NATIONAL INVESTORS CASH MANAGEMENT FUND INC, N-1A/A, 1998-05-15

NATIONAL INVESTORS CASH MANAGEMENT FUND INC
N-1A/A, 1998-05-15

Previous: FMI FUNDS INC, N-30D, 1998-05-15

Next: CHARTHOUSE SUITES VACATION OWNERSHIP INC, 10QSB, 1998-05-15

<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 1998

Securities Act File No. 33-14527
Investment Company Act File No. 811-07871
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No. 2 /X/

Post-Effective Amendment No. /_/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 2 /X/

(Check appropriate box or boxes)

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

NATIONAL INVESTORS CASH MANAGEMENT FUND, INC.
(Exact name of Registrant as specified in charter)

100 Wall Street
New York, NY 10005
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code

RICHARD W. INGRAM, PRESIDENT
NATIONAL INVESTORS CASH MANAGEMENT FUND, INC.
60 STATE STREET, SUITE 1300
BOSTON, MASSACHUSETTS 02109
(Name and Address of Agent for Service)

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

Copies to:

COUNSEL FOR THE REGISTRANT:
MARGERY K. NEALE, ESQ.
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
919 THIRD AVENUE, NEW YORK, NEW YORK 10022

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

Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of the Registration Statement

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------

<PAGE>

REGISTRATION STATEMENT ON FORM N-1A

CROSS REFERENCE SHEET
(as required by Rule 481(a))

<TABLE>
<CAPTION>
N-1A Item No. Location in Prospectus
<S> <C> <C> <C>

Part A
Item 1. Cover Page...........................................Cover Page
Item 2. Synopsis.............................................Summary of Expenses
Item 3. Condensed Financial Information......................Inapplicable
Item 4. General Description of Registrant....................A Profile of the Portfolios;
The Portfolios in Detail--
Matching Your Investment
Needs to the Portfolios; --
Investment Policies and
Restrictions; Other
Information
Item 5. Management of the Fund...............................Operating Expenses and Fees
- Management and Related
Expenses
Item 5A. Management's Discussion of Fund
Performance.........................................Inapplicable
Item 6. Capital Stock and Other Securities...................Other Information
Item 7. Purchase of Securities Being Offered.................Purchases and Redemptions--
How to Buy Shares
Item 8. Redemption or Repurchase.............................Purchases and Redemptions--
How to Sell Shares
Item 9. Pending Legal Proceedings............................Inapplicable

Part B

Item 10. Cover Page...........................................Cover Page
Item 11. Table of Contents....................................Cover Page
Item 12. General Information and History......................General Information
Item 13. Investment Objectives and Policies...................Investment Policies and
Restrictions
Item 14. Management of the Fund...............................Directors and Executive
Officers; The Investment

Manager
Item 15. Control Persons and Principal Holders
of Securities.......................................Capital Structure; Directors
and Executive Officers

</TABLE>
2

<PAGE>

<TABLE>
<S> <C> <C> <C>
Item 16. Investment Advisory and Other Services...............The Investment Manager;
Investment Management,
Distribution and Other
Services
Item 17. Brokerage Allocation and other Practices.............Portfolio Transactions
Item 18. Capital Stock and Other Securities...................General Information
Shareholder Rights
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............................Share Price Calculation;
Additional Purchase and
Redemption Information
Item 20. Tax Status...........................................Dividends and Taxes
Item 21. Underwriters.........................................Investment Management,
Distribution and Other
Services
Item 22. Calculation of Performance Data......................Performance
Item 23. Financial Statements.................................Statement of Net Assets
</TABLE>

Part C

Information required to be included is set forth under the appropriate Item, so
numbered, in Part C to this Registration Statement.

<PAGE>

KENNEDY CABOT
CASH MANAGEMENT PORTFOLIOS

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
A PROFILE OF THE PORTFOLIOS............................................. 6

SUMMARY OF EXPENSES..................................................... 7

THE PORTFOLIOS IN DETAIL................................................ 8

PURCHASES AND REDEMPTIONS............................................... 15

OPERATING EXPENSES AND FEES............................................. 19

OTHER INFORMATION....................................................... 21

APPENDIX................................................................ 27
</TABLE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT
LAWFULLY BE MADE.

KENNEDY CABOT CASH
MANAGEMENT PORTFOLIOS
9470 Wilshire Boulevard * Beverly Hills, California 90212

KENNEDY CABOT
CASH MANAGEMENT
PORTFOLIOS

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

Three portfolios to choose from:

Kennedy Cabot Money Market Portfolio
Kennedy Cabot U.S. Government Portfolio
Kennedy Cabot Municipal Portfolio

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

May 18, 1998

<PAGE>

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

KENNEDY CABOT CASH MANAGEMENT PORTFOLIOS

May 18, 1998

This Prospectus describes the Kennedy Cabot Cash Management Portfolios, three
money market portfolios (each a "Portfolio" and collectively the "Portfolios")
designed for investors who seek current income consistent with the preservation
of capital, liquidity and a stable price of $1.00 per share. The three
Portfolios are: Kennedy Cabot Money Market Portfolio (the "Money Market
Portfolio"), Kennedy Cabot U.S. Government Portfolio (the "U.S. Government
Portfolio") and Kennedy Cabot Municipal Portfolio (the "Municipal Portfolio").
Each Portfolio is a diversified investment portfolio of National Investors Cash
Management Fund, Inc. (the "Company"), an open-end, management investment
company known as a mutual fund. Each Portfolio invests in high quality money
market instruments.

This Prospectus contains information about the Portfolios which a prospective
investor should know before investing and should be retained for future
reference. A Statement of Additional Information relating to the Portfolios
dated May 18, 1998 (the "SAI") has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated herein by reference. The SAI is available
upon request and without charge by writing the Portfolios at 9470 Wilshire
Boulevard, Beverly Hills, California 90212 or by contacting Kennedy Cabot
("Kennedy Cabot") at (800) 252-0090. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated by reference,
and other information regarding the Company.

AN INVESTMENT IN A PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY, AND IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THERE CAN BE NO ASSURANCE THAT ANY PORTFOLIO WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<PAGE>

KENNEDY CABOT
CASH MANAGEMENT PORTFOLIOS

A PROFILE OF THE PORTFOLIOS

WHO MAY WANT TO INVEST

Each of the Portfolios - the Money Market Portfolio, the U.S. Government
Portfolio and the Municipal Portfolio - is a money market portfolio designed for
investors who would like to earn income at current money market rates in a
liquid investment that preserves capital. Because of their emphasis on liquidity
and preservation of capital, each Portfolio may be used as a high quality money
market investment for an investor's short-term cash requirements.

INVESTMENT OBJECTIVES OF EACH PORTFOLIO

Each of the Portfolios seeks maximum current income to the extent consistent
with liquidity and preservation of capital and a stable price of $1.00 per
share. The Money Market Portfolio has the flexibility to invest in a broad range
of high quality money market securities in pursuit of its objective. The U.S.
Government Portfolio offers an added measure of safety by investing exclusively
in obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The Municipal Portfolio offers investors federally tax-exempt
income by investing primarily in municipal securities. The rates of income each
Portfolio earns will vary from day to day and generally reflect short-term
interest rates. See "The Portfolios in Detail--Investment Policies and
Restrictions." There can be no assurance that any Portfolio will be able to
maintain a stable net asset value ("NAV") of $1.00 per share.

BENEFITS AND FEATURES TO KENNEDY CABOT CUSTOMERS

If you are a customer of Kennedy Cabot, you will enjoy the benefits of having
free credit balances in your Kennedy Cabot brokerage account swept daily into
the Portfolio that you choose as your sweep portfolio. In addition, if you set
up your account as a Kennedy Cabot Money Management Account, you will have
access to money in your sweep account 24 hours-a-day, seven days-a-week simply
by writing a check or by using your ATM/VISA Check Card. All of your activity in
the Portfolios will be consolidated on your Kennedy Cabot brokerage account
statement to make your recordkeeping easy. See "Purchases and Redemptions."

An ATM/VISA Check Card cash withdrawal from a customer's Kennedy Cabot Money
Management Account may result in the automatic redemption of Portfolio shares.
For a discussion of these withdrawals, see "Purchases and Redemptions - How To
Sell Shares--Automatic Sweep Redemptions."

<PAGE>

SUMMARY OF EXPENSES

<TABLE>
<CAPTION>
Money Market U.S. Government Municipal
Portfolio Portfolio Portfolio
-------------------- ------------------------ ------------------
<S> <C> <C> <C>
Shareholder Transaction Expenses None None None

Annual Operating Expenses (as a
percentage of average daily net assets)

Management Fees .35%1 .35%1 .25%1
(after fee waivers and/or expense reimbursements)1

Shareholder Servicing Fees (after fee .20%2 .17%2 .11%2
waivers and/or expense reimbursements)2

12b-1 Fees None None None

Other Expenses3 .39% .39% .39%
---- ---- ----

Total Portfolio Operating Expenses .94% .91% .75%
(after fee waivers and/or expense reimbursements)

</TABLE>

Example

You would pay the following expenses on a $1,000 investment in shares of each
Portfolio, assuming (1) a 5% annual return and (2) redemption at the end of each
time period:

- ------------------------------
1 The annual investment management fee for each Portfolio is
payable to Waterhouse Asset Management, Inc. (the "Investment
Manager") on a graduated basis of .35 of 1% of the first $1
billion of average daily net assets of each Portfolio, .34 of
1% of the next $1 billion, and .33 of 1% of average daily net
assets over $2 billion. The Investment Manager has agreed to
waive a portion of the annual investment management fee for
the Municipal Portfolio through April 30, 1999, so that the
actual fee payable annually by the Municipal Portfolio during
such period will be .25 of 1% of average daily net assets of
such Portfolio. The investment management fee is payable
monthly. See "Operating Expenses and Fees -- Management and
Related Expenses" and the SAI.
2 The Shareholder Servicing Fee is payable pursuant to a
Shareholder Servicing Plan adopted by the Company's Board of
Directors. Waterhouse Securities, Inc. ("Waterhouse
Securities"), the shareholder servicing agent,
has agreed to waive the annual fees payable through
April 30, 1999 under the Shareholder Servicing Plan so as not
to exceed .20 of 1% of average daily net assets in the case of

the Money Market Portfolio, .17 of 1% of average daily net
assets in the case of the U.S. Government Portfolio and .11 of
1% of average daily net assets in the case of the Municipal
Portfolio. Absent this waiver of fees, the Shareholder
Servicing Fee as a percentage of average daily net assets for
each Portfolio would be .25 of 1%. See "Operating Expenses and
Fees -- Shareholder Servicing" and the SAI.

3 Other Expenses include, among other items, an administration
fee (.10 of 1% of average daily net assets), which is paid to
Waterhouse Securities; and a transfer agent fee (.20 of 1%
average daily net assets), which is paid to National Investor
Services Corp., an affiliate of the Investment Manager (the
"Transfer Agent"). All expenses included in this category are
based upon estimated amounts for the current fiscal year
ending April 30, 1999. See "Operating Expenses and Fees --
Administration," "-- Transfer Agent," "-- Other Expenses"
and the SAI.

7
<PAGE>

<TABLE>
<CAPTION>
1 YEAR 3 Years
------ -------
<S> <C> <C>
Money Market Portfolio $10 $30
U.S. Government Portfolio $9 $29
Municipal Portfolio $8 $24
</TABLE>

The purpose of the preceding table is to assist you in understanding the
various costs and expenses that an investor in a Portfolio will bear directly
or indirectly. Investment dealers and other firms may independently charge
shareholders additional fees. The example should not be considered to be a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. The example assumes a 5% annual rate of return
pursuant to the requirements of the SEC. This hypothetical rate of return is
not intended to be representative of past or future performance of any
Portfolio. See "Operating Expenses and Fees."

THE PORTFOLIOS IN DETAIL

MATCHING YOUR INVESTMENT NEEDS TO THE PORTFOLIOS

The Money Market Portfolio, the U.S. Government Portfolio and the Municipal
Portfolio are each money market mutual funds. Each Portfolio seeks maximum
current income to the extent consistent with liquidity and preservation of
capital. The Portfolios are managed by investment professionals who purchase
only high quality, short-term money market securities that they believe present
minimal credit risk. Each Portfolio invests only in U.S. dollar denominated
instruments that have a remaining maturity of 397 calendar days or less (as

calculated under Rule 2a-7 ("Rule 2a-7") under the Investment Company Act of
1940, as amended (the "Investment Company Act")) and maintains a dollar-weighted
average portfolio maturity of 90 days or less.

