represent the U.S. market. The S&P Barra Growth Index
includes S&P 500 Index securities that have high price-to-book ratios, low
dividend yields and high price/earnings ratios. It's a market-weighted index,
which means each stock affects the index in proportion to its market value.

YEAR-BY-YEAR RETURNS

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

[GRAPH APPEARS HERE]

1989 25.73%
1990 -1.45%
1991 31.69%
1992 6.43%
1993 2.48%
1994 -0.90%
1995 25.78%
1996 20.52%
1997 37.20%
1998 41.38%

BEST QUARTER 27.40%
4th quarter, 1998

WORST QUARTER -15.53%
3rd quarter, 1998

AVERAGE ANNUAL TOTAL RETURNS
For the periods ending December 31, 1998

PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS

PREMIER CLASS SHARES 41.38% 23.84% 17.88%
S&P 500 INDEX 28.58% 24.06% 19.20%
S&P BARRA GROWTH INDEX 42.16% 27.93% 21.35%

<PAGE>

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)*

TOTAL ANNUAL

INVESTMENT FUND
ADVISORY DISTRIBUTION OTHER OPERATING
FEE (12B-1) FEES EXPENSES EXPENSES

PREMIER CLASS SHARE 0.75% NONE 0.29% 1.04%

* The table is based on expenses incurred in the most recent fiscal year. The
actual Management fee is currently expected to be 0.71% and Total annual Fund
operating expenses are expected not to exceed 1.00%. That's 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 end this arrangement at any time.
The table does not reflect charges or credits 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:

o you invest $10,000

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

o your investment has a 5% return each year, and

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

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

YOUR COST WOULD BE:

NUMBER OF YEARS 1 3 5 10
COSTS $106 $331 $574 $1,271

<PAGE>

CHASE SMALL CAPITALIZATION FUND

THE FUND'S OBJECTIVE

The Fund aims to provide capital appreciation.

THE FUND'S MAIN INVESTMENT STRATEGY

The Fund seeks capital appreciation by using an active equity management style
that focuses on delivering risk and return characteristics representative of a
small capitalization asset class. The Fund normally invests at least 70% of its
total assets in equity-based securities of small cap issuers. It primarily
targets companies with market capitalizations of $100 million to $1 billion.

The Fund emphasizes companies with above market average price/earnings ratios
and price/book ratios, below-average dividend yield and above-average market
volatility. The Fund will focus on companies with high-quality management, a
leading or dominant position in a major product line, new or innovative
products, services or processes, a strong financial position and a relatively
high rate of return of invested capital so that they can finance future growth
without having to borrow extensively from outside sources. The adviser uses a
disciplined stock selection process which focuses on identifying attractively
valued companies with positive business fundamentals. The Fund combines growth
and value styles of investing.

<PAGE>

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.

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 of the specific risks of investing in
Small Capitalization Fund.

The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.

The securities of small cap companies may trade less frequently and in smaller
volumes than securities of larger, more established companies. As a result,
share price changes may be more sudden or more erratic. Smaller companies may
have limited product lines, markets or financial resources, and they may depend
on a small management group.

<PAGE>

CHASE SMALL CAPITALIZATION FUND

Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

<PAGE>

THE FUND'S PAST PERFORMANCE

The S&P 500 is an unmanaged, broad-based index of 500 companies that is
generally considered to represent the U.S. market. The S&P 600 is an unmanaged
index of 600 small capitalization companies.

YEAR-BY-YEAR RETURNS

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

[GRAPH APPEARS HERE]

1994 -6.12%
1995 31.14%
1996 30.88%
1997 24.08%
1998 -1.83%

AVERAGE ANNUAL TOTAL RETURNS
For the periods ending December 31, 1998

BEST QUARTER 17.04%
2nd quarter, 1997

WORST QUARTER -18.10%
3rd quarter, 1998

SINCE

PAST 1 PAST 5 INCEPTION
YEAR YEARS (4/1/93)

PREMIER CLASS SHARES -1.83% 14.43% 14.11%
S&P 500 INDEX 28.58% 24.06% 21.73%
S&P 600 INDEX -1.31% 13.23% 14.09%

<PAGE>

CHASE SMALL CAPITALIZATION FUND

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)*

TOTAL ANNUAL

INVESTMENT FUND
ADVISORY DISTRIBUTION OTHER OPERATING
FEE (12B-1) FEES EXPENSES EXPENSES

PREMIER CLASS SHARES 0.75% NONE 0.48% 1.23%

* The table is based on expenses incurred in the most recent fiscal year. The
actual Management fee is currently expected to be 0.52% and Total annual Fund
operating expenses are expected not to exceed 1.00%. That's 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 end this arrangement at any time.
The table does not reflect charges or credits 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:

o you invest $10,000

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

o your investment has a 5% return each year, and

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

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

YOUR COST WOULD BE

NUMBER OF YEARS 1 3 5 10
COSTS $125 $390 $676 $1,489

<PAGE>

FUND MANAGEMENT

THE INVESTMENT ADVISER

The Chase Manhattan Bank (Chase) is the investment adviser to the Fund. Chase is
a wholly owned subsidiary of The Chase Manhattan Corporation, a bank holding
company. Chase provides the Funds with investment advice and supervision. Chase
and its predecessors have more than a century of money management experience.
Chase is located at 270 Park Avenue, New York, New York 10017.

Chase is entitled to receive an annual fee for its services. The following chart
shows the maximum fee as a percentage of each Fund's average daily net assets:

FUND FEE

MONEY MARKET FUND 0.30%

SHORT-INTERMEDIATE
TERM U.S. GOVERNMENT

SECURITIES FUND 0.50%

U.S. GOVERNMENT
SECURITIES FUND 0.50%

INTERMEDIATE TERM
BOND FUND 0.50%

INCOME FUND 0.50%

BALANCED FUND 0.75%

EQUITY INCOME FUND 0.75%

CORE EQUITY FUND 0.75%

EQUITY GROWTH FUND 0.75%

SMALL CAPITALIZATION FUND 0.75%

Chase Bank of Texas, N.A. (Chase Texas) is the sub-adviser to the Funds. Chase
Texas is a wholly-owned subsidiary of The Chase Manhattan Corporation. It makes
the day-to-day investment decisions for the Funds.

Chase Texas is located at 712 Main Street, Houston, Texas 77002.

<PAGE>

FUND MANAGEMENT

THE PORTFOLIO MANAGERS

CHASE MONEY MARKET FUND

The portfolio manager is Guy Barba, a Senior Investment Officer at Chase Texas.
He has managed the portfolio since April of 1993. Mr. Barba has worked for Chase
Texas since 1988.

CHASE SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND

Mr. Barba has managed the portfolio since its inception on April 1, 1993.

CHASE U.S. GOVERNMENT SECURITIES FUND

The portfolio manager is John Miller, a Senior Investment Officer at Chase
Texas. He has managed the portfolio since June of 1995. Mr. Miller has worked
for Chase Texas since 1986.

CHASE INTERMEDIATE TERM BOND FUND

The portfolio manager is H. Mitchell Harper, a Senior Investment Officer at
Chase Texas. He has managed the portfolio since its inception on April 1, 1993.

Mr. Harper has worked for Chase Texas since 1987.

CHASE INCOME FUND

Mr. Miller has managed the portfolio since July of 1994.

CHASE BALANCED FUND

The portfolio managers are Henry Lartigue, the Chief Investment Officer at
Chase Texas, and Mr. Miller. Mr. Lartigue has managed the equity portion of the
portfolio since July of 1994. In the two years before coming to Chase Texas, he
was an independent registered investment adviser. Mr. Lartigue has worked for
Chase Texas since 1994. Mr. Miller has managed the fixed income portion of the
portfolio since July of 1994.

CHASE EQUITY INCOME FUND

The portfolio manager is Robert Heintz, a Senior Investment Officer at Chase
Texas. He has managed the portfolio since its inception on March 29, 1988. Mr.

Heintz has worked for Chase Texas since 1983.

CHASE CORE EQUITY FUND

Mr. Lartigue has managed the portfolio since January of 1996. Since January 1999
the funds have been co-managed with Jeff Phelps. Mr. Phelps has been a portfolio
manager for Chase Texas since 1997. Prior to that Mr. Phelps was employed by
Houston Industries.

CHASE EQUITY GROWTH FUND

Mr. Lartigue has managed the portfolio since July of 1994.

CHASE SMALL CAPITALIZATION FUND

The portfolio manager is Juliet Ellis, a Senior Investment Officer at Chase
Texas. She has managed the portfolio since September of 1993. Ms. Ellis has
worked at Chase Texas since 1987. Before becoming portfolio manager for the
Small Capitalization Fund, Ms. Ellis was the director of research and an equity
analyst at Chase Texas.

<PAGE>

HOW YOUR ACCOUNT WORKS

BUYING FUND SHARES

There is no commission or sales charge to buy Premier Class shares. You can buy
shares through financial service firms, such as broker-dealers and banks, if
they have an agreement with the Funds' distributor. Your financial service firm
is responsible for promptly forwarding your order to the Chase Funds Service
Center.

MINIMUM INVESTMENTS

The minimum initial investment is $1 million. There is no minimum for subsequent
investments. Your financial service firm must maintain an average account
balance of at least $1 million in Premier shares of a Fund at all times. Your
financial service firm may set its own minimum investment for initial and
subsequent investments.

INVESTMENT DETAILS

The price of the shares is 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. You'll pay the next NAV calculated after your
financial service firm receives your instructions, provided that the order is
received by the Chase Funds Service Center before it closes for business that
day. Each Fund calculates its NAV once each day at the close of regular trading
on the New York Stock Exchange.

Each Fund other than the Money Market Fund generally values its assets at their
market value but may use fair value if market prices are unavailable. The Money
Market Fund seeks to maintain a stable NAV of $1.00. It uses the amortized cost
method to value its portfolio of securities. This method provides more stability
in valuations. However, it may also result in periods during which the stated
value of a security is different than the price the Fund would receive if it
sold the investment.

Your financial service firm will not accept your order until it is in proper
form. An order is in proper form only after payment is converted into federal
funds.

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

You must provide a Taxpayer Identification Number or Social Security Number when
you open an account. The Funds reserve the right to refuse any purchase order or
to stop offering shares for sale at any time.

<PAGE>

HOW YOUR ACCOUNT WORKS

SELLING FUND SHARES

There is no commission or charge to sell Premier Class shares of the Funds.

You can sell your shares on any day that the Funds are accepting purchase
orders. Your financial service firm will forward your order to the Chase Funds
Service Center. Your financial service firm will be responsible for sending the
Funds all the documentation that they need, and your firm might charge you for
this service. You'll receive the next NAV calculated after the Chase Funds
Service Center receives your order in proper form.

Under normal circumstances, if the Chase Funds Service Center receives your
order before the close of regular trading on the New York Stock Exchange, each
Fund will send your financial service firm the proceeds the next business day.
Under unusual circumstances, each Fund may stop accepting orders to sell and may
postpone payments for more than seven days, as federal securities laws permit.

EXCHANGING FUND SHARES

You can exchange your shares for Premier shares of other Chase Funds at net
asset value, if your financial service firm allows exchanges. To exchange
shares, contact your financial service firm. You should carefully read the
prospectus of the Fund you want to change to before making any exchanges.

OTHER INFORMATION CONCERNING THE FUNDS

If you have authorized your financial service firm to act upon instructions
received by phone and the firm fails to take reasonable steps to confirm that
the instructions are genuine, it may be liable for any losses due to
unauthorized or fraudulent instructions. You agree that you will not hold a
Fund, your financial service firm or their agents liable for any loss or
expenses from any sales request, including a fraudulent or unauthorized request,
if the financial service firm has taken reasonable precautions.

For shareholders that bank with Chase, Chase may aggregate investments in the
Chase 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 other
financial institutions 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 Funds.

<PAGE>

DISTRIBUTION ARRANGEMENTS

The Funds' distributor is CFD Fund Distributors Inc., which we call CFD in this
prospectus. CFD is a subsidiary of The BISYS Group, Inc. and is not affiliated
with Chase.

Each Fund may issue multiple classes of shares. This prospectus relates only to
Premier Class shares of the Funds. Each class may have different requirements
for who may invest, and may have different sales charges and expense levels. A
person who gets compensated for selling Fund shares may receive a different
amount for each class.

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

DISTRIBUTIONS AND TAXES

The Funds can earn income and they can realize capital gains. The Funds deduct
any expenses and pay these earnings out to shareholders as distributions.

The Chase Money Market Fund declares dividends daily, so your shares can start
earning dividends on the day you buy them. We distribute the dividends monthly.
We distribute any short-term capital gain at least annually. The Chase Money
Market Fund does not expect to realize long-term capital gain.

The Chase Short-Intermediate Term U.S. Government Securities Fund, Chase U.S.
Government Securities Fund, Chase Intermediate Term Bond Fund and Chase Income
Fund (the Fixed Income Funds) declare dividends daily and distribute the net
investment income monthly. The Chase Balanced Fund, Chase Equity Income Fund,
Chase Core Equity Fund, Chase Equity Growth Fund and Chase Small Capitalization
Fund distribute any net investment income at least quarterly. Net capital gain
is distributed at least annually.

<PAGE>

HOW YOUR ACCOUNT WORKS

You have three options for your distributions if your financial services firm
offers them. You may:

o reinvest all of them in additional Fund shares;

o 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

o take all distributions in cash or as a deposit in a pre-assigned bank
account.

If you don't select an option when you open your account, we'll reinvest all
distributions. If we reinvest your distributions, they will be in the same class
of shares. 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. The state or municipality where you live may
not charge you state and local taxes on dividends 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 though the NAV will
be higher on that date because it includes the distribution amount.

The Fixed Income Funds, the Chase Balanced Fund and Chase Equity Income Fund
expect that their distributions will consist primarily of ordinary income. The
Chase Core Equity Fund, Chase Equity Growth Fund and Chase Small Capitalization
Fund expect that their distributions will consist primarily of capital gains.

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.

For tax purposes, an exchange is treated as selling Fund shares. This will
generally result in a capital gain or loss to you.

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

<PAGE>

FINANCIAL HIGHLIGHTS

CHASE MONEY MARKET FUND

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

The table set forth below provides selected per share data and ratios for one
unit of the Predecessor Fund for the periods prior to January 1, 1998 and one
Premier share of the Fund for the period since conversion.

This information is supplemented by financial statements including accompanying
notes appearing in the Fund's Annual Report to Shareholders for the year ended
December 31, 1998, 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 information set forth
below, have been audited by PricewaterhouseCoopers LLP, independent accountants,
whose report thereon is included in the Annual Report to Shareholders.

Premier Shares

--------------------------------------------------
For the Years Ended December 31,

--------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE OPERATING PERFORMANCE:

- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income 0.05 0.05 0.05 0.05 0.04
Net Gains or Losses in Securities
(both realized and unrealized) -- -- -- -- --
- ---------------------------------------------------------------------------------------
Total from Investment Operations 0.05 0.05 0.05 0.05 0.04
- ---------------------------------------------------------------------------------------
Less Distributions:
Dividends from Net Investment

Income 0.05 0.05 0.05 0.05 0.04
Distributions from Capital Gains -- -- -- -- --
- ---------------------------------------------------------------------------------------
Total Distributions 0.05 0.05 0.05 0.05 0.04
- ---------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------
Total Return 5.20% 5.18% 5.06% 5.57% 3.77%
- ---------------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA:

- ---------------------------------------------------------------------------------------
Net Assets, End of Period

(000 omitted) $195,476 $134,579 $119,106 $71,310 $55,505
- ---------------------------------------------------------------------------------------
Ratios to Average Net Assets:

Expenses 0.50% 0.50% 0.50% 0.50% 0.50%
Net Investment Income 5.07% 5.09% 4.93% 5.43% 3.90%
Expenses Without Waivers
and Assumption of Expenses 0.60% 0.74% 0.72% 0.72% 0.83%
Net Investment Income Without
Waivers and Assumption of

Expenses 4.97% 4.85% 4.71% 5.21% 3.57%
- ---------------------------------------------------------------------------------------
</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS

CHASE SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND

Premier Shares

--------------------------------------------------
For the Years Ended December 31,

--------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE OPERATING PERFORMANCE:

- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.39 $ 11.66 $ 11.35 $ 10.14 $ 10.24

- ---------------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income 0.63 0.67 0.60 0.58 0.45
Net Gains or Losses in Securities
(both realized and unrealized) 0.25 0.06 (0.29) 0.63 (0.55)
- ---------------------------------------------------------------------------------------
Total from Investment Operations 0.88 0.73 0.31 1.21 (0.10)
- ---------------------------------------------------------------------------------------
Less Distributions:
Dividends from Net Investment

Income 0.63 -- -- -- --
Distributions from Capital Gains 0.04 -- -- -- --
- ---------------------------------------------------------------------------------------
Total Distributions 0.67 -- -- -- --
- ---------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 12.60 $ 12.39 $ 11.66 $ 11.35 $ 10.14
- ---------------------------------------------------------------------------------------
Total Return 7.35% 6.30% 2.68% 12.01% (1.05)%
- ---------------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA:

- ---------------------------------------------------------------------------------------
Net Assets, End of Period

(000 omitted) $30,554 $23,948 $28,551 $28,783 $22,992
- ---------------------------------------------------------------------------------------
Ratios to Average Net Assets:

Expenses 0.75% 0.75% 0.75% 0.75% 0.75%
Net Investment Income 5.06% 5.40% 5.26% 5.38% 4.41%
Expenses Without Waivers
and Assumption of Expenses 1.12% 1.01% 0.88% 0.91% 0.96%
Net Investment Income Without
Waivers and Assumption of

Expenses 4.69% 5.14% 5.13% 5.22% 4.20%
- ---------------------------------------------------------------------------------------
Portfolio Turnover Rate 87% 63% 177% 187% 268%
- ---------------------------------------------------------------------------------------
</TABLE>

<PAGE>

CHASE U.S. GOVERNMENT SECURITIES FUND

Premier Shares

--------------------------------------------------
For the Years Ended December 31,

--------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE OPERATING PERFORMANCE:

- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.98 $ 12.76 $ 13.01 $ 10.00 $ 10.91

- ---------------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income 0.72 0.75 0.74 0.73 0.62
Net Gains or Losses in Securities
(both realized and unrealized) 0.54 0.47 (0.99) 2.28 (1.53)
- ---------------------------------------------------------------------------------------
Total from Investment Operations 1.26 1.22 (0.25) 3.01 (0.91)
- ---------------------------------------------------------------------------------------
Less Distributions:
Dividends from Net Investment

Income 0.72 -- -- -- --
Distributions from Capital Gains 0.68 -- -- -- --
In Excess of Realized Capital Gains 0.01 -- -- -- --
- ---------------------------------------------------------------------------------------
Total Distributions 1.41 -- -- -- --
- ---------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 13.83 $ 13.98 $ 12.76 $ 13.01 $ 10.00
- ---------------------------------------------------------------------------------------
Total Return 9.28% 9.55% (1.89)% 30.11% (8.39)%
- ---------------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA:

- ---------------------------------------------------------------------------------------
Net Assets, End of Period

(000 omitted) $ 3,624 $ 2,928 $ 2,746 $ 2,877 $ 2,628
- ---------------------------------------------------------------------------------------
Ratios to Average Net Assets:

Expenses 0.75% 0.75% 0.75% 0.75% 0.75%
Net Investment Income 5.07% 5.73% 6.01% 6.38% 6.23%
Expenses Without Waivers
and Assumption of Expenses 1.45% 3.15% 2.09% 2.22% 2.38%
Net Investment Income Without
Waivers and Assumption of

Expenses 4.37% 3.33% 4.67% 4.91% 4.60%
- ---------------------------------------------------------------------------------------
Portfolio Turnover Rate 110% 87% 48% 17% 174%
- ---------------------------------------------------------------------------------------
</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS

CHASE INTERMEDIATE TERM BOND FUND

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 Fund (assuming reinvestment of all dividends and
distributions).

Premier Shares

--------------------------------------------------
For the Years Ended December 31, 10/03/94*

--------------------------------------------------
Through

1998 1997 1996 1995 1994
PER SHARE OPERATING PERFORMANCE:

- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.75 $ 11.89 $ 11.67 $ 9.99 $ 10.00

- ---------------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income 0.68 0.56 0.61 0.64 0.15
Net Gains or Losses in Securities
(both realized and unrealized) 0.27 0.30 (0.39) 1.04 (0.16)
- ---------------------------------------------------------------------------------------
Total from Investment Operations 0.95 0.86 0.22 1.68 (0.01)
- ---------------------------------------------------------------------------------------
Less Distributions:
Dividends from Net Investment

Income 0.68 -- -- -- --
Distributions from Capital Gains 0.15 -- -- -- --
- ---------------------------------------------------------------------------------------
Total Distributions 0.83 -- -- -- --
- ---------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 12.87 $ 12.75 $ 11.89 $ 11.67 $ 9.99
- ---------------------------------------------------------------------------------------
Total Return 7.63% 7.26% 1.86% 16.79% (0.32)%
- ---------------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA:

- ---------------------------------------------------------------------------------------
Net Assets, End of Period

(000 omitted) $ 32,870 $ 18,595 $ 6,949 $ 5,031 $ 5,124
- ---------------------------------------------------------------------------------------
Ratios to Average Net Assets:

Expenses 0.75% 0.75% 0.75% 0.75% 0.75%
Net Investment Income 5.25% 5.61% 5.32% 5.89% 6.12%
Expenses Without Waivers
and Assumption of Expenses 1.27% 1.25% 1.42% 1.43% 1.38%
Net Investment Income Without
Waivers and Assumption of

Expenses 4.73% 5.11% 4.65% 5.21% 5.49%
- ---------------------------------------------------------------------------------------
Portfolio Turnover Rate 135% 14% 134% 198% 7%
- ---------------------------------------------------------------------------------------
</TABLE>
* Commencement of operation.

<PAGE>

CHASE INCOME FUND

Premier Shares

--------------------------------------------------
For the Years Ended December 31,

--------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE OPERATING PERFORMANCE:

- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 20.18 $ 18.56 $ 18.21 $ 15.39 $ 16.11

- ---------------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income 1.09 1.14 1.00 0.97 0.84
Net Gains or Losses in Securities
(both realized and unrealized) 0.77 0.48 (0.65) 1.85 (1.56)
- ---------------------------------------------------------------------------------------
Total from Investment Operations 1.86 1.62 0.35 2.82 (0.72)
- ---------------------------------------------------------------------------------------
Less Distributions:
Dividends from Net Investment

Income 1.09 -- -- -- --
Distributions from Capital Gains 0.48 -- -- -- --
- ---------------------------------------------------------------------------------------
Total Distributions 1.57 -- -- -- --
- ---------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 20.47 $ 20.18 $ 18.56 $ 18.21 $ 15.39
- ---------------------------------------------------------------------------------------
Total Return 9.47% 8.73% 1.91% 18.38% (4.47)%
- ---------------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA:

- ---------------------------------------------------------------------------------------
Net Assets, End of Period

(000 omitted) $ 60,068 $ 51,329 $53,614 $ 57,452 $52,235
- ---------------------------------------------------------------------------------------
Ratios to Average Net Assets:

Expenses 0.75% 0.75% 0.75% 0.75% 0.75%
Net Investment Income 5.28% 5.82% 5.58% 5.77% 5.43%
Expenses Without Waivers and
Assumption of Expenses 0.94% 1.14% 1.07% 1.08% 1.07%
Net Investment Income Without Waivers
and Assumption of Expenses 5.09% 5.43% 5.26% 5.44% 5.11%
- ---------------------------------------------------------------------------------------
Portfolio Turnover Rate 54% 97% 72% 93% 239%
- ---------------------------------------------------------------------------------------
</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS

CHASE BALANCED FUND

Premier Shares

--------------------------------------------------
For the Years Ended December 31,

--------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE OPERATING PERFORMANCE:

- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 29.26 $ 23.66 $ 21.25 $ 17.16 $ 17.56

- ---------------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income 0.73 0.74 0.63 0.57 0.46
Net Gains or Losses in Securities
(both realized and unrealized) 6.53 4.86 1.78 3.52 (0.86)
- ---------------------------------------------------------------------------------------
Total from Investment Operations 7.26 5.60 2.41 4.09 (0.40)
- ---------------------------------------------------------------------------------------
Less Distributions:
Dividends from Net Investment

Income 0.73 -- -- -- --
Distributions from Capital Gains 1.25 -- -- -- --
- ---------------------------------------------------------------------------------------
Total Distributions 1.98 -- -- -- --
- ---------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 34.54 $ 29.26 $23.66 $21.25 $ 17.16
- ---------------------------------------------------------------------------------------
Total Return 25.15% 23.67% 11.31% 23.83% (2.27)%
- ---------------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA:

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

Net Assets, End of Period

(000 omitted) $59,014 $36,359 $22,631 $21,471 $22,802
- ---------------------------------------------------------------------------------------
Ratios to Average Net Assets:

Expenses 1.00% 1.00% 1.00% 1.00% 1.00%
Net Investment Income 2.32% 2.73% 2.82% 2.94% 2.69%
Expenses Without Waivers
and Assumption of Expenses 1.28% 1.28% 1.17% 1.17% 1.17%
Net Investment Income Without
Waivers and Assumption of

Expenses 2.04% 2.45% 2.65% 2.77% 2.52%
- ---------------------------------------------------------------------------------------
Portfolio Turnover Rate 58% 64% 70% 98% 157%
- ---------------------------------------------------------------------------------------
</TABLE>

<PAGE>

CHASE EQUITY INCOME FUND

Premier Shares

--------------------------------------------------
For the Years Ended December 31,

--------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE OPERATING PERFORMANCE:

- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 36.97 $ 28.21 $ 23.93 $ 17.90 $ 18.52

- ---------------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income 0.33 0.40 0.43 0.44 0.39
Net Gains or Losses in Securities
(both realized and unrealized) 9.32 8.36 3.85 5.59 (1.01)
- ---------------------------------------------------------------------------------------
Total from Investment Operations 9.65 8.76 4.28 6.03 (0.62)
- ---------------------------------------------------------------------------------------
Less Distributions:
Dividends from Net Investment

Income 0.34 -- -- -- --
Distributions from Capital Gains 0.14 -- -- -- --
- ---------------------------------------------------------------------------------------
Total Distributions 0.48 -- -- -- --
- ---------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 46.14 $ 36.97 $ 28.21 $ 23.93 $ 17.90
- ---------------------------------------------------------------------------------------
Total Return 26.20% 31.50% 17.87% 33.72% (3.37)%
- ---------------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA:

- ---------------------------------------------------------------------------------------
Net Assets, End of Period

(000 omitted) $127,838 $ 75,243 $ 63,390 $54,985 $39,296
- ---------------------------------------------------------------------------------------
Ratios to Average Net Assets:

Expenses 1.00% 1.00% 1.00% 1.00% 1.00%
Net Investment Income 0.82% 1.67% 1.67% 2.10% 2.13%
Expenses Without Waivers
and Assumption of Expenses 1.10% 1.11% 1.07% 1.09% 1.12%
Net Investment Income Without
Waivers and Assumption of

Expenses 0.72% 1.56% 1.60% 2.01% 2.01%
- ---------------------------------------------------------------------------------------
Portfolio Turnover Rate 3% 14% 24% 11% 42%
- ---------------------------------------------------------------------------------------
</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS

CHASE CORE EQUITY FUND

Premier Shares

--------------------------------------------------
For the Years Ended December 31,

--------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE OPERATING PERFORMANCE:

- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 21.25 $ 15.94 $ 13.01 $ 10.36 $ 10.80

- ---------------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income 0.09 0.14 0.16 0.17 0.18
Net Gains or Losses in Securities
(both realized and unrealized) 6.44 5.17 2.77 2.48 (0.62)
- ---------------------------------------------------------------------------------------
Total from Investment Operations 6.53 5.31 2.93 2.65 (0.44)
- ---------------------------------------------------------------------------------------
Less Distributions:
Dividends from Net Investment

Income 0.09 -- -- -- --
Distributions from Capital Gains 1.17 -- -- -- --
- ---------------------------------------------------------------------------------------
Total Distributions 1.26 -- -- -- --
- ---------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 26.52 $ 21.25 $ 15.94 $ 13.01 $ 10.36
- ---------------------------------------------------------------------------------------
Total Return 30.95% 33.33% 22.54% 25.53% (4.03)%
- ---------------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA:

- ---------------------------------------------------------------------------------------
Net Assets, End of Period

(000 omitted) $ 88,536 $ 51,398 $ 28,584 $24,367 $21,035
- ---------------------------------------------------------------------------------------
Ratios to Average Net Assets:

Expenses 1.00% 1.00% 1.00% 1.00% 1.00%
Net Investment Income 0.39% 0.74% 1.10% 1.44% 1.68%
Expenses Without Waivers
and Assumption of Expenses 1.18% 1.20% 1.14% 1.17% 1.27%
Net Investment Income Without
Waivers and Assumption of Expenses 0.21% 0.54% 0.96% 1.27% 1.41%
- ---------------------------------------------------------------------------------------
Portfolio Turnover Rate 32% 24% 29% 133% 129%
- ---------------------------------------------------------------------------------------
</TABLE>

<PAGE>

CHASE EQUITY GROWTH FUND

Premier Shares

--------------------------------------------------
For the Years Ended December 31,

--------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE OPERATING PERFORMANCE:

- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 38.36 $ 27.95 $ 23.20 $ 18.44 $ 18.61

- ---------------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income 0.03 0.07 0.10 0.17 0.20
Net Gains or Losses in Securities
(both realized and unrealized) 15.78 10.34 4.65 4.59 (0.37)
- ---------------------------------------------------------------------------------------
Total from Investment Operations 15.81 10.41 4.75 4.76 (0.17)
- ---------------------------------------------------------------------------------------
Less Distributions:
Dividends from Net Investment

Income 0.03 -- -- -- --
Distributions from Capital Gains 1.78 -- -- -- --
- ---------------------------------------------------------------------------------------
Total Distributions 1.81 -- -- -- --
- ---------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 52.36 $ 38.36 $ 27.95 23.20 $ 18.44
- ---------------------------------------------------------------------------------------
Total Return 41.38% 37.20% 20.52% 25.78% (0.90)%
- ---------------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA:

- ---------------------------------------------------------------------------------------
Net Assets, End of Period

(000 omitted) $178,956 $ 73,730 $ 57,328 $ 45,578 $36,683
- ---------------------------------------------------------------------------------------
Ratios to Average Net Assets:

Expenses 1.00% 1.00% 1.00% 1.00% 1.00%
Net Investment Income 0.05% 0.20% 0.41% 0.78% 1.07%
Expenses Without Waivers
and Assumption of Expenses 1.09% 1.11% 1.08% 1.10% 1.17%
Net Investment Income Without
Waivers and Assumption of Expenses (0.04%) 0.09% 0.33% 0.68% 0.90%
- ---------------------------------------------------------------------------------------
Portfolio Turnover Rate 35% 35% 62% 99% 116%
- ---------------------------------------------------------------------------------------
</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS

CHASE SMALL CAPITALIZATION FUND

Premier Shares

--------------------------------------------------
For the Years Ended December 31,

--------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE OPERATING PERFORMANCE:

- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 21.78 $ 17.55 $ 13.41 $ 10.23 $ 10.89

- ---------------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income (0.01) 0.02 0.01 0.05 0.06
Net Gains or Losses in Securities
(both realized and unrealized) (0.46) 4.21 4.13 3.13 (0.72)
- ---------------------------------------------------------------------------------------
Total from Investment Operations (0.47) 4.23 4.14 3.18 (0.66)
- ---------------------------------------------------------------------------------------
Less Distributions:
Dividends from Net Investment

Income -- -- -- -- --
Distributions from Capital Gains 0.71 -- -- -- --
In Excess of Net Realized Gain
on Investment 0.64 -- -- -- --
- ---------------------------------------------------------------------------------------
Total Distributions 1.35 -- -- -- --
- ---------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 19.96 $ 21.78 $17.55 $13.41 $ 10.23
- ---------------------------------------------------------------------------------------
TOTAL RETURN (1.83)% 24.08% 30.88% 31.14% (6.12)%
- ---------------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA:

- ---------------------------------------------------------------------------------------
Net Assets, End of Period

(000 omitted) $64,742 $40,028 $20,750 $12,848 $ 9,267
- ---------------------------------------------------------------------------------------
Ratios to Average Net Assets:

Expenses 1.00% 1.00% 1.22% 1.35% 1.45%
Net Investment Income (0.03)% 0.13% 0.04% 0.46% 0.55%
Expenses Without Waivers
and Assumption of Expenses 1.26% 1.40% 1.37% 1.50% 1.60%
Net Investment Income Without
Waivers and Assumption of

Expenses (0.29)% (0.27)% (0.11)% 0.31% 0.40%
- ---------------------------------------------------------------------------------------
Portfolio Turnover Rate 45% 43% 68% 89% 120%
- ---------------------------------------------------------------------------------------
</TABLE>

<PAGE>

WHAT THE TERMS MEAN

COLLATERALIZED MORTGAGE OBLIGATIONS: debt securities that are collateralized by
a portfolio of mortgages or mortgage backed securities.

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.

DEPOSITARY RECEIPTS: instruments which are typically issued by financial
institutions and which represent ownership of securities of foreign
corporations. Depositary receipts are usually designed for use on U.S. and
European securities exchanges.

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.

DURATION: A mathematical calculation of the average life of a bond that serves
as a useful measure of its price risk. Each year of duration represents an
expected 1% change in interest rates. For example, if a bond has an average
duration of 4 years, its price will move 4% when interest rates move 1%.

FUNDAMENTAL RESEARCH: method which concentrates on "fundamental" information
about an issuer, such as its financial statements, history, management, etc.

GROWTH APPROACH: approach which focuses on identifying securities of companies
whose earnings growth potential appears to the manager to be greater than the
market in general and whose growth in revenue is expected to continue for an
extended period.

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

MORTGAGE-RELATED SECURITIES: securities that directly or indirectly represent an
interest in, or are secured by and paid from, mortgage loans secured by real
property.

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

<PAGE>

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.

STRIPPED OBLIGATIONS: debt securities which are separately traded interest-only
or principal-only components of an underlying obligation.

TECHNICAL ANALYSIS: method which focuses on historical price trends in an
attempt to predict future price movements.

VALUE APPROACH: approach which focuses on identifying securities that the
adviser believes are undervalued by the market, as measured by certain financial

formulas.

YIELD CURVE: measure showing relationship among yields of similar bonds with
different maturities.

<PAGE>

This page intentionally left blank

<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 1-888-524-2730 or writing to:

CHASE FUNDS 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.chasefunds.com on the internet.

You can write 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 20549-6009.

1-800-SEC-0330

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 811-5526

CHASE FUNDS
FULFILLMENT CENTER
393 MANLEY STREET

WEST BRIDGEWATER, MA 02379-1039

<PAGE>

CHASE FUNDS

INVESTOR SHARES

CHASE MONEY MARKET FUND

CHASE SHORT-INTERMEDIATE TERM
U.S. GOVERNMENT SECURITIES FUND

CHASE U.S. GOVERNMENT SECURITIES FUND

CHASE INTERMEDIATE TERM BOND FUND

CHASE INCOME FUND

CHASE BALANCED FUND

CHASE EQUITY INCOME FUND

CHASE CORE EQUITY FUND

CHASE EQUITY GROWTH FUND

CHASE SMALL CAPITALIZATION FUND

PROSPECTUS APRIL 30, 1999

[LOGO]
CHASE FUNDS(Service Mark)

PSCF-1-1-499

<PAGE>

CONTENTS

1 Chase Money Market Fund
5 Chase Short-Intermediate Term
U.S. Government Securities Fund
11 Chase U.S. Government Securities Fund
17 Chase Intermediate Term Bond Fund
23 Chase Income Fund
29 Chase Balanced Fund
35 Chase Equity Income Fund
40 Chase Core Equity Fund
45 Chase Equity Growth Fund
50 Chase Small Capitalization Fund
55 The Fund's Investment Adviser
57 HOW YOUR ACCOUNT WORKS
57 Buying Fund shares
58 Selling Fund shares
59 Exchanging Fund shares
60 Other information concerning the Funds
61 DISTRIBUTIONS AND TAXES

62 SHAREHOLDER SERVICES
63 FINANCIAL HIGHLIGHTS

73 WHAT THE TERMS MEAN

<PAGE>

CHASE MONEY MARKET FUND

THE FUND'S

OBJECTIVE

The Fund aims to provide the highest possible level of current income while
still maintaining liquidity and preserving capital.

THE FUND'S MAIN
INVESTMENT STRATEGY

The Fund invests in high quality, short-term money market instruments which are
issued and payable in U.S. dollars.

The Fund principally invests in:

o high quality commercial paper and other short-term debt securities,
including floating and variable rate demand notes of U.S. and foreign
corporations

o debt securities issued or guaranteed by qualified banks. These are:

o U.S. banks with more than $1billion in total assets and foreign
branches of these banks

o foreign banks with the equivalent of more than $10 billion in total
assets and which have branches or agencies in the U.S.

o other U.S. or foreign commercial banks which the Fund's advisers judge
to have comparable credit standing

o securities issued or guaranteed by the U.S. Government, its agencies
or authorities

o asset-backed securities

o repurchase agreements.

The dollar weighted average maturity of the Fund will be 90 days or less and the
Fund will buy only those instruments which have remaining maturities of 397 days
or less.

<PAGE>

CHASE MONEY MARKET FUND

The Fund seeks to maintain a net asset value of $1.00 per share.

The Fund seeks to develop an appropriate portfolio by considering the
differences in yields among securities of different maturities, market sectors
and issuers.

The Fund may change any of its 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. High trading activity generally means higher
transaction costs.

THE MAIN INVESTMENT RISKS

The Fund attempts to keep its net asset value constant, but there's no guarantee
it will be able to do so.

The value of money market investments tends to fall when prevailing interest
rates rise, although they're generally less sensitive to interest rate changes
than longer-term securities.

Repurchase agreements involve some risk to the Fund if the other party does not
live up to its obligations under the agreement.

Although the Fund seeks to be fully invested, it may at times hold some of its
assets in cash. This would hurt the Fund's performance.

Securities in the Fund's portfolio may not earn as high a current income as
longer term or lower quality securities

<PAGE>

THE FUND'S PAST PERFORMANCE

The Fund began offering Investor Class shares on November 10, 1998. Performance
figures for Investor Class shares before that date are based on Premier Class
shares of the Fund. Since Investor Class shares have higher expenses, their
performance figures would have been lower.

YEAR-BY-YEAR RETURNS

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

[Bar Chart Appears Here]

1989 8.97%
1990 7.80%
1991 6.01%
1992 3.51%
1993 2.60%
1994 3.77%
1995 5.57%
1996 5.06%
1997 5.18%
1988 5.21%

BEST QUARTER 2.05%
4th quarter, 1989

WORST QUARTER 0.62%
2nd quarter, 1993

AVERAGE ANNUAL TOTAL RETURNS
For the periods ending December 31, 1998

PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS

5.20% 4.60% 5.34%

<PAGE>

CHASE MONEY MARKET FUND
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 *

* There is a $10 fee for each wire transaction

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

TOTAL ANNUAL
MANAGEMENT DISTRIBUTION OTHER FUND OPERATING
FEE (12B1) FEES EXPENSES EXPENSES

INVESTOR CLASS SHARES 0.30% 0.10% 5.39% 5.79%

*The table is based on expenses incurred in the most recent fiscal year. The
actual Management Fee is currently expected to be 0.21%, the Distribution Fees
are expected to be 0.00%, Other expenses are expected to be 0.39% and Total
annual Fund operating expenses are expected not to exceed 0.60%. That's 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 end this arrangement at any time.
The table does not reflect charges or credits 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:

o you invest $10,000

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

o your investment has a 5% return each year, and

o 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 COST WOULD BE:
NUMBER OF YEARS 1 3 5 10
COSTS $577 $1,717 $2,838 $5,566

<PAGE>

CHASE SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND

THE FUND'S OBJECTIVE

The Fund aims to provide as high a level of current income as is consistent with
preservation of capital.

THE FUND'S MAIN INVESTMENT STRATEGY

<PAGE>

CHASE SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND

and maturity to take advantage of what it believes to be short-term differences
in market values or yields.

To temporarily defend its assets during unusual market conditions, the Fund may
invest any portion of its assets in high quality money market instruments and
repurchase agreements.

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.

<PAGE>

THE MAIN INVESTMENT RISKS

While the principal and payments on certain of the Fund's portfolio securities
may be guaranteed, this does not mean that the market value of the security, or
the value of Fund shares, is guaranteed.

Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.

<PAGE>

CHASE SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND

Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.

If the interest rate on floating and variable rate securities falls, the Fund's
yield may decline and it may lose the opportunity for capital appreciation.

Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its part of the agreement.

Derivatives may be more risky than other types of investments and could cause
losses that exceed the Fund's original investment.

If the Fund temporarily departs from its investment policies to defend its
assets, it may not achieve its investment objectives.

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

<PAGE>

THE FUND'S PAST PERFORMANCE

This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund has varied from year to year. This provides some
indication of the risks of investing in the Fund. The table shows the average
annual return over the past year, five years and since inception. It compares
that performance to the Lehman 1-3 Year Government Index and the Lehman
Intermediate Government Index.

YEAR-BY-YEAR RETURNS

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

[Bar Chart Appears Here]

1994 -1.05%
1995 12.01%
1996 2.68%
1997 6.30%
1998 7.22%

BEST QUARTER 4.21%

3rd quarter, 1998

WORST QUARTER -1.35%

1st quarter, 1994

AVERAGE ANNUAL TOTAL RETURNS
For the periods ending December 31, 1998

PAST 1 PAST 5 SINCE INCEPTION
YEAR YEARS (4/1/93)

7.22% 5.34% 5.06%
LEHMAN 1-3 YEAR GOV'T INDEX 6.96% 5.96% 5.73%
LEHMAN INT GOV'T INDEX 8.44% 6.45% 6.36%

<PAGE>

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 *

* There is a $10 fee for each wire transaction.

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

TOTAL ANNUAL
MANAGEMENT DISTRIBUTION OTHER FUND OPERATING
FEE (12B1) FEES EXPENSES EXPENSES

INVESTOR CLASS SHARES 0.50% 0.25% 5.86% 6.61%

*The table is based on expenses incurred in the most recent fiscal year. The
actual Management Fee is currently expected to be 0.14%, the Distribution Fees
are expected to be 0.00%, Other expenses are expected to be 0.86% and Total
annual Fund operating expenses are expected not to exceed 1.00%. That's 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 end this arrangement at any time.
The table does not reflect charges or credits 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:

o you invest $10,000

o you sell all your shares at the end of the period o your investment has a
5% return each year, and

o 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 COST WOULD BE:
NUMBER OF YEARS 1 3 5 10

COSTS $656 $1,936 $3,175 $6,102

<PAGE>

CHASE U.S. GOVERNMENT SECURITIES FUND

THE FUND'S

OBJECTIVE

The Fund aims to provide current income while emphasizing preservation of
capital.

THE FUND'S MAIN
INVESTMENT STRATEGY

<PAGE>

CHASE U.S. GOVERNMENT SECURITIES FUND

To temporarily defend its assets during unusual market conditions, the Fund may
invest any portion of its assets in high quality money market instruments and
repurchase agreements.

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.

<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 U.S.

Government Securities Fund.

While the principal and payments on certain of the Fund's portfolio securities
may be guaranteed, this does not mean that the market value of the security, or
the value of Fund shares, is guaranteed.

Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.

<PAGE>

CHASE U.S. GOVERNMENT SECURITIES FUND

Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.

If the interest rate on floating and variable rate securities falls, the Fund's
yield may decline and it may lose the opportunity for capital appreciation.

Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its part of the agreement.

Derivatives may be more risky than other types of investments and could cause
losses that exceed the Fund's original investment.

If the Fund temporarily departs from its investment policies to defend its
assets, it may not achieve its investment objectives.

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

<PAGE>

THE FUND'S PAST PERFORMANCE

Lipper General U.S. Government Funds Index represents performance of the 30
largest U.S. government securities funds.

YEAR-BY-YEAR RETURNS

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

[Bar Chart Appears Here]

1994 -8.39%
1995 30.11%
1996 -1.89%
1997 9.55%
1998 9.25%

BEST QUARTER 10.36%
2nd quarter, 1995

WORST QUARTER -6.79%
1st quarter, 1996

<PAGE>

CHASE U.S. GOVERNMENT SECURITIES FUND

AVERAGE ANNUAL TOTAL RETURNS
For the periods ending December 31, 1998

SINCE

PAST 1 PAST 5 INCEPTION
YEAR YEARS (4/1/93)

9.25% 6.95% 7.63%
LEHMAN BROS. GOV'T INDEX 9.85% 7.18% 7.28%
LIPPER GENERAL
U.S. GOV'T FUNDS INDEX 7.85% 6.02% 6.04%

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 *

* There is a $10 fee for each wire transaction.

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

TOTAL ANNUAL

MANAGEMENT DISTRIBUTION OTHER FUND OPERATING
FEE (12B1) FEES EXPENSES EXPENSES

INVESTOR CLASS SHARES 0.50% 0.25% 6.15% 6.90%

* The table is based on expenses incurred in the most recent fiscal year. The
actual Management Fee is currently expected to be 0.00%, the Distribution Fees
are expected to be 0.00%, Other expenses are expected to be 1.00% and Total
annual Fund operating expenses are expected not to exceed 1.00%. That's 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 end this arrangement at any time.
The table does not reflect charges or credits 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:

o you invest $10,000

o you sell all your shares at the end of the period o your investment has a
5% return each year, and

o 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 COST WOULD BE:
NUMBER OF YEARS 1 3 5 10
COSTS $683 $2,012 $3,290 $6,279

<PAGE>

CHASE INTERMEDIATE TERM BOND FUND

THE FUND'S OBJECTIVE

The Fund aims to invest in securities that earn current income while also
considering stability of principal.

THE FUND'S MAIN
INVESTMENT STRATEGY

<PAGE>

CHASE INTERMEDIATE TERM BOND FUND

Fund's adviser may sell one security and buy another security of comparable
quality and maturity to take advantage of what it believes to be short-term
differences in market values or yields.

To temporarily defend its assets during unusual market conditions, the Fund may
invest any portion of its assets in high quality money market instruments and
repurchase agreements.

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.

<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
Intermediate Term Bond Fund.

Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.

<PAGE>

CHASE INTERMEDIATE TERM BOND FUND

These risks increase when investing in issuers located in developing countries.

Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.

If the interest rate on floating and variable rate securities falls, the Fund's
yield may decline and it may lose the opportunity for capital appreciation.

Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its part of the agreement.

Derivatives may be more risky than other types of investments and could cause
losses that exceed the Fund's original investment.

If the Fund departs from its investment policies during temporary defensive
periods, it may not achieve its investment objective.

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

<PAGE>

THE FUND'S PAST PERFORMANCE

This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund 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 inception. It compares
that performance to the Lehman Brothers Intermediate Government/Corporate Index
and the Lehman Brothers Aggregate Index.

The Lehman Brothers Intermediate Government/Corporate Index consists of U.S.
Treasury and agency securities, corporate and Yankee bonds with maturities of
1-10 years. The Lehman Brothers Aggregate Index consists of the Lehman Brothers
Government/Corporate Index, U.S. Treasury and agency securities, corporate bonds
and mortgage-backed securities with maturities of 1-30 years.

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

[Bar Chart Appears Here]

1995 16.79%
1996 1.86%
1997 7.26%
1998 7.59%

BEST QUARTER 5.99%
2nd quarter, 1995

WORST QUARTER -2.15%
1st quarter, 1996

<PAGE>

CHASE INTERMEDIATE TERM BOND FUND

AVERAGE ANNUAL TOTAL RETURNS
For the periods ending December 31, 1998

SINCE
PAST 1 INCEPTION
YEAR (10/3/94)

7.59% 7.82%

LEHMAN INTERMEDIATE GOV'T/CORP INDEX 8.44% 8.27%
LEHMAN AGGREGATE INDEX 8.69% 9.46%

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 *

* There is a $10 fee for each wire transaction.

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

TOTAL ANNUAL

MANAGEMENT DISTRIBUTION OTHER FUND OPERATING
FEE (12B1) FEES EXPENSES EXPENSES

INVESTOR CLASS SHARES 0.50% 0.25% 5.95% 6.70%

* The table is based on expenses incurred in the most recent fiscal year. The
actual Management Fee is currently expected to be 0.05%, the Distribution Fees
are expected to be 0.00%, Other expenses are expected to be 0.95% and Total
annual Fund operating expenses are expected not to exceed 1.00%. That's 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 end this arrangement at any time.
The table does not reflect charges or credits 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:

o you invest $10,000

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

o your investment has a 5% return each year, and

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

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

YOUR COST WOULD BE:

NUMBER OF YEARS 1 3 5 10
COSTS $664 $1,959 $3,210 $6,157

<PAGE>

CHASE INCOME FUND

THE FUND'S

OBJECTIVE

The Fund aims to invest in securities that earn a high level of current income,
while also considering safety of principal.

THE FUND'S MAIN
INVESTMENT STRATEGY

<PAGE>

CHASE INCOME FUND

adviser may sell one security and buy another security of comparable quality and
maturity to take advantage of what it believes to be short-term differences in
market values or yields.

To temporarily defend its assets during unusual market conditions, the Fund may
invest any portion of its assets in high quality money market instruments and
repurchase agreements.

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.

<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 Income
Fund.

Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.

<PAGE>

CHASE INCOME FUND

denominated in U.S. dollars, it also would be subject to currency exchange risk.
These risks increase when investing in issuers located in developing countries.

Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.

If the interest rate on floating and variable rate securities falls, the Fund's
yield may decline and it may lose the opportunity for capital appreciation.

Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its part of the agreement.

Derivatives may be more risky than other types of investments and could cause
losses that exceed the Fund's original investment.

If the Fund departs from its investment policies during temporary defensive
periods, it may not achieve its investment objective.

The Fund, like any business, could be affected if the computer system on
which it relies fail to properly process information beginning January 1,
2000. The Fund's advisers are updating their own systems and encouraging
service providers to do the same, but there's no guarantee these systems
will work properly. Year 2000 problems could also hurt issuers whose
securities the Fund holds or securities markets generally.

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and
it isn't insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.

<PAGE>

THE FUND'S PAST PERFORMANCE

This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund has varied from year to year. This provides some
indication of the risks of investing in the Fund. The table shows the average
annual return over the past year, five years and ten years. It compares that
performance to the Lehman Brothers Government/Corporate Index.

The Lehman Brothers Government/Corporate Index is an unmanaged index that
consists of U.S. Treasury and agency securities, and corporate and Yankee bonds
with maturities of 1-30 years.

Lipper Corporate Debt A Rated Funds Index represents performance of the largest
30 A rated corporate debt funds.

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

[Bar Chart Appears Here]

1989 10.37%
1990 6.60%
1991 13.73%
1992 5.13%
1993 10.18%
1994 -4.47%
1995 18.38%
1996 1.91%
1997 8.73%
1998 9.38%

BEST QUARTER 6.34%
2nd quarter, 1989

WORST QUARTER -3.38%
1st quarter, 1994

<PAGE>

CHASE INCOME FUND

AVERAGE ANNUAL TOTAL RETURNS
For the periods ending December 31, 1998

PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS

9.38% 6.50% 7.82%
LEHMAN GOV'T/CORP INDEX 9.47% 7.30% 9.33%
LIPPER CORP. DEBT A
RATED FUNDS INDEX 7.31% 6.61% 8.85%

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 *

* There is a $10 fee for each wire transaction.

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

TOTAL ANNUAL

MANAGEMENT DISTRIBUTION OTHER FUND OPERATING
FEE (12B-1 FEES) EXPENSES EXPENSES

INVESTOR CLASS SHARES 0.50% 0.25% 5.67% 6.42%

* The table is based on expenses incurred in the most recent fiscal year. The
actual Management Fee is currently expected to be 0.33%, the Distribution Fees
are expected to be 0.00%, Other expenses are expected to be 0.67% and Total
annual Fund operating expenses are expected not to exceed 1.00%. That's 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 end this arrangement at any time.
The table does not reflect charges or credits 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:

o you invest $10,000

o you sell all your shares at the end of the period o your investment has a
5% return each year, and

o 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 COST WOULD BE:

NUMBER OF YEARS 1 2 5 10

COSTS $637 $1,885 $3,098 $5,982

<PAGE>

CHASE BALANCED FUND

THE FUND'S

OBJECTIVE

The Fund aims to provide a balance of current income and growth of capital.

THE FUND'S MAIN
INVESTMENT STRATEGY

The Fund seeks a balance of current income and growth by using the following
strategies:

o an active equity management style that focuses on strong earnings
momentum and profitability within the universe of growth-oriented
stocks, and

o an active fixed income managementstyle that focuses primarily on
domestic fixed income securities.

The Fund seeks growth of capital by normally investing 30% to 70% of its total
assets in equity securities. The Fund invests primarily in companies with one or
more of the following characteristics:

o a projected rate of earnings growth that's equal to or greater than
the equity markets

o a return on assets and equity that's equal to or greater than the
equity markets

o above-average price/earnings ratios
o below-average dividend yield
o above-average market volatility

o a market capitalization of more than $500 million.

Market capitalization is the total market value of a company's shares. Equity
securities include common stocks and preferred

<PAGE>

CHASE BALANCED FUND

stocks and securities that are convertible into common stocks.

There is no restriction on the maturity of the Fund's debt portfolio or on any
individual security in the portfolio. The Fund's advisers will adjust the
maturity based on its outlook for the economy.

The Fund's equity holdings may also include real estate investment trusts
(REITs), which are pools of investments primarily in income-producing real
estate or loans related to real estate.

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.

<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 of the specific risks of investing in
Balanced Fund.

The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.

Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.

<PAGE>

CHASE BALANCED FUND

decline, the value of mortgage-related securities with prepayment features may
not increase as much as securities without prepayment features.

The value of interest-only and principal-only mortgage-backed securities are
more volatile than other types of mortgage-related securities. That's because
they are very sensitive not only to changes in interest rates, but also to the
rate of prepayments. A rapid or unexpected increase in prepayments can
significantly depress the price of interest-only securities, while a rapid or
unexpected decrease could have the same effect on principal-only securities.

In addition, these instruments may be illiquid.

Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.

Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.