Each Portfolio invests in money market securities of different types. The Money
Market Portfolio has the flexibility to invest broadly in U.S.
dollar-denominated securities of domestic and foreign issuers. The U.S.
Government Portfolio offers an added measure of safety and invests exclusively
in obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The Municipal Portfolio offers investors federally tax-exempt
income by investing primarily in municipal securities. Each Portfolio may invest
in the types of securities described below under "Investment Policies and
Restrictions." The rates of income will vary from day to day and generally
reflect current short-term interest rates.

Although the Portfolios are managed to avoid fluctuations of principal and
maintain a stable share price of $1.00 per share, there is no guarantee that a
Portfolio will achieve its investment objective or maintain a price of $1.00 per
share.

<PAGE>

None of the Portfolios, including the U.S. Government Portfolio, is guaranteed
by the U.S. government. In addition, the Municipal Portfolio would not be an
appropriate investment for retirement plans such as IRA or Keogh accounts, as
income earned by such plans is tax-deferred until withdrawal, and amounts
withdrawn are taxable as ordinary income. Therefore, such plans would receive no
incremental tax benefit by investing in the Municipal Portfolio.

INVESTMENT POLICIES AND RESTRICTIONS

The following is an abbreviated discussion of the investment policies and
restrictions of each Portfolio. A more detailed listing of each Portfolio's
policies and restrictions and more detailed information about a Portfolio's
investments are contained in the appendix to this Prospectus which discusses
certain types of investments (the "Appendix") and in the SAI.

MONEY MARKET PORTFOLIO. The Money Market Portfolio pursues its objective by
investing in high quality U.S. dollar-denominated money market instruments with
remaining maturities of 397 calendar days or less, consisting of the securities
described below and in the section of this Prospectus entitled "All Portfolios":

1. Certificates of deposit and time deposits of domestic banks (including their
foreign branches), domestic savings and loan associations, United States
branches and foreign branches of foreign banks, and bankers' acceptances of each
of such entities other than domestic savings and loan associations.

2. Commercial paper rated in one of the two highest rating categories by a
nationally recognized statistical rating organization ("NRSRO"), or commercial
paper or notes of issuers with a debt issue (which is comparable in priority and
security with the commercial paper or notes) rated in one of the two highest

rating categories for short-term debt obligations by an NRSRO, or unrated
commercial paper or notes of comparable quality as determined by the Investment
Manager, or commercial paper secured by a letter of credit issued by a domestic
or foreign bank rated in the highest rating category by an NRSRO. For a
description of ratings issued by Moody's Investors Service ("Moody's") and
Standard & Poor's Ratings Group ("S&P"), two NRSROs, see "Annex - Ratings of
Investments" in the SAI.

3. Obligations of, or guaranteed by, the United States or Canadian
governments, their agencies or instrumentalities.

4. Repurchase agreements involving obligations that are suitable for
investment under the categories set forth above. Repurchase agreements are
discussed in the Appendix and in the SAI.

In addition, the Money Market Portfolio limits its investments to securities
that meet the quality and diversification requirements of Rule 2a-7. These
diversification requirements prohibit the Money Market Portfolio from investing
more than 5% of its total assets in the securities of any one issuer, except in
limited circumstances permitted by Rule 2a-7. In addition, the Portfolio may

<PAGE>

not invest more than 5% of its total assets in securities that have not been
rated (or deemed comparable to securities rated) in the highest rating category
by an NRSRO, with investment in such "second tier securities" of any one issuer
being limited to the greater of 1% of the Portfolio's total assets or $1
million. These issuer diversification restrictions do not apply to securities
issued by the U.S. government and its agencies. The applicable quality
requirements are described below under "All Portfolios."

To the extent the Money Market Portfolio purchases Eurodollar certificates of
deposit issued by foreign branches of U.S. banks or by foreign banks, commercial
paper issued by foreign branches of U.S. banks or by foreign banks, or
commercial paper issued by foreign entities, consideration will be given to
their marketability and possible restrictions on international currency
transactions and to regulations imposed by the domicile country of the foreign
issuer. Eurodollar certificates of deposit may not be subject to the same
regulatory requirements as certificates of deposit issued by U.S. banks and
associated income may be subject to the imposition of foreign taxes which would
reduce the yield on such investments to the Portfolio.

The Money Market Portfolio may invest in commercial paper issued by major
corporations under the Securities Act of 1933 in reliance on the exemption from
registration afforded by Section 3(a)(3) thereof. Such commercial paper may be
issued only to finance current transactions and must mature in nine months or
less. Trading of such commercial paper is conducted primarily by institutional
investors through investment dealers and individual investor participation in
the commercial paper market is very limited. The Portfolio also may invest in
commercial paper issued in reliance on the so-called "private placement"
exemption from registration which is afforded by Section 4(2) of the Securities
Act of 1933 ("Section 4(2) paper"). Section 4(2) paper is restricted as to

disposition under the federal securities laws. In addition, the Money Market
Portfolio may invest in other securities that are not registered under the
Securities Act of 1933 but that may be resold to "qualified institutional
buyers" under Rule 144A under the Securities Act of 1933 ("Rule 144A
Securities"). See "All Portfolios" for additional information about Rule 144A
Securities. For more information about Section 4(2) paper and Rule 144A
Securities, see the Appendix.

U.S. GOVERNMENT PORTFOLIO. The U.S. Government Portfolio pursues its objective
by investing exclusively in U.S. Treasury bills, notes, bonds and other
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, and repurchase agreements with respect to such obligations
("Government Securities"). A U.S. government guarantee of the securities owned
by the U.S. Government Portfolio, however, does not guarantee the NAV of the
Portfolio's shares. See "Other Information - Pricing Your Shares." All
securities purchased must have a remaining maturity of 397 calendar days or
less. The Portfolio limits its investments to securities that meet the quality
requirements of Rule 2a-7, which are described below under "All Portfolios."
For more information about Government Securities and investments made by the
U.S. Government Portfolio, see "All Portfolios" and the Appendix.

<PAGE>

Some securities issued by U.S. government agencies or instrumentalities are
supported only by the credit of the agency or instrumentality, such as those
issued by the Federal Home Loan Banks, and others have an additional line of
credit with the U.S. Treasury, such as those issued by the Federal National
Mortgage Association, Farm Credit System and Student Loan Marketing Association.
With respect to securities supported only by the credit of the issuing agency or
instrumentality or by an additional line of credit with the U.S. Treasury, there
is no guarantee that the U.S. government will provide support to such agencies
or instrumentalities and such securities may involve risk of loss of principal
and interest.

MUNICIPAL PORTFOLIO. The Municipal Portfolio seeks maximum current income that
is exempt from federal income taxes to the extent consistent with preservation
of capital and liquidity. The Portfolio pursues its objective primarily by
investing in a diversified portfolio of short-term, high quality, tax-exempt
municipal obligations. It is a fundamental policy of the Municipal Portfolio
that normally no less than 80% of its total assets will be invested in
obligations issued or guaranteed by states, territories and possessions of the
United States and the District of Columbia and their political subdivisions,
agencies and instrumentalities ("Municipal Securities"), the income from which
is exempt from federal income tax, but may be subject to federal alternative
minimum tax liability.

Dividends representing net interest income received by the Municipal Portfolio
on Municipal Securities will be exempt from federal income tax when distributed
to the Portfolio's shareholders, except to the extent that they are subject to
alternative minimum tax. Such dividend income may be subject to state and local
taxes. See "Other Information - Taxes - Municipal Portfolio." The Portfolio's
assets will consist of Municipal Securities, temporary investments as described

below, and cash.

The Municipal Portfolio will invest only in Municipal Securities that at the
time of purchase: (a) are rated within the two highest ratings by an NRSRO for
Municipal Securities, short-term Municipal Securities or municipal commercial
paper; (b) are guaranteed or insured by the U.S. government as to the payment of
principal and interest; (c) are fully collateralized by an escrow of Government
Securities acceptable to the Investment Manager; or (d) are unrated, if
determined by the Investment Manager to be at least equal in quality to one or
more of the above ratings in accordance with the requirements of Rule 2a-7. In
addition, the Portfolio limits its investments to securities that meet the
applicable quality and diversification requirements of Rule 2a-7, which are
described below under "All Portfolios." For a description of the ratings issued
by Moody's and S&P, see "Annex - Ratings of Investments" in the SAI.

Municipal Securities are generally classified as "general obligation" or
"revenue" issues. General obligation bonds are secured by the issuer's pledge of
its full credit and taxing power for the payment of principal and interest.
Revenue bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. For more information about Municipal Securities, see
the Appendix and the SAI.

<PAGE>

The Municipal Portfolio may purchase high quality Certificates of Participation
in trusts that hold Municipal Securities. A Certificate of Participation gives
the Portfolio an undivided pro rata interest in each Municipal Security equal to
the Portfolio's percentage ownership interest in the Certificate of
Participation. For more information about Certificates of Participation, see the
Appendix.

The Municipal Portfolio may purchase Municipal Securities that provide for the
right to resell them to an issuer, bank or dealer at an agreed-upon price or
yield within a specified period prior to the maturity date of such securities
subject to the requirements of Rule 2a-7. Such a right to resell is referred to
as a "Standby Commitment." For more information about Standby Commitments, see
the Appendix.

In seeking to achieve its investment objective, the Municipal Portfolio may
invest all or any part of its assets in Municipal Securities that are Industrial
Development Bonds. Moreover, although the Portfolio does not currently intend to
do so on a regular basis, it may invest more than 25% of its assets in Municipal
Securities that are repayable out of revenue streams generated from economically
related projects or facilities, if such investment is deemed necessary or
appropriate by the Portfolio's Investment Manager. To the extent that the
Portfolio's assets are concentrated in Municipal Securities payable from
revenues on economically related projects and facilities, the Portfolio will be
subject to the risks presented by such projects to a greater extent than it
would be if the Portfolio's assets were not so concentrated. For a description
of Industrial Development Bonds, see "Municipal Securities" in the Appendix.

The Municipal Portfolio may invest in Municipal Lease Obligations and
participation interests therein. The Portfolio may also purchase Tender Option
Bonds. To the extent such securities may be considered "conduit securities," as
defined in Rule 2a-7, such securities will also be subject to the limitations of
Rule 2a-7 applied to conduit securities, as discussed more fully below under
"All Portfolios". For a description of each of these types of investments, see
the Appendix.

The Municipal Portfolio may deviate from its investment policies and may adopt
temporary defensive measures when significant adverse market, economic,
political or other circumstances require immediate action in order to avoid
losses. During such periods, the Portfolio may temporarily invest its assets,
without limitation, in taxable temporary investments which include the types of
money market instruments listed under "Money Market Portfolio" above. Interest
income from temporary investments is taxable to shareholders as ordinary income.
Although the Portfolio is permitted to invest in taxable securities, it is the
Portfolio's primary intention to generate income dividends that are not subject
to federal income taxes. See "Other Information-Dividends" and "Other
Information - Taxes."

ALL PORTFOLIOS. Each Portfolio must comply with the requirements of Rule 2a-7.
Under the applicable quality requirements of Rule 2a-7, the Portfolios may
purchase only U.S. dollar-denominated instruments that are determined to
present minimal credit risks and that are at the time of acquisition "Eligible
Securities" as defined in Rule 2a-7. Generally, "Eligible

<PAGE>

Securities" under Rule 2a-7 include only securities that are rated in the top
two rating categories by the required number of NRSROs (two or, if only one such
NRSRO has rated the security, that one organization) or if unrated, are deemed
to be of comparable quality. For a description of the ratings for Eligible
Securities issued by Moody's and S&P, see "Annex - Ratings of Investments" in
the SAI.

Each Portfolio will maintain a dollar-weighted average maturity of 90 days or
less and will limit its investments to securities that have remaining maturities
of 397 calendar days or less or other features that shorten maturities in a
manner consistent with the requirements of Rule 2a-7, such as interest rate
reset and demand features.

It is a fundamental policy of all Portfolios that, with respect to 75% of its
assets, a Portfolio may not invest in the securities of any one issuer, other
than Government Securities, if as a result, more than 5% of its total assets
would be invested in securities of that issuer or the Portfolio would hold more
than 10% of the outstanding voting securities of that issuer. Rule 2a-7 imposes
additional diversification requirements on the Portfolios. As a matter of
operating policy, as to 100% of their assets, none of the Portfolios will invest
more than 5% of its total assets in the securities of any one issuer, other than

Government Securities and certain demand features permitted by Rule 2a-7,
provided that a Portfolio may invest up to 25% of its total assets in "first
tier securities" of a single issuer for up to three business days. See the SAI.
In addition, the diversification requirements of Rule 2a-7 limit the ability of
the Municipal Portfolio to invest in certain "conduit securities," as defined in
Rule 2a-7, that are "second tier securities." Generally, conduit securities are
securities issued to finance non-governmental private projects, such as
retirement homes, private hospitals, local housing projects, and industrial
development projects, with respect to which the ultimate obligor is not a
government entity. The Municipal Portfolio's investment in "second tier" conduit
securities, which may include certain Industrial Development Bonds, is limited
to 5% of the Portfolio's total assets and, with respect to second tier conduit
securities issued by a single issuer, the greater of $1 million or 1% of the
Portfolio's total assets.