Because the interest rate changes on floating and variable rate securities, the
Fund's yield may decline and it may lose the opportunity for capital
appreciation when interest rates decline.

Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its obligations under the
agreement.

The value of REITs will depend on the value of the underlying properties or the
underlying loans or interest. The value of REITs may decline when interest rates
rise.

<PAGE>

The Fund, like any business, could be affected if the computer system on which
it relies fail to properly process information beginning January 1, 2000. The
Fund's advisers are updating their own systems and encouraging service providers
to do the same, but there's no guarantee these systems will work properly. Year
2000 problems could also hurt issuers whose securities the Fund holds or
securities markets generally.

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

THE FUND'S PAST PERFORMANCE

This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund shares has varied from year to year. This provides some
indication of the risks of investing in the Fund. The table shows the average
annual return over the past year, five years and ten years. It compares that
performance to the S&P 500 Index and Lehman Brothers Government/Corporate Index.

The Fund began offering Investor Class shares on October 16, 1998. Performance
figures for Investor Class shares before that date are based on Premier Class
shares of the Fund. Since Investor Class shares have higher expenses, their
performance figures would have been lower.

YEAR-BY-YEAR RETURNS

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

[Bar Chart Appears Here]

1989 18.26%
1990 1.34%
1991 24.16%
1992 5.32%
1993 6.01%
1994 -2.27%
1995 28.83%
1996 11.31%
1997 23.67%
1998 25.04%

BEST QUARTER 13.24%
4th quarter, 1998

Worst quarter -5.37%
3rd quarter, 1990

<PAGE>

CHASE BALANCED FUND

AVERAGE ANNUAL TOTAL RETURNS

For the periods ending December 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS

25.04% 15.80% 13.21%
S&P 500 INDEX 28.58% 24.06% 19.20%

LEHMAN BROS.

GOV'T/CORP. INDEX 9.47% 7.30% 9.33%

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 *

* There is a $10 fee for each wire transaction.

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

TOTAL ANNUAL

MANAGEMENT DISTRIBUTION OTHER FUND OPERATING
FEE (12B-1 FEES) EXPENSES EXPENSES

INVESTOR CLASS SHARES 0.75% 0.25% 5.70% 6.70%

* The table is based on expenses incurred in the most recent fiscal year. The
actual Management Fee is currently expected to be 0.55%, the Distribution Fees
are expected to be 0.00%, Other expenses are expected to be 0.70% and Total
annual Fund operating expenses are expected not to exceed 1.25%. That's 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 end this arrangement at any time.
The table does not reflect charges or credits 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:

o you invest $10,000

o you sell all your shares at the end of the period o your investment has a
5% return each year, and

o 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 COST WOULD BE:

NUMBER OF YEARS 1 3 5 10

COSTS $664 $1,959 $3,210 $6,157

<PAGE>

CHASE EQUITY INCOME FUND

THE FUND'S OBJECTIVE

The Fund aims to invest in securities that provide both capital appreciation and
current income.

THE FUND'S MAIN
INVESTMENT STRATEGY

<PAGE>

CHASE EQUITY INCOME FUND

The Fund's equity holdings may also include real estate investment trusts
(REITs), which are pools of investments primarily in income-producing real
estate or loans related to real estate.

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.

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 of the specific risks of investing in
Equity Income Fund.

The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.

<PAGE>

Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.

The value of REITs will depend on the value of the underlying properties or the
underlying loans or interest. The value of REITs may decline when interest rates
rise.

The Fund, like any business, could be affected if the computer system on which
it relies fail to properly process information beginning January 1, 2000. The
Fund's advisers are updating their own systems and encouraging service providers
to do the same, but there's no guarantee these systems will work properly. Year
2000 problems could also hurt issuers whose securities the Fund holds or
securities markets generally.

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

<PAGE>

CHASE EQUITY INCOME FUND

THE FUND'S PAST PERFORMANCE

This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund has varied from year to year. This provides some
indication of the risks of investing in the Fund. The table shows the average
annual return over the past year, five years and ten years. It compares that
performance to the S&P 500 Index. The S&P 500 Index is an unmanaged, broad-based
index of 500 companies that is generally considered to represent the U.S.

market.

The Fund began offering Investor Class shares on August 24, 1998. Performance
figures for Investor Class shares before that date are based on Premier Class
shares of the Fund. Since Investor Class shares have higher expenses, their
performance figures would have been lower.

Lipper Equity Income Funds Index represents performance of the largest 30 equity
income funds.

YEAR-BY-YEAR RETURNS

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

[Bar Chart Appears Here]

1989 22.50%
1990 -4.40%
1991 22.10%
1992 5.61%
1993 12.34%
1994 -3.37%
1995 33.75%
1996 17.87%
1997 31.05%
1998 26.12%

BEST QUARTER 18.81%
4th quarter, 1998

WORST QUARTER -10.93%
3rd quarter, 1990

<PAGE>

AVERAGE ANNUAL TOTAL RETURNS

For the periods ending December 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS

26.12% 20.26% 15.61%
S&P 500 INDEX 28.58% 24.06% 19.20%
LIPPER EQUITY
INCOME FUNDS INDEX 11.78% 16.62% 14.89%

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 *

* There is a $10 fee for each wire transaction.

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

TOTAL ANNUAL

MANAGEMENT DISTRIBUTION OTHER FUND OPERATING
FEE (12B-1 FEES) EXPENSES EXPENSES

INVESTOR CLASS SHARES 0.75% 0.25% 5.60% 6.60%

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:

o you invest $10,000

o you sell all your shares at the end of the period o your investment has a
5% return each year, and

o 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 COST WOULD BE:

NUMBER OF YEARS 1 3 5 10

COSTS $655 $1,933 $3,171 $6,095

<PAGE>

CHASE CORE EQUITY FUND

THE FUND'S OBJECTIVE

The Fund aims to maximize total investment return with an emphasis on long-term
capital appreciation and current income while taking reasonable risk.

THE FUND'S MAIN
INVESTMENT STRATEGY

<PAGE>

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

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.

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 of the specific risks of investing in Core
Equity Fund.

The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.

Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.

In early 1999, the European Monetary Union implemented a new currency called the
"euro." It is possible that the euro could increase volatility in financial

<PAGE>

CHASE CORE EQUITY FUND

markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

<PAGE>

THE FUND'S PAST PERFORMANCE

This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund has varied from year to year. This provides some
indication of the risks of investing in the Fund. The table shows the average
annual return over the past year, five years and since inception. It compares
that performance to the S&P 500 Index. The S&P 500 Index is an unmanaged,
broad-based index of 500 companies and is generally considered to represent the
U.S. market.

The Fund began offering Investor Class shares on September 10, 1998. Performance
figures for Investor Class shares before that date are based on Premier Class
shares of the Fund. Since Investor Class shares have higher expenses, their
performance figures would have been lower.

Lipper Growth &Income Funds Index represents performance of the 30 largest
growth & income funds.

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

[Bar Chart Appears Here]

1994 -4.03%
1995 25.53%
1996 22.54%
1997 33.33%
1998 30.80%

BEST QUARTER 22.85%
4th quarter, 1998

WORST QUARTER -9.57%
3rd quarter, 1998

<PAGE>

CHASE CORE EQUITY FUND

AVERAGE ANNUAL TOTAL RETURNS
For the periods ending December 31, 1998

PAST 1 PAST 5 SINCE INCEPTION
YEAR YEARS (4/1/93)

30.80% 20.81% 19.43%
S&P 500 INDEX 28.58% 24.06% 21.73%
LIPPER GROWTH
& INCOME FUND INDEX 13.58% 17.83% 16.93%

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 *

* There is a $10 fee for each wire transaction.

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

TOTAL ANNUAL

MANAGEMENT DISTRIBUTION OTHER FUND OPERATING
FEE (12B-1 FEES) EXPENSES EXPENSES

INVESTOR CLASS SHARES 0.75% 0.25% 5.63% 6.63%

* The table is based on expenses incurred in the most recent fiscal year. The
actual Management Fee is currently expected to be 0.65%, the Distribution Fees
are expected to be 0.00%, Other expenses are expected to be 0.60% and Total
annual Fund operating expenses are expected not to exceed 1.25%. That's 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 end this arrangement at any time.
The table does not reflect charges or credits 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:

o you invest $10,000

o you sell all your shares at the end of the period o your investment has a
5% return each year, and

o 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 COST WOULD BE:

NUMBER OF YEARS 1 3 5 10

COSTS $658 $1,941 $3,183 $6,114

<PAGE>

CHASE EQUITY GROWTH FUND

THE FUND'S

OBJECTIVE

The Fund aims to provide capital appreciation. Producing current income is a
secondary objective.

THE FUND'S MAIN
INVESTMENT STRATEGY

The Fund seeks capital appreciation by emphasizing the growth sectors of the
economy. It looks for companies with one or more of the following
characteristics:

o a projected earnings growth rate that's greater than or equal to the
equity markets in general

o a return on assets and return on equity equal to or greater than the
equity markets

o above market average price-earnings ratios o below-average dividend yield
o above-average market volatility o a market capitalization of more than
$500 million.

The Fund focuses on companies with strong earnings and high levels of
profitability as well as positive industry or company characteristics.

<PAGE>

CHASE EQUITY GROWTH FUND

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs
(and thus lower performance) and increase your taxable dividends.

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 of the specific risks of investing in
Equity Growth Fund.

The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.

<PAGE>

Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

<PAGE>

CHASE EQUITY GROWTH FUND

THE FUND'S PAST PERFORMANCE

This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund has varied from year to year. This provides some
indication of the risks of investing in the Fund. The table shows the average
annual return over the past year, five years and ten years. It compares that
performance to the S&P 500 Index and the S&P Barra Growth Index.

The Fund began offering Investor Class shares on August 13, 1998. Performance
figures for Investor Class shares before that date are based on Premier Class
shares of the Fund. Since Investor Class shares have higher expenses, their
performance figures would have been lower.

YEAR-BY-YEAR RETURNS

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

[Bar Chart Appears Here]

1989 25.73%
1990 -1.45%
1991 31.69%
1992 6.43%
1993 2.48%
1994 -0.90%
1995 25.78%
1996 20.52%
1997 37.20%
1998 41.19%

BEST QUARTER 27.32%
4th quarter, 1998

WORST QUARTER -15.53%
3rd quarter, 1990

<PAGE>

AVERAGE ANNUAL TOTAL RETURNS
For the periods ending December 31, 1998

PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS

41.19% 23.80% 17.86%
S&P 500 INDEX 28.58% 24.06% 19.20%
S&P BARRA GROWTH INDEX 42.16% 27.93% 21.35%

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 *

* There is a $10 fee for each wire transaction.

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

TOTAL ANNUAL

MANAGEMENT DISTRIBUTION OTHER FUND OPERATING
FEE (12B1) FEES EXPENSES EXPENSES

INVESTOR CLASS SHARES 0.75% 0.25% 5.54% 6.54%

* The table is based on expenses incurred in the most recent fiscal year. The
actual Management Fee is currently expected to be 0.71%, the Distribution Fees
are expected to be 0.00%, Other expenses are expected to be 0.54% and Total
annual Fund operating expenses are expected not to exceed 1.25%. That's 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 end this arrangement at any time.
The table does not reflect charges or credits 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:

o you invest $10,000

o you sell all your shares at the end of the period o your investment has a
5% return each year, and

o 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 COST WOULD BE:

NUMBER OF YEARS 1 3 5 10
COSTS $649 $1,917 $3,146 $6,058

<PAGE>

CHASE SMALL CAPITALIZATION FUND

THE FUND'S OBJECTIVE

The Fund aims to provide capital appreciation.

THE FUND'S MAIN
INVESTMENT STRATEGY

<PAGE>

The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.

FREQUENCY OF TRADING

The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.

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 of the specific risks of investing in
Small Capitalization Fund.

The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.

<PAGE>

CHASE SMALL CAPITALIZATION FUND

Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.

An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

<PAGE>

THE FUND'S PAST PERFORMANCE

The Fund began offering Investor Class shares on August 12, 1998. Performance
figures for Investor Class shares before that date are based on Premier Class
shares of the Fund. Since Investor Class shares have higher expenses, their
performance figures would have been lower.

The S&P 500 is an unmanaged, broad-based index of 500 companies that is
generally considered to represent the U.S. market. The S&P 600 is an unmanaged
index of 600 small capitalization companies.

YEAR-BY-YEAR RETURNS

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

[Bar Chart Appears Here]

1994 -6.12%
1995 31.14%
1996 30.88%
1997 24.08%
1998 -1.93%

BEST QUARTER 17.04%
2nd quarter, 1997

WORST QUARTER -18.14%
3rd quarter, 1998

<PAGE>

AVERAGE ANNUAL TOTAL RETURNS
For the periods ending December 31, 1998

PAST 1 PAST 5 SINCE INCEPTION
YEAR YEARS (4/1/93)

-1.93% 14.41% 14.09%

S&P 500 INDEX 28.58% 24.06% 21.73%
S&P 600 INDEX -1.31% 13.23% 14.09%

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 *

* There is a $10 fee for each wire transaction.

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

TOTAL ANNUAL

MANAGEMENT DISTRIBUTION OTHER FUND OPERATING
FEE (12B1) FEES EXPENSES EXPENSES

INVESTOR CLASS SHARES 0.75% 0.25% 5.73% 6.73%

* The table is based on expenses incurred in the most recent fiscal year. The
actual Management Fee is currently expected to be 0.52%, the Distrtibution Fees
are expected to be 0.00%, Other expenses are expected to be 0.48% and Total
annual Fund operating expenses are expected not to exceed 1.00%. That's 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 end this arrangement at any time.
The table does not reflect charges or credits 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:

o you invest $10,000

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

o your investment has a 5% return each year, and

o 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 COST WOULD BE

NUMBER OF YEARS 1 3 5 10
COSTS $667 $1,967 $3,222 $6,176

<PAGE>

THE FUND'S INVESTMENT ADVISER

Chase is entitled to receive an annual fee for its services. The following chart
shows the maximum fee as a percentage of each Fund's average daily net assets:

Chase Texas is located at 712 Main Street, Houston, Texas 77002.

FUND FEE

MONEY MARKET FUND 0.30%

SHORT-INTERMEDIATE
TERM U.S. GOVERNMENT

SECURITIES FUND 0.50%

U.S. GOVERNMENT
SECURITIES FUND 0.50%

INTERMEDIATE TERM
BOND FUND 0.50%

INCOME FUND 0.50%

BALANCED FUND 0.75%

EQUITY INCOME FUND 0.75%

CORE EQUITY FUND 0.75%

EQUITY GROWTH FUND 0.75%

SMALL CAPITALIZATION FUND 0.75%

<PAGE>

THE FUND'S INVESTMENT ADVISER

THE PORTFOLIO MANAGERS

CHASE MONEY MARKET FUND

The portfolio manager is Guy Barba, a Senior Investment Officer at Chase Texas.
He has managed the portfolio since April of 1993. Mr. Barba has worked for Chase
Texas since 1988.

CHASE SHORT-INTERMEDIATE TERM
U.S. GOVERNMENT SECURITIES FUND

Mr. Barba has managed the portfolio since its inception on April 1, 1993.

CHASE U.S. GOVERNMENT
SECURITIES FUND

The portfolio manager is John Miller, a Senior Investment Officer at Chase
Texas. He has managed the portfolio since June of 1995. Mr. Miller has worked
for Chase Texas since 1986.

CHASE INTERMEDIATE TERM BOND FUND

The portfolio manager is H. Mitchell Harper, a Senior Investment Officer at
Chase Texas. He has managed the portfolio since its inception on April 1, 1993.

Mr. Harper has worked for Chase Texas since 1987.

CHASE INCOME FUND

Mr. Miller has managed the portfolio since July of 1994.

CHASE BALANCED FUND

CHASE EQUITY INCOME FUND

The portfolio manager is Robert Heintz, a Senior Investment Officer at Chase
Texas. He has managed the portfolio since its inception on March 29, 1988. Mr.

Heintz has worked for Chase Texas since 1983.

CHASE CORE EQUITY FUND

CHASE EQUITY GROWTH FUND

Mr. Lartigue has managed the portfolio since July of 1994.

CHASE SMALL CAPITALIZATION FUND

<PAGE>

HOW YOUR ACCOUNT WORKS

BUYING FUND SHARES

There is no commission or sales charge to buy Investor Class shares.

MINIMUM INVESTMENTS

TYPE OF INITIAL ADDITIONAL
ACCOUNT INVESTMENT INVESTMENTS

REGULAR

ACCOUNT $2,500 $100

SYSTEMATIC
INVESTMENT

PLAN $1,000 $100

INDIVIDUAL
RETIREMENT
ACCOUNTS
(IRAS) AND

ROTH IRAs $1,000 $100

SEP-IRAs $1,000 $100

EDUCATION

IRAs $500 $100

SIMPLE

IRAs $25 $25

YOU CAN BUY SHARES THREE WAYS:

Through the Chase Funds
Service Center

Call 1-888-524-2730

Complete the enclosed application form and mail it along with a check for the
amount you want to invest to:

Chase Funds Service Center,
P.O. Box 419392
Kansas City, MO 64141-6392

Through your investment representative

Tell your representative which Funds you want to buy and he or she will contact
us. Your representative may charge you a fee and may offer additional services,
such as special purchase and redemption programs. Some representatives charge a
single fee that covers all services. Your adviser may impose different minimum
investments and earlier deadlines to buy and sell shares.

Through a Systematic Investment Plan

You can make regular automatic purchases of at least $100. For information about
the Systematic Investment Plan, see the Shareholder services section of this
prospectus.

Investment Details

The price of the shares is 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. You'll pay the public offering price, which is based
on the next NAV calculated after the Chase Funds Service Center receives your
instructions. Each Fund calculates its NAV once each day at the close of regular
trading on the New York Stock Exchange.

<PAGE>

HOW YOUR ACCOUNT WORKS

This method provides more stability in valuations. However, it may also result
in periods during which the stated value of a security is different than the
price the Fund would receive if it sold the investment.

The center accepts purchase orders on any business day that the New York Stock
Exchange is open. Normally, if the Chase Funds Service Center receives your
order in proper form by the close of regular trading on the New York Stock
Exchange, we'll process your order at that day's price. An order is in proper
form only after payment is converted into federal funds.

You must provide a Taxpayer Identification Number or Social Security Number when
you open an account. The Fund has the right to refuse any purchase order or to
stop offering shares for sale at any time.

Make your check out to Chase Funds in U.S. dollars. We won't accept credit
cards, cash, or checks from a third party. You cannot sell your shares until
your check has cleared, which could take more than 15 calendar days. If you buy
through an Automated Clearing House, you can't sell your shares until the
payment clears. That could take more than seven business days.

Your purchase will be cancelled if your check doesn't clear and you'll be
responsible for any expenses and losses to the Funds. Orders by wire will be
cancelled if the Chase Funds Service Center doesn't receive payment by 4:00 p.m.

Eastern time on the day you buy.

If you're planning to exchange, sell or transfer shares to another person
shortly after buying the shares, you should pay by certified check to avoid
delays. The Fund will not issue certificates for Fund shares.

SELLING FUND SHARES

There is no commission or charge to sell Investor Class shares of the Funds.

YOU CAN SELL YOUR SHARES
THREE WAYS:

Through the Chase Funds
Service Center

Call 1-888-524-2730. We will mail you a check or send the proceeds via
electronic transfer or wire. You cannot sell by phone if you have changed your
address of record within the previous 30 days. If you sell $25,000 or more worth
of Funds by phone, we'll send the money by wire only to a bank account on our
records. We charge $10 for each transaction by wire.

Send a signed letter with your instructions to:

Chase Funds Service Center,
P.O. Box 419392
Kansas City, MO 64141-6392

Through your investment representative

Tell your representative which Funds you want to sell. He or she will send the
necessary documents to the Chase Funds Service Center. Your representative might
charge you for this service.

<PAGE>

Through a Systematic Withdrawal Plan

You can automatically sell as little as $50 worth of shares. For information
about the Systematic Withdrawal Plan, see the Shareholder services section of
this prospectus. You can sell your Investor Class shares on any day the Funds
are accepting purchase orders. You'll receive the next NAV calculated after the
Chase Funds Service Center receives your order.

Under normal circumstances, if the Chase Funds Service Center receives your
order before the close of regular trading on the New York Stock Exchange, each
Fund will send you the proceeds the next business day. We won't accept an order
to sell shares if the Fund hasn't collected your payment for the shares. Each
Fund may stop accepting orders to sell and may postpone payments for more than
seven days, as federal securities laws permit.

SIGNATURE GUARANTEES

Before you sell, you'll need signatures guaranteed for all registered owners or
their legal representative if:

o you want to sell shares with a net asset value of $100,000 or more o you
want your payment sent to an address other than the one we have in

our records.

We may also need additional documents or a letter from a surviving joint owner
before selling the shares. Contact the Chase Funds Service Center for more
details.

EXCHANGING FUND SHARES

You can exchange your shares for shares of certain other Chase Funds at net
asset value, beginning 15 days after you buy your shares.

YOU CAN EXCHANGE YOUR SHARES THREE WAYS:

Through your investment representative

Tell your representative which Funds you want to exchange from and to. He or
she will send the necessary documents to the Chase Funds Service Center. Your
representative might charge you for this service.

Through the Chase Funds
Service Center

Call 1-888-524-2730 to ask for details.

Through a Systematic Exchange Plan

You can automatically exchange money from one Chase account to another of the
same class. Call the Chase Funds Service Center for details.

You should not exchange shares as means of short-term trading as this could
increase management cost and affect all shareholders. We reserve the right to
limit the number of exchanges or to refuse an exchange. We may also terminate
this privilege. We charge an administration fee of $5 for each exchange if you
make more than 10 exchanges in a year or three exchanges in a quarter. See the
Statement of Additional Information to find out more about the exchange
privilege.

<PAGE>

HOW YOUR ACCOUNT WORKS

OTHER INFORMATION
CONCERNING THE FUNDS

We may close your account if the balance falls below $500 because you've sold
shares. We may also close the account if you are in the Systematic Investment
Plan and fail to meet investment minimums over a 12-month period. We'll give you
60 days notice before closing your account.

Unless you indicate otherwise on your account application, we may act on
redemption and transfer instructions we receive by phone. If someone trades on
your account by phone, we'll ask that person to confirm your account
registration and address to make sure they match those you gave us. If they
supply the correct information, we are generally authorized to follow that
person's instructions. We'll take all reasonable precautions to confirm that the
instructions are genuine. You agree that you will not hold a Fund liable for any
loss or expenses from any sales request, if the Fund has taken reasonable
precautions. The Fund will be liable for any losses to you from an unauthorized
sale or fraud against you only if it does not follow reasonable procedures.

You may not always reach the Chase Funds Service Center by telephone. This may
be true at times of unusual market changes and shareholder activity. You can
mail us your instructions or contact your investment representative or agent. We
may modify or cancel the sale of shares by phone without notice.

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. The
information can be used for a variety of purposes, including offering investment
and insurance products to shareholders.

DISTRIBUTION ARRANGEMENTS

The Funds' distributor is CFD Fund Distributors Inc., which we call CFD in this
prospectus. CFD is a subsidiary of The BISYS Group, Inc. and is not affiliated
with Chase.

Each Fund has adopted a Rule 12b-1distribution plan for Investor Class shares.
It provides for payment of distribution fees at an annual rate of up to:

o 0.10% of the average daily net assets attributed to Investor Class
shares of the Money Market Fund

o 0.25% of the average daily net assets attributed to Investor Class
shares of each other Fund described in this prospectus.

<PAGE>

The money from these payments is used to compensate the Funds' distributor and
broker-dealers for the services they provide and the expenses they incur selling
Investor Class shares. Payments are not tied to the actual expenses incurred.

Because 12b-1 expenses are paid out of a Fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than other types of sales charges.

DISTRIBUTIONS AND TAXES

The Funds can earn income and they can realize capital gains. The Funds deduct
any expenses and pay these earnings out to shareholders as distributions.

You have three options for your distributions if your financial services firm
offers them. You may:

o reinvest all of them in additional
o Fund shares;

o take distributions of net investment income in cash or as a deposit in
a pre-assigned bank account and

o reinvest distributions of net capital gain in additional shares; or o
take all distributions in cash or as a deposit in a pre-assigned bank

account.

<PAGE>

SHAREHOLDER SERVICES

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.

For tax purposes, an exchange is treated as selling Fund shares. This will
generally result in a capital gain or loss to you.

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

SHAREHOLDER SERVICES

SYSTEMATIC INVESTMENT PLAN

You can regularly invest $100 or more in the first or third week of any month.
The money is automatically debited from your checking or savings account. You
must make an initial deposit of at least $1,000 to start the plan.

You can set up a plan when you open an account by completing the appropriate
section of the application. Current shareholders can join by sending a signed
letter and a deposit slip or void check to the Chase Funds Service Center. Call
1-888-524-2730 for complete instructions.

SYSTEMATIC WITHDRAWAL PLAN

You can make regular withdrawals of $50 or more. You can have automatic
withdrawals made monthly, quarterly or semiannually. Your account must contain
at least $5,000 to start the plan. Call 1-888-524-2730 for complete
instructions.

SYSTEMATIC EXCHANGE You can transfer assets automatically from one Chase account
to another on a regular basis. It's a free service.

TELEPHONE PRIVILEGES

You can buy, sell and exchange your shares by calling the Chase Funds Service
Center. Telephone privileges are provided automatically, unless you tell us
otherwise on your account application.

<PAGE>

FINANCIAL HIGHLIGHTS

CHASE MONEY MARKET FUND

The Financial Highlights table is intended to help you understand the Fund's
financial performance for the period 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 Fund (assuming reinvestment of all dividends and
distributions).

The table set forth below provides selected per share data and ratios for one
Investor Class Share outstanding throughout the period shown.

11/09/98**

Through
12/31/98

<S> <C>

PER SHARE OPERATING PERFORMANCE

- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 1.00
- --------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income 0.01
Net Gains or Losses in Securities

(both realized and unrealized) --

- --------------------------------------------------------------------------------
Total from Investment Operations 0.01

- --------------------------------------------------------------------------------
Less Distributions:

Dividends from Net Investment Income 0.01
Distributions from Capital Gains --

- --------------------------------------------------------------------------------
Total Distributions 0.01

- --------------------------------------------------------------------------------
Net Asset Value, End of Period $ 1.00
- --------------------------------------------------------------------------------
Total Return 0.69%

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

RATIOS/SUPPLEMENTAL DATA:

- --------------------------------------------------------------------------------
Net Assets, End of Period (000 omitted) $ 17
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:

Expenses 0.60%#
Net Investment Income 4.72%#
Expenses Without Waivers and Assumption of Expenses 0.80%#
Net Investment Income Without Waivers and

Assumption of Expenses 4.52%#

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

</TABLE>

** Commencement of offering of class shares.
# Short periods have been annualized.

<PAGE>

FINANCIAL HIGHLIGHTS

CHASE SHORT-TERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND

The table set forth below provides selected per share data and ratios for one
Investor Class Share outstanding throughout the period shown.