A Portfolio may borrow from banks and engage in reverse repurchase agreements.
However, as a matter of fundamental policy, a Portfolio may not borrow money
except as a temporary measure for defensive or emergency purposes, and then
(together with any reverse repurchase agreements) only in an amount up to
33 1/3% of the value of its total assets less liabilities (other than
borrowings), in order to meet redemption requests without immediately selling
any portfolio securities. No Portfolio will borrow from banks for leverage
purposes. As a matter of fundamental policy, a Portfolio will not purchase any
security, other than a security with a maturity of one day, while reverse
repurchase agreements or borrowings representing more than 5% of its total
assets are outstanding. In addition, as a matter of fundamental policy, no
Portfolio will lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be loaned to other parties, but this
limit does not apply to purchases of debt securities or to repurchase
agreements. For more information on reverse repurchase agreements and loans of
portfolio securities, see the Appendix and the SAI.

<PAGE>

A Portfolio will not purchase or hold illiquid securities, including time
deposits and repurchase agreements not entitling the holder to payment of
principal and interest within seven days upon notice if, as a result thereof,
more than 10% of such Portfolio's net assets would be invested in such
securities. If otherwise consistent with its investment objective and policies,
each Portfolio may purchase securities that are not registered under the
Securities Act of 1933 but that can be sold to qualified institutional buyers in
accordance with Rule 144A thereunder. Rule 144A Securities and Section 4(2)
paper will not be considered to be illiquid so long as the Investment Manager,
acting under guidelines adopted by the Board of Directors, determines that an
adequate trading market exists for the security. For more information on
illiquid securities, see the SAI.

Each Portfolio may purchase securities issued by other investment companies,
consistent with the Portfolio's investment objectives and policies. Such
investments are not currently anticipated, but in the event that such
investments are made, they will be made solely in no-load money market funds.
For more information, see the Appendix and the SAI.

Each Portfolio may invest in instruments having rates of interest that are
adjusted periodically ("Variable Rate Obligations") or that "float" continuously
("Floating Rate Obligations") according to formulae intended to minimize
fluctuation in values of the instruments. For information on Variable and
Floating Rate Obligations, see the Appendix and the SAI. Rule 2a-7 sets forth
certain requirements for determining the maturity of Variable and Floating Rate
Obligations, with which each Portfolio will comply.

Each Portfolio may purchase and sell securities on a when-issued or delayed
delivery basis. A when-issued or delayed delivery transaction arises when
securities are bought or sold for future payment and delivery to secure what is
considered to be an advantageous price and yield to the Portfolio at the time it
enters into the transaction. For more information about when-issued or delayed
delivery basis securities, see the Appendix.

Each Portfolio, other than the Municipal Portfolio, may purchase certain
Stripped Government Securities. For a discussion of Stripped Government
Securities, see the Appendix.

Each Portfolio may also invest in Zero Coupon Bonds, a description of which
appears in the Appendix.

Each Portfolio, other than the Municipal Portfolio, may trade in certain
Asset-Backed Securities, which include pools of mortgages, loans, receivables or
other assets. Payment of principal and interest may be largely dependent upon
the cash flows generated by the assets backing the securities. The U.S.
Government Portfolio will not invest in any Asset-Backed Securities that are not
Government Securities. For a discussion of Asset-Backed Securities, see the
Appendix.

Each Portfolio may invest in securities subject to letters of credit or other
credit enhancement features. Such letters of credit or other credit enhancement
features are not subject to federal

<PAGE>

deposit insurance, and changes in the credit quality of the issuers of such
letters of credit or other credit enhancement features could cause losses to a
Portfolio and affect its share price.

FUNDAMENTAL INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. The investment
objective of each Portfolio is fundamental. The Company has also adopted for
each Portfolio certain fundamental investment restrictions and policies which
are identified above and others which are set forth in the SAI. Such fundamental
investment objectives, restrictions and policies cannot be changed without
approval by holders of a "majority of the outstanding voting securities" of such
Portfolio, as defined in the SAI.

PURCHASES AND REDEMPTIONS
- --------------------------------------------------------------------------------

You may invest in the Portfolios through your Kennedy Cabot brokerage account.
Kennedy Cabot is a division of Waterhouse Securities.

OPENING AN ACCOUNT.
You may open a Kennedy Cabot brokerage account by calling or visiting the
Kennedy Cabot office nearest you and requesting a New Account Application. There
is no fee to open a Kennedy Cabot brokerage account.

SETTING UP YOUR ACCOUNT FOR AUTOMATIC SWEEP. By setting up your Kennedy Cabot
brokerage account for automatic sweep, free credit balances in your brokerage
account will be invested or "swept" automatically each day on which the New York
Stock Exchange (the "NYSE") is open ("Business Day") into the Portfolio you have
selected ("Sweep Portfolio"). This feature keeps your money working for you
while it is not invested in other securities. "Free credit balances" refers to
any settled or cleared funds in your Kennedy Cabot brokerage account that are
available for payment or investment.

To set up your Kennedy Cabot brokerage account for automatic sweep, simply call
the Kennedy Cabot office handling your account. In most cases, a Kennedy Cabot
account executive will set up your account for automatic sweep while you are on
the phone.

While you may purchase shares of each Portfolio at any time, only one Portfolio
may be designated as your Sweep Portfolio. The sweep feature is subject to the
terms and conditions of your Kennedy Cabot brokerage account agreement.

SETTING UP YOUR KENNEDY CABOT MONEY MANAGEMENT ACCOUNT. For those Kennedy Cabot
customers who qualify, a Kennedy Cabot Money Management Account provides
additional services beyond those of a traditional brokerage account. In addition
to having free credit balances in your brokerage account swept automatically
each Business Day into your Sweep Portfolio, you can access your investment in
the Portfolio by writing checks or using an

15
<PAGE>

ATM/VISA Check Card. You should contact your Kennedy Cabot account executive
for more details.

To set up your Kennedy Cabot Money Management Account, you should complete the
appropriate section of the New Account Application.

ACCOUNT PROTECTION. Within your Kennedy Cabot brokerage account, you have access
to other investments available at Kennedy Cabot such as stocks, bonds, and other
mutual funds. The securities in your Kennedy Cabot brokerage account, including
shares of the Portfolios, are protected up to $50 million for loss of securities
(not including loss due to market fluctuations of securities or economic
conditions). The first $500,000 is provided by Securities Investor Protection
Corporation (known as "SIPC") of which $100,000 covers cash. The remaining $49.5
million is provided by a private insurance carrier.

HOW TO BUY SHARES.
You may purchase shares of a Portfolio either through the automatic sweep
feature or by way of a direct purchase as set forth below.

AUTOMATIC SWEEP PURCHASES. Free credit balances in your Kennedy Cabot brokerage
account will be automatically invested each Business Day in the Sweep Portfolio
you have selected. Checks deposited to your Kennedy Cabot brokerage account will
be automatically invested in the Sweep Portfolio, normally after allowing three
Business Days for clearance. Net proceeds from securities transactions in your
brokerage account will be automatically invested on the Business Day following
settlement. Dividends and interest payments from investments in your brokerage
account will be automatically invested in the Sweep Portfolio on the day they
are credited to your account.

DIRECT PURCHASES. A Kennedy Cabot brokerage customer may purchase shares of each
of the Portfolios by placing an order directly with a Kennedy Cabot account
executive. You may buy shares by mailing or bringing your check to any Kennedy
Cabot office. Checks should be made payable to "National Investor Services
Corp." and you should write your Kennedy Cabot account number on the check. The
check will be deposited to your Kennedy Cabot brokerage account.

PRICE. Shares are purchased at their NAV per share next determined after an
order is received by the Portfolio. There is no sales charge imposed at the
time of purchase of shares in the Portfolio.

Each Portfolio reserves the right to suspend the offering of shares for a period
of time and to reject any specific purchase order, including certain purchases
by exchange. Kennedy Cabot is responsible for promptly transmitting purchase
orders to the Transfer Agent.

HOW TO SELL SHARES.
To sell shares of a Portfolio, simply call a Kennedy Cabot account executive.
The proceeds of the sale of your Portfolio shares ordinarily will be credited to
your brokerage account the same

<PAGE>

Business Day, but not later than seven calendar days after an order to sell
shares is received. If Kennedy Cabot issues you a redemption check, it may be
mailed to you, or you may pick it up in person at a Kennedy Cabot office.

AUTOMATIC SWEEP REDEMPTIONS. Shares of your Sweep Portfolio may be sold
automatically to satisfy a debit balance in your Kennedy Cabot brokerage
account. To the extent that there are not a sufficient number of shares of your
Sweep Portfolio to satisfy any such debit, shares that you own of any other
Portfolio may be sold. In addition, shares will be sold to settle securities
transactions in your Kennedy Cabot brokerage account if on the day before
settlement there is insufficient cash in the account to settle the net
transactions. Your brokerage account, as of the close of business each Business
Day, will be scanned for debits and pending securities settlements, and after
application of any free credit balance in the account to the debits, a
sufficient number of shares will be sold the following Business Day to satisfy
any remaining debits. Shares may also be sold automatically to provide the cash
collateral necessary to meet your margin obligations to Kennedy Cabot.

If you have a Kennedy Cabot Money Management Account and you withdraw cash from
your Kennedy Cabot brokerage account by way of a check or ATM/VISA Check Card,
shares of your Sweep Portfolio will automatically be sold to satisfy any
resulting debit balance. Holders of the ATM/VISA Check Card will not be liable
for unauthorized withdrawals resulting in redemptions of Portfolio shares that
occur after Kennedy Cabot is notified of the loss, theft or unauthorized use of
the Card. Further information regarding the rights of holders of the ATM/VISA
Check Card is set forth in the Kennedy Cabot Money Management Agreement provided
to each customer who opens a Kennedy Cabot Money Management Account. ATM cash
withdrawals may be made through participating financial institutions. Although
Kennedy Cabot does not charge for ATM withdrawals, institutions may charge a fee
in connection with their services.

YOUR RETIREMENT ACCOUNT. To sell shares and receive payment in a Retirement
Account, you should complete a Kennedy Cabot Distribution Form. These forms can
be obtained by calling or visiting a Kennedy Cabot office.

PRICE. Shares are redeemed at the NAV next determined after a redemption request
is received by the Portfolio. There are no withdrawal penalties or redemption
fees. Kennedy Cabot is responsible for promptly transmitting redemption and
other requests to the Transfer Agent.

CLEARANCE. If you are selling shares you bought within the last 10 calendar
days, payment will be credited to your brokerage account upon clearance of the
funds used to purchase shares, which may take up to 10 calendar days.

HOW TO EXCHANGE BETWEEN PORTFOLIOS.
You may change your designated Sweep Portfolio to any other Portfolio at any
time without charge. You may also exchange shares of one Portfolio for shares of
another Portfolio. To effect an exchange, call your Kennedy Cabot account
executive with instructions to move your money

<PAGE>

from one Portfolio to another Portfolio, or you may mail written instructions to
your local Kennedy Cabot office. Your letter should reference your Kennedy Cabot
brokerage account number, the Portfolio(s) from which you are exchanging and the
Portfolio(s) into which you are exchanging. This letter should be signed by at
least one registered account holder.

An exchange involves the redemption of Portfolio shares and the purchase of
shares of another Portfolio at their respective NAVs after receipt of an
exchange request in proper form. Each Portfolio reserves the right to reject
specific exchange orders and, on 60 days' prior written notice, to suspend,
modify or terminate exchange privileges.

TELEPHONE TRANSACTIONS.
As a customer of Kennedy Cabot, you will automatically have the privilege of
purchasing, redeeming or exchanging your Portfolio shares by telephone. Kennedy
Cabot will employ reasonable procedures to verify the genuineness of telephone
redemption or exchange requests. These procedures involve requiring certain
personal identification information. If such procedures are not followed,

Kennedy Cabot may be liable for any losses due to unauthorized or fraudulent
instructions. Neither Kennedy Cabot nor the Portfolio will be liable for
following instructions communicated by telephone that are reasonably believed to
be genuine. You should verify the accuracy of your account statements
immediately after you receive them and contact a Kennedy Cabot account executive
if you question any activity in the account.