11/10/98**

Through
12/31/98

<S> <C>
PER SHARE OPERATING PERFORMANCE

- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 12.64
- --------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income 0.08
Net Gains or Losses in Securities

(both realized and unrealized) --

- --------------------------------------------------------------------------------
Total from Investment Operations 0.08

- --------------------------------------------------------------------------------
Less Distributions:

Dividends from Net Investment Income 0.09
Distributions from Capital Gains 0.04

- --------------------------------------------------------------------------------
Total Distributions 0.13

- --------------------------------------------------------------------------------
Net Asset Value, End of Period $ 12.59
- --------------------------------------------------------------------------------
Total Return 0.60%

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

RATIOS/SUPPLEMENTAL DATA:

- --------------------------------------------------------------------------------
Net Assets, End of Period (000 omitted) $ 10
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:

Expenses 1.03%#
Net Investment Income 4.47%#
Expenses Without Waivers and Assumption of Expenses 1.58%#
Net Investment Income Without Waivers and

Assumption of Expenses 3.92%#

- --------------------------------------------------------------------------------
Portfolio Turnover Rate 87%

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

</TABLE>

** Commencement of offering of class shares.
# Short periods have been annualized.

<PAGE>

CHASE U.S. GOVERNMENT SECURITIES FUND

The table set forth below provides selected per share data and ratios for one
Investor Class Share outstanding throughout the period shown.

11/10/98*

Through
12/31/98

<S> <C>

PER SHARE OPERATING PERFORMANCE

- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 14.42
- --------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income 0.09
Net Gains or Losses in Securities

(both realized and unrealized) 0.10

- --------------------------------------------------------------------------------
Total from Investment Operations 0.19

- --------------------------------------------------------------------------------
Less Distributions:

Dividends from Net Investment Income 0.09
Distributions from Capital Gains 0.68
In Excess of Realized Capital Gains 0.01
- --------------------------------------------------------------------------------
Total Distributions 0.78

- --------------------------------------------------------------------------------
Net Asset Value, End of Period $ 13.83
- --------------------------------------------------------------------------------
Total Return 1.37%

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

RATIOS/SUPPLEMENTAL DATA:

Expenses 1.03%#
Net Investment Income 4.45%#
Expenses Without Waivers and Assumption of Expenses 1.92%#
Net Investment Income Without Waivers and

Assumption of Expenses 3.56%#

- --------------------------------------------------------------------------------
Portfolio Turnover Rate 110%

- --------------------------------------------------------------------------------
</TABLE>

* Commencement of offering of class shares.
# Short periods have been annualized.

<PAGE>

FINANCIAL HIGHLIGHTS

CHASE INTERMEDIATE TERM BOND FUND

The table set forth below provides selected per share data and ratios for one
Investor Class Share outstanding throughout the period shown.

11/10/98*

Through
12/31/98

<S> <C>
PER SHARE OPERATING PERFORMANCE

- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 12.91
- --------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income 0.09
Net Gains or Losses in Securities

(both realized and unrealized) 0.11

- --------------------------------------------------------------------------------
Total from Investment Operations 0.20

- --------------------------------------------------------------------------------
Less Distributions:

Dividends from Net Investment Income 0.09
Distributions from Capital Gains 0.15

- --------------------------------------------------------------------------------
Total Distributions 0.24

- --------------------------------------------------------------------------------
Net Asset Value, End of Period $ 12.87
- --------------------------------------------------------------------------------
Total Return 1.52%

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

RATIOS/SUPPLEMENTAL DATA:

Expenses 1.03%#
Net Investment Income 4.64%#
Expenses Without Waivers and Assumption of Expenses 1.72%#
Net Investment Income Without Waivers and

Assumption of Expenses 3.95%#

- --------------------------------------------------------------------------------
Portfolio Turnover Rate 135%

- --------------------------------------------------------------------------------
</TABLE>

* Commencement of offering of class shares.
# Short periods have been annualized.

<PAGE>

CHASE INCOME FUND

The table set forth below provides selected per share data and ratios for one
Investor Class Share outstanding throughout the period shown.

11/10/98*

Through
12/31/98

<S> <C>
PER SHARE OPERATING PERFORMANCE

- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 20.77
- --------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income 0.14
Net Gains or Losses in Securities

(both realized and unrealized) 0.18

- --------------------------------------------------------------------------------
Total from Investment Operations 0.32

- --------------------------------------------------------------------------------
Less Distributions:

Dividends from Net Investment Income 0.15
Distributions from Capital Gains 0.48

- --------------------------------------------------------------------------------
Total Distributions 0.63

- --------------------------------------------------------------------------------
Net Asset Value, End of Period $ 20.46
- --------------------------------------------------------------------------------
Total Return 1.54%

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

RATIOS/SUPPLEMENTAL DATA:

Expenses 1.03%#
Net Investment Income 4.72%#
Expenses Without Waivers and Assumption of Expenses 1.44%#
Net Investment Income Without Waivers and

Assumption of Expenses 4.31%#

- --------------------------------------------------------------------------------
Portfolio Turnover Rate 54%

- --------------------------------------------------------------------------------
</TABLE>

* Commencement of offering of class shares.
# Short periods have been annualized.

<PAGE>

FINANCIAL HIGHLIGHTS

CHASE BALANCED FUND

The table set forth below provides selected per share data and ratios for one
Investor Class Share outstanding throughout the period shown.

10/16/98*

Through
12/31/98

<S> <C>

PER SHARE OPERATING PERFORMANCE

- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $31.87
- --------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income 0.10
Net Gains or Losses in Securities

(both realized and unrealized) 3.95
Total from Investment Operations 4.05

- --------------------------------------------------------------------------------
Less Distributions:

Dividends from Net Investment Income 0.16
Distributions from Capital Gains 1.25
In excess of net realized gain on investments --
- --------------------------------------------------------------------------------
Total Distributions 1.41

- --------------------------------------------------------------------------------
Net Asset Value, End of Period $34.51
- --------------------------------------------------------------------------------
Total Return 12.78%

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

RATIOS/SUPPLEMENTAL DATA:

- --------------------------------------------------------------------------------
Net Assets, End of Period (000 omitted) $ 19
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:

Expenses 1.25%#
Net Investment Income 1.84%#
Expenses Without Waivers and Assumption of Expenses 107.16%#
Net Investment Income Without Waivers and

Assumption of Expenses (104.07)%#

- --------------------------------------------------------------------------------
Portfolio Turnover Rate 58%

- --------------------------------------------------------------------------------
</TABLE>

* Commencement of offering of class shares.
# Short periods have been annualized.

<PAGE>

CHASE EQUITY INCOME FUND

The table set forth below provides selected per share data and ratios for one
Investor Class Share outstanding throughout the period shown.

8/24/98*

Through
12/31/98

PER SHARE OPERATING PERFORMANCE

- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 40.49
- --------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income 0.06
Net Gains or Losses in Securities

(both realized and unrealized) 5.89

- --------------------------------------------------------------------------------
Total from Investment Operations 5.95

- --------------------------------------------------------------------------------
Less Distributions:

Dividends from Net Investment Income 0.07
Distributions from Capital Gains 0.14
In excess of net realized gain on investments --
- --------------------------------------------------------------------------------
Total Distributions 0.21

- --------------------------------------------------------------------------------
Net Asset Value, End of Period $ 46.23
- --------------------------------------------------------------------------------
Total Return 14.70%

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

RATIOS/SUPPLEMENTAL DATA:

- --------------------------------------------------------------------------------
Net Assets, End of Period (000 omitted) $ 80
- --------------------------------------------------------------------------------
Ratios to Average Net Assets

Expenses 1.18%#
Net Investment Income 0.57%#
Expenses Without Waivers and Assumption of Expenses 37.61%#
Net Investment Income Without Waivers and

Assumption of Expenses (35.86)%#

- --------------------------------------------------------------------------------
Portfolio Turnover Rate 3%

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

* Commencement of offering of class shares.
# Short periods have been annualized.

<PAGE>

FINANCIAL HIGHLIGHTS

CHASE CORE EQUITY FUND

The table set forth below provides selected per share data and ratios for one
Investor Class Share outstanding throughout the period shown.

9/10/98*

Through
12/31/98

PER SHARE OPERATING PERFORMANCE

- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 21.49
- --------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income --
Net Gains or Losses in Securities

(both realized and unrealized) 6.22

- --------------------------------------------------------------------------------
Total from Investment Operations 6.22

- --------------------------------------------------------------------------------
Less Distributions:

Dividends from Net Investment Income 0.02
Distributions from Capital Gains 1.17
In excess of net realized gain on investments --
- --------------------------------------------------------------------------------
Total Distributions 1.19

- --------------------------------------------------------------------------------
Net Asset Value, End of Period $ 26.52
- --------------------------------------------------------------------------------
Total Return 29.08%

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

RATIOS/SUPPLEMENTAL DATA:

- --------------------------------------------------------------------------------
Net Assets, End of Period (000 omitted) $ 24
- --------------------------------------------------------------------------------
Ratios to Average Net Assets

Expenses 1.23%#
Net Investment Income (0.03)%#
Expenses Without Waivers and Assumption of Expenses 140.46%#
Net Investment Income Without Waivers and

Assumption of Expenses (139.26)%#

- --------------------------------------------------------------------------------
Portfolio Turnover Rate 32%

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

* COMMENCEMENT OF OFFERING OF CLASS SHARES.
# Short periods have been annualized.

<PAGE>

CHASE EQUITY GROWTH FUND

The table set forth below provides selected per share data and ratios for one
Investor Class Share outstanding throughout the period shown.

8/13/98*

Through
12/31/98

PER SHARE OPERATING PERFORMANCE

- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 45.57
- --------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income (0.02)
Net Gains or Losses in Securities

(both realized and unrealized) 8.53

- --------------------------------------------------------------------------------
Total from Investment Operations 8.51

- --------------------------------------------------------------------------------
Less Distributions:

Dividends from Net Investment Income --
Distributions from Capital Gains 1.78

- --------------------------------------------------------------------------------
Total Distributions 1.78

- --------------------------------------------------------------------------------
Net Asset Value, End of Period $ 52.30
- --------------------------------------------------------------------------------
Total Return 18.80%

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

RATIOS/SUPPLEMENTAL DATA:

- --------------------------------------------------------------------------------
Net Assets, End of Period (000 omitted) $ 1,369
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:

Expenses 1.25%#
Net Investment Income (0.19)%#
Expenses Without Waivers and Assumption of Expenses 5.88%#
Net Investment Income Without Waivers and

Assumption of Expenses 4.82%#

- --------------------------------------------------------------------------------
Portfolio Turnover Rate 35%

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

* Commencement of offering of class shares.
# Short periods have been annualized.

<PAGE>

FINANCIAL HIGHLIGHTS

CHASE SMALL CAPITALIZATION FUND

The table set forth below provides selected per share data and ratios for one
Investor Class Share outstanding throughout the period shown.

8/12/98*

Through
12/31/98

PER SHARE OPERATING PERFORMANCE

- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 19.86
- --------------------------------------------------------------------------------
Income from Investment Operations:

Net Investment Income (0.01)
Net Gains or Losses in Securities

(both realized and unrealized) 1.44

- --------------------------------------------------------------------------------
Total from Investment Operations 1.43

- --------------------------------------------------------------------------------
Less Distributions:

Dividends from Net Investment Income --
Distributions from Capital Gains 0.71
In excess of net realized gain on investments 0.64
- --------------------------------------------------------------------------------
Total Distributions 1.35

- --------------------------------------------------------------------------------
Net Asset Value, End of Period $ 19.94
- --------------------------------------------------------------------------------
Total Return 7.56%

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

RATIOS/SUPPLEMENTAL DATA:

- --------------------------------------------------------------------------------
Net Assets, End of Period (000 omitted) $ 50
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:

Expenses 1.24%#
Net Investment Income (0.18)%#
Expenses Without Waivers and Assumption of Expenses 74.81%#
Net Investment Income Without Waivers and

Assumption of Expenses (73.75)%#

- --------------------------------------------------------------------------------
Portfolio Turnover Rate 45%

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

* Commencement of offering of class shares.
# Short periods have been annualized.

<PAGE>

WHAT THE TERMS MEAN

COLLATERALIZED MORTGAGE OBLIGATIONS: debt securities that are collateralized by
a portfolio of mortgages or mortgage backed securities.

DEPOSITORY RECEIPTS: instruments which are typically issued by financial
institutions and which represent ownership of securities of foreign
corporations. Depository receipts are usually designed for use on U.S. and

European securities exchanges.

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

FUNDAMENTAL RESEARCH: method which concentrates on "fundamental" information
about an issuer, such as its financial statements, history, management, etc.

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

MORTGAGE-RELATED SECURITIES: securities that directly or indirectly represent an
interest in, or are secured by and paid from, mortgage loans secured by real
property.

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

<PAGE>

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

STRIPPED OBLIGATIONS: debt securities which are separately traded interest-only
or principal-only components of an underlying obligation.

TECHNICAL ANALYSIS: method which focuses on historical price trends in an
attempt to predict future price movements.

VALUE APPROACH: approach which focuses on identifying securities that the
adviser believes are undervalued by the market, as measured by certain financial

formulas.

YIELD CURVE: measure showing relationship among yields of similar bonds with
different maturities.

<PAGE>

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<PAGE>

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<PAGE>

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<PAGE>

HOW TO REACH US

MORE INFORMATION

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

ANNUAL AND SEMI-ANNUAL REPORTS

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 1-888-524-2730 or writing to:

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

PUBLIC REFERENCE SECTION OF THE SEC
WASHINGTON, DC 20549-6009.

1-800-SEC-0330

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 811-5526

CHASE FUNDS FULFILLMENT CENTER
393 MANLEY STREET

WEST BRIDGEWATER, MA 02379-1039

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1999

CHASE BALANCED FUND
CHASE CORE EQUITY FUND
CHASE EQUITY GROWTH FUND
CHASE EQUITY INCOME FUND
CHASE INCOME FUND
CHASE INTERMEDIATE TERM BOND FUND
CHASE INTERNATIONAL EQUITY FUND
CHASE MID CAP GROWTH FUND
CHASE MONEY MARKET FUND
CHASE NEW YORK TAX FREE INCOME FUND
CHASE SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND
CHASE SMALL CAPITALIZATION FUND
CHASE TAX FREE INCOME FUND
CHASE TAX FREE MONEY MARKET FUND
CHASE U.S. GOVERNMENT SECURITIES FUND

ONE CHASE MANHATTAN PLAZA, 3RD FLOOR, NEW YORK, NEW YORK 10081

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 Prospectuses offering Premier
and Retail shares of Chase Money Market Fund and Chase Tax Free Money Market
Fund (collectively the "Money Market Funds"), Chase Income Fund, Chase
Intermediate Term Bond Fund, Chase New York Tax Free Income Fund, Chase Short-
Intermediate Term U.S. Government Securities Fund, Chase Tax Free Income Fund
and Chase U.S. Government Securities Fund (collectively the "Income Funds"), and
Chase Balanced Fund, Chase Core Equity Fund, Chase Equity Income Fund, Chase
Equity Growth Fund, Chase International Equity Fund, Chase Mid Cap Growth Fund
and Chase Small Capitalization Fund (collectively the "Equity Funds"). The Chase
Tax Free Money Market Fund, Chase Tax Free Income Fund and Chase New York Tax
Free Income Fund are collectively known as the "Tax Free Funds." Any references
to a "Prospectus" in this Statement of Additional Information is a reference to
one or more of the foregoing Prospectuses, as the context requires. Copies of
each Prospectus may be obtained by an investor without charge by contacting CFD
Fund Distributors, Inc. ("CFD"), the Funds' distributor (the "Distributor), at
the above-listed address.

The Chase Mid Cap Growth Fund, the Chase International Equity Fund and the
Tax Free Funds are not currently available for investment.

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 your account, simply call or write the Chase
Funds Service Center at:

1-800-62-CHASE
Chase Funds Service Center
P.O. Box 419392
Kansas City, MO 64141

<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----

<S> <C>
The Funds.................................................................................................. 3

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

Performance Information.................................................................................... 21

Determination of Net Asset Value........................................................................... 25

Purchases, Redemptions and Exchanges....................................................................... 26

Tax Matters................................................................................................ 27

Management of the Trust and the Funds...................................................................... 32

Independent Accountants.................................................................................... 41

Certain Regulatory Matters................................................................................. 41

General Information........................................................................................ 42

APPENDIX A

Description of certain obligations issued or guaranteed by U.S. Government
Agencies or Instrumentalities............................................................................ 45

APPENDIX B

Description of Ratings..................................................................................... 47

APPENDIX C

Special investment considerations relating to New York Municipal Obligations............................... 51
</TABLE>

<PAGE>
THE FUNDS

Mutual Fund Investment 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 September 23, 1997. The Trust presently
consists of 15 separate series (the "Funds"). Certain of the Funds are
diversified and other 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."

Effective January 1, 1998, the Money Market, Short-Intermediate Term U.S.
Government Securities, U.S. Government Securities, Intermediate Term Bond,
Income, Balanced, Equity Income, Core Equity, Equity Growth and Small
Capitalization Funds of the AVESTA Trust, a collective investment trust, were
converted and redomiciled into the corresponding portfolios of the Trust (the
"Avesta Conversion").

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.

INVESTMENT POLICIES AND RESTRICTIONS

INVESTMENT POLICIES

The Prospectuses set forth the various investment policies of each Fund.
The following information supplements and should be read in conjunction with the
related sections of the Prospectuses. As used in this Statement of Additional
Information, with respect to those Funds and policies for which it applies, the
term "Municipal Obligations" has the meaning given to it in the Prospectuses.
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.

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 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 the
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.
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

3
<PAGE>
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 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 Association 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 of
foreign banks and foreign branches of United States banks may involve foreign
investment risks in addition to those relating to domestic bank obligations.

Depositary Receipts. A Fund will limit its investment in Depositary
Receipts not sponsored by the issuer of the underlying security to no more than
5% of the value of its net assets (at the time of investment). A purchaser of an
unsponsored Depositary Receipt may not have unlimited voting rights and may not
receive as much information about the issuer of the underlying securities as
with a sponsored Depositary Receipt.

ECU Obligations. The specific amounts of currencies comprising the ECU may
be adjusted by the Council of Ministers of the European Community to reflect
changes in relative values of the underlying currencies. The Trustees do not
believe that such adjustments will adversely affect holders of ECU-denominated
securities or the marketability of such securities.

Supranational Obligations. Supranational organizations, include
organizations such as The World Bank, which was chartered to finance development
projects in developing member countries; the European Community, which is a
twelve-nation organization engaged in cooperative economic activities; the
European Coal and Steel Community, which is an economic union of various
European nations steel and coal industries; and the Asian Development Bank,
which is an international development bank established to lend funds, promote
investment and provide technical assistance to member nations of the Asian and
Pacific regions.

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Corporate Reorganizations. In general, securities that are the subject of
a tender or exchange offer or proposal sell at a premium to their historic
market price immediately prior to the announcement of the offer or proposal. The
increased market price of these securities may also discount what the stated or
appraised value of the security would be if the contemplated action were
approved or consummated. These investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved; significantly
undervalues the securities, assets or cash to be received by shareholders of the
prospective portfolio company as a result of the contemplated transaction; or
fails adequately to recognize the possibility that the offer or proposal may be
replaced or superseded by an offer or proposal of greater value. The evaluation
of these contingencies requires unusually broad knowledge and experience on the
part of the advisers that must appraise not only the value of the issuer and its
component businesses as well as the assets or securities to be received as a
result of the contemplated transaction, but also the financial resources and
business motivation of the offeror as well as the dynamics of the business
climate when the offer or proposal is in progress. Investments in reorganization
securities may tend to increase the turnover ratio of a Fund and increase its
brokerage and other transaction expenses.

Warrants and Rights. Warrants basically are options to purchase equity
securities at a specified price for a specific period of time. Their prices do
not necessarily move parallel to the prices of the underlying securities. Rights
are similar to warrants but normally have a shorter duration and are distributed
directly by the issuer to shareholders. Rights and warrants have no voting
rights, receive no dividends and have no rights with respect to the assets of
the issuer.

Commercial Paper. Commercial paper consists of short-term (usually from 1
to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts. The commercial paper and other
short-term obligations of U.S. and foreign corporations which may be purchased
by the Money Market Fund, other than those of bank holding companies, include
obligations which are (i) rated Prime-1 by Moody's, A-1 by S&P, or F-1 by Fitch,
or comparably rated by another NRO; or (ii) determined by the advisers to be of
comparable quality to those rated obligations which may be purchased by the
Money Market Fund at the date of purchase or which at the date of purchase have
an outstanding debt issue rated in the highest rating category by Moody's, S&P,
Fitch or another NRO. The commercial paper and other short-term obligations of
U.S. banks holding companies which may be purchased by Money Market Fund include
obligations issued or guaranteed by bank holding companies with total assets
exceeding $1 billion. For purposes of the size standards with respect to banks
and bank holding companies, "total deposits" and "total assets" are determined
on an annual basis by reference to an institution's then most recent annual
financial statements.

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 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 the 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

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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 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.

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, with respect to any Tax Free Fund, 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 or liquid
securities equal to the amount of such Fund's commitments securities 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 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 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, for consideration by investors in the Tax Free
Funds, 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.

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 Income Funds in floating or 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 floating or
variable rate demand instruments in which the Money Market Funds may invest are
payable on demand on not more than seven calendar days' notice.

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.

In the case of a Money Market Fund, the Board of Trustees may determine
that an unrated floating or variable rate security meets the Fund's high quality
criteria if it is backed by a letter of credit or guarantee or is

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insured by an insurer that meets such quality criteria, or on the basis of a
credit evaluation of the underlying obligor. If the credit of the obligor is of
"high quality", no credit support from a bank or other financial institution
will be necessary. The Board of Trustees will re-evaluate each unrated floating
or variable rate security on a quarterly basis to determine that it continues to
meet a Money Market Fund's high quality criteria. If an instrument is ever
deemed to fall below a Money Market Fund's high quality standards, either it
will be sold in the market or the demand feature will be exercised.

The securities in which certain 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
Participation Certificate) 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.

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 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

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remaining until the security's next interest rate adjustment. With respect to a
Money Market Fund, the maturity of a variable rate demand instrument will be
determined in the same manner for purposes of computing the Fund's
dollar-weighted average portfolio maturity. With respect to Income Funds, 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.

Tender Option Floating or Variable Rate Certificates. The Money Market
Funds may invest in tender option bonds. A tender option bond is a synthetic
floating or variable rate security issued when long term bonds are purchased in
the secondary market and are then deposited into a trust. Custodial receipts are
then issued to investors, such as the Funds, evidencing ownership interests in
the trust. The trust sets a floating or variable rate on a daily or weekly basis
which is established through a remarketing agent. These types of derivatives, to
be money market eligible under Rule 2a-7, must have a liquidity facility in
place which provides additional comfort to the investors in case the remarketing
fails. The sponsor of the trust keeps the difference between the rate on the
long term bond and the rate on the short term floating or variable rate
security.

Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by a Fund with an agreement to repurchase the securities
at an agreed upon price and date. The repurchase price is generally equal to the
original sales price plus interest. Reverse repurchase agreements are usually
for seven days or less and cannot be repaid prior to their expiration dates.
Reverse repurchase agreements involve the risk that the market value of the
portfolio securities transferred may decline below the price at which the Fund
is obliged to purchase the securities.

High Quality Municipal Obligations. Investments by the Tax Free Money
Market Fund will be made in unrated Municipal Obligations only if they are
determined to be of comparable quality to permissible rated investments on the
basis of the advisers' credit evaluation of the obligor or of the bank issuing a
participation certificate, letter of credit or guaranty, or insurance issued in
support of the obligation. High Quality instruments may produce a lower yield
than would be available from less highly rated instruments. The Board of
Trustees has determined that Municipal Obligations which are backed by the
credit of U.S. Government will be considered to have a rating equivalent to
Moody's Aaa.

If, subsequent to purchase by the Tax Free Money Market Fund, (a) an issue
of rated Municipal Obligations ceases to be rated in the highest short-term
rating category by at least two rating organizations (or one rating organization
if the instrument was rated by only one such organization) or the Board of
Trustees determines that it is no longer of comparable quality or (b) the Tax
Free Money Market Fund's advisers become aware that any portfolio security not
so highly rated or any unrated security has been given a rating by any rating
organization below the rating organization's second highest rating category, the
Board of Trustees will reassess promptly whether such security presents minimal
credit risk and will cause such Tax Free Money Market Fund to take such action
as it determines is in its best interest and that of its shareholders; provided
that the reassessment required by clause (b) is not required if the portfolio
security is disposed of or matures within five business days of the advisers
becoming aware of the new rating and the Fund's Board is subsequently notified
of the adviser's actions.

To the extent that a rating given by Moody's, S&P or Fitch for Municipal
Obligations may change as a result of changes in such organizations or their
rating systems, the Fund will attempt to use comparable ratings as standards for
its investments in accordance with the investment policies contained in the
Prospectus and this Statement of Additional Information. The ratings of Moody's,
S&P and Fitch represent their opinions as to the quality of the Municipal
Obligations which they undertake to rate. It should be emphasized, however, that
ratings are relative and subjective and are not absolute standards of quality.
Although these ratings may be an initial criterion for selection of portfolio
investments, the advisers also will evaluate these securities and the
creditworthiness of the issuers of such securities.

Zero Coupon, Payment-in-Kind 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.

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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
(the "Code"), investments by a Fund 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.

Payment-in-kind ("PIK") bonds are debt obligations which provide that the
issuer thereof may, at its option, pay interest on such bonds in cash or in the
form of additional debt obligations. Such investments benefit the issuer by
mitigating its need for cash to meet debt service, but also require a higher
rate of return to attract investors who are willing to defer receipt of such
cash. Such investments experience greater volatility in market value due to
changes in interest rates than debt obligations which provide for regular
payments of interest. A Fund will accrue income on such investments for tax and
accounting purposes, as required, which is distributable to shareholders and
which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the Fund's distribution
obligations.

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. In a put transaction, a Fund acquires the right to
sell a security at an agreed upon price within a specified period prior to its
maturity date, and a stand-by commitment entitles a Fund to same-day settlement
and to receive an exercise price equal to the amortized cost of the underlying
security plus accrued interest, if any, at the time of exercise.

The amount payable to the Tax Free Money Market Fund upon its exercise of a
stand-by commitment with respect to a Municipal Obligation normally would be (i)
the acquisition cost of the Municipal Obligation (excluding any accrued interest
paid by the Fund on the acquisition), less any amortized market premium or plus
any amortized market or original issue discount during the period the Fund owned
the security, plus (ii) all

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interest accrued on the security since the last interest payment date during the
period the security was owned by the Fund. Absent unusual circumstances relating
to a change in market value, the Tax Free Money Market Fund would value the
underlying Municipal Obligation at amortized cost. Accordingly, the amount
payable by a bank or dealer during the time a stand-by commitment is exercisable
would be substantially the same as the market value of the underlying Municipal
Obligation. The Tax Free Money Market Fund values stand-by commitments at zero
for purposes of computing their net asset value per share.

Stand-by commitments are subject to certain risks, which include the
inability 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
the Fund, and that the maturity of the underlying security will generally be
different from that of the commitment. Nor more than 10% of the total assets of
the Tax Free Money Market Fund will be invested in Municipal Obligations that
are subject to stand-by commitments from the same bank or broker-dealer.