Each Portfolio reserves the right to refuse to honor requests made by telephone
if the Portfolio believes them not to be genuine. Each Portfolio also may limit
the amount involved or the number of such requests. During periods of drastic
economic or market change, telephone redemption and exchange privileges may be
difficult to implement. Each Portfolio reserves the right to terminate or modify
this privilege at any time.

SMALL ACCOUNTS.
There is currently no minimum requirement for initial and subsequent purchases
of Portfolio shares. However, because currently only customers of Kennedy Cabot
are eligible to purchase shares of the Portfolios, Portfolio shares are subject
to automatic redemption should the Kennedy Cabot brokerage account in which they
are held be closed or if Kennedy Cabot imposes certain requirements with respect
to its brokerage accounts and eligibility for sweep arrangements, including
requirements relating to minimum account balances. Any minimum balance
requirement will not apply to Kennedy Cabot IRA accounts.

SHAREHOLDER INQUIRIES.
Shareholder inquiries may be made by writing to the Portfolio(s) at 9470
Wilshire Boulevard, Beverly Hills, California 90212 or by calling your Kennedy
Cabot account executive.

<PAGE>

OPERATING EXPENSES AND FEES

MANAGEMENT AND RELATED EXPENSES.

Responsibility for overall management of the Company rests with its Board of
Directors in accordance with Maryland law. Professional investment supervision
is provided by the Investment Manager, Waterhouse Asset Management, Inc., 100
Wall Street, New York, New York 10005. Pursuant to the Investment Management
Agreement, the Investment Manager acts as the investment manager for each
Portfolio and manages its investments. Subject to the general supervision of the
Company's Board of Directors and in accordance with each Portfolio's investment
policies, the Investment Manager formulates guidelines and lists of approved
investments for each Portfolio, makes decisions with respect to and places
orders for that Portfolio's purchases and sales of portfolio securities and
maintains records relating to such purchases and sales. For the investment
management services furnished to each Portfolio, such Portfolio pays the
Investment Manager an annual investment management fee, accrued daily and
payable monthly, on a graduated basis equal to .35 of 1% of the first $1 billion
of average daily net assets of each Portfolio, .34 of 1% of the next $1 billion,
and .33 of 1% of average daily net assets of each Portfolio over $2 billion. The
Investment Manager has agreed to waive a portion of the annual investment

management fee through April 30, 1999, so that the actual fee payable by the
Municipal Portfolio during such period will be .25 of 1% of average daily net
assets of such Portfolio.

In order to increase the yield to investors, the Investment Manager and its
affiliates may voluntarily, from time to time, waive or reduce its (or their)
fees or assume certain expenses of a Portfolio, which would have the effect of
lowering the overall expense ratio of a Portfolio and increasing yield to
investors during the time such fees are waived or reduced, or expenses are
reimbursed, as the case may be. For the first year of the Company's operations,
the Investment Manager or its affiliates intend to waive fees and/or reimburse
expenses so that each Portfolio's annual expense ratio will not exceed 0.94% for
the Money Market Portfolio, 0.91% for the U.S. Government Portfolio, and 0.75%
for the Municipal Portfolio. Other voluntary fee waivers or reductions may be
reduced or eliminated at any time without further notice to investors (unless it
is indicated that they are in effect for a particular period of time).

The Investment Manager is a wholly owned subsidiary of Waterhouse National Bank
(the "Bank"), which is a wholly owned subsidiary of Waterhouse Investor
Services, Inc. ("Waterhouse"), which is in turn a wholly owned subsidiary of The
Toronto-Dominion Bank ("TD Bank"). The Bank offers various banking products and
services primarily to the customers of Waterhouse Securities, the principal
subsidiary of Waterhouse. In addition to the Portfolios, the Investment Manager
also currently serves as investment manager to the Bank and to other mutual
funds, and as of March 31, 1998, had total assets under management in excess of
$4.7 billion. TD Bank, a Canadian chartered bank, is subject to the provisions
of the Bank Act of Canada.

SHAREHOLDER SERVICING.

The Company's Shareholder Servicing Plan ("Servicing Plan") permits each
Portfolio to pay banks, broker-dealers or other financial institutions that have
entered into a shareholder services

<PAGE>

agreement with the Company ("Servicing Agents") for shareholder support services
that they provide. Payments under the Servicing Plan are calculated daily and
payable monthly at an annual rate of .25 of 1% of the average daily net assets
of each Portfolio. Waterhouse Securities, the Servicing Agent has agreed to
waive the annual fee payable through April 30, 1999 under the Servicing Plan so
as not to exceed .20 of 1% of average daily net assets in the case of the Money
Market Portfolio, .17 of 1% of average daily net assets in the case of the U.S.
Government Portfolio and .11 of 1% of average daily net assets in the case of
the Municipal Portfolio. The shareholder services provided by the Servicing
Agents pursuant to the Servicing Plan may include, among other services,
providing general shareholder liaison services (including responding to
shareholder inquiries), providing information on shareholder investments,
establishing and maintaining shareholder accounts and records, and providing
such other similar services as may be reasonably requested.

Pursuant to a Shareholder Services Agreement between the Company and Waterhouse

Securities, Waterhouse Securities has agreed to become a Servicing Agent with
respect to each Portfolio and to be compensated in accordance with the fees set
forth above. The Company may enter into similar agreements with other service
organizations, including broker-dealers and banks whose clients are shareholders
of the Portfolios, to act as Servicing Agents and to perform support services
with respect to such clients.

The Company may suspend or reduce payments under the Servicing Plan at any time,
and payments are subject to the continuation of the Servicing Plan described
above and the terms of the various shareholder services agreements. See the SAI
for more details on the Servicing Plan and the Shareholder Services Agreement
between the Company and Waterhouse Securities.

ADMINISTRATION.

Pursuant to an Administration Agreement with the Company, Waterhouse Securities
(or the "Administrator"), as administrator, provides administrative services to
each of the Portfolios. Administrative services furnished by Waterhouse
Securities include, among others, maintaining and preserving the records of the
Company, including financial and corporate records, computing NAV, dividends,
performance data and financial information regarding the Company, preparing
reports, overseeing the preparation and filing with the SEC and state securities
regulators of registration statements, notices, reports and other material
required to be filed under applicable laws, developing and implementing
procedures for monitoring compliance with regulatory requirements, providing
routine accounting services, providing office facilities and clerical support as
well as providing general oversight of other service providers. Waterhouse
Securities is an affiliate of the Investment Manager. For its services as
administrator, Waterhouse Securities receives from each Portfolio an annual fee,
payable monthly, of .10 of 1% of average daily net assets of such Portfolio. The
fee is accrued daily as an expense of each Portfolio.

Waterhouse Securities has entered into a Subadministration Agreement with Funds
Distributor, Inc. ("FDI" or the "Distributor"), 60 State Street, Suite 1300,
Boston, Massachusetts 02109,

<PAGE>

pursuant to which FDI performs certain of the foregoing administrative services
for the Portfolios. Under this Agreement, Waterhouse Securities pays FDI's fees
for providing such services. In addition, Waterhouse Securities may enter into
subadministration agreements with other persons to perform such services from
time to time.

DISTRIBUTOR.

The distributor of the shares of each Portfolio is FDI, which has the exclusive
right to distribute shares of the Portfolios pursuant to a Distribution
Agreement between the Company and FDI. FDI may enter into dealer or selling
agency agreements with affiliates of the Investment Manager and Waterhouse
Securities and other firms for the sale of Portfolio shares. FDI has entered
into such a selling agency agreement with Waterhouse Securities. FDI receives no

fee from the Company under the Distribution Agreement for acting as distributor
to the Portfolios.

TRANSFER AGENT AND CUSTODIAN.

National Investor Services Corp. ("NISC" or the "Transfer Agent"), 55 Water
Street, New York, New York 10041, an affiliate of the Investment Manager, serves
as transfer agent and dividend disbursing agent for the Portfolios. For services
rendered, the Transfer Agent receives from each Portfolio an annual fee, payable
monthly, of .20 of 1% of the Portfolio's average daily net assets. The Transfer
Agent may enter into sub-transfer agency and dividend disbursing agency
agreements with other persons to perform such services from time to time.

The Bank of New York (the "Custodian") serves as the custodian of the assets of
each of the Portfolios.

OTHER EXPENSES.

The Portfolios also pay other expenses that are not assumed by third parties,
such as expenses relating to preparing, printing and mailing prospectuses, proxy
materials and other information to existing shareholders, blue sky servicing
fees, pricing services, legal, audit and custodian fees.

The Portfolios' expenses generally are allocated among the Portfolios on the
basis of relative net assets at the time of allocation, except that expenses
directly attributable to a particular Portfolio are charged to that Portfolio.

OTHER INFORMATION

PRICING YOUR SHARES.

The price of each Portfolio's shares on any given day is its NAV. The Company
normally calculates the NAV per share of each Portfolio as of 12:00 noon and
again at the close of regular

<PAGE>

trading on the NYSE (generally 4:00 p.m. Eastern time) each day that the NYSE
and the Custodian are open. The NAV per share for a Portfolio is calculated by
subtracting the Portfolio's liabilities from its total assets and then dividing
the remainder by the total number of its shares outstanding. Each Portfolio's
shares are sold at the NAV per share next determined after an order and payment
are received in the manner described under "Purchases and Redemptions." Each
Portfolio seeks to maintain its NAV at $1.00 per share.

Like most money market funds, the Company values the securities owned by each
Portfolio at amortized cost, which means that they are valued at their
acquisition cost (as adjusted for amortization of premium or discount) rather
than at current market value. This method of valuation minimizes the effect of
changes in a security market value and helps each Portfolio to maintain a stable
$1.00 share price. The Company's Board of Directors has adopted procedures
pursuant to which the NAV of each Portfolio, as determined under the amortized

cost method, is monitored in relation to the market value of the Portfolios.
Additional information regarding such procedures is contained in the SAI.

DIVIDENDS.

On each day that the NAV of a Portfolio is determined, such Portfolio's net
investment income will be declared at 4:00 p.m. (Eastern time) as a daily
dividend to shareholders of record as of such day's last calculation of NAV. All
expenses are accrued daily and are deducted before declaration of dividends to
investors. Shareholders who buy shares of a Portfolio by 4:00 p.m. (Eastern
time) will begin to earn dividends that Business Day. Shareholders who buy
shares of a Portfolio after 4:00 p.m. (Eastern time) will begin earning
dividends the following Business Day. Shareholders will not earn dividends on
the date of redemption for shares redeemed prior to 4:00 p.m. (Eastern time),
but will earn dividends on such day for shares redeemed after 4:00 p.m. (Eastern
time). Each Portfolio's earnings for Saturdays, Sundays and holidays are
declared as dividends on the previous Business Day.

Dividends and distributions from a Portfolio will be reinvested in additional
full and fractional shares of the same Portfolio at the NAV next determined
after their payable date. Dividends are declared daily and are reinvested
monthly. Shareholders may elect to receive any monthly dividend in cash by
submitting a written election to Kennedy Cabot by the tenth day of the specific
month to which the election to receive cash relates.

TAXES.

MONEY MARKET AND U.S. GOVERNMENT PORTFOLIOS. Each of the Money Market Portfolio
and the U.S. Government Portfolio intends to qualify under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") as a
regulated investment company and, as such, will not be subject to federal income
taxes to the extent its earnings are distributed in accordance with applicable
provisions of the Internal Revenue Code.

<PAGE>

Dividends derived from interest and short-term capital gains are taxable to a
shareholder as ordinary income even though they are reinvested in additional
Portfolio shares. Dividends paid to foreign investors generally will be subject
to a 30% (or lower treaty rate) withholding tax. Dividends from these Portfolios
do not qualify for the dividends received deduction allowable to certain U.S.
corporate shareholders. All or some of the dividends received from the U.S.
Government Portfolio may be exempt from individual state and/or local income
taxes. You should consult with your tax adviser in this regard.

MUNICIPAL PORTFOLIO. The Municipal Portfolio intends to qualify under Subchapter
M of the Internal Revenue Code as a regulated investment company and, as such,
will not be liable for federal income taxes to the extent its earnings are
distributed in accordance with applicable provisions of the Internal Revenue
Code. The Portfolio intends to declare and distribute tax-exempt interest
dividends. Shareholders of the Municipal Portfolio will not be required to
include the "exempt-interest" portion of dividends paid by the Portfolio in

their gross income for federal income tax purposes. However, shareholders will
be required to report the receipt of exempt-interest dividends and other
tax-exempt interest on their federal income tax returns. Moreover, as described
below and in the SAI, exempt-interest dividends may be subject to state income
taxes, may give rise to a federal alternative minimum tax liability, may affect
the amount of social security benefits subject to federal income tax, may affect
the deductibility of interest on certain indebtedness of the shareholder and may
have other collateral federal income tax consequences. The Municipal Portfolio
may purchase without limitation Municipal Securities, the interest on which
constitutes an item of tax preference and which may therefore give rise to a
federal alternative minimum tax liability for individual shareholders.