Securities Loans. To the extent specified in the Prospectuses, each Fund
is permitted to lend its securities to broker-dealers and other institutional
investors in order to generate additional income. Such loans of portfolio
securities may not exceed 30% of the value of a Fund's total assets. In
connection with such loans, a Fund will receive collateral consisting of cash,
cash equivalents, U.S. Government securities or irrevocable letters of credit
issued by financial institutions. Such collateral will be maintained at all
times in an amount equal to at least 102% of the current market value plus
accrued interest of the securities loaned. A Fund can increase its income
through the investment of such collateral. A Fund continues to be entitled to
the interest payable or any dividend-equivalent payments received on a loaned
security and, in addition, to receive interest on the amount of the loan.
However, the receipt of any dividend-equivalent payments by a Fund on a loaned
security from the borrower will not qualify for the dividends-received
deduction. Such loans will be terminable at any time upon specified notice. A
Fund might experience risk of loss if the institutions with which it has engaged
in portfolio loan transactions breach their agreements with such Fund. The risks
in lending portfolio securities, as with other extensions of secured credit,
consist of possible delays in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should the
borrower experience financial difficulty. Loans will be made only to firms
deemed by the advisers to be of good standing and will not be made unless, in
the judgment of the advisers, the consideration to be earned from such loans
justifies the risk.

Real Estate Investment Trusts. Certain Funds may invest in shares of real
estate investment trusts ("REITs"), which are pooled investment vehicles which
invest primarily in income-producing real estate or real estate related loans or
interests. REITs are generally classified as equity REITs or mortgage REITs.
Equity REITs invest the majority of their assets directly in real property and
derive income primarily from the collection of rents. Equity REITs can also
realize capital gains by selling properties that have appreciated in value.
Mortgage REITs invest the majority of their assets in real estate mortgages and
derive income from the collection of interest payments. The value of equity
trusts will depend upon the value of the underlying properties, and the value of
mortgage trusts will be sensitive to the value of the underlying loans or
interests.

ADDITIONAL POLICIES REGARDING DERIVATIVE AND RELATED TRANSACTIONS

Introduction. As explained more fully below, the non-Money Market 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 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 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; and 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.

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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 cash or other liquid
assets (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 may
invest may be particularly sensitive to changes in prevailing interest rates or
other economic factors, and--like other investments of the Funds--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 inaccurately forecast such factors and have taken
positions in derivative or similar instruments contrary to prevailing market
trends, a Fund 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.
This risk is particularly acute in the case of "cross-hedges" between
currencies. The advisers may inaccurately forecast interest rates, market values
or other economic factors in utilizing a derivatives strategy. In such a case, a
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. In transactions involving currencies, the value of
the currency underlying an instrument may fluctuate due to many factors,
including economic conditions, interest rates, governmental policies and market
forces.

Specific Uses and Strategies. Set forth below are explanations of various
strategies involving derivatives and related instruments which may be used by a
Fund.

Options on Securities, Securities Indexes and Debt Instruments. A Fund 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

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increases in prices of securities the 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. The Funds will not
write uncovered options.

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. A Fund 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 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. The Funds may engage in cross-hedging by purchasing or selling
futures or options on a security or currency different from the security or
currency position being hedged to take advantage of relationships between the
two securities or currencies.

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 use foreign currency and interest-rate
forward contracts for various purposes as described below.

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<PAGE>
Foreign currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries, actual or perceived changes in interest rates and other
complex factors, as seen from an international perspective. A Fund that may
invest in securities denominated in foreign currencies may, in addition to
buying and selling foreign currency futures contracts and options on foreign
currencies and foreign currency futures, enter into forward foreign currency
exchange contracts to reduce the risks or otherwise take a position in
anticipation of changes in foreign exchange rates. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be a fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
By entering into a forward foreign currency contract, a Fund "locks in" the
exchange rate between the currency it will deliver and the currency it will
receive for the duration of the contract. As a result, a Fund reduces its
exposure to changes in the value of the currency it will deliver and increases
its exposure to changes in the value of the currency it will exchange into. The
effect on the value of a Fund is similar to selling securities denominated in
one currency and purchasing securities denominated in another. Transactions that
use two foreign currencies are sometimes referred to as "cross-hedges."

A Fund may enter into these contracts for the purpose of hedging against
foreign exchange risk arising from the Fund's investments or anticipated
investments in securities denominated in foreign currencies. A Fund may also
enter into these contracts for purposes of increasing exposure to a foreign
currency or to shift exposure to foreign currency fluctuations from one country
to another.

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 and Currency Transactions. A Fund may employ currency and
interest rate management techniques, including transactions in options
(including yield curve options), futures, options on futures, forward foreign
currency exchange contracts, currency options and futures and currency and
interest rate swaps. The aggregate amount of a Fund's net currency exposure will
not exceed the total net asset value of its portfolio. However, to the extent
that a Fund is fully invested while also maintaining currency positions, it may
be exposed to greater combined risk.

The Funds will only enter into interest rate and currency 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 and currency swaps do not involve the delivery of securities, the
underlying currency, other underlying assets or principal. Accordingly, the risk
of loss with respect to interest rate and currency swaps is limited to the net
amount of interest or currency payments that a Fund is contractually obligated
to make. If the other party to an interest rate or currency swap defaults, a
Fund's risk of loss consists of the net amount of interest or currency payments
that the Fund is contractually entitled to receive. Since interest rate and
currency swaps are individually negotiated, the Funds expect to achieve an
acceptable degree of correlation between their portfolio investments and their
interest rate or currency swap positions.

A Fund may hold foreign currency received in connection with investments in
foreign securities when it would be beneficial to convert such currency into
U.S. dollars at a later date, based on anticipated changes in the relevant
exchange rate.

A Fund may purchase or sell without limitation as to a percentage of its
assets forward foreign currency exchange contracts when the advisers anticipate
that the foreign currency will appreciate or depreciate in value, but securities
denominated in that currency do not present attractive investment opportunities
and are not held by such Fund. In addition, a Fund may enter into forward
foreign currency exchange contracts in order to protect against adverse changes
in future foreign currency exchange rates. A Fund may engage in cross-hedging by
using forward contracts in one currency to hedge against fluctuations in the
value of securities denominated in a different currency if its advisers believe
that there is a pattern of correlation between the two currencies. Forward
contracts may reduce the potential gain from a positive change in the
relationship between the U.S. Dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for a Fund
than if it had not entered into such contracts. The use of foreign currency
forward contracts will not eliminate

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<PAGE>
fluctuations in the underlying U.S. dollar equivalent value of the prices of or
rates of return on a Fund's foreign currency denominated portfolio securities
and the use of such techniques will subject the Fund to certain risks.

The matching of the increase in value of a forward contract and the decline
in the U.S. dollar equivalent value of the foreign currency denominated asset
that is the subject of the hedge generally will not be precise. In addition, a
Fund may not always be able to enter into foreign currency forward contracts at
attractive prices, and this will limit a Fund's ability to use such contract to
hedge or cross-hedge its assets. Also, with regard to a Fund's use of
cross-hedges, there can be no assurance that historical correlations between the
movement of certain foreign currencies relative to the U.S. dollar will
continue. Thus, at any time poor correlation may exist between movements in the
exchange rates of the foreign currencies underlying a Fund's cross-hedges and
the movements in the exchange rates of the foreign currencies in which the
Fund's assets that are the subject of such cross-hedges are denominated.

A Fund may enter into interest rate and currency 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. Currency swaps involve the exchange of
their respective rights to make or receive payments in specified currencies.

Mortgage-Related Securities. A Fund may purchase mortgage-backed
securities--i.e., securities representing an ownership interest in a pool of
mortgage loans issued by lenders such as mortgage bankers, commercial banks and
savings and loan associations. Mortgage loans included in the pool--but not the
security itself--may be insured by the Government National Mortgage Association
or the Federal Housing Administration or guaranteed by the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation or the Veterans
Administration. Mortgage-backed securities provide investors with payments
consisting of both interest and principal as the mortgages in the underlying
mortgage pools are paid off. Although providing the potential for enhanced
returns, mortgage-backed securities can also be volatile and result in
unanticipated losses.

The average life of a mortgage-backed security 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
will usually result in the return of the greater part of the principal invested
far in advance of the maturity of the mortgages in the pool. The actual rate of
return of a mortgage-backed security may be adversely affected by the prepayment
of mortgages included in the mortgage pool underlying the security.

A Fund may also invest in securities representing interests in
collateralized mortgage obligations ("CMOs"), real estate mortgage investment
conduits ("REMICs") and in pools of certain other asset-backed bonds and
mortgage pass-through securities. Like a bond, interest and prepaid principal
are paid, in most cases, monthly. CMOs may be collateralized by whole mortgage
loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by the U.S. Government, or U.S.
Government-related entities, and their income streams.

CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. Monthly payment of principal received from the
pool of underlying mortgages, including prepayments, are allocated to different
classes in accordance with the terms of the instruments, and changes in
prepayment rates or assumptions may significantly affect the expected average
life and value of a particular class.

REMICs include governmental and/or private entities that issue a fixed pool
of mortgages secured by an interest in real property. REMICs are similar to CMOs
in that they issue multiple classes of securities. REMICs issued by private
entities are not U.S. Government securities and are not directly guaranteed by
any government agency. They are secured by the underlying collateral of the
private issuer.

The advisers expect that governmental, government-related or private
entities may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage-collateralized investments in
addition to those described above. The mortgages underlying these securities may
include alternative mortgage instruments, that is, mortgage instruments whose
principal or interest payments may vary or whose terms to maturity may differ
from customary long-term fixed-rate mortgages. A Fund may also invest in

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<PAGE>
debentures and other securities of real estate investment trusts. As new types
of mortgage-related securities are developed and offered to investors, the Funds
may consider making investments in such new types of mortgage-related
securities.

Dollar Rolls. Under a mortgage "dollar roll," a Fund sells mortgage-backed
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period, a Fund forgoes principal and
interest paid on the mortgage-backed securities. A Fund is compensated by the
difference between the current sales price and the lower forward price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. A Fund may only enter into
covered rolls. A "covered roll" is a specific type of dollar roll for which
there is an offsetting cash position which matures on or before the forward
settlement date of the dollar roll transaction. At the time a Fund enters into a
mortgage "dollar roll," it will establish a segregated account with its
custodian bank in which it will maintain cash or liquid securities equal in
value to its obligations in respect of dollar rolls, and accordingly, such
dollar rolls will not be considered senior securities. Mortgage dollar rolls
involve the risk that the market value of the securities the Fund is obligated
to repurchase under the agreement may decline below the repurchase price. In the
event the buyer of securities under a mortgage dollar roll files for bankruptcy
or becomes insolvent, the Fund's use of proceeds of the dollar roll may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.

Asset-Backed Securities. A Fund may invest in asset-backed securities,
including conditional sales contracts, equipment lease certificates and
equipment trust certificates. The advisers expect that other asset-backed
securities (unrelated to mortgage loans) will be offered to investors in the
future. Several types of asset-backed securities already exist, including, for
example, "Certificates for Automobile ReceivablesSM" or "CARSSM" ("CARS"). CARS
represent undivided fractional interests in a trust whose assets consist of a
pool of motor vehicle retail installment sales contracts and security interests
in the vehicles securing the contracts. Payments of principal and interest on
CARS are passed-through monthly to certificate holders, and are guaranteed up to
certain amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the trustee or originator of the CARS
trust. An investor's return on CARS may be affected by early prepayment of
principal on the underlying vehicle sales contracts. If the letter of credit is
exhausted, the CARS trust may be prevented from realizing the full amount due on
a sales contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the obtaining of deficiency judgments
following such sales or because of depreciation, damage or loss of a vehicle,
the application of federal and state bankruptcy and insolvency laws, the failure
of servicers to take appropriate steps to perfect the CARS trust's rights in the
underlying loans and the servicer's sale of such loans to bona fide purchasers,
giving rise to interests in such loans superior to those of the CARS trust, or
other factors. As a result, certificate holders may experience delays in
payments or losses if the letter of credit is exhausted. A Fund also may invest
in other types of asset-backed securities. In the selection of other
asset-backed securities, the advisers will attempt to assess the liquidity of
the security giving consideration to the nature of the security, the frequency
of trading in the security, the number of dealers making a market in the
security and the overall nature of the marketplace for the security.

Structured Products. A Fund may invest in interests in entities organized
and operated solely for the purpose of restructuring the investment
characteristics of certain other investments. 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.

A Fund 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

15
<PAGE>
another security) (the "reference rate"). As an example, inverse floaters may
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 a Fund may 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 may 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 an Income Fund
invests may be deemed illiquid and subject to its 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 cash
equivalents or high quality debt securities will be deposited in a segregated
account with such Fund's custodian or sub-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.

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.

MASTER-FEEDER STRUCTURE

Unlike other mutual funds which directly acquire and manage their own
portfolio securities, each Fund is permitted to invest all of its investable
assets in a separate registered investment company (a "Portfolio"). In that
event, a shareholder's interest in a Fund's underlying investment securities
would be indirect. In addition to

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selling a beneficial interest to a Fund, a Portfolio could also sell beneficial
interests to other mutual funds or institutional investors. Such investors would
invest in such Portfolio on the same terms and conditions and would pay a
proportionate share of such Portfolio's expenses. However, other investors in a
Portfolio would not be required to sell their shares at the same public offering
price as a Fund, and might bear different levels of ongoing expenses than a
Fund. Shareholders of the Funds should be aware that these differences may
result in differences in returns experienced in the different funds that invest
in a Portfolio. Such differences in return are also present in other mutual fund
structures.

Smaller funds investing in a Portfolio could be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
were to withdraw from a Portfolio, the remaining funds might experience higher
pro rata operating expenses, thereby producing lower returns. Additionally, the
Portfolio could become less diverse, resulting in increased portfolio risk.
However, this possibility also exists for traditionally structured funds which
have large or institutional investors. Funds with a greater pro rata ownership
in a Portfolio could have effective voting control of such Portfolio. Under this
master/feeder investment approach, whenever the Trust was requested to vote on
matters pertaining to a Portfolio, the Trust would hold a meeting of
shareholders of the relevant Fund and would cast all of its votes in the same
proportion as did such Fund's shareholders. Shares of a Fund for which no voting
instructions had been received would be voted in the same proportion as those
shares for which voting instructions had been received. Certain changes in a
Portfolio's objective, policies or restrictions might require the Trust to
withdraw the relevant Fund's interest in such Portfolio. Any such withdrawal
could result in a distribution in kind of portfolio securities (as opposed to a
cash distribution from such Portfolio). A Fund could incur brokerage fees or
other transaction costs in converting such securities to cash. In addition, a
distribution in kind could result in a less diversified portfolio of investments
or adversely affect the liquidity of the relevant Fund.

A Fund will not adopt a master/feeder structure under which the
disinterested Trustees of the Trust are Trustees of the Portfolio unless the
Trustees of the Trust, including a majority of the disinterested Trustees, adopt
procedures they believe to be reasonably appropriate to deal with any conflict
of interest up to and including creating a separate Board of Trustees.

If a Fund invests all of its investable assets in a Portfolio, investors in
the Fund will be able to obtain information about whether investment in the
Portfolio might be available through other funds by contacting the Chase Funds
Service Center. In the event a Fund adopts a master/feeder structure and invests
all of its investable assets in a Portfolio, shareholders of the Fund will be
given at least 30 days' prior written notice.

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

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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, (i) with respect to a Fund's
permissible futures and options transactions in U.S. Government securities,
positions in such options and futures shall not be subject to this
restriction; (ii) the Money Market Funds may invest more than 25% of their
total assets in obligations issued by banks, including U.S. banks; and
(iii) the Tax Free Money Market Fund may invest more than 25% of its assets
in municipal obligations secured by bank letters of credit or guarantees,
including participation certificates.

(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 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.

In addition, as a matter of fundamental policy, notwithstanding any other
investment policy or restriction, each 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 (2) above, loan participations are
considered to be debt instruments.

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 an "industry." Supranational organizations are collectively
considered to be members of a single "industry" for purposes of restriction (3)
above.

For purposes of investment restriction (3) above, the Money Market Funds
may invest more than 25% of their respective total assets in obligations issued
by banks, including foreign branches of U.S. banks where the investment risk of
investing in the foreign branch is the same as that of investing in the U.S.
parent, in that the U.S. parent would be unconditionally liable in the event the
foreign branch failed to pay on its instruments for any reason.

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

(1) Each Fund other than the Tax Free Income Fund and New York Tax
Free Income Fund may not, with respect to 75% of its assets, hold more than
10% of the outstanding voting securities of any issuer or invest more than
5% of its assets in the securities of any one issuer (other than
obligations of the U.S. Government, its agencies and instrumentalities);
each of the Tax Free Income Fund and New York Tax Free

18
<PAGE>
Income 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.

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

(4) Each Fund other than the Money Market Funds may not invest more
than 15% of its net assets in illiquid securities; each Money Market Fund
may not invest more than 10% 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) Except as specified above, 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.

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 a transaction is
effected, later changes in percentage 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.

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 a Fund's investments are reviewed by the Board of
Trustees of the Trust. The portfolio managers may serve other clients of the
advisers in a similar capacity.

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. Funds investing in both
equity and debt securities apply this policy with respect to both the equity and
debt portions of their portfolios.

<PAGE>

For the fiscal years ended December 31, 1996, 1997 and 1998, the annual
rates of portfolio turnover for the predecessors of the following Funds were as
follows:

<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Balanced Fund............................................................ 70% 64% 58%
Core Equity Fund......................................................... 29% 24% 32%
Equity Growth Fund....................................................... 62% 35% 35%
Equity Income Fund....................................................... 24% 14% 3%
Income Fund.............................................................. 72% 97% 54%
Intermediate Term Bond Fund.............................................. 134% 138% 135%
Short-Intermediate Term U.S. Government Securities Fund.................. 177% 63% 87%
Small Capitalization Fund................................................ 68% 43% 45%
U.S. Government Securities Fund.......................................... 48% 87% 110%
</TABLE>

For the fiscal year ended December 31, 1999, the annual rates of portfolio
turnover for the International Equity Fund, Mid Cap Growth Fund, New York Tax
Free Income Fund and Tax Free Income Fund are each expected not to exceed 200%.

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 and
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 a Fund by the adviser
and sub-adviser. 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 a Fund in excess of the amount other broker-dealers
would have charged for the transaction if they determine in good faith that the
greater 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 a 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 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

20
<PAGE>
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 generally 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
generally would be useful to the adviser or 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, the advisers 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 staffs.

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. When two or more Funds or other clients are simultaneously
engaged in the purchase or sale of the same security, the securities are
allocated among clients in a manner believed to be equitable to each. 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 the Funds are concerned. However, it
is believed that the ability of the Funds to participate in volume transactions
will generally produce better executions for the Funds.

For the fiscal years ended December 31, 1996 and 1997, the predecessor to
the Balanced Fund paid aggregate brokerage commissions of $17,647 and $15,780
respectively.

For the fiscal years ended December 31, 1996 and 1997, the predecessor to
the Core Equity Fund paid aggregate brokerage commissions of $14,201 and $35,767
respectively.

For the fiscal years ended December 31, 1996 and 1997, the predecessor to
the Equity Growth Fund paid aggregate brokerage commissions of $60,946 and
$55,780 respectively.

For the fiscal years ended December 31, and 1996 and 1997, the predecessor
to the Equity Income Fund paid aggregate brokerage commissions of $43,787 and
$27,089 respectively.

For the fiscal years ended December 31, 1996 and 1997, the predecessor to
the Income Fund paid aggregate brokerage commissions of $0 and $0 respectively.

For the fiscal years ended December 31, 1996 and 1997, the predecessor to
the Small Capitalization Fund paid aggregate brokerage commissions of $34,255
and $48,136 respectively.

For the fiscal year ended December 31, 1998, the Funds paid aggregate
brokerage commissions listed below:

<TABLE>
<S> <C>
Balanced Fund................................................. $ 28,076
Core Equity Fund.............................................. 73,487
Equity Growth Fund............................................ 155,024
Equity Income Fund............................................ 34,168
Small Capitalization Fund..................................... 97,991
</TABLE>

No portfolio transactions are executed with the advisers or with any
affiliate of the advisers, acting either as principal or as broker.

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 any classes of a Fund in the future. From
time to time, the performance and yield of classes of

21
<PAGE>
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 or its classes 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 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 or its classes. A Fund's
performance may be compared with indices such as the Lehman Brothers
Government/Corporate 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 S&P 400 Mid Cap Index, the S&P 600 Small Cap 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 class 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 (in the case of the
non-Money Market Funds) of the classes of shares of a Fund will vary based on
market conditions, the current market value of the securities held by the 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 the classes of shares of the 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 the classes of
shares of a Fund to yields and total rates of return published for other
investment companies and other investment vehicles (including different classes
of shares).

Each Fund presents performance information for each class thereof since the
commencement of operations of that Fund (or the related predecessor fund, as
described below), rather than the date such class was introduced. Performance
information for each class introduced after the commencement of operations of
the related Fund (or predecessor fund) is therefore based on the performance
history of a predecessor class. Historical expenses reflected in performance
information are based upon the distribution and other expenses actually incurred
during the periods presented and have not been restated, for periods during
which the performance information for a particular class is based upon the
performance history of a predecessor class, to reflect the ongoing expenses
currently borne by the particular class.

In connection with the Avesta Conversion, each of the Balanced, Core
Equity, Equity Growth, Equity Income, Income, Intermediate Term Bond, Money
Market, Short-Intermediate Term U.S. Government Securities, Small Capitalization
and U.S. Government Securities Funds of the Trust was established to receive the
assets of the corresponding investment portfolio of the AVESTA Trust, a
collective investment trust organized under Texas law. Performance results
presented for each class of the Chase Funds include the performance of the
corresponding investment portfolio of the AVESTA Trust for periods prior to the
consummation of the Avesta Conversion. Accordingly, for periods prior to January
1, 1998, the performance results for each class of a Fund will be identical.

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.

22
<PAGE>
Advertisements for the Chase Funds may include references to the asset size
of other financial products made available by Chase or its affiliates, such as
the offshore assets of other funds.

TOTAL RATE OF RETURN

A Fund's or class'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.

AVERAGE ANNUAL TOTAL RETURNS(1)

The average annual total rate of return figures for the predecessors to the
following Funds, reflecting the initial investment and assuming the reinvestment
of all distributions for the one, five and ten year periods ended December 31,
1998 and for the period from commencement of business operations of each such
Fund to December 31, 1998 were as follows:

<TABLE>
<CAPTION>
SINCE DATE OF FUND DATE OF CLASS
FUND ONE YEAR FIVE YEARS TEN YEARS INCEPTION INCEPTION INTRODUCTION
- -------------------------------------- -------- ---------- --------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund 3/29/88
Premier Shares...................... 25.15% 15.82% 13.22% 3/29/88
Investor Shares(2).................. 25.04% 15.80% 13.21% 10/16/98

Core Equity Fund 4/1/93
Premier Shares...................... 30.95% 20.84% 19.46% 4/1/93
Investor Shares(2).................. 30.80% 20.81% 19.43% 9/10/98

Equity Growth Fund 3/29/88
Premier Shares...................... 41.38% 23.84% 17.88% 3/29/88
Investor Shares(2).................. 41.19% 23.80% 17.86% 8/13/98

Equity Income Fund 3/29/88
Premier Shares...................... 26.20% 20.28% 15.62% 3/29/88
Investor Shares(2).................. 26.12% 20.26% 15.61% 8/24/98

Income Fund 3/29/88
Premier Shares...................... 9.47% 6.52% 7.83% 3/29/88
Investor Shares(2).................. 9.38% 6.50% 7.82% 11/10/98

Intermediate Term Bond Fund 10/3/94
Premier Shares...................... 7.63% 7.74% 10/3/94
Investor Shares(2).................. 7.59% 7.73% 11/10/98

Short-Intermediate Term
U.S. Government Securities Fund 4/1/93
Premier Shares...................... 7.35% 5.36% 5.08% 4/1/93
Investor Shares(2).................. 7.22% 5.34% 5.06% 11/10/98

Small Capitalization Fund 4/1/93
Premier Shares...................... (1.83)% 14.43% 14.11% 4/1/93
Investor Shares(2).................. (1.93)% 14.41% 14.09% 8/12/98

U.S. Government Securities Fund 4/1/93
Premier Shares...................... 9.28% 6.96% 7.64% 4/1/93
Investor Shares(2).................. 9.25% 6.95% 7.63% 11/10/98
</TABLE>

23
<PAGE>
- ------------------

(1) The ongoing fees and expenses borne by Investor Shares are greater than
those borne by Premier Shares. As indicated above, the performance
information for each class introduced after the commencement of operations
of the related Fund (or predecessor fund) is based on the performance
history of a predecessor class and historical expenses have not been
restated, for periods during which the performance information for a
particular class is based upon the performance history of a predecessor
class, to reflect the ongoing expenses currently borne by the particular
class. Accordingly, the performance information presented in the table above
and in each table that follows may be used in assessing each Fund's
performance history but does not reflect how the distinct classes would have
performed on a relative basis prior to the introduction of those classes,
which would require an adjustment to the ongoing expenses.

The performance quoted reflects fee waivers that subsidize and reduce the
total operating expenses of certain Funds (or classes thereof). Returns on
these Funds (or classes) would have been lower if there were not such
waivers. With respect to certain Funds, Chase and/or other service providers
are obligated to waive certain fees and/or reimburse certain expenses for a
stated period of time. In other instances, there is no obligation to waive
fees or to reimburse expenses. The Prospectuses disclose the extent of any
agreements to waive fees and/or reimburse expenses.

Performance presented in the table above and in each table that follows for
each class of these Funds includes the performance of their respective
predecessor funds for periods prior to the consummation of the Avesta
Conversion. Performance presented for each class of each of these Funds is
based on the historical expenses and performance of a single class of shares
of its predecessor fund and does not reflect the current distribution,
service and/or other expenses that an investor would incur as a holder of
such class of such Fund. Date of Fund inception shown for these Funds is the
date of inception of their respective predecessor funds. These Funds
commenced operations as part of the Trust on January 1, 1998. The
predecessor funds (unlike the Chase Funds and other investment companies)
were not required to comply with the diversification, distribution and other
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). Had the predecessor funds been subject to such
requirements, their investment performance might have been adversely
affected.

(2) Performance information presented in the table above and in each table that
follows for this class of this Fund prior to the date the class was
introduced does not reflect distribution fees and certain other expenses
borne by this class which, if reflected, would reduce the performance
quoted.

YIELD QUOTATIONS

Any current "yield" quotation for a class of shares 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 current "yield" for a class of shares of a Money Market Fund which is
used in such a manner as to be subject to the provisions of Rule 482(d) under
the Securities Act of 1933, as amended, shall consist of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a specific seven calendar day period and shall be calculated by
dividing the net change in the value of an account having a balance of one Share
at the beginning of the period by the value of the account at the beginning of
the period and multiplying the quotient by 365/7. For this purpose, the net
change in account value would reflect the value of additional Shares purchased
with dividends declared on the original Share and dividends declared on both the
original Share and any such additional Shares, but would not reflect any
realized gains or losses from the sale of securities or any unrealized
appreciation or depreciation on portfolio securities. In addition, any effective
yield quotation for a class of shares of a Money Market Fund so used shall be
calculated by compounding the current yield quotation for such period by
multiplying such quotation by 7/365, adding 1 to the product, raising the sum to
a power equal to 365/7, and subtracting 1 from the result. A portion of the Tax
Free Money Market Fund's income used in calculating such yields may be taxable.