Dividends representing taxable net investment income (such as net interest
income from temporary investments in obligations of the U.S. government, and any
net short-term capital gains), are taxable to shareholders as ordinary income.
Market discount recognized on taxable and tax-exempt securities is also taxable
as ordinary income and is not treated as excludable income. Such dividends do
not qualify for the dividends received deduction allowable to certain U.S.
corporate shareholders. Dividends representing taxable net investment income
that are paid to foreign investors generally will be subject to a 30% (or lower
treaty rate) withholding tax.

To the extent that exempt-interest dividends are derived from certain "private
activity bonds" (some of which were formerly referred to as "industrial
development bonds") issued on or after August 7, 1986, they will be treated as
an item of tax preference and may, therefore, be subject to both the individual
and corporate alternative minimum tax. All exempt-interest dividends will be
included in determining a corporate shareholder's "adjusted current earnings."
Seventy-five percent of the excess, if any, of "adjusted current earnings" over
the corporate shareholder's alternative minimum taxable income, with certain
adjustments, will be an upward adjustment for purposes of the corporate
alternative minimum tax. The percentage of dividends that constitutes
exempt-interest dividends, and the percentage thereof (if any) that constitutes
an item of tax preference, will be determined annually and will be applied
uniformly to all dividends of the Municipal Portfolio declared during that year.
These percentages may differ from the actual

<PAGE>

percentages for any particular day. Shareholders are advised to consult their
tax advisers with respect to alternative minimum tax consequences of an
investment in the Municipal Portfolio. For additional information concerning the
alternative minimum tax and certain collateral tax consequences of the receipt
of exempt-interest dividends, see the SAI.

Individuals whose modified income exceeds a base amount will be subject to
federal income tax on up to one-half (85% if modified income exceeds a modified
base amount) of their Social Security benefits. Modified income includes
tax-exempt interest, including exempt-interest dividends from the Municipal
Portfolio.

The tax exemption of dividends from the Municipal Portfolio for federal income

tax purposes does not necessarily result in exemption under the income or other
tax laws of any state or local taxing authority. The laws of the several states
and local taxing authorities vary with respect to the taxation of such income
and you are advised to consult your own tax adviser as to the status of your
dividends under state and local tax laws.

ALL PORTFOLIOS. Dividends declared in December to shareholders of record and
paid during the following January are treated as paid on December 31 for federal
income and excise tax purposes. The Company may adjust its schedule for dividend
reinvestment for the month of December to assist in complying with reporting and
minimum distribution requirements contained in the Internal Revenue Code.

Each Portfolio will be subject to a non-deductible 4% excise tax if it does not
distribute sufficient amounts of taxable investment income and capital gains
annually. Each Portfolio intends to distribute sufficient income to avoid the
application of this excise tax. It is not anticipated that the Portfolios will
realize long-term capital gains and therefore the Portfolios do not contemplate
making distributions taxable to shareholders as long-term capital gain.

Each Portfolio is required by law to withhold 31% ("back-up withholding") of
certain dividends, distributions of capital gains and redemption proceeds paid
to certain shareholders who do not furnish a correct taxpayer identification
number (in the case of individuals, a social security number and in the case of
entities, an employer identification number) and in certain other circumstances.
Any tax withheld as a result of backup withholding does not constitute an
additional tax imposed on the shareholder of the account, and may be claimed as
a credit on such shareholder's federal income tax return. You should consult
your own tax adviser regarding the withholding requirement.

Required tax information will be provided annually. You are encouraged to retain
copies of your account statements or year-end statements for tax reporting
purposes. However, if you have incomplete records, you may obtain historical
account transaction information at a reasonable fee.

<PAGE>

You should consult your tax adviser regarding specific questions as to federal,
state and local taxes.

PERFORMANCE.

From time to time, the Company may advertise several types of performance
information for a Portfolio. These are "yield," "effective yield" and, for the
Municipal Portfolio only, "tax equivalent yield" and "tax equivalent effective
yield." Each of these figures will be based upon historical earnings and is not
representative of the future performance of a Portfolio. The yield of a
Portfolio refers to the net investment income generated by a hypothetical
investment in the Portfolio over a specific seven-day period (which period will
be stated in any such advertisement). Net investment income is then annualized,
which means that the net investment income generated during the seven-day period
is assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The effective yield is calculated similarly, but

the net investment income earned by the investment is assumed to be reinvested
weekly when annualized. The effective yield will be slightly higher than the
yield due to the compounding effect of this assumed reinvestment. Tax equivalent
yield is the yield that a taxable investment must generate in order to equal the
Municipal Portfolio's yield for an investor in a stated federal income tax
bracket (normally assumed to be the maximum tax rate). Tax equivalent yield is
based upon, and will be higher than, the yield on the portion of the Municipal
Portfolio that is tax-exempt. Tax equivalent effective yield is computed in the
same manner as tax equivalent yield, except that effective yield is substituted
for yield in the calculation.

The performance of the Portfolios may be compared to that of other money market
mutual funds tracked by Lipper Analytical Services, Inc., a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives and assets. A Portfolio's performance also may be compared
to other money market funds rated by IBC/Donoghue's Money Fund Report(R), a
reporting service on money market funds. Investors may want to compare a
Portfolio's performance to that of various bank products as reported by BANK
RATE MONITOR(TM), a financial reporting service that publishes each week average
rates of bank and thrift institution money market deposit accounts and interest
bearing checking accounts. Certain of these alternative investments may offer
fixed rates of return and guaranteed principal and may be insured. The
performance of a Portfolio also may be compared to that of United States
Treasury Bills and Notes, the consumer price index, the S&P's 500 Index(TM), and
various other investment indices.

Each Portfolio's yield will fluctuate. Shares of the Portfolio are not insured
against reduction in NAV. Additional information concerning the calculation of a
Portfolio's performance appears in the SAI.

CAPITAL STRUCTURE.

<PAGE>

The Company is an open-end, diversified management investment company. The
Company was organized as a Maryland corporation on August 19, 1996. The shares
of the Company are divided into three Portfolios, each of which represents
shares of common stock, par value of $.0001. There are no preemptive or
conversion rights applicable to any of the Company's shares. The Company's
shares when issued will be fully paid, non-assessable and transferable.
Currently the Board of Directors has authorized only one class of shares of each
Portfolio. The Board of Directors may increase the number of authorized shares
or create additional series or classes of the Company shares without shareholder
approval. Other classes of shares of the Company's Portfolios may be offered
from time to time in the future through other prospectuses. Such other class or
classes may have different maximum distribution or shareholder servicing plan
payments and may have other different expenses that may affect performance.

Portfolio or class. For example, holders of a particular Portfolio will have the
exclusive right to vote on any investment restriction that relates only to such
Portfolio. Likewise, holders of a particular class will have the exclusive right
to vote on a material change to the distribution plan covering such class.

The holders of each Portfolio have distinctive rights with respect to dividends
and redemptions which are more fully described in this prospectus and the SAI.
In the event of dissolution or liquidation, holders of each Portfolio will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of the assets held in the respective Portfolio to which the shares of the
Company relate, less (b) the liabilities of the Company attributable to the
respective portfolio or allocated between the portfolios based on the respective
liquidation value of each Portfolio. There will not normally be annual
shareholders' meetings. Shareholders may remove directors from office by a
majority of votes entitled to be cast at a meeting of shareholders. Shareholders
holding 10% or more of the Company's outstanding stock may call a special
meeting of shareholders. Prior to the offering of each Portfolio's shares, FDI
Distribution Services, Inc. will be each Portfolio's sole shareholder and deemed
a controlling person of such Portfolio.

The Portfolios may convert to a "master/feeder" structure without a shareholder
vote. A master/feeder structure involves investment in a single central
portfolio (the "master fund") by a variety of pooled investment vehicles (the
"feeder funds") sharing a common investment objective.

YEAR 2000 ISSUES.

Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). Like other investment companies and
financial and business organizations, the Company could be adversely affected if
the computer systems used by the Investment Manager or other Company service
providers do not properly address this problem prior to January 1,

<PAGE>

2000. TD Bank has established a dedicated group to analyze these issues and to
implement any systems modifications necessary to prepare for the Year 2000.
Currently, the Investment Manager does not anticipate that the transition to the
21st century will have any material impact on its ability to continue to service
the Company at current levels. In addition, the Investment Manager has sought
assurances from the Company's other service providers that they are taking all
necessary steps to ensure that their computer systems will accurately reflect
the Year 2000, and the Investment Manager will continue to monitor the
situation. At this time, however, no assurance can be given that the Company's
other service providers have anticipated every step necessary to avoid any
adverse effect on the Company attributable to the Year 2000 Problem or that
interaction with other non-complying computer systems will not impact their
services.

APPENDIX

The following describes in greater detail the types of investments discussed
elsewhere in the Prospectus:

ASSET-BACKED SECURITIES. Each Portfolio, other than the Municipal Portfolio, may
invest in securities backed by pools of mortgages, loans, receivables or other
assets. Payment of principal and interest may be largely dependent upon the cash
flows generated by the assets backing the securities, and, in certain cases,
supported by letters of credit, surety bonds, or other credit enhancements. The
value of asset-backed securities may also be affected by the creditworthiness of
the servicing agent for the pool, the originator of the loans or receivables, or
the financial institution(s) providing the credit support. The U.S. Government
Portfolio will invest in asset-backed securities only to the extent that such
securities are considered "Government Securities."

CERTIFICATES OF PARTICIPATION. The Municipal Portfolio may invest in
Certificates of Participation. Certificates of Participation may be variable
rate or fixed rate with remaining maturities of one year or less. A Certificate
of Participation may be backed by an irrevocable letter of credit or guarantee
of a financial institution that satisfies rating agencies as to the credit
quality of the Municipal Security supporting the payment of principal and
interest on the Certificate of Participation. Payments of principal and interest
would be dependent upon the underlying Municipal Security and may be guaranteed
under a letter of credit to the extent of such credit. The quality rating by a
rating service of an issuer of Certificates of Participation is based primarily
upon the rating of the Municipal Security held by the trust and the credit
rating of the issuer of any letter of credit and of any other guarantor
providing credit support to the issue. The Investment Manager considers these
factors as well as others, such as any quality ratings issued by the rating
services identified above, in reviewing the credit risk presented by a
Certificate of Participation and in determining whether the Certificate of
Participation is appropriate for investment by the Portfolio. It is anticipated
by the Investment Manager that for most publicly offered Certificates of
Participation, there will be a liquid secondary market or there may be demand
features enabling the Portfolio to sell readily its Certificates of
Participation prior to maturity to the issuer or third party. As to those
instruments with demand features, the Portfolio intends to exercise its right to
demand payment from the issuer of the

<PAGE>

demand feature only upon a default under the terms of the Municipal Security, as
needed to provide liquidity to meet redemptions, or to maintain a high quality
investment portfolio.

GOVERNMENT SECURITIES. Each Portfolio may invest in Government Securities.
Government Securities consist of marketable securities and instruments issued or
guaranteed by the U.S. government or by its agencies or instrumentalities, and
repurchase agreements with respect to such obligations. Direct obligations are
issued by the U.S. Treasury and include bills, certificates of indebtedness,
notes and bonds. Obligations of U.S. government agencies and instrumentalities
("Agencies") are issued by government-sponsored agencies and enterprises acting
under authority of Congress. Although obligations of federal agencies and

instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. government,
including, but not limited to, obligations of the Federal Housing
Administration, the Export-Import Bank of the United States, the Small Business
Administration, the Government National Mortgage Association, the General
Services Administration and the Maritime Administration. In other cases, payment
of interest and principal is not guaranteed, e.g., obligations of the Student
Loan Marketing Association, Federal National Mortgage Association, Federal Home
Loan Mortgage Corporation, Tennessee Valley Authority, Federal Home Loan Bank,
and the Federal Farm Credit Bank.

INVESTMENTS IN OTHER INVESTMENT COMPANIES. A Portfolio may invest in securities
issued by other investment companies to the extent that such investments are
consistent with the Portfolio's investment objectives and policies and are
permissible under the Investment Company Act. Under one of the Investment
Company Act's limitations, the Portfolios may not acquire collectively more than
3% of the outstanding securities of any one investment company. In addition,
each Portfolio will limit its investments in other investment companies in
accordance with the diversification and quality requirements of such Portfolio.
As a shareholder of another investment company, a Portfolio would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Portfolio bears directly in connection with
its own operations. Such investments are not currently anticipated, but in the
event that such investments are made, it is contemplated that they will be made
solely in no-load money market funds.