24
<PAGE>
Any taxable equivalent yield quotation of a class of shares of a Tax Free
Fund, whether or not it is a Money Market 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.

The yields of the shares of the non-Money Market Funds for the thirty day
period ended December 31, 1998 were as follows:

<TABLE>
<CAPTION>
PREMIER INVESTOR
------- --------
<S> <C> <C>
Balanced Fund............................................................. 2.00% 1.75%
Core Equity Fund.......................................................... 0.37% 0.12%
Equity Growth Fund........................................................ 0.02% 0.00%
Equity Income Fund........................................................ 0.65% 0.43%
Income Fund............................................................... 4.77% 4.50%
Intermediate Term Bond Fund............................................... 4.91% 4.66%
Short-Intermediate Term U.S. Government Securities Fund................... 4.21% 4.00%
Small Capitalization Fund................................................. 0.00% 0.00%
U.S. Government Securities Fund........................................... 4.71% 4.46%
</TABLE>

The yields and effective yields of the shares of the Money Market Fund for
the seven day period ended December 31, 1998 were as follows:

<TABLE>
<CAPTION>
EFFECTIVE
CURRENT COMPOUND
ANNUALIZED YIELD ANNUALIZED YIELD
------------------ ----------------
<S> <C> <C>
Money Market Fund
Premier Shares.................................................. 4.84% 4.96%
Investor Shares................................................. 4.74% 4.85%
</TABLE>

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. Since the
International Equity Fund invests in securities primarily listed on foreign
exchanges which may trade on Saturdays or other customary United States national
business holidays on which the Fund does not price, the Fund's portfolio will
trade and the net asset value of the Fund's shares may be significantly affected
on days on which the investor has no access to the Fund.

Equity securities in a Fund's portfolio are valued at the last sale price
on the exchange on which they are primarily traded or on the NASDAQ National
Market System, or at the last quoted bid price for securities in which there
were no sales during the day or for other unlisted (over-the-counter) securities
not reported on the NASDAQ National Market System. Bonds and other fixed income
securities (other than short-term obligations, but including listed issues) 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.

<PAGE>
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.

The Money Market Funds' portfolio securities are valued at their amortized
cost. Amortized cost valuation involves valuing an instrument at its cost and
thereafter accrediting discounts and amortizing premiums at a constant rate to
maturity. Pursuant to the rules of the Securities and Exchange Commission, the
Board of Trustees has established procedures to stabilize the net asset value of
each Money Market Fund at $1.00 per share. These procedures include a review of
the extent of any deviation of net asset value per share, based on available
market rates, from the $1.00 amortized cost price per share. If fluctuating
interest rates cause the market value of a Money Market Fund's portfolio to
approach a deviation of more than 1/2 of 1% from the value determined on the
basis of amortized cost, the Board of Trustees will considered what action, if
any, should be initiated. Such action may include redemption of shares in kind
(as described in greater detail below), selling portfolio securities prior to
maturity, reducing or withholding dividends and utilizing a net asset value per
share as determined by using available market quotations.

The Money Market Funds have established procedures designed to ensure that
their portfolio securities meet their high quality criteria.

Bonds and other fixed income securities, (other than short-term
obligations) in a Funds 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, compound 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, REDEMPTIONS AND EXCHANGES

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 shareholder'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. Telephone transaction privileges are made available to
shareholders automatically upon opening an account unless the privilege is
declined in Section 6 of the Account Application.

Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, a Fund or its agent is authorized,
without notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service options
chosen by the shareholder or joint shareholders in his or their latest account
application or other written request for services, including purchasing,
exchanging, or redeeming shares of such

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<PAGE>
Fund and depositing and withdrawing monies from the bank account specified in
the Bank Account Registration section of the shareholder's latest account
application or as otherwise properly specified to such Fund in writing.

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).

Under the Exchange Privilege, shares may be exchanged for shares of another
fund only if shares of the fund exchanged into are registered in the state where
the exchange is to be made. Shares of a Fund may only be exchanged into another
fund if the account registrations are identical. Any such exchange may create a
gain or loss to be recognized for federal income tax purposes. Normally, shares
of the fund to be acquired are purchased on the redemption rate, but such
purchase may be delayed by either fund for up to five business days if a fund
determines that it would be disadvantaged by an immediate transfer of the
proceeds.

A Fund may require signature guarantees for changes that shareholders
request be made in Fund records with respect to their accounts, including but
not limited to, changes in bank accounts, for any written requests for
additional account services made after a shareholder has submitted an initial
account application to the Fund, and in certain other circumstances described in
the Prospectuses. A Fund may also refuse to accept or carry out any transaction
that does not satisfy any restrictions then in effect. A signature guarantee may
be obtained from a bank, trust company, broker-dealer or other member of a
national securities exchange. Please note that a notary public cannot provide a
signature guarantee.

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 Prospectuses. No attempt is made to present a detailed explanation of the
tax treatment of the Fund or its shareholders, and the discussions here and in
the Prospectuses are not intended as substitutes for careful tax planning.

QUALIFICATION AS A REGULATED INVESTMENT COMPANY

Each Fund intends to qualify and elect to be taxed as a regulated
investment company (a "RIC") under Subchapter M of the Code. If a Fund qualifies
as a RIC, such Fund will not be 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 its net long-term capital gain over
net short-term capital loss) that it distributes to shareholders, provided that
it distributes (i) at least 90% of its net investment income for the taxable
year, and (ii) in the case of each Tax Free Fund, at least 90% of its net
tax-exempt interest income for the taxable year (the "Distribution
Requirement").

In addition to satisfying the Distribution Requirement for each taxable
year, a RIC 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 RIC'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 RIC. 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 RICs, 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 RICs),

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<PAGE>
or in two or more issuers which the Fund controls and which are engaged in the
same or similar trades or businesses.

Each non-Money Market 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.

If a Fund purchases shares in a "passive foreign investment company" (a
"PFIC"), the Fund may be subject to U.S. federal income tax on a portion of any
"excess distribution" or gain from the disposition of such shares even if such
income is distributed as a taxable dividend by the Fund to its shareholders.
Additional charges in the nature of interest may be imposed on the Fund in
respect of deferred taxes arising from such distributions or gains. If a Fund
were to invest in a PFIC and elected to treat the PFIC as a "qualified electing
fund" under the Code (a "QEF"), in lieu of the foregoing requirements, the Fund
would be required to include in income each year a portion of the ordinary
earnings and net capital gain of the qualified electing fund, even if not
distributed to the Fund. Alternatively, under recently enacted legislation, a
Fund can elect to mark-to-market at the end of each taxable year its shares in a
PFIC; in this case, the Fund would recognize as ordinary income any increase in
the value of such shares, and as ordinary loss any decrease in such value to the
extent it did not exceed prior increases included in income. Under either
election, a Fund might be required to recognize in a year income in excess of
its distributions from PFICs and its proceeds from dispositions of PFIC stock
during that year, and such income would nevertheless be subject to the
Distribution Requirement and would be taken into account for purposes of the 4%
excise tax.

If for any taxable year a Fund does not qualify as a RIC, 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 RIC 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 RIC having a
taxable year ending November 30 or December 31, for its taxable year (a "taxable
year election")). The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a RIC 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 qualify for the 70% dividends-received deduction for corporations only
to the extent

28
<PAGE>
discussed below. Dividends paid on Premier and Retail shares are calculated at
the same time. In general, dividends on Retail shares are expected to be lower
than those on Premier shares due to the higher distribution expenses borne by
the Retail shares. Dividends may also differ between classes as a result of
differences in other class specific expenses.

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 recently enacted legislation, the maximum rate of tax on long-term
capital gains of individuals will generally be reduced from 28% to 20% (10% for
gains otherwise taxed at 15%) for long-term capital gains realized after
July 28, 1997 with respect to capital assets held for more than 18 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%. Under a literal reading of the legislation, capital
gain dividends paid by a RIC would not appear eligible for the reduced capital
gain rates. However, the legislation authorizes the Treasury Department to
promulgate regulations that would apply the new rates to capital gain dividends
paid by a RIC.

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.

Each Tax Free Fund intends to qualify to pay exempt-interest dividends by
satisfying the requirement that at the close of each quarter of the Tax Free
Fund's taxable year at least 50% of the its total assets consist of tax-exempt
municipal obligations. Distributions from a Tax Free 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 Tax Free 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. Investors should be aware that gain from the sale or redemption
of shares of a Tax Free Fund will be taxable to the shareholders as capital gain
even though the increase in value of such shares is attributable to tax-exempt
interest income. 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 Tax Free Fund of any net
investment 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 income 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.
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 Tax Free Fund is denied a deduction for
interest on indebtedness incurred or continued to purchase or carry shares of
the Tax Free Fund. Moreover, a shareholder who is (or is related to) a
"substantial user" of a facility financed by industrial development bonds held
by a Tax Free Fund

29
<PAGE>
will likely be subject to tax on dividends paid by the Tax Free 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.

Ordinary income dividends paid by a Fund with respect to a taxable year
will qualify for the 70% dividends-received deduction generally available to
corporations to the extent of the amount of qualifying dividends received by a
Fund from domestic corporations for the taxable year. A dividend received by a
Fund will not be treated as a qualifying dividend (1) if it has been received
with respect to any share of stock that the Fund has held for less than 46 days
(91 days in the case of certain preferred stock) during the 90 day period
beginning on the date which is 45 days before the date on which such share
becomes ex-dividend with respect to such dividend (during the 180 day period
beginning 90 days before such date in the case of certain preferred stock) under
the Rules of Code Section 246(c)(3) and (4); (2) to the extent that a Fund is
under an obligation (pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or related property;
or (3) to the extent the stock on which the dividend is paid is treated as
debt-financed under the rules of Code Section 246A. Moreover, the
dividends-received deduction for a corporate shareholder may be disallowed or
reduced if the corporate shareholder fails to satisfy the foregoing requirements
with respect to its shares of a Fund.

For purposes of the Corporate AMT, the corporate dividends-received
deduction is not itself an item of tax preference that must be added back to
taxable income or is otherwise disallowed in determining a corporation's AMT.
However, corporate shareholders will generally be required to take the full
amount of any dividend received from a Fund into account (without a
dividends-received deduction) in determining its adjusted current earnings.

Investment income that may be received by certain of the Funds from sources
within foreign countries may be subject to foreign taxes withheld at the source.
The United States has entered into tax treaties with many foreign countries
which entitle any such Fund to a reduced rate of, or exemption from, taxes on
such income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of any such Fund's assets to be invested in various
countries is not known. If more than 50% of the value of the International
Equity Fund's total assets at the close of its taxable year consists of the
stock or securities of foreign corporations, the Fund may elect to "pass
through" to the Fund's shareholders the amount of foreign taxes paid by such
Fund. If the International Equity Fund so elects, each shareholder would be
required to include in gross income, even though not actually received, his pro
rata share of the foreign taxes paid by the Fund, but would be treated as having
paid his pro rata share of such foreign taxes and would therefore be allowed to
either deduct such amount in computing taxable income or use such amount
(subject to various Code limitations) as a foreign tax credit against federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income his pro
rata share of such foreign taxes plus the portion of dividends received from the
International Equity Fund representing income derived from foreign sources. No
deduction for foreign taxes could be claimed by an individual shareholder who
does not itemize deductions. In certain circumstances, a shareholder that
(i) has held shares of the International Equity Fund for less than a specified
minimum period during which it is not protected from risk of loss or (ii) is
obligated to make payments related to the dividends, will not be allowed a
foreign tax credit for foreign taxes deemed imposed on dividends paid on such
shares. Additionally, the International Equity Fund must also meet this holding
period requirement with respect to its foreign stocks and securities in order
for "creditable" taxes to flow-through. Each shareholder should consult his own
tax adviser regarding the potential application of foreign tax credits.

Distributions by a Fund that do not constitute ordinary income 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

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<PAGE>
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.

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

Each Money Market Fund seeks to maintain a net asset value of $1.00 per
share; however, there can be no assurance that a Money Market Fund will be able
to do this. In such a case and in any case involving the non-Money Market Funds,
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 will be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate) upon the gross amount of the dividend. Furthermore, such a foreign
shareholder may be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate) on the gross income resulting from the International Equity Fund's
election to treat any foreign taxes paid by it as paid by the shareholders, but
may not be allowed a deduction against this gross income or a credit against
this U.S. withholding tax for the foreign shareholder's pro rata share of such
foreign taxes which it is treated as having paid. 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 exempt-interest
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 on a net basis at the rates
applicable to U.S. citizens or domestic corporations.

<PAGE>
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.

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.

MANAGEMENT OF THE TRUST AND THE FUNDS

TRUSTEES AND OFFICERS

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

*Sarah E. Jones--Chair and Trustee. President and Chief Operating Officer
of Chase Mutual Funds Corp.; formerly Managing Director for the Global Asset
Management and Private Banking Division of The Chase Manhattan Bank. Trustee,
Chase Vista Funds. Age: 47. Address: Chase Mutual Funds Corp., One Chase
Manhattan Plaza, Third Floor, New York, NY 10081.

- ------------------
* Asterisks indicate those Trustees that are "interested persons" (as defined in
the 1940 Act). The Board of Trustees of the Trust presently has an Audit
Committee. The members of the Audit Committee are Messrs.

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<PAGE>

Frank A. Liddell, Jr.--Trustee. Retired; Of Counsel, Liddell, Sapp,
Zivley, Hill & LaBoon. Member of AVESTA Trust Supervisory Committee from
inception to 1997. Age: 70. Address: P.O. Box 2558, Houston, TX 77252.

George E. McDavid--Trustee. President, Houston Chronicle Publishing
Company. Member of AVESTA Trust Supervisory Committee from inception to 1997.
Age: 68. Address: P.O. Box 2558, Houston, TX 77252.

Kenneth L. Otto--Trustee. Retired; formerly Senior Vice President, Tenneco
Inc. Member of AVESTA Trust Supervisory Committee from inception to 1997. Age:
68. Address: P.O. Box 2558, Houston, TX 77252.

Fergus Reid, III--Trustee. Chairman and Chief Executive Officer, Lumelite
Corporation since September 1985. Chairman and Trustee, the Chase Vista Funds.
Trustee, Morgan Stanley Funds. Age: 66. Address: 202 June Road, Stamford, CT
06903.

H. Michael Tyson--Trustee. Retired; formerly Executive Vice President,
Texas Commerce Bank from 19 to 1995. Member of AVESTA Trust Supervisory
Committee from 1988 to 1997. Age: 60. Address: P.O. Box 2558, Houston, TX 77252.

Martin R. Dean--Treasurer. Associate Director, Accounting Services, BISYS
Fund Services; formerly Senior Manager, KPMG Peat Marwick (1987-1994). Age: 34.
Address: 3435 Stelzer Road, Columbus, OH 43219.

Richard Baxt--Secretary. Senior Vice President, Client Services, BISYS
Fund Services; formerly General Manager of Investment and Insurance, First
Fidelity Bank, President of First Fidelity Brokers, and President of Citicorp
Investment Services. Age: 45. Address: 125 W. 55th Street, New York, NY 10019.

Vicky M. Hayes--Assistant Secretary. Vice President and Global Marketing
Manager, Vista Fund Distributor, Inc.; formerly Assistant Vice President,
Alliance Capital Management and held various positions with J. & W. Seligman &
Co. Age: 37. Address: One Chase Manhattan Plaza, Third Floor, New York, NY
10081.

Alaina Metz--Assistant Secretary. Chief Administrative Officer, BISYS Fund
Services; formerly Supervisor, Blue Sky Department, Alliance Capital Management
L.P. Age: 31. Address: 3435 Stelzer Road, Columbus, OH 43219.

Lee Schultheis--Assistant Treasurer and Assistant Secretary. President,
BISYS Fund Distributors; formerly Senior Managing Director, Forum Financial
Group. Age: 42. Address: One Chase Manhattan Plaza, Third Floor, New York, NY
10081.

Ms. Jones is also a Trustee of Mutual Fund Group, Mutual Fund Trust, Mutual
Fund Select Group, Mutual Fund Select Trust, Mutual Fund Variable Annuity Trust,
Capital Growth Portfolio, Growth and Income Portfolio and International Equity
Portfolio (these entities are referred to as the "Chase Vista Funds"). Mr. Reid
is Chairman and a Trustee of the Chase Vista Funds. Messrs. Dean, Baxt and
Schultheis and Ms. Hayes and Metz also serve in the same capacities of the Chase
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. Each such
Trustee receives a fee, which consists of an annual retainer component and a
meeting fee component.

- ------------------
Liddell, McDavid, Otto, Reid and Tyson. The function of the Audit Committee is
to recommend independent auditors and monitor accounting and financial
matters.

33
<PAGE>

Set forth below is information regarding compensation paid or accrued
during the fiscal year ended December 31, 1998 for each member of the
Supervisory Committee of the AVESTA Trust:

<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM
THE TRUST
------------------
<S> <C>
Frank A. Liddell, Jr., Trustee........................ $7,000
George E. McDavid, Trustee............................ 7,000
Kenneth L. Otto, Trustee.............................. 7,000
Fergus Reid, Trustee.................................. 6,500
H. Michael Tyson, Trustee............................. 7,000
</TABLE>

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, dated as of January 1, 1998 (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 (including the sub-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 and the sub-advisers' agreements with the
adviser, the adviser and sub-advisers may utilize the specialized portfolio
skills of all their various affiliates, thereby providing the Funds with greater
opportunities and flexibility in accessing investment expertise.

Pursuant to the terms of the advisory agreements, the 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 wilful 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

34
<PAGE>
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.

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 Money Market Fund, Short-Intermediate Term U.S.
Government Securities Fund, U.S. Government Securities Fund, Intermediate Term
Bond Fund, Income Fund, Balanced Fund, Equity Income Fund, Core Equity Fund,
Equity Growth Fund and Small Capitalization Fund, has entered into an investment
sub-advisory agreement dated as of January 1, 1998 with Texas Commerce Bank
National Association, which subsequently changed its name to Chase Bank of
Texas, National Association (herein "Chase Texas"). Chase may enter into one or
more additional sub-advisory agreements with respect to the Tax Free Money
Market Fund, Tax Free Income Fund, New York Tax Free Income Fund, Mid Cap Growth
Fund and International Equity Fund. With respect to the day-to-day management of
the Funds, under the sub-advisory agreements, the sub-advisers make decisions
concerning, and place all orders for, purchases and sales of securities and help
maintain the records relating to such purchases and sales. The sub-advisers may,
in their discretion, provide such services through their 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 Chase's accounts are commingled trust
funds and a broad spectrum of individual trust and investment management
portfolios. These accounts have varying investment objectives.

Chase Texas, a wholly-owned subsidiary of The Chase Manhattan Corporation,
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
Chase Texas's accounts are commingled trust funds and a broad spectrum of
individual trust and investment management portfolios. These accounts have
varying investment objectives.

In consideration of the services provided by the adviser pursuant to the
Advisory Agreement, the adviser is entitled to receive from the appropriate
Fund(s) 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 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, Chase Texas will be entitled to receive, with respect to
each such Fund, such compensation, payable by the advisor out of its advisory
fee, as described in the Prospectuses.

35
<PAGE>

For the fiscal year ended December 31, 1998, Chase was paid the following
investment advisory fees with respect to the following Funds, and voluntarily
waived the amounts following such fees:

<TABLE>
<CAPTION>
YEAR-ENDED 12/31/98
--------------------
PAYABLE WAIVED
-------- --------
<S> <C> <C>
Balanced Fund............................................................................. $350,137 $132,884
Core Equity Fund.......................................................................... 503,400 124,638
Equity Growth Fund........................................................................ 912,673 110,212
Equity Income Fund........................................................................ 737,842 102,058
Money Market Fund......................................................................... 499,599 172,800
Income Fund............................................................................... 277,249 94,268
Intermediate Term Bond Fund............................................................... 126,776 123,836
Short-Intermediate Term U.S. Government Securities Fund................................... 142,451 102,568
Small Capitalization Fund................................................................. 388,277 137,579
U.S. Government Securities Fund........................................................... 15,300 15,300
</TABLE>

Prior to January 1, 1998, the Funds were series of the AVESTA Trust. Chase
Texas acted as Trustee for the Avesta Funds pursuant to three separate, but
substantially similar, management agreements (the "Avesta Management
Agreements"). As with certain of the Funds, Chase Texas provided investment
advisory services to the Avesta Funds. However, Chase Texas was also obligated
to perform certain administrative and account servicing functions under the
Avesta Management Agreements, including preparation and distribution of
communications to shareholders, accounting and recordkeeping. As Trustee, Chase
Texas also paid certain expenses, including (i) all costs and expenses arising
in connection with the organization of the AVESTA Trust, including the initial
registration statement and qualification of the AVESTA Trust and its units under
federal and state law; (ii) all marketing and advertising expenses of the AVESTA
Trust and (iii) expenses of all employees, office space and facilities necessary
to carry out its duties under the Avesta Management Agreements. Accordingly, the
compensation received by the Trustee under the Avesta Management Agreements are
not necessarily indicative of the fees to be earned by Chase under the Advisory
Agreement.

For its services under the Avesta Management Agreements, the Trustee was
entitled to receive compensation as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS
---------------------------------------------
IN EXCESS OF
$250 MILLION
UP TO BUT LESS THAN IN EXCESS OF
FUND $250 MILLION $500 MILLION $500 MILLION
- -------------------------------------------------------------- ------------ ------------- ------------
<S> <C> <C> <C>
Money Market.................................................. 0.65% 0.65% 0.65%
Income........................................................ 1.00% 0.90% 0.80%
Equity Growth................................................. 1.00% 0.90% 0.80%
Equity Income................................................. 1.00% 0.90% 0.80%
Balanced...................................................... 1.00% 0.90% 0.80%
Short-Intermediate Term U.S. Government Securities............ 0.75% 0.65% 0.55%
U.S. Government Securities.................................... 0.85% 0.75% 0.65%
Small Capitalization.......................................... 1.15% 1.05% 0.95%
Core Equity................................................... 1.00% 0.90% 0.80%
Intermediate Term Bond........................................ 0.75% 0.65% 0.55%
</TABLE>

36
<PAGE>
The Funds in operation paid management fees to the Trustee, net of
voluntary waivers(1), for the years ended, respectively, as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
FUND 1996 1997
- -------------------------------------------------------------------------------- -------- --------
<S> <C> <C>
Money Market Fund............................................................... $449,833 $806,004
Income Fund..................................................................... 405,352 512,611
Intermediate Term Bond Fund..................................................... 47,537 112,462
Balanced Fund................................................................... 219,535 256,363
Equity Growth Fund.............................................................. 509,223 700,938
Equity Income Fund.............................................................. 594,351 709,821
Short-Intermediate Term U.S. Government Securities Fund......................... 212,672 194,675
U.S. Government Securities Fund................................................. 20,595 23,662
Small Capitalization Fund....................................................... 164,194 352,263
Core Equity Fund................................................................ 265,417 377,800
</TABLE>

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

(1) For the fiscal year ended December 31, 1997, the Trustee waived management
fees for the Money Market, Income, U.S. Government Securities and Small
Capitalization Funds of $185,719, $128,407, $2,783 and $45,611,
respectively. For the year ended December 31, 1996, the Trustee waived
management fees for the Money Market, Income, U.S. Government Securities and
Small Capitalization Funds of $134,952, $135,137, $2,757, and $24,219,
respectively.

The Trustee had agreed to reimburse each Fund for the amount by which the
expenses of that Fund (including the management fee, but excluding interest,
taxes, brokerage commissions and extraordinary expenses) during any year exceed
the management fee payable by the Fund, provided that the average daily value of
the Fund's net assets during such year provided that the assets of the Fund did
not exceed $250 million. As such, the total reimbursements paid to the Funds
below by the Trustee for the years ended December 31, 1996 and December 31,
1997, respectively, were:

$41,514 and $76,840 for the Equity Growth Fund; $38,806 and $78,924
for the Equity Income Fund; $37,603 and $72,408 for the Balanced Fund;
$38,446 and $70,483 for the Income Fund; $67,069 and $107,304 for the Money
Market Fund; $36,085 and $75,253 for the Core Equity Fund; $36,160 and
$75,786 for the Small Capitalization Fund; $37,184 and $67,908 for the
Short-Intermediate Term U.S. Government Securities Fund; $34,175 and
$63,928 for the U.S. Government Securities Fund; $42,442 and $75,545 for
the Intermediate Term Bond Fund.

ADMINISTRATOR

Pursuant to an Administration Agreement (the "Administration Agreement"),
Chase is the 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 of the Trust 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

37
<PAGE>
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 their
"assignment" (as defined in the 1940 Act). The Administration Agreement also
provides that neither Chase or 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 year, 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.

For the the fiscal year ended December 31, 1998, Chase was paid or accrued
the following administration fees, and voluntarily waived the amounts following
such fees:

<TABLE>
<CAPTION>
YEAR-ENDED
12/31/98
------------------
PAYABLE WAIVED
-------- ------
<S> <C> <C>
Balanced Fund............................................................................... $ 46,685 $ --
Core Equity Fund............................................................................ 67,120 --
Equity Growth Fund.......................................................................... 121,688 --
Equity Income Fund.......................................................................... 98,379 --
Money Market Fund........................................................................... 166,533 --
Income Fund................................................................................. 55,450 --
Intermediate Term Bond Fund................................................................. 25,355 5,261
Short-Intermediate Term U.S. Government Securities Fund..................................... 28,490 --
Small Capitalization Fund................................................................... 51,769 --
U.S. Government Securities Fund............................................................. 3,062 3,062
</TABLE>

<PAGE>
DISTRIBUTION PLAN

The Trust has adopted a plan of distribution pursuant to Rule 12b-1 under
the 1940 Act (a "Distribution Plan") on behalf of the Investor Class shares of
its Funds as described in the Prospectus, which provides such class of the Funds
shall pay for distribution services a distribution fee (the "Distribution Fee"),
including payments to the Distributor, at annual rates not to exceed the amounts
set forth in the Prospectus for Investor Class shares. The Distributor may use
all or any portion of such Distribution Fee to pay for Fund expenses of printing
prospectuses and reports used for sales purposes, expenses of the preparation
and printing of sales literature and other such distribution-related expenses.

Investor Class shares pay a Distribution Fee of up to 0.25% of average
daily net assets. Some payments under the Distribution Plans may be used to
compensate broker-dealers with trail or maintenance commissions in an amount not
to exceed 0.25% annualized of the average net asset values of Investor Class
shares maintained in a Fund by such broker-dealers' customers. Since the
distribution fees are not directly tied to expenses, the amount of distribution
fees paid by a Fund during any year may be more or less than actual expenses
incurred pursuant to the Distribution Plans. For this reason, this type of
distribution fee arrangement is characterized by the staff of the Securities and
Exchange Commission as being of the "compensation variety" (in contrast to
"reimbursement" arrangements by which a distributor's payments are directly
linked to its expenses). With respect to Investor Class shares, because of the
0.25% annual limitation on the compensation paid to the Distributor during a
fiscal year, compensation relating to a large portion of the commissions
attributable to sales of Investor Class shares in any one year will be accrued
and paid by a Fund to the Distributor in fiscal years subsequent thereto. In
determining whether to purchase Investor Class shares, investors should consider
that compensation payments could continue until the Distributor has been fully
reimbursed for the commissions paid on sales of Investor Class shares. However,
the shares are not liable for any distribution expenses incurred in excess of
the Distribution Fee paid.