LOANS OF PORTFOLIO SECURITIES. Each Portfolio may lend portfolio securities in
amounts up to 33 1/3% of its respective total assets to brokers, dealers and
other financial institutions, provided such loans are callable at any time by
the Portfolio and are at all times secured by cash or by equivalent collateral.
By lending its portfolio securities, a Portfolio will receive income while
retaining the securities' potential for capital appreciation. As with any
extensions of credit, there are risks of delay in recovery and, in some cases,
even loss of rights in the collateral should the borrower of the securities fail
financially. However, such loans of securities will be made only to firms deemed
to be creditworthy by the Investment Manager.

<PAGE>

MUNICIPAL LEASE OBLIGATIONS. The Municipal Portfolio may invest a portion of its
assets in municipal leases and participation interests therein. These
obligations, which may take the form of a lease, an installment purchase, or a
conditional sale contract, are issued by state and local governments and
authorities to acquire land and a wide variety of equipment and facilities.
Generally, the Portfolio will not hold such obligations directly as a lessor of
the property, but will purchase a participation interest in a municipal
obligation from a bank or other third party. A participation interest gives the
Portfolio a specified, undivided interest in the obligation in proportion to its
purchased interest in the total amount of the obligation.

Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set forth
requirements that states or municipalities must meet to incur debt. These may
include voter referenda, interest rate limits, or public sale requirements.
Leases, installment purchases, or conditional sale contracts (which normally
provide for title to the leased asset to pass to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting their constitutional and statutory requirements for the issuance
of debt. Many leases and contracts include "non-appropriation clauses" providing
that the governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purposes by the
appropriate legislative body on a yearly or other periodic basis.
Non-appropriation clauses free the issuer from debt issuance limitations. The
Portfolio's ability to recover under such a lease in the event of
non-appropriation or default will be limited solely to the repossession of the
leased property in the event foreclosure proves difficult. In addition to the
"non-appropriation" risk, these securities represent a relatively new type of
financing that has not yet developed the depth of marketability associated with
more conventional bonds.

MUNICIPAL SECURITIES. The Municipal Portfolio will invest in Municipal
Securities. Municipal Securities are issued to raise money for a variety of
public purposes, including general financing for state and local governments, or
financing for specific projects or public facilities. Municipal Securities may
be issued in anticipation of future revenues and may be backed by the full
taxing power of a municipality, the revenues from a specific project, or the
credit of a private organization. A security credit may be enhanced by a bank,
insurance company, or other financial institution. The securities may carry
fixed, variable, or floating interest rates. A Portfolio may own a Municipal
Security directly or through a participation interest. Industrial Development
Bonds are a type of Municipal Security that may be held by the Municipal
Portfolio. These are in most cases revenue bonds and are not payable from the
unrestricted revenues of the issuer. Among other types of instruments, the
Portfolio may purchase tax-exempt commercial paper and short-term municipal
notes such as tax anticipation notes, bond anticipation notes, revenue
anticipation notes, construction loan notes and other forms of short-term loans.
Such notes are issued with a short-term maturity in anticipation of the receipt
of tax payments, the proceeds of bond placements, or other revenues.

PUT FEATURES. Put features entitle the holder to sell a security (including a
repurchase agreement) back to the issuer or a third party at any time or at
specific intervals. They are subject to the risk

<PAGE>

that the put provider is unable to honor the put feature (purchase the
security). Put providers often support their ability to buy securities on demand
by obtaining letters of credit or other guarantees from domestic or foreign
banks. The Investment Manager may rely on its evaluation of a bank's credit in
determining whether to purchase a security supported by a letter of credit. In
evaluating a foreign bank's credit, the Investment Manager will consider whether

adequate public information about the bank is available and whether the bank may
be subject to unfavorable political or economic developments, currency controls,
or other government restrictions that might affect the bank's ability to honor
its credit commitment. Demand features, standby commitments, and tender options
are types of put features.

REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements,
which are instruments under which a Portfolio acquires ownership of a security
from a broker-dealer or bank that agrees to repurchase the security at a
mutually agreed upon time and price (which price is higher than the purchase
price), thereby determining the yield during the Portfolio's holding period.
Repurchase agreements are, in effect, loans collateralized by the underlying
securities. Maturity of the securities subject to repurchase may exceed one
year. In the event of a bankruptcy or other default of a seller of a repurchase
agreement, a Portfolio might have expenses in enforcing its rights, and could
experience losses, including a decline in the value of the underlying security
and loss of income.

REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into reverse repurchase
agreements, instruments under which a Portfolio sells a portfolio instrument to
another party, such as a bank or broker-dealer, in return for cash and agrees to
repurchase the instrument at a particular price and time (which price is higher
than the selling price). While a reverse repurchase agreement is outstanding, a
Portfolio will segregate appropriate liquid assets to cover its obligation under
the agreement. Each Portfolio will enter into reverse repurchase agreements only
with parties whose creditworthiness has been found satisfactory by the
Investment Manager. Such transactions may increase fluctuations in the market
value of a Portfolio's assets and may be viewed as a form of leverage.

RULE 144A SECURITIES. If otherwise consistent with its investment objectives and
policies, each Portfolio, other than the Government Portfolio, may invest in
Rule 144A Securities. Rule 144A Securities are securities that are not
registered under the Securities Act of 1933 but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the Securities Act of
1933. Any such security will not be considered illiquid so long as it is
determined by the Company's Board of Directors or the Investment Manager, acting
under guidelines approved and monitored by the Company's Board, that an adequate
trading market exists for that security. This investment practice could have the
effect of increasing the level of illiquidity in a Portfolio during any period
that qualified institutional buyers become uninterested in purchasing these
restricted securities.

SECTION 4(2) PAPER. The Money Market Portfolio may invest in Section 4(2) paper.
Section 4(2) paper is restricted as to disposition under the federal securities
laws, and generally is sold to institutional investors such as the Money Market
Portfolio who agree that they are purchasing the

<PAGE>

paper for investment and not with a view to public distribution. Any resale by

the purchaser must be in an exempt transaction. Section 4(2) paper normally is
resold to other institutional investors like the Portfolio through or with the
assistance of the issuer or investment dealers who make a market in the Section
4(2) paper, thus providing liquidity. The Portfolio's Investment Manager
considers the legally restricted but readily saleable Section 4(2) paper to be
liquid. However, pursuant to procedures adopted by the Company's Board of
Directors, if an investment in Section 4(2) paper is not determined by the
Investment Manager to be liquid, that investment will be included within the 10%
limitation on illiquid securities discussed under "All Portfolios" in this
Prospectus. The Portfolio's Investment Manager will monitor the liquidity of the
Portfolio's investments in Section 4(2) paper on a continuous basis.

STANDBY COMMITMENTS. The Municipal Portfolio may acquire Standby Commitments.
Standby Commitments are put options that entitle holders to same day settlement
at an exercise price equal to the amortized cost of the underlying security plus
accrued interest, if any, at the time of exercise. The Municipal Portfolio may
acquire Standby Commitments to enhance the liquidity of portfolio securities,
but only when the issuers of the commitments present minimal risk of default.
Ordinarily, the Municipal Portfolio may not transfer a Standby Commitment to a
third party, although it could sell the underlying Municipal Security to a third
party at any time. The Portfolio may purchase Standby Commitments separate from
or in conjunction with the purchase of securities subject to such commitments.
In the latter case, the Portfolio would pay a higher price for the securities
acquired, thus reducing their yield to maturity. Standby Commitments will not
affect the dollar-weighted average maturity of the Portfolio, or the valuation
of the securities underlying the commitments. Issuers or financial
intermediaries may obtain letters of credit or other guarantees to support their
ability to buy securities on demand. The Investment Manager may rely upon its
evaluation of a bank's credit in determining whether to support an instrument
supported by a letter of credit. Standby Commitments are subject to certain
risks, including the ability of issuers of standby commitments to pay for
securities at the time the commitments are exercised; the fact that Standby
Commitments are not marketable by the Portfolios; and the possibility that the
maturities of the underlying securities may be different from those of the
commitments.

STRIPPED GOVERNMENT SECURITIES. Each of the Portfolios, except the Municipal
Portfolio, may purchase U.S. Treasury STRIPS (Separate Trading of Registered
Interest and Principal of Securities), which are created when the coupon
payments and the principal payment are stripped from an outstanding Treasury
bond by the Federal Reserve Bank. These instruments are issued at a discount to
their "face value" and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors. Bonds issued by the Resolution Funding Corporation
(REFCORP) can also be stripped in this fashion. REFCORP Strips are eligible
investments for the Money Market Portfolio and the U.S. Government Portfolio.
The Money Market Portfolio can purchase privately stripped government
securities, which are created when a dealer deposits a Treasury security or
federal agency security with a custodian for safekeeping and then sells the
coupon payments and principal payment that will be generated by this security.
Proprietary receipts, such as Certificates of

<PAGE>

Accrual on Treasury Securities (CATS), Treasury Investment Growth Receipts
(TIGRs), and generic Treasury Receipts (TRs), are stripped U.S. Treasury
securities that are separated into their component parts through trusts created
by their broker sponsors. Bonds issued by the Financing Corporation (FICO) can
also be stripped in this fashion. Because of the view of the SEC on privately
stripped government securities, the Money Market Portfolio must evaluate them as
it would non-government securities pursuant to regulatory guidelines applicable
to all money market funds.

TENDER OPTION BONDS. The Municipal Portfolio may purchase Tender Option Bonds.
Tender Option Bonds are created by coupling an intermediate- or long-term,
fixed-rate, tax-exempt bond (generally held pursuant to a custodial arrangement)
with a tender agreement that gives the holder the option to tender the bond at
its face value. As consideration for providing the tender option, the sponsor
(usually a bank, broker-dealer, or other financial institution) receives
periodic fees equal to the difference between the bond's fixed coupon rate and
the rate (determined by a remarketing or similar agent) that would cause the
bond, coupled with the tender option, to trade at par on the date of such
determination. After payment of the tender option fee, the Portfolio effectively
holds a demand obligation that bears interest at the prevailing short-term
tax-exempt rate. Subject to applicable regulatory requirements, the Municipal
Portfolio may buy Tender Option Bonds if the agreement gives the Portfolio the
right to tender the bond to its sponsor no less frequently than once every 397
days. In selecting Tender Option Bonds for the Portfolio, the Investment Manager
will consider the creditworthiness of the issuer of the underlying bond, the
custodian, and the third party provider of the tender option. In certain
instances, a sponsor may terminate a tender option if, for example, the issuer
of the underlying bond defaults on an interest payment.

VARIABLE OR FLOATING RATE OBLIGATIONS. Each Portfolio may invest in Variable
Rate or Floating Rate Obligations. Floating rate instruments have interest rates
that change whenever there is a change in a designated base rate while variable
rate instruments provide for a specified periodic adjustment in the interest
rate. The interest rate of Variable Rate Obligations ordinarily is determined by
reference to or is a percentage of an objective standard such as a bank's prime
rate, the 90-day U.S. Treasury Bill rate, or the rate of return on commercial
paper or bank certificates of deposit. Generally, the changes in the interest
rate on Variable Rate Obligations reduce the fluctuation in the market value of
such securities. Accordingly, as interest rates decrease or increase, the
potential for capital appreciation or depreciation is less than for fixed-rate
obligations. Some Variable Rate Obligations ("Variable Rate Demand Securities")
have a demand feature entitling the purchaser to resell the securities at an
amount approximately equal to amortized cost or the principal amount thereof
plus accrued interest. As is the case for other Variable Rate Obligations, the
interest rate on Variable Rate Demand Securities varies according to some
objective standard intended to minimize fluctuation in the values of the
instruments. Each Portfolio determines the maturity of Variable Rate Obligations
and Floating Rate Obligations in accordance with Rule 2a-7, which allows the
Portfolio to consider certain of such instruments as having maturities shorter
than the maturity date on the face of the instrument.

<PAGE>

WHEN-ISSUED AND DELAYED DELIVERY BASIS SECURITIES. Each Portfolio may invest in
when-issued and delayed delivery basis securities. A security purchased on a
when-issued basis is subject to changes in market value based upon changes in
the level of interest rates and investors' perceptions of the creditworthiness
of the issuer. Generally such securities will appreciate in value when interest
rates decline and decrease in value when interest rates rise. In determining the
maturity of portfolio securities purchased on a when-issued or delayed delivery
basis, the Portfolio will consider them to have been purchased on the date when
it committed itself to the purchase. When when-issued or delayed delivery
purchases are outstanding, a Portfolio will segregate appropriate liquid assets
to cover its purchase obligations. The securities so purchased are subject to
market fluctuation and no interest accrues to the purchaser during the period
between purchase and settlement. At the time of delivery of the securities, the
value may be more or less than the purchase price and an increase in the
percentage of the Portfolio's assets committed to the purchase of securities on
a when-issued or delayed delivery basis may increase the volatility of the
Portfolio's NAV. A Portfolio will make commitments to purchase securities on a
when-issued or delayed delivery basis only with the intention of actually
acquiring or disposing of the securities, but the Portfolio reserves the right
to sell these securities before the settlement date if deemed advisable. The
sale of such securities by the Municipal Portfolio may result in the realization
of gains that are not exempt from federal income tax.