The Investor Class shares are entitled to exclusive voting rights with
respect to matters concerning its Distribution Plan.

The Distribution Plan provides that it will continue in effect indefinitely
if such continuance is specifically approved at least annually by a vote of both
a majority of the Trustees and a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust and who have no
direct or indirect financial interest in the operation of the Distribution Plan
or in any agreement related to such Plan ("Qualified Trustees"). The
Distribution Plan requires that the Trust shall provide to the Board of
Trustees, and the Board of Trustees shall review, at least quarterly, a written
report of the amounts expended (and the purposes therefor) under the
Distribution Plan. The Distribution Plan further provides that the selection and
nomination of Qualified Trustees shall be committed to the discretion of the
disinterested Trustees (as defined in the 1940 Act) then in office. The
Distribution Plan may be terminated at any time by a vote of a majority of the
Qualified Trustees or, with respect to a particular Fund, by vote of a majority
of the outstanding voting Investor Class shares of such Fund (as defined in the
1940 Act). The Distribution Plan may not be amended to increase materially the
amount of permitted expenses thereunder without the approval of shareholders and
may not be materially amended in any case without a vote of the majority of both
the Trustees and the Qualified Trustees. Each of the Funds will preserve copies
of any plan, agreement or report made pursuant to the Distribution Plan for a
period of not less than six years from the date of the Distribution Plan, and
for the first two years such copies will be preserved in an easily accessible
place.

For the fiscal year ended December 31, 1998, the Distributor was paid or
accrued the following Distribution Fees, and voluntarily waived the amounts
following such fees:

<TABLE>
<CAPTION>
YEAR-ENDED
12/31/98
------------------
PAYABLE WAIVED
-------- ------
<S> <C> <C>
Balanced Fund--Investor Class............................................. $ 7 $ 7
Core Equity Fund--Investor Class.......................................... 9 9
Equity Growth Fund--Investor Class........................................ 511 511
Equity Income Fund--Investor Class........................................ 49 49
Small Capitalization Fund--Investor Class................................. 26 26
</TABLE>

39
<PAGE>
DISTRIBUTION AND SUB-ADMINISTRATION AGREEMENT

The Trust has entered into a Distribution and Sub-Administration Agreement
dated January 1, 1998 (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 each class 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 Plan. 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.

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. However,
the Distributor has voluntarily agreed to waive a portion of the fees payable to
it under the Distribution Agreement with respect to each Fund on a
month-to-month basis.

40
<PAGE>

For fiscal year ended December 31, 1998, the Distributor was paid or
accrued the following sub-administration fees under the Distribution Agreement.

<TABLE>
<CAPTION>
YEAR-ENDED
12/31/98
----------
PAYABLE
----------
<S> <C>
Balanced Fund........................................................................................ $ 23,343
Core Equity Fund..................................................................................... 33,560
Equity Growth Fund................................................................................... 60,845
Equity Income Fund................................................................................... 49,189
Money Market Fund.................................................................................... 83,266
Income Fund.......................................................................................... 27,725
Intermediate Term Bond Fund.......................................................................... 12,678
Short-Intermediate Term U.S. Government Securities Fund.............................................. 14,245
Small Capitalization Fund............................................................................ 25,885
U.S. Government Securities Fund...................................................................... 1,529
</TABLE>

TRANSFER AGENT AND CUSTODIAN

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 and 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 such Funds. Chase is located at 3 Metrotech Center, Brooklyn, NY
11245.

INDEPENDENT ACCOUNTANTS

The financial statements incorporated herein by reference from the Annual
Report to Shareholders for the fiscal year ended December 31, 1998 and the
related financial highlights which appear in the Prospectuses, have been
incorporated herein and included in the Prospectuses in reliance on the report
of PricewaterhouseCoopers LLP, 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

Banking laws, including the Glass-Steagall Act as currently interpreted,
prohibit bank holding companies and their affiliates from sponsoring,
organizing, controlling, or distributing shares of, mutual funds, and generally
prohibit banks from issuing, underwriting, selling or distributing securities.
These laws do not prohibit banks or their affiliates from acting as investment
adviser, administrator or custodian to mutual funds or from purchasing mutual
fund shares as agent for a customer. Chase and the Trust believe that Chase
(including its affiliates) may perform the services to be performed by it as
described in the Prospectus and this Statement of Additional Information without
violating such laws. If future changes in these laws or interpretations required
Chase to alter or discontinue any of these services, it is expected that the
Board of Trustees would recommend alternative arrangements and that investors
would not suffer adverse financial consequences. State securities laws may
differ from the interpretations of banking law described above and banks may be
required to register as dealers pursuant to state law.

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 commercial paper and

41
<PAGE>
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 may 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 Investment Trust is an open-end, non-diversified management
investment company organized as Massachusetts business trust under the laws of
the Commonwealth of Massachusetts in 1997. The Trust currently consists of 15
series of shares of beneficial interest, par value $.001 per share. With respect
to all of its Funds, the Trust may offer more than one class of shares. 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 amount all the series
in a manner believed by management of the Trust to be fair and equitable. Shares
have no preemptive 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 only affect a particular class, such as the approval of distribution plans
for a particular class.

The classes of shares have several different attributes relating to
expenses, as described herein and in the Prospectuses. In addition to such
differences, expenses borne by each class of a Fund may differ slightly because
of the allocation of other class-specific expenses. For example, a higher
transfer agency fee may be imposed on Retail Class shares than on Premier class
shares. The relative impact of ongoing annual expenses will depend on the length
of time a share is held.

Selected dealers and financial consultants 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 affirmative 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

42
<PAGE>
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 April 16, 1999, the following persons owned of record 5% or more of
the outstanding shares of the following classes of the following Funds:

<TABLE>
<CAPTION>
% OF
TOTAL
NAME OF FUNDS SHARES
- -------------------------------------------- ------
<S> <C>
MONEY MARKET FUND INVESTOR SHARES
BISYS As Seed Money For Chase Money Market
Fund ..................................... 31.17%
3435 Stelzer Rd Ste 1000
Columbus OH 43219-6004
Investors Fiduciary Tr Co Cust ............. 12.34%
Roth Converted IRA 1/1/1998
FBO Jeffery A Petroske
14 Manor Pkwy
Rochester NY 14620-2605
Eugene C Chase ............................. 15.52%
Willow JTWROS
1076 Camelia Dr
Alameda CA 94502-6938
Jeffrey S Phelps ........................... 15.40%
Paula Y Phelps JT WROS
1403 Myers Mill Dr
Missouri City TX 77489-3139
Fredrick Brim .............................. 7.71%
PO Box 1143
Stanton CA 90680-1143

<CAPTION>
% OF
TOTAL
NAME OF FUNDS SHARES
- -------------------------------------------- ------
<S> <C>
Theresa Leister ............................ 16.32%
200 E 32nd St
New York NY 10016-6306

MONEY MARKET FUND PREMIER
Texas Commerce Bank ........................ 75.97%
Attn Asset Trading
1111 Fannin Suite 10
Houston TX 77002-6925
Obie & Co .................................. 23.54%
c/o Texas Commerce Bank
Attn CTF/Chase Unit 18HCB 98
PO Box 2558
Houston TX 77252-2558

BALANCED INVESTOR SHARES
Testa & Co ................................. 72.97%
c/o Chase Manhattan Bank
Attn Mutual Funds
PO Box 1412
Rochester NY 14603-1412
</TABLE>

43
<PAGE>

<TABLE>
<CAPTION>
% OF
TOTAL
NAME OF FUNDS SHARES
- -------------------------------------------- ------
NFSC FEBO # CR5-509981 ..................... 13.86%
The Chase Manhattan Bank Cust
IRA of Manuel C Pena-Morros
Trad'l IRA R/O
1627 Brickell Ave #2005
Miami FL 33129-1250
<S> <C>

Texas Commerce Bank ........................ 67.57%
Attn Asset Trading
1111 Pannin Suite 10
Houston TX 77002-6925

Hamill & Co FBO Chase Bank of
Texas NA ................................. 31.13%
Attn Mutual Fund Unit 16HCBO9
PO Box 2558
Houston TX 77252-2558

CORE EQUITY INVESTOR SHARES

Balsa & Co ................................. 16.58%
PO Box 1768
Grand Central Station
New York NY 10163-1768

IFTC Cust IRA R/O .......................... 6.60%
James W Glennon
3 Nob Hl S
Millsboro DE 19966-8654

Banon Family Foundation .................... 8.21%
150 E 69th St
New York NY 10021-5704

NFSC FEBO # H76-653330 ..................... 9.23%
SEP IRA Edward James Donnelly
Chase Bank of Texas Cust
2331 Dorrington
Houston TX 77030-3211

NFSC FEBO # ATL-178810 ..................... 5.36%
Valerie Brown O'Neal
7947 Enclave Way
Dallas TX 75218-4501

NFSC FEBO # H76-731684 ..................... 5.54%
IRA Concepcion Lopez Lozano
Chase Bk of TX - Dallas CUS
5619 Swiss Avenue
Dallas TX 75214-4636

NFSC FEBO # 46B-377007 ..................... 6.56%
Bennett Hunter Jr
318 Copperstone Trl
Coppell TX 75019-7559
<CAPTION>
% OF
TOTAL
NAME OF FUNDS SHARES
- -------------------------------------------- ------
<S> <C>

CORE EQUITY FUND PREMIER
Texas Commerce Bank ........................ 45.34%
Attn Asset Trading
1111 Fannin Suite 10
Houston TX 77002-6925
Hamill & Co FBO Chase Bank of
Texas NA ................................. 49.29%
Attn Mutual Fund Unit 16HCB09
PO Box 2558
Houston TX 77252-2558

EQUITY GROWTH INVESTOR SHARES
Balsa & Co ................................. 5.87%
PO Box 1768
Grand Central Station
New York NY 10163-1768
NFSC FEBO # ATL-139742 ..................... 6.14%
Jay Mark Kaplan
9237 Wickford
Houston TX 77024-3735
NFSC FEBO # ATL-139734 ..................... 9.77%
Thomas Alan Oreck
121 N Post Oak Ln #1301
Houston TX 77024-7712
NFSC FEBO # ATL-126365 ..................... 6.98%
Carmen Q Godwinn
10349 Strait Lane
Dallas TX 75229-6535
NFSC FEBO # ATL-184551 ..................... 5.07%
Raymond H Siegfried II and
Milann H Siegfried
PO Box 3365
Tulsa OK 74101-3365
NFSC FEBO # ATL-184632 ..................... 5.81%
Paul D Chapman and
Cathryn T Chapman
2028 Bolsover
Houston TX 77005-1616

EQUITY GROWTH FUND PREMIER
Texas Commerce Bank ........................ 32.37%
Attn Asset Trading
1111 Fannin Suite 10
Houston TX 77002-6925
Hamill & Co FBO Chase Bank of
Texas NA ................................. 55.24%
Attn Mutual Fund Unit 16HCBO9
PO Box 2558
Houston TX 77252-2558
</TABLE>

44
<PAGE>

<TABLE>
<CAPTION>
% OF
TOTAL
NAME OF FUNDS SHARES
- -------------------------------------------- ------
First Union National Bank Cust ............. 9.96%
FBO Rollins Truck Leasing Corp
Pension Plan # 1546002483
Attn Mutual Fund Dept
1525 W Wt Harris Blvd
Charlotte NC 28262-8522
<S> <C>

EQUITY INCOME INVESTOR SHARES
Balsa & Co ................................. 35.26%
PO Box 1768
Grand Central Station
New York NY 10163-1768
Balsa & Co ................................. 21.75%
PO Box 1768
Grand Central Station
New York NY 10163-1768
NFSC FEBO # X67-181803 ..................... 5.44%
Anne B Notsenbocker
Alan K Notsenbocker
PO Box 836515
Richardson TX 75083-6515
NFSC FEBO # ATL-178810 ..................... 6.37%
Valerie Brown O'Neal
7947 Enclave Way
Dallas TX 75218-4501

EQUITY INCOME FUND PREMIER
Texas Commerce Bank ........................ 37.33%
Attn Asset Trading
1111 Fannin Suite 10
Houston TX 77002-6925
Hamill & Co FBO Chase Bank of
Texas NA ................................. 56.69%
Attn Mutual Fund Unit 16HCB09
PO Box 2558
Houston TX 77252-2558

INCOME INVESTOR SHARES
BISYS As Seed Money For Chase Income
Fund ..................................... 8.42%
3435 Stelzer Rd Ste 1000
Columbus OH 43219-6004
Federico Carrillo .......................... 50.03%
Francia Fernandez JTWROS
3 World Financial Ctr Fl 16
New York, NY 10285-0001
C D Stubbs Jr .............................. 8.37%
Jacqueline S Stubbs JT WROS
PO Box 524
14190 Blueridge Tnpk
Somerset VA 22972-0524
<CAPTION>
% OF
TOTAL
NAME OF FUNDS SHARES
- -------------------------------------------- ------
<S> <C>
Margaret D Penrose ......................... 10.06%
2315 Little Rd Apt 217
Arlington TX 76016-6345
NFSC FEBO # ATK-018503 ..................... 8.26%
Karen C Prickett
14031 Kingsridge Lane
Houston TX 77079

INCOME FUND INVESTOR SHARES
NFSC FEBO # CR5-510335 ..................... 7.30%
The Chase Manhattan Bank Cust
IRA of John W Walsh
Trad'l IRA
320 East 54th Street
New York NY 10022-5030

INCOME FUND PREMIER
Texas Commerce Bank ........................ 25.81%
Attn Asset Trading
1111 Fannin Suite 10
Houston TX 77002-6925
Hamill & Co FBO Chase Bank of
Texas NA ................................. 68.93%
Attn Mutual Fund Unit 16HCB09
PO Box 2558
Houston TX 77252-2558
Obie & Co .................................. 5.24%
c/o Chase Bank of Texas NA
Attn Mutual Funds Unit 16HCB 09
PO Box 200547
Houston TX 77216-0547

INTERMEDIATE BOND INVESTOR SHARES
BISYS As Seed Money For
Intermediate Bond Fund ................... 11.20%
3435 Stelzer Rd Ste 1000
Columbus OH 43219-6004
Federico Carrillo .......................... 33.06%
Francia Fernandez JTWROS
3 World Financial Ctr Fl 16
New York NY 10285-0001
C D Stubbs Jr .............................. 11.11%
Jacqueline S Stubbs JT WROS
PO Box 524
14190 Blueridge Tnpk
Somerset VA 22972-0524
Margaret D Penrose ......................... 39.93%
2315 Little Rd Apt 217
Arlington TX 76016-6345
</TABLE>

45
<PAGE>

<TABLE>
<CAPTION>
% OF
TOTAL
NAME OF FUNDS SHARES
- -------------------------------------------- ------
INTERMEDIATE BOND FUND PREMIER
<S> <C>

Texas Commerce Bank ........................ 8.74%
Attn Asset Trading
1111 Fannin Suite 10
Houston TX 77002-6925
Hamill & Co FBO Chase Bank of
Texas NA ................................. 80.75%
Attn Mutual Fund Unit 16HCB09
PO Box 2558
Houston TX 77252-2558

SHORT INT TERM US GOV SEC INVESTOR SHARES

BISYS As Seed Money For
Chase Short Intmdt Term US Gov ........... 98.00%
US Government Fund
3435 Stelzer Rd Ste 1000
Columbus OH 43219-6004

SHORT INTR TERM US GOV SEC FD PREMIER

Texas Commerce Bank ........................ 30.01%
Attn Asset Trading
1111 Fannin Suite 10
Houston TX 77002-6925
Hamill & Co FBO Chase Bank of
Texas NA ................................. 67.57%
Attn Mutual Fund Unit 16HCB09
PO Box 2558
Houston TX 77252-2558
<CAPTION>
% OF
TOTAL
NAME OF FUNDS SHARES
- -------------------------------------------- ------
<S> <C>

SMALL CAPITALIZATION INVESTOR SHARES
Western Mining Corp USA .................... 74.41%
401k Profit Sharing Plan
8008 E Arapahoe Rd Ste 110
Englewood CO 80112-1356
US GOVERNMENT SECURITIES INVESTOR SHARES
BISYS As Seed Money For
Chase US Govt Securities Fund ............ 36.72%
3435 Stelzer Rd Ste 1000
Columbus OH 43219-6004
John G Gleason ............................. 18.56%
Lorraine A Gleason JT WROS
12 Burnett Brook Dr
Mendham NJ 07945-2100
Margaret D Penrose ......................... 43.97%
2315 Little Rd Apt 217
Arlington TX 76016-6345

US GOVERNMENT SECURITIES FUND PREMIER
Texas Commerce Bank ........................ 18.62%
Attn Asset Trading
1111 Fannin Suite 10
Houston TX 77002-6925
Hamill & Co FBO Chase Bank of
Texas NA ................................. 81.35%
Attn Mutual Fund Unit 16HCB09
PO Box 2558
Houston TX 77252-2558
</TABLE>

FINANCIAL STATEMENTS

The Annual Report to Shareholders for the fiscal year ended December 31,
1998 of each Fund, including the report of independent accounts, financial
highlights and financial statements for the fiscal year ended December 31, 1998
contained therein, are incorporated herein by reference.

<PAGE>
[This page intentionally left blank]

47
<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 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 from 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.

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.

48
<PAGE>
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.

<PAGE>
APPENDIX B
DESCRIPTION OF RATINGS

A description of the rating policies of Moody's, S&P and Fitch with respect
to bonds and commercial paper appears below.

MOODY'S INVESTORS SERVICE'S CORPORATE BOND RATINGS

Aaa--Bonds which are rated "Aaa" are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by 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 qualities
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.

Ba--Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B--Bonds which are rated "B" generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance and
other terms of the contract over any long period of time may be small.

Caa--Bonds which are rated "Caa" are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

Ca--Bonds which are rated "Ca" represent obligations which are speculative
in high degree.

Such issues are often in default or have other marked shortcomings.

C--Bonds which are rated "C" are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

Moody's applies numerical modifiers "1", "2", and "3" to certain of its
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.

STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS

AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to repay principal and pay
interest.

AA--Bonds rated "AA" also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and differs from "AAA"
issues only in small degree.

A--Bonds rated "A" have a strong capacity to repay principal and pay
interest, 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 repay

50
<PAGE>
principal and pay interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for higher rated categories.

BB-B-CCC-CC-C--Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.

CI--Bonds rated "CI" are income bonds on which no interest is being paid.

D--Bonds rated "D" are in default. The "D" category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired unless S&P believes that such payments
will be made during such grace period. The "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

The ratings set forth above may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.

MOODY'S INVESTORS SERVICE'S COMMERCIAL PAPER RATINGS

Prime-1--Issuers (or related supporting institutions) rated "Prime-1" have
a superior ability for repayment of senior short-term debt obligations.
"Prime-1" repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.

Prime-2--Issuers (or related supporting institutions) rated "Prime-2" have
a strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.

Prime-3--Issuers (or related supporting institutions) rated "Prime-3" have
an acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.

Not Prime--Issuers rated "Not Prime" do not fall within any of the Prime
rating categories.

STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS

A S&P commercial paper rating is current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded in several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. The four categories are as follows:

A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".

A-3--Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.

B--Issues rated "B" are regarded as having only speculative capacity for
timely payment.

C--This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.

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D--Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.

FITCH BOND RATINGS

AAA--Bonds rated AAA by Fitch 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 by Fitch 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 issues
is generally rated F-1+ by Fitch.

A--Bonds rated A by Fitch 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.

BBB--Bonds rated BBB by Fitch 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.

FITCH SHORT-TERM RATINGS

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

The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.

Fitch's short-term ratings are as follows:

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

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

F-2--Issues assigned this rating have a satisfactory degree of assurance
for timely payment but the margin of safety is not as great as for issues
assigned F-1+ and F-1 ratings.

F-3--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.

LOC--The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.

Like higher rated bonds, bonds rated in the Baa or BBB categories are
considered to have adequate capacity to pay principal and interest. However,
such bonds may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds.

After purchase by a Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by such Fund. Neither
event will require a sale of such security by a Fund. However, a Fund's
investment manager will consider such event in its determination of whether such
Fund should continue to hold the security. To the extent the ratings given by
Moody's, S&P or Fitch may change as a result of changes in such organizations or
their rating systems, a Fund will attempt to use comparable ratings as standards
for investments in accordance with the investment policies contained in this
Statement of Additional Information.

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APPENDIX C
SPECIAL INVESTMENT CONSIDERATIONS RELATING TO
NEW YORK MUNICIPAL OBLIGATIONS

Some of the significant financial considerations relating to the
investments of the New York Tax Free Income Fund and New York Tax Free Money
Market 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.

Payments of debt service on State general obligation and State-guaranteed
bonds and notes are legally enforceable obligations of the State.

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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 also 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 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 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.

The State anticipated that its capital programs would be financed, in part,
through borrowings by the State and public authorities in the 1997-98 fiscal
year. The State expected to issue $605 million in general obligation bonds
(including $140 million for purposes of redeeming outstanding BANs) and
$140 million in general obligation commercial paper. The Legislature also
authorized the issuance of up to $311 million in COPs during the State's 1997-98
fiscal year for equipment purchases.

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 Certificates of Participation ("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 to pay-as-you-go
financing.

As a result of these changes, the State's 1997-98 borrowing plan now
reflects: $501 million in general obligation bonds (including $140 million for
the purposes of redeeming outstanding BANs) and $140 million in general
obligation paper; the issuance of $83 million in COPs for equipment purchases;
and approximately $1.8 billion in borrowings by public authorities pursuant to
lease-purchase and contractual-obligation financings for capital programs of the
State, including costs of issuance, reserve funds, and other coasts, net of
anticipated refundings and other adjustments for 1997-98 capital projects. The
projection of State borrowings for the 1997-98 fiscal year is subject to change
as market conditions, interest rates and other factors vary through the end of
the fiscal year.

Borrowings by other public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total $1.9 billion, including costs of issuances, reserve funds,
and other costs, net of anticipated refundings and other adjustments for 1997-98
capital projects. Included therein are borrowings by (i) DASNY for the State
University of New York ("SUNY"), The City University of New York

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("CUNY"), health facilities, and mental health facilities; (ii) the Thruway
Authority for the Dedicated Highway and Bridge Trust Fund and Consolidated
Highway Improvement Program; (iii) UDC (doing business as the Empire State
Development Corporation) for prison and youth facilities; (iv) the Housing
Finance Agency ("HFA") for housing programs; and (v) borrowings by the
Environmental Facilities Corporation ("EFC") and other authorities. In addition,
in the 1997 legislative session, the Legislature also approved two new
authorizations for lease-purchase and contractual obligation financings. An
aggregate $425 million was authorized for four public authorities (Thruway
Authority, DASNY, UDC and HFA) for the Community Enhancement Facility Program
for economic development purposes, including sports facilities, cultural
institutions, transportation, infrastructure and other community facility
projects. DASNY was also authorized to issue up to $40 million to finance the
expansion and improvement of facilities at the Albany County airport.

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.

The 1997-1998 State Financial Plan. The State's budget for the State's
1997-98 fiscal year, commencing on April 1, 1997 and ending on March 31, 1998,
was enacted by the Legislature on August 4, 1997. The State Financial Plan for
the 1997-98 fiscal year (the "State Financial Plan") was formulated on August
11, 1997 and was based on the State's budget as enacted by the Legislature and
signed into law by the Governor, as well as actual results for the first quarter
of the current fiscal year. The State Financial Plan is updated in October and
January. The State Financial Plan was projected to be balanced on a cash 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 $35.09 billion, while total General Fund disbursements and
transfers to other funds were projected to be $34.60 billion. After adjustments
for comparability, the adopted 1997-98 budget projected a year-over-year
increase in General Fund disbursements of 5.2 percent. As compared to the
Governor's proposed budget as revised in February 1997, the State's adopted
budget for 1997-98 increased General Fund spending by $1.70 billion, primarily
from increases for local assistance ($1.3 billion). Resources used to fund these
additional expenditures included $540 million in increased revenues projected
for 1997-98, increased resources produced in the 1996-1997 fiscal year that were
to be utilized in 1997-1998, reestimates of social service, fringe benefit and
other spending, and certain non-recurring resources.

The State Financial Plan included actions that would have an effect on the
budget outlook for State fiscal year 1997-98 and beyond. The State Division of
the Budget ("DOB") estimated that the 1997-98 State Financial Plan contained
actions that provide non-recurring resources or savings totaling approximately
$270 million. These included the use of $200 million in federal reimbursement
funds available from retroactive social service claims approved by the federal
government in April 1997. The balance is composed of various other actions,
primarily the transfer of unused special revenue fund balances to the General
Fund.

The State closed projected budget gaps of $5.0 billion, $3.9 billion and
$2.3 billion for its 1995-96 through 1997-98 fiscal years, respectively. The
1998-99 gap was projected at $1.68 billion, in the outyear projections submitted
to the legislature in February 1997. As a result of changes made in the enacted
budget, that gap is now expected to be about the same or smaller than the amount
previously projected, after application of the $530 million reserve for future
needs. The expected gap is smaller than the three previous budget gaps closed by
the State.

The outyear projection will be impacted by a variety of factors. Certain
actions taken in the State's 1997-98 fiscal year, such as medicaid and welfare
reforms, are expected to provide recurring savings in future fiscal years.
Continued controls on State agency spending will also provide recurring savings.
The availability of $530 million in reserves created as a part of the 1997-98
adopted budget and included in the State Financial Plan is expected to benefit
the 1998-99 fiscal year. Sustained growth in the State's economy and continued
declines in welfare case

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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.

In recent years, 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 would be 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.

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
1997-98 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.

The following discussion summarizes the State Financial Plan and recent
fiscal years with particular emphasis on the State's General Fund. Pursuant to
statute, the State updates the financial plan at least on a quarterly basis. Due
to changing economic conditions and information, public statements or reports
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.

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. In the
State's 1997-98 fiscal year, the General Fund was expected by the State to
account for approximately 48 percent of total governmental-funds disbursements
and 71 percent of total State Funds disbursements. General Fund moneys are also
transferred to other funds, primarily to support certain capital projects and
debt service payments in other fund types.

The General Fund was projected to be balanced on a cash basis for the
1997-98 fiscal year; however there can be no assurance that the General Fund
will remain balanced for the entire fiscal year. Total receipts are projected to
be $35.09 billion, an increase of $2 billion over total receipts in the prior
fiscal year. Total General Fund disbursements are projected to be $34.60
billion, an increase of $2.05 billion over the total amount disbursed and
transferred in the prior fiscal year.

In addition to the General Fund, the State Financial Plan includes Special
Revenue Funds, Capital Projects Funds and Debt Service 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 more than 42
percent of total governmental funds receipts and disbursements in the 1997-98
fiscal year, about three-quarters of that activity relates to Federally-funded
programs.

Projected receipts in this fund type totaled $28.22 billion, an increase of
$2.51 billion over the prior year. Projected disbursements in this fund type
totaled $28.45 billion, an increase of $2.43 billion over 1996-97 levels.
Disbursements from Federal funds, primarily the Federal share of Medicaid and
other social services programs,

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were projected to total $21.19 billion in the 1997-98 fiscal year. Remaining
projected spending of $7.26 billion primarily reflects aid to SUNY supported by
tuition and dormitory fees, education aid funded from lottery receipts,
operating aid payments to the Metropolitan Transportation Authority (the "MTA")
funded from the proceeds of dedicated transportation taxes, and costs of a
variety of self-supporting programs which deliver services financed by user
fees.