ZERO COUPON BONDS. Each Portfolio may invest in Zero Coupon Bonds. Zero Coupon
Bonds do not make regular interest payments. Instead, they are sold at a
discount from their face value and are redeemed at face value when they mature.
Because Zero Coupon Bonds do not pay current income, their prices can be very
volatile when interest rates change. In calculating its daily dividend, a
Portfolio takes into account as income a portion of the difference between a
Zero Coupon Bond's purchase price and its face value.

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

FUTURE DEVELOPMENTS. Each Portfolio may invest in securities and in other
instruments that do not presently exist but may be developed in the future,
provided that each such investment is consistent with such Portfolio's
investment objectives, policies and restrictions and is otherwise legally
permissible under federal and state laws. The Prospectus will be amended or
supplemented as appropriate to discuss any such new investments.

<PAGE>

KENNEDY CABOT CASH MANAGEMENT PORTFOLIOS
KENNEDY CABOT MONEY MARKET PORTFOLIO
KENNEDY CABOT U.S. GOVERNMENT PORTFOLIO
KENNEDY CABOT MUNICIPAL PORTFOLIO

9470 Wilshire Boulevard, Beverly Hills, California 90212
1-800-252-0090

STATEMENT OF ADDITIONAL INFORMATION
MAY 18, 1998

This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the prospectus dated May 18, 1998 (the "Prospectus") for
the Kennedy Cabot Money Market Portfolio (the "Money Market Portfolio"), the
Kennedy Cabot U.S. Government Portfolio (the "U.S. Government Portfolio") and
the Kennedy Cabot Municipal Portfolio (the "Municipal Portfolio"), each a series
of National Investors Cash Management Fund, Inc. (the "Company"). To obtain a
copy of the Prospectus, please write the Portfolios at 9470 Wilshire Boulevard,
Beverly Hills, California 90212 or call (800) 252-0090.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT POLICIES AND RESTRICTIONS....................................... B-2

PORTFOLIO TRANSACTIONS..................................................... B-11

DIRECTORS AND EXECUTIVE OFFICERS........................................... B-12

THE INVESTMENT MANAGER..................................................... B-15

INVESTMENT MANAGEMENT, DISTRIBUTION AND OTHER SERVICES..................... B-17

DIVIDENDS AND TAXES........................................................ B-21

SHARE PRICE CALCULATION.................................................... B-24

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................. B-25

PERFORMANCE................................................................ B-25

GENERAL INFORMATION........................................................ B-27

ANNEX -- RATINGS OF INVESTMENTS............................................ B-30

FINANCIAL STATEMENTS....................................................... B-32
</TABLE>

B-1

<PAGE>

KENNEDY CABOT CASH MANAGEMENT PORTFOLIOS
KENNEDY CABOT MONEY MARKET PORTFOLIO
KENNEDY CABOT U.S. GOVERNMENT PORTFOLIO
KENNEDY CABOT MUNICIPAL PORTFOLIO

INVESTMENT POLICIES AND RESTRICTIONS

The Money Market Portfolio, the U.S. Government Portfolio and the Municipal
Portfolio have adopted certain fundamental investment limitations, which cannot
be changed for a Portfolio without approval by holders of a majority of the
outstanding voting securities of that Portfolio. However, except for each
Portfolio's investment objectives and the fundamental investment limitations set
forth below, the investment policies and restrictions described in the
Prospectus and this Statement of Additional Information are not fundamental and
may be changed without shareholder approval. As defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and as used
herein and in the Prospectus, the term "majority of the outstanding voting
securities" of the Company, or of a particular Portfolio means, respectively,
the vote of the holders of the lesser of (i) 67% of the shares of the Company or
such Portfolio present or represented by proxy at a meeting where more than 50%
of the outstanding shares of the Company or such Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Company or such Portfolio.

The following policies and restrictions supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of a Portfolio's assets that may be invested in any
security or other assets, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Portfolio's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets, or other circumstances
will not be considered when determining whether the investment complies with the
Portfolio's investment policies and restrictions.

INVESTMENT RESTRICTIONS. THE FOLLOWING ARE THE FUNDAMENTAL INVESTMENT
RESTRICTIONS OF EACH PORTFOLIO OF THE COMPANY. EACH PORTFOLIO MAY NOT (UNLESS
NOTED OTHERWISE):

(1) with respect to 75% of its total assets, purchase the securities of any
issuer (other than securities issued or guaranteed by the U.S. government, or
any of its agencies or instrumentalities) if, as a result thereof, (a) more than
5% of the Portfolio's total assets would be invested in the securities of that
issuer, or (b) the Portfolio would hold more than 10% of the outstanding voting
securities of that issuer;

(2) with respect to the Municipal Portfolio, normally invest less than 80% of
its total assets in obligations issued or guaranteed by states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities ("Municipal

B-2

<PAGE>

Securities"), the income from which is exempt from federal income tax, but may
be subject to federal alternative minimum tax liability;

(3) issue senior securities, except as permitted under the Investment Company
Act;

(4) make short sales of securities or purchase securities on margin (but a
Portfolio may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities);

(5) borrow money, except that each Portfolio may: (i) borrow money for temporary
defensive or emergency purposes (not for leveraging or investment), (ii) engage
in reverse repurchase agreements for any purpose, and (iii) pledge its assets in
connection with such borrowing to the extent necessary; provided that (i) and
(ii) in combination do not exceed 33 1/3% of the Portfolio's total assets
(including the amount borrowed) less liabilities (other than borrowings). Any
borrowings that exceed this amount will be reduced within three days (not
including Saturdays, Sundays and holidays) to the extent necessary to comply
with the 33 1/3% limitation. A Portfolio will not purchase any security, other
than a security with a maturity of one day, while reverse repurchase agreements
or borrowings representing more than 5% of its total assets are outstanding;

(6) act as an underwriter (except as it may be deemed such in a sale of
restricted securities);

(7) 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, in the case of the Municipal Portfolio, tax-exempt obligations issued or
guaranteed by a U.S. territory or possession or a state or local government, or
a political subdivision, agency or instrumentality of any of the foregoing) if,
as a result, more than 25% of the Portfolio's total assets would be invested in
the securities of companies whose principal business activities are in the same
industry, except that the Money Market Portfolio may invest more than 25% of its
total assets in the financial services industry and the Municipal Portfolio may
invest more than 25% of its total assets in industrial development bonds related
to a single industry. The Money Market Portfolio specifically reserves the right
to invest up to 100% of its assets in certificates of deposit or bankers'
acceptances issued by U.S. banks including their foreign branches, and U.S.
branches of foreign banks, in accordance with its investment objectives and
policies;

(8) purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent a Portfolio from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business);

(9) buy or sell commodities or commodity (futures) contracts, except for
financial futures and options thereon. This limitation does not apply to options
attached to, or acquired or traded together with, their underlying securities,

and does not apply to securities that incorporate features similar to options or
futures contracts;

B-3

<PAGE>

(10) lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets would be loaned to other parties, but this limit does not
apply to purchases of debt securities or to repurchase agreements; or

(11) purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets or to the
extent otherwise permitted by the Investment Company Act; however, a Portfolio
may, notwithstanding any other fundamental investment policy or limitation,
invest all of its assets in the securities of a single open-end management
investment company with substantially the same fundamental investment
objectives, policies, and restrictions as the Portfolio.

THE FOLLOWING INVESTMENT RESTRICTIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL. EACH PORTFOLIO DOES NOT CURRENTLY INTEND:

(i) to purchase a security (other than a security issued or guaranteed by the
U.S. government or any of its agencies or instrumentalities, or a security
subject to an "unconditional demand feature issued by a non-controlled person,"
as defined in Rule 2a-7 under the Investment Company Act ("Rule 2a-7")) if, as a
result, more than 5% of its total assets would be invested in the securities of
a single issuer, provided that a Portfolio may invest up to 25% of its total
assets in the first tier securities of a single issuer for up to three business
days;

(ii) to purchase or hold any security if, as a result, more than 10% of its net
assets would be invested in securities that are deemed to be illiquid because
they are subject to legal or contractual restrictions on resale or because they
cannot be sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued, including repurchase
agreements not entitling the holder to payment of principal and interest within
seven days upon notice and securities restricted as to disposition under federal
securities laws, except for commercial paper issued in reliance on the "private
placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933 ("Section 4(2) paper") and securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 ("144A securities"),
which are determined to be liquid pursuant to procedures adopted by the
Company's Board of Directors; or

(iii) to invest in financial futures and options thereon.

For the Company's policies on quality and maturity, see the subsection entitled
"Quality and Maturity" below.

Each Portfolio's investments must be consistent with its investment objective
and policies. Accordingly, not all of the security types and investment
techniques discussed below are eligible investments for each of the Portfolios.

B-4

<PAGE>

INVESTMENT POLICIES OF ALL PORTFOLIOS:

CREDIT ENHANCEMENT FEATURES. Each Portfolio may invest in securities subject to
letters of credit or other credit enhancement features. Such letters of credit
or other credit enhancement features are not subject to federal deposit
insurance, and changes in the credit quality of the issuers of such letters of
credit or other credit enhancement features could cause losses to a Portfolio
and affect its share price.

PUT FEATURES. Put features entitle the holder to sell a security (including a
repurchase agreement) back to the issuer or a third party at any time or at
specified intervals. They are subject to the risk that the put provider is
unable to honor the put feature (purchase the security). Put providers often
support their ability to buy securities on demand by obtaining letters of credit
or other guarantees from domestic or foreign banks. The Investment Manager may
rely on its evaluation of a bank's credit in determining whether to purchase a
security supported by a letter of credit. In evaluating a foreign bank's credit,
the Investment Manager will consider whether adequate public information about
the bank is available and whether the bank may be subject to unfavorable
political or economic developments, currency controls, or other government
restrictions that might affect the bank's ability to honor its credit
commitment. Demand features, standby commitments, and tender options are types
of put features.

QUALITY AND MATURITY. Pursuant to procedures adopted by the Board of Directors,
a Portfolio may purchase only high quality securities that the Investment
Manager believes present minimal credit risks. To be considered high quality, a
security must be rated in accordance with applicable rules in one of the two
highest categories for short-term securities by at least two nationally
recognized statistical rating organizations (or by one, if only one such rating
organization has rated the security); or, if unrated, judged to be of equivalent
quality by the Investment Manager.

High quality securities are divided into "first tier" and "second tier"
securities. First tier securities are generally those deemed to be in the
highest rating category (e.g., A-1 by Standard & Poor's ("S&P")), Government
Securities and securities issued by other money market funds. Second tier
securities are generally those deemed to be in the second highest rating
category (e.g., A-2 by S&P). See "Annex -- Ratings of Investments."

The Money Market Portfolio may not invest more than 5% of its total assets in
second tier securities. In addition, the Money Market Portfolio may not invest
more than 1% of its total assets or $1 million (whichever is greater) in the
second tier securities of a single issuer. The Municipal Portfolio may not
invest more than 5% of its total assets in second tier securities that are
"conduit securities," as that term is defined in Rule 2a-7. In addition, the
Municipal Portfolio may not invest more than 1% of its assets or $1 million
(whichever is greater) in second tier conduit securities of a single issue.

Each Portfolio will limit its investments to securities with remaining

maturities of 397 calendar days or less, and maintain a dollar-weighted average
maturity of 90 days or less. When

B-5

<PAGE>

determining the maturity of a security, a Portfolio may rely upon an interest
rate reset or demand feature.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. Each Portfolio may buy and sell
securities on a when-issued or delayed delivery basis. These transactions
involve a commitment by a Portfolio to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after the
customary settlement period for that type of security (and more than seven days
in the future). Typically, no interest accrues to the purchaser until the
security is delivered.