Capital Projects Funds account for the financial resources used for 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 1997-98 fiscal year, activity in these funds
was expected to comprise 5 percent of total governmental receipts and
disbursements.

Total receipts in this fund type were projected at $3.30 billion. Bond and
note proceeds were expected to provide $605 million in other financing sources.
Disbursements from this fund type were projected to be $3.70 billion, a decrease
of $154 million (4.3 percent) over prior-year levels. The Dedicated Highway and
Bridge Trust Fund is the single largest dedicated fund, comprising an estimated
$982 million (27 percent) of the activity in this fund type. Total spending for
capital projects would be financed through a combination of sources: federal
grants (29 percent), public authority bond proceeds (31 percent), general
obligation bond proceeds (15 percent), and pay-as-you-go revenues (25 percent).

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. This
fund was expected to comprise 4 percent of total governmental fund receipts and
disbursements in the 1997-98 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. In
the 1997-98 fiscal year, total disbursements in this fund type were projected at
$3.17 billion, an increase of $64 million or 25 percent, most of which is
explained by increases in the General Fund transfer. The projected transfer from
the General Fund of $2.07 billion was expected to finance 65 percent of these
payments.

Prior Fiscal years. A narrative description of cash-basis results in the
General Fund is presented below for the prior three 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 five 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 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 $1.4 billion. The cash surplus was derived primarily from
higher-than-expected revenues and lower-than-expected spending for social
services programs. The Governor in his Executive Budget applied $1.05 billion of
the cash surplus amount to finance the 1997-98 Financial Plan, and the
additional $373 million is available for use in financing the 1997-98 Financial
Plan when enacted by the State Legislature.

The General Fund closing fund balance was $433 million. 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. The TSRF can be used in the event
of any future General Fund deficit, as provided under the State Constitution and
State Finance Law. In addition, $41 million remains on deposit in the CRF. This
fund assists the State in financing any extraordinary litigation costs during
the fiscal year. The remaining $75 million reflects amounts on deposit in the
Community Projects Fund. This fund was created to fund certain legislative
initiatives. The General Fund closing fund balance does not include $1.86
billion in the tax refund reserve account, of which $521 million was made
available as a result of the Local Government Assistance Corporation ("LGAC")
financing program and was required to be on deposit as of March 31, 1997.

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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 (excluding deposits into the tax refund reserve account). 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. 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 the $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
includes $237 million on deposit in the TSRF, to be used in the event of any
future General Fund deficit as provided under the State Constitution and State
Finance Law. In addition, $41 million is on deposit in the CRF. The CRF was
established in State fiscal year 1993-94 to assist the State in financing the
costs of extraordinary litigation. The remaining $9 million reflects amounts on
deposit in the Revenue Accumulation Fund. This fund was created to hold certain
tax receipts temporarily before their deposit to other accounts. In addition,
$678 million was on deposit in the tax refund reserve account, of which
$521 million was necessary to complete the restructuring of the State's cash
flow under the LGAC program.

General Fund receipts totaled $32.81 billion, 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 totaled $32.68
billion for the 1995-96 fiscal year, a decrease of 2.2 percent from 1994-95
levels. Mid-year spending reductions, taken as part of a management review
undertaken in October at the direction of the Governor, yielded savings from
Medicaid utilization controls, office space consolidation, overtime and
contractual expense reductions, and statewide productivity improvements achieved
by State agencies.

Fiscal Year 1994-95. The State ended its 1994-95 fiscal year with the
General Fund in balance. The $241 million decline in the fund balance reflects
the planned use of $264 million from the CRF, partially offset by the required
deposit of $23 million to the TSRF. In addition, $278 million was on deposit in
the tax refund reserve account, $250 million of which was deposited to continue
the process of restructuring the State's cash flow as part of the LGAC program.
The closing fund balance of $158 million reflects $157 million in the TSRF and
$1 million in the CRF.

General Fund receipts totaled $33.16 billion, an increase of 2.9 percent
from 1993-94 levels. General Fund disbursements totaled $33.40 billion for the
1994-95 fiscal year, an increase of 4.7 percent from the previous fiscal year.
The increase in disbursements was primarily the result of one-time litigation
costs for the State, funded by the use of the CRF, offset by $188 million in
spending reductions initiated in January 1995 to avert a potential gap in the
1994-95 State Financial Plan. These actions included savings from a hiring
freeze, halting the development of certain services, and the suspension of
non-essential capital projects.

Other Funds. 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 $24.38 billion
to $26.02 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 $3.62 billion to
$3.54 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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The increase in the negative fund balance in 1994-95 resulted from delays in
reimbursements caused by delays in the timing of public authority bond sales.

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 implementation 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.

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. 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.

The 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.
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.

In recent years, 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 would be 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

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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.

The State Financial Plan was based upon a July 1997 projection by DOB of
national and State economic activity. The information below summarizes the
national and State economic situation and outlook upon which projections of
receipts and certain disbursements were made for the 1997-98 Financial Plan.

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.

The Governor is required to submit a balanced budget to the State
Legislature and has indicated that he will close any potential imbalance in the
State Financial Plan primarily through General Fund expenditure reductions and
without increases in taxes or deferrals of scheduled tax reductions. It is
expected by the State DOB that the State Financial Plan will reflect a
continuing strategy of substantially reduced State spending, including agency
consolidations, reductions in the State work force, and efficiency and
productivity initiatives. The division of the Budget intends to update the State
Financial Plan and provide an update to the Annual Information Statement upon
release of the 1997-98 Executive Budget.

U.S. Economy. The national economy has resumed a more robust rate of
growth after a "soft landing" in 1995, with approximately 14 million jobs added
nationally since early 1992. The State economy has continued to expand, but
growth remains somewhat slower than in the nation. Although the State has added
approximately 300,000 jobs since late 1992, employment growth in the State has
been hindered during recent years by significant cutbacks in the computer and
instrument manufacturing, utility, defense, and banking industries. Government
downsizing has also moderated these job gains.

DOB forecasts that national economic growth will continue in 1998 and 1999,
it is expected to be substantially slower than is was in 1997. Real Gross
Domestic Product ("GDP") is projected to increase 2.6 percent in 1998, which is
a full percentage point lower than the estimated 1997 growth rate. In 1999, the
GDP is expected to fall to 2.0 percent. The growth of nominal GDP is projected
to decline from 5.8 percent in 1997 to 4.8 percent in 1998 and to 4.3 percent in
1999. The inflation rate is expected to drop to 2.2 percent in 1998, before
rising to 2.5 percent in 1999. The annual rate of job growth is expected to be
2.3 percent in 1998, equaling the strong growth rate experienced in 1997. In
1999, however, employment growth is forecast to slow markedly to 1.3 percent.
Growth in personal income and wages is expected to slow in 1998 and 1999.

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New York Economy. The DOB forecast of the State's economy projects
continued moderate growth in 1998 and 1999 for employment, wages, and personal
income. The growth is projected to lesson, however, during the course of the two
years. Personal income is estimated to by 5.4 percent in 1997, 4.8 percent in
1998, and 4.3 percent in 1999. Increases in 1998 year end bonus payments are
projected to be modest, a substantial change from the rate of increase of recent
years. Overall employment is expected to continue at a modest rate, reflecting
the slowing growth in the national economy, continued spending restraint in
government, and restructuring in the health, social service, and banking
sectors.

Current forecasts for continued growth, and any resultant impact on the
State's financial plans, contain some uncertainties. Stronger-than-expected
gains in employment could lead to a significant improvement in consumer
spending. Investments could also remain robust. Conversely, hints of
accelerating inflation or fears of excessively rapid economic growth could
create upward pressures on interest rates. In addition, the State economic
forecast could over- or underestimate the level of future bonus payments or
inflation growth, resulting in forecasted average wage growth that could differ
significantly form actual growth. Similarly, the State forecast could fail to
correctly account for declines in banking employment and the direction of
employment change that is likely to accompany telecommunications and energy
deregulation.

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.

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

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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 First Quarter Update was
incorporated into the cash-basis State Financial Plan of August 15, 1997 (the
"August Financial Plan").

The Mid-Year Update. The State issued its first update to the cash-basis
1997-98 State Financial Plan (the "Mid-Year Update") on October 30, 1997. No
revisions were made to the estimates of receipts and disbursements based on the
current economic forecasts for both the nation and the State. The Mid-Year
Update continues to reflect a balanced 1997-98 State Financial Plan, with a
projected General Fund reserve for future needs of $530 million. This projected
surplus is now considered to be at the low end of the range of possible outcomes
for the 1997-98 fiscal year.

The forecast of the State economy also remains unchanged from the one
formulated with the August Financial Plan. Steady growth was projected to
continue through the second half of 1997. Personal income was projected to
increase by 6.1 percent in 1997 and 4.5 percent in 1998, reflecting projected
wage growth fueled in part by financial sector bonus payments. The forecast
projected employment increases of 1.4 percent in 1997 and 1.0 percent in 1998.

The projected 1997-98 closing fund balance in the General Fund of $927
million reflects a reserve for future needs of $530 million, a balance of $332
million in the Tax Stabilization Reserve Fund (following a payment of $15
million during the current fiscal year) and a balance of $65 million in the
Contingency Reserve Fund (following a deposit of $24 million during the current
fiscal year). These two reserves remain available to help offset potential risks
to the Financial Plan. Based upon experience to date, it is likely that the
closing fund balance will be larger, providing additional resources for the
1998-99 fiscal year.

All governmental funds receipts and disbursements are also unchanged. The
projected closing fund balance for all governmental funds remains $1.43 billion.
The annual increase in spending for all governmental funds remains approximately
7 percent. Total projected receipts in all governmental funds (excluding
transfers) are approximately $67.31 billion. All funds disbursements (excluding
transfers) are $67.37 billion. Total net other financing sources across all
governmental funds are projected at $505 million.

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

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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
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.

The January Update. The State revised its 1997-98 Financial Plan on
January 20, 1998 (the "January Update"), in conjunction with the release of its
Executive Budget Forecast for the 1998-99 fiscal year. The State predicted that
the 1997-98 General Fund Financial Plan would continue to be balanced, with a
projected cash surplus of $1.83 billion, an increase of $1.32 billion form the
State's Mid-Year Update. The General Fund closing balance is projected to be
$465 million at the end of the 1997-98 fiscal year, a decline of $462 million
from the Mid-Year Update. This decline reflects the application of $530 million
in undesignated reserve and additional surplus money projected in the January
Update to pay for certain one-time accelerated payments.

Personal income tax collections for 1997-98 are projected at $18.5 billion,
a $363 million decrease from the Mid-Year Update. Business tax receipts are
projected to increase by $158 million, for a total of $4.98 billion. User tax
estimates increased $52 million to $7.06 billion. Other tax receipts are
projected to increase by $103 million over the Mid-Year Update to total $1.09
billion for the fiscal year.

The State projected that disbursements would increase by $565 million over
the Mid-Year Update. The State attributed the majority of the increase to a
one-time dispersement of a $561 million pre-payment of expenditures previously
scheduled for 1998-99. Outside of this accelerated payment the projected General
Fund spending for the 1997-98 year remained essentially unchanged from the
Mid-Year Update.

The 1998-99 Executive Budget. The Governor presented the 1998-99 Executive
Budget (the "Executive Budget") to the Legislature on January 20, 1998. The
Executive Budget contains financial projections for the State's 1997-98 through
2000-01 fiscal years, detailed estimates of receipts, and a proposed Capital
Program and Financing Plan. The State expects that the Governor will prepare
amendments to the Executive Budget as permitted under applicable law and that
these amendments will be reflected in a revised financial plan. There can be no
assurance that the Legislature will enact into law the Executive Budget as
proposed by the Governor or that the State's budget projections will not differ
materially or adversely from projections set forth in any of its updates.

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Under the Executive Budget, the 1998-99 Financial Plan is projected to be
balanced on a cash basis in the General Fund. Total General Fund receipts
(including transfers from other funds) are projected to be $36.22 billion, an
increase of $1.02 billion over the estimated 1997-98 level. The State General
Fund tax base is projected to increase approximately six percent during 1998-99,
after adjusting for tax law and administrative changes. Personal income tax
collections in the General Fund are projected to increase to $19.82 billion, a
$1.32 billion increase over 1997-98. User tax collections and fee receipts are
projected to reach $7.2 billion, an increase of $144 million over the previous
year. Business tax receipts are projected to decline in 1998-99 from $4.98 to
$4.96 billion largely due to scheduled tax reductions. Receipts from other taxes
are also projected to decline form $1.79 billion to $1.01 billion in 1998-99.
Miscellaneous receipts are projected to decline from $1.57 billion in 1997-98 to
$1.4 billion in the 1998-99 fiscal year.

General Fund distributions, including transfers to other funds, are
projected to be $36.18 billion in 1998-99, an increase of $1.02 billion over
projected expenditures (including prepayments) for the 1997-98 fiscal year. The
Executive Budget proposes a year-to-year growth in General Fund spending of 2.89
percent, a growth in State Funds spending of 8.5 percent, and an increase in All
Government Funds spending of 7.6 percent. Dispersements from the category of
Grants to Local Governments (which constitute 67.9 percent of all General Fund
spending) are projected to increase by $931 million to $24.55 billion in
1998-99, or 3.9 percent above 1997-98. Support of State operations is projected
to increase by $524 million to $6.73 billion, or 8.4 percent higher than
1997-98. Total spending in General State charges is projected to decline
slightly in 1998-99 to $2.23 billion. Transfers in support of debt services are
projected to grow 5.8 percent in 1998-99, from $2.03 billion to $2.15 billion.

The Division of Budget believes that the economic assumptions and
projections of receipts and disbursements accompanying the 1998-99 Executive
Budget are reasonable. However, 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, can vary from fiscal year to fiscal
year, and are frequently the result of actions taken not only by the State but
by entities, such as the federal government, that are outside the State's
control. Because of the uncertainty and unpredictability of changes in these
factors, their impact cannot be fully included in the assumptions underlying the
State's projections. For example, there can be no assurance that the Legislature
will enact the Governor's proposals or the State's actions will be sufficient to
preserve budgetary balance or align recurring receipts and disbursements in
either 1998-99 or future fiscal years.

Uncertainties with regard to the economy present the largest potential risk
to future budget balance in New York State. The risk includes whether the
financial market changes or broader economic "correction" occurs during the
period and is heightened by the relatively lengthy expansions in the market that
are currently underway. The securities industry is more important to the New
York economy than the national economy and a significant deterioration in stock
market performance could ultimately produce adverse changes in wage and
employment levels. Additionally, a normal "forecast error" of one percentage
point in the expected growth rate could cumulatively raise or lower receipts by
over $1 billion by the last year of the 1998-2001 projection period. On the
other hand, the national or State economy may continue to perform better than
projected, which could produce beneficial results in State receipts.

Ratings Agencies. On August 28, 1997, Standard & Poor's ("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.

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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 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

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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 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 1997-98
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 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

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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.

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. The City depends on State aid both to enable the City
to balance its budget and to meet its cash requirements. 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.

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.

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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 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 1998-2002 Financial Plan. On January 29, 1998, the City published the
Financial Plan for the 1998 through 2002 fiscal years, which relates to the City
and certain entities which receive funds from the City. The Financial Plan is a
modification to the four-year financial plan submitted to the Control Board on
June 10, 1997 (the "June Financial Plan").

The 1998-2002 Financial Plan reflects actual receipts, expenditure, and
changes in forecast revenues and disbursements since the June Financial Plan.
The 1998-2002 Financial Plan projects revenues and expenditures for the 1998 and
1999 fiscal years to be balanced in accordance with GAAP. Gaps are projected,
however, of $1.8 billion, $2.0 billion, and $1.9 billion for the 2000, 2001, and
2002 years, respectively. Changes since the June Financial Plan include: (i) an
increase in projected tax revenue in 1998 ($841 million), 1999 ($738 million),
2000 ($808 million), and ($802 million), including an increase in sales tax
revenues resulting from the state adopting a smaller than expected sales tax
reduction; (ii) a reduction in assumed State aid of $283 million in the 1998
fiscal year and between $134-142 million in each year from 1999-2001; (iii) a
reduction in the projected debt service expenditures totaling $164 million, $291
million, $127 million, and $145 million in the 1998 through

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2001 fiscal years, respectively; (iv) an increase in Board of Education (the
"BOE") spending of $70 million, $182 million, $59 million, and $61 million in
the 1998 through 2001 fiscal years, respectively; and (v) an increase in
expenditures totaling $71 million in the 1998 fiscal year and between
$214 million and $273 million in each of the 1999 and 2001 fiscal years,
reflecting additional spending for the City's proposed drug initiative and other
agency spending. The 1998-2002 Financial Plan also includes a proposed
discretionary transfer in the 1998 fiscal year of an additional $920 million in
debt service due in the 1999 fiscal year, and a proposed discretionary transfer
in the 1999 fiscal year of $210 million of debt service due in fiscal year 2000,
included in the Budget Stabilization Account for 1998 and 1999 fiscal years,
respectively, raising the total in the Budget Stabilization Account for the 1998
fiscal year to $1.2 billion.

Additionally, the 1998-2002 Financial Plan sets forth gapclosing actions to
eliminate a previously projected budget gap for the 1999 fiscal year and to
reduce projected gaps for fiscal years 2000 through 2002. Gap-closing actions
for 1998 through 2002 fiscal years include: (i) additional agency actions
totaling $122 million, $429 million, $354 million, $303 million, and
$311 million in fiscal years 1998 through 2002, respectively; (ii) assumed
additional Federal aid of $250 million in each of fiscal years 1999 through
2002, which could include funds to be distributed from the tobacco settlement,
increased Medicaid assistance, unrestricted Federal revenue sharing aid or
increased funds for school construction; and (iii) assumed additional State aid
of $200 million in each of fiscal years 1999 through 2002, including an increase
in revenue sharing payments and reimbursement of inmate costs proposed by the
City. The gap-closing actions are partially offset by proposed new tax reduction
programs totalling $237 million, $537 million, $610 million, and $774 million in
fiscal years 1999 through 2002, respectively.

The City's projected budget gap for the 2001 and 2002 fiscal years does not
reflect the savings expected to result from prior years' programs to close the
gaps set forth in the Financial Plan. Thus, for example, recurring savings
anticipated from the actions which the City proposes to take to balance the
fiscal year 2000 budget are not taken into account in projecting budget gaps for
the 2001 and 2002 fiscal years.

Although the City has maintained balanced budgets in each of its last
seventeen fiscal years and is projected to achieve a balanced operating results
for the 1998 fiscal year, thee 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.

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

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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 Medicare or other 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

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Constitution provides that pension rights of public employees are contractual
and shall not be diminished or impaired.

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 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

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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 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.

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<PAGE>
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 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

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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 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.

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<PAGE>
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 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

76
<PAGE>
$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 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.

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<PAGE>
Ratings Agencies. 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+ 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.

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") 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.

<PAGE>

PART C - OTHER INFORMATION

Item 23. Exhibits

1 Declaration of Trust dated as of September 19, 1997.*

2 By-Laws.*

3 None.

4(a) Form of Investment Advisory Agreement between Trust and The Chase
Manhattan Bank.*

4(b) Form of Sub-Advisory Agreement between The Chase Manhattan Bank and
Texas Commerce Bank National Association.*

4(c) Form of Administration Agreement.*

4(d) Form of Investment Advisory Agreement.*

5 Form of Distribution and Sub-Administration Agreement.*

6 None.

7 Form of Custodian Agreement.*

8 Form of Transfer Agency Agreement.*

II-1

<PAGE>

9 Opinion and consent of counsel as to the legality of the securities
being registered.*

10 Consent of Independent Auditors.+

11 Financial Statements and the Reports thereon for the Funds filed herein
for the fiscal year ended December 31, 1998 are incorporated by
reference into this Part B as part of the 1998 Annual Reports to
Shareholders for such Funds as filed with the Securities and Exchange
Commission by the Registrant on Form N-30D on February 22, 1999,
accession numbers 0000889812-99-000600 and 0000889812-99-0601.

12 None.

13 Distribution Plan.*

14 Financial Data Schedules.+

18 None.

* Previously filed with Registration Statement and Post-effective
Amendments and are herein incorporated by reference.

+ Filed herewith.

II-2

<PAGE>

Item 24. Persons Controlled by or Under Common Control with the Fund.

Inapplicable.

Item 25. Indemnification

Sections 10.2 and 10.4 of the Amended and Restated Declaration of Trust, filed
as Exhibit 1, are incorporated herein by reference. Section 10.2 contains
provisions limiting the liabilities of members of the Supervisory Committee and
Section 10.4 contains provisions for indemnification of the Trustee, members of
the Supervisory Committee and officers of the Trust.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Trust and the Trustee pursuant to the foregoing provisions or otherwise,
the Trust has been advised that, in the opinion of the SEC, 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 Trust of expenses incurred or paid by
a director, officer, or controlling person of the Trust and the Trustee in
connection with the successful defense of any action, suit or proceeding) is
asserted against the Trust by such director, officer or controlling person or
the Trustee in connection with the Units being registered, the Trust will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

Item 26. Business and Other Connections of Investment Adviser

(a) The Chase Manhattan Bank ("Chase") is the investment adviser of the Trust.
Chase is a commercial bank providing a wide range of banking and investment
services.

II-3

<PAGE>

To the knowledge of the Registrant, none of the Directors or executive officers
of Chase, 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 Chase also hold or have held various positions with bank and
non-bank affiliates of Chase, including its parent, The Chase Manhattan
Corporation. Each Director listed below is also a Director of The Chase
Manhattan Corporation.

<TABLE>
<CAPTION>
Name Position with Chase Principal Occupation
---- ------------------- --------------------
<S> <C> <C>
Hans W. Becherer Director Chairman and CEO, Deere & Co.

Frank A. Bennack, Jr. Director Chairman and CEO, The Hearst
Corp.

Susan V. Berresford Director President, The Ford Foundation

Donald L. Boudreau Vice Chairman None
Of the Board

M. Anthony Burns Director Chairman of the Board,
President and Chief Executive
Officer of Ryder System, Inc.

H. Laurance Fuller Director Chairman, President, Chief
Executive Officer and Director
of Amoco Corporation and
Director of Abbott Laboratories

Melvin R. Goodes Director Chairman and CEO, Warner-Lambert
Co.

William H. Gray III Director President and CEO, The College
Fund/UNCF

George V. Grune Director Chairman and CEO, The Reader's
Digest Assoc., Inc.

William Harrison Vice Chairman None
Of the Board

Harold S. Hook Director Retired Chairman, American
General Corp.

Helene Kaplan Director Of Counsel, Skaden, Arps, Slate,
Meager & Flom LLP

Thomas G. Labreque President and Chief Chairman, Chief Executive
Operating Officer Officer and a Director of The
and Director Chase Manhattan Corporation and
a Director of AMAX, Inc.

Donald H. Layton Vice Chairman None
Of the Board

James B. Lee Vice Chairman None
Of the Board

Denis O'Leary Executive None
Vice President

Marc J. Shapiro Vice Chairman None
Of the Board

Joseph G. Sponholz Vice Chairman None
Of the Board

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.

II-4

<PAGE>
Walter V. Shipley Chairman of the None
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>

(b) Chase Bank of Texas, N.A. ("CBT") is investment sub-adviser with respect to
certain of the Funds. Its business has been solely that of a national bank.

The directors and executive officers (i.e., members of management committee) of
the investment adviser have held during the past two fiscal years the following
positions of a substantial nature:

II-5
<PAGE>

<TABLE>
<CAPTION>
Position(s) Position(s)
and Offices and Offices Other Substantial
with with Business, Profession,
Name CBT Registrant Vocation or Employment
----- -------------- ----------- ----------------------
<S> <C> <C> <C>
John L. Adams Chairman, None None
President and
CEO

Elaine B. Agather CEO, CBT -- None None
Fort Worth,
Vice Chairman,
CBT -- Metroplex

Alan R. Buckwalter, III Director, None None
Vice Chairman

II-6

<PAGE>
Position(s) Position(s)
and Offices and Offices Other Substantial
with with Business, Profession,
Name CBT Registrant Vocation or Employment
----- -------------- ------------- ----------------------

Robert C. Hunter Director, None None
Vice Chairman

S. Todd Maclin Director, None None
Vice Chairman

Beverly H. McCaskill Director, None None
Executive
Vice President

Scott J. McLean Executive None None
Vice President

Cathy S. Nunnally Executive None None
Vice President

Jeffrey B. Reitman Director, None None
General Counsel

Harriet S. Wasserstrum Director, None None
Vice Chairman

</TABLE>

Item 27. Principal Underwriters

Inapplicable.

Item 28. Location of Accounts and Records

Accounts and other documents are maintained at the offices of the Registrant.

II-7

<PAGE>

Item 29. Management Services.

Inapplicable.

Item 30. Undertakings

(a) Registrant hereby undertakes to call a meeting of
shareholders for the purpose of voting upon the question of
removal of one or more of Registrant's directors when
requested in writing to do so by the holders of at least 10%
of Registrant's outstanding shares of common stock and, in
connection with such meeting, to assist in communications
with other shareholders in this regard, as provided under
Section 16(c) of the 1940 Act.

(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without change.

II-8

<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 of the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, as amended and has duly caused this
Post-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 29th day of April, 1999.

MUTUAL FUND INVESTMENT TRUST

By /s/ Sarah E. Jones
--------------------------
Sarah E. Jones
Chair

Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.

<TABLE>
<S> <C> <C>
/s/ Sarah E. Jones Chair April 29, 1999
- ------------------------- and
Sarah E. Jones Trustee

/s/ Frank A. Liddell, Jr.
- ------------------------- Trustee April 29, 1999
Frank A. Liddell, Jr.

/s/ George E. McDavid
- ------------------------- Trustee April 29, 1999
George E. McDavid

/s/ Kenneth L. Otto
- ------------------------- Trustee April 29, 1999
Kenneth L. Otto

/s/ Fergus Reid, III
- ------------------------- Trustee April 29, 1999
Fergus Reid, III

/s/ H. Michael Tyson
- ------------------------- Trustee April 29, 1999
H. Michael Tyson
</TABLE>

<PAGE>

/s/ Martin Dean
- ------------------------- Treasurer April 29, 1999
Martin Dean and Principal
Financial
Officer

II-9

<PAGE>

Consent of Independent Accountants

We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 26 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated February 8, 1999, relating to the financial
statements and financial highlights appearing in the December 31, 1998 Annual
Report of Chase Balanced Fund, Chase Core Equity Fund, Chase Equity Growth
Fund, Chase Equity Income Fund, Chase Small Capitalization Fund, Chase Income
Fund, Chase Intermediate Term Bond Fund, Chase Money Market Fund, Chase
Short-Intermediate Term U.S. Securities Fund and Chase U.S. Government
Securities Fund (separately managed portfolios of Mutual Fund Investment
Trust), which are also incorporated by reference into the Registration
Statement. We also consent to the references to us under the heading
"Financial Highlights" in the Prospectuses and under the heading "Independent
Accountants," in the Statement of Additional Information.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036

April 28, 1999