When purchasing securities on a when-issued or delayed delivery basis, a
Portfolio assumes the rights and risks of ownership, including the risk of price
and yield fluctuations. Because a Portfolio is not required to pay for
securities until the delivery date, these risks are in addition to the risks
associated with each Portfolio's other investments. If a Portfolio remains
substantially fully invested at a time when when-issued or delayed delivery
purchases are outstanding, the purchases may result in a form of leverage. When
when-issued or delayed delivery purchases are outstanding, a Portfolio will
segregate appropriate liquid assets to cover its purchase obligations. When a
Portfolio has sold a security on a delayed delivery basis, the Portfolio does
not participate in further gains or losses with respect to the security. If the
other party to a delayed delivery transaction fails to deliver or pay for the
securities, a Portfolio could miss a favorable price or yield opportunity, or
could suffer a loss.

Each Portfolio may renegotiate when-issued or delayed delivery transactions
after they are entered into, and may sell underlying securities before they are
delivered, which may result in capital gains or losses.

VARIABLE OR FLOATING RATE OBLIGATIONS. Variable or Floating Rate Obligations
bear variable or floating interest rates and carry rights that permit holders to
demand payment of the unpaid principal balance plus accrued interest from the
issuers or certain financial intermediaries. Floating rate instruments have
interest rates that change whenever there is a change in a designated base rate
while variable rate instruments provide for a specified periodic adjustment in
the interest rate. These formulas are designed to result in a market value for
the instrument that approximates its amortized cost. A demand instrument with a
conditional demand feature must have received both a short-term and a long-term
high quality rating or, if unrated, have been determined to be of comparable
quality pursuant to procedures adopted by the Board of Directors. In addition,
the Board must make certain findings to insure, pursuant to Rule 2a-7, the
appropriateness of the conditional demand feature for money fund investment. A
demand instrument with an unconditional demand feature may be acquired solely in
reliance upon a short-term high quality rating or, if unrated, upon a finding of
comparable short-term quality pursuant to procedures adopted by the Board of
Directors.

REPURCHASE AGREEMENTS. In a repurchase agreement, a Portfolio purchases a
security and simultaneously commits to sell that security back to the original
seller at an agreed-upon price.

B-6

<PAGE>

The resale price reflects the purchase price plus an agreed-upon incremental
amount unrelated to the coupon rate or maturity of the purchased security. It is
each Portfolio's current policy to engage in repurchase agreement transactions
with parties whose creditworthiness has been reviewed and found satisfactory by
the Investment Manager pursuant to procedures approved by the Board of
Directors, however, it does not presently appear possible to eliminate all risks
from these transactions (particularly the possibility that the value of the
underlying security will be less than the resale price, as well as delays and
costs to a Portfolio in connection with a seller's bankruptcy proceedings).

REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a Portfolio
sells a portfolio instrument to another party, such as a bank or broker-dealer,
in return for cash and agrees to repurchase the instrument at a particular price
and time. While a reverse repurchase agreement is outstanding, a Portfolio will
segregate appropriate liquid assets to cover its obligation under the agreement.
Each Portfolio will enter into reverse repurchase agreements only with parties
whose creditworthiness has been found satisfactory by the Investment Manager.

ILLIQUID INVESTMENTS. Illiquid investments are investments that cannot be sold
or disposed of in the ordinary course of business within seven days at
approximately the prices at which they are valued. Under the supervision of the
Board of Directors, the Investment Manager determines the liquidity of a
Portfolio's investments and, through reports from the Investment Manager, the
Board monitors investments in illiquid instruments. In determining the liquidity
of a Portfolio's investments, the Investment Manager may consider various
factors, including (i) the frequency of trades and quotations, (ii) the number
of dealers and prospective purchasers in the marketplace, (iii) dealer
undertakings to make a market, (iv) the nature of the security (including any
demand or tender features), and (v) the nature of the marketplace for trades
(including the ability to assign or offset the Portfolio's rights and
obligations relating to the investment).

Investments currently considered by the Portfolios to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days upon notice. Also, with regard to the Money Market
Portfolio, the Investment Manager may determine some time deposits to be
illiquid. In the absence of market quotations, illiquid investments are valued
for purposes of monitoring amortized cost valuation at fair value as determined
in good faith by or under the direction of the Board of Directors. If through a
change in values, net assets, or other circumstances, a Portfolio were in a
position where more than 10% of its net assets was invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.

For purposes of the 10% limit on illiquid securities, 144A securities will not
be considered to be illiquid so long as the Investment Manager determines, in

accordance with procedures adopted by the Board of Directors, that such
securities have a readily available market. The Investment Manager will monitor
the liquidity of such securities subject to the supervision of the Board of
Directors.

B-7

<PAGE>

Municipal lease obligations will not be considered illiquid for purposes of the
Municipal Portfolio's 10% limitation on illiquid securities, provided the
Investment Manager determines that there is a readily available market for such
securities. With respect to municipal lease obligations, the Investment Manager
will consider, pursuant to procedures adopted by the Board of Directors, the
following: (1) the willingness of the municipality to continue, annually or
biannually, to appropriate funds for payment of the lease; (2) the general
credit quality of the municipality and the essentiality to the municipality of
the property covered by the lease; (3) in the case of unrated municipal lease
obligations, an analysis of factors similar to that performed by nationally
recognized statistical rating organizations in evaluating the credit quality of
a municipal lease obligation, including (i) whether the lease can be canceled;
(ii) if applicable, what assurance there is that the assets represented by the
lease can be sold; (iii) the strength of the lessee's general credit (e.g., its
debt, administrative, economic and financial characteristics); (iv) the
likelihood that the municipality will discontinue appropriating funding for the
leased property because the property is no longer deemed essential to the
operations of the municipality (e.g., the potential for an event of
nonappropriation); (v) the legal recourse in the event of failure to
appropriate; and (4) any other factors unique to municipal lease obligations as
determined by the Investment Manager.

INVESTMENT POLICIES OF MONEY MARKET PORTFOLIO ONLY:

DOMESTIC AND FOREIGN ISSUERS. Investments may be made in U.S.
dollar-denominated time deposits, certificates of deposit, and bankers'
acceptances of U.S. banks and their branches located outside of the United
States, U.S. savings and loan institutions, U.S. branches of foreign banks, and
foreign branches of foreign banks. The Portfolio may also invest in U.S.
dollar-denominated securities issued or guaranteed by other U.S. or foreign
issuers, including U.S. and foreign corporations or other business
organizations, foreign governments, foreign government agencies or
instrumentalities, and U.S. and foreign financial institutions, including
savings and loan institutions, insurance companies, mortgage bankers, and real
estate investment trusts, as well as banks.

The obligations of foreign branches of U.S. banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by governmental regulation. Payment of
interest and principal on these obligations may also be affected by governmental
action in the country of domicile of the branch (generally referred to as
sovereign risk). In addition, evidence of ownership of portfolio securities may
be held outside of the United States and the Company may be subject to the risks
associated with the holding of such property overseas. Various provisions of
federal law governing the establishment and operation of U.S. branches do not

apply to foreign branches of U.S. banks.

Obligations of U.S. branches and agencies of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation, as well as by governmental action in the country in which the
foreign bank has its head office.

B-8

<PAGE>

Obligations of foreign issuers involve certain additional risks. These risks may
include future unfavorable political and economic developments, withholding
taxes, seizures of foreign deposits, currency controls, interest limitations, or
other governmental restrictions that might affect payment of principal or
interest. Additionally, there may be less public information available about
foreign banks and their branches. Foreign issuers may be subject to less
governmental regulation and supervision than U.S. issuers. Foreign issuers also
generally are not bound by uniform accounting, auditing, and financial reporting
requirements comparable to those applicable to U.S. issuers.

INVESTMENT POLICIES OF THE MUNICIPAL PORTFOLIO ONLY:

DOMESTIC AND FOREIGN ISSUERS. See the discussion under "Investment Policies of
Money Market Portfolio Only," above.

MUNICIPAL SECURITIES. Municipal Securities which the Municipal Portfolio may
purchase include, without limitation, debt obligations issued to obtain funds
for various public purposes, including the construction of a wide range of
public facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, public utilities, schools, streets, and water and sewer works.
Other public purposes for which Municipal Securities may be issued include
refunding outstanding obligations, obtaining funds for general operating
expenses and obtaining funds to loan to other public institutions and
facilities.

Municipal Securities, such as private activity bonds ("industrial development
bonds" under prior law), are issued by or on behalf of public authorities to
obtain funds for purposes including privately operated airports, housing,
conventions, trade shows, ports, sports, parking or pollution control facilities
or for facilities for water, gas, electricity, or sewage and solid waste
disposal. Such obligations, which may include lease arrangements, are included
within the term Municipal Securities if the interest paid thereon qualifies as
exempt from federal income tax. Other types of industrial development bonds, the
proceeds of which are used for the construction, equipment, repair or
improvement of privately operated industrial or commercial facilities, may
constitute Municipal Securities, although current federal tax laws place
substantial limitations on the size of such issues.

Municipal Securities generally are classified as "general obligation" or
"revenue." General obligation notes are secured by the issuer's pledge of its
full credit and taxing power for the payment of principal and interest. Revenue

notes are payable only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise or
other specific revenue source. Industrial development bonds which are Municipal
Securities are in most cases revenue bonds and generally do not constitute the
pledge of the credit of the issuer of such bonds.

B-9

<PAGE>

Examples of Municipal Securities that are issued with original maturities of 397
calendar days or less are short-term tax anticipation notes, bond anticipation
notes, revenue anticipation notes, construction loan notes, pre-refunded
municipal bonds and tax-free commercial paper. Tax anticipation notes typically
are sold to finance working capital needs of municipalities in anticipation of
receiving property taxes on a future date. Bond anticipation notes are sold on
an interim basis in anticipation of a municipality issuing a longer term bond in
the future. Revenue anticipation notes are issued in expectation of receipt of
other types of revenue such as those available under the Federal Revenue Sharing
Program. Construction loan notes are instruments insured by the Federal Housing
Administration with permanent financing by "Fannie Mae" (the Federal National
Mortgage Association) or "Ginnie Mae" (the Government National Mortgage
Association) at the end of the project construction period. Pre-refunded
municipal bonds are bonds which are not yet refundable, but for which securities
have been placed in escrow to refund an original municipal bond issue when it
becomes refundable. Tax-free commercial paper is an unsecured promissory
obligation issued or guaranteed by a municipal issuer. The Municipal Portfolio
may purchase other Municipal Securities similar to the foregoing, which are or
may become available, including securities issued to pre-refund other
outstanding obligations of municipal issuers.

The federal bankruptcy statutes relating to the adjustments of debts of
political subdivisions and authorities of states of the United States provide
that, in certain circumstances, such subdivisions or authorities may be
authorized to initiate bankruptcy proceedings without prior notice to or consent
of creditors, which proceedings could result in material adverse changes in the
rights of holders of obligations issued by such subdivisions or authorities.

Litigation challenging the validity under the state constitutions of present
systems of financing public education has been initiated or adjudicated in a
number of states, and legislation has been introduced to effect changes in
public school finances in some states. In other instances there has been
litigation challenging the issuance of pollution control revenue bonds or the
validity of their issuance under state or federal law which ultimately could
affect the validity of those Municipal Securities or the tax-free nature of the
interest thereon.

FEDERALLY TAXABLE OBLIGATIONS. From time to time, the Municipal Portfolio may
invest a portion of its assets on a temporary basis in fixed-income obligations
whose interest is subject to federal income tax. For example, the Portfolio may
invest in obligations whose interest is federally taxable pending the investment
or reinvestment in Municipal Securities of proceeds from the sale of its shares
or sales of portfolio securities. Should the Portfolio invest in federally
taxable obligations, it would purchase securities that in the Investment

Manager's judgment are of high quality. These would include obligations issued
or guaranteed by the U.S. government or its agencies or instrumentalities;
obligations of domestic banks; and repurchase agreements. In addition, the
Municipal Portfolio may deviate from its investment policies and may adopt
temporary defensive measures when significant adverse market, economic,
political or other circumstances require immediate action in order to avoid
losses. During such periods, the

B-10

<PAGE>

Portfolio may temporarily invest its assets, without limitation, in taxable
temporary investments. The Municipal Portfolio will purchase taxable obligations
only if they meet its quality requirements.

Proposals to restrict or eliminate the federal income tax exemption for interest
on municipal obligations are introduced before Congress from time to time.
Proposals also may be introduced before state legislatures that would affect the
state tax treatment of the Portfolio's distributions. If such proposals were
enacted, the availability of municipal obligations and the value of the
Portfolio's holdings would be affected and the directors would reevaluate the
Portfolio's investment objective and policies.

The Municipal Portfolio anticipates being as fully invested as practicable in
Municipal Securities; however, there may be occasions when, as a result of
maturities of portfolio securities, sales of Portfolio shares, or in order to
meet redemption requests, the Portfolio may hold cash that is not earning
income. In addition, there may be occasions when, in order to raise cash to meet
redemptions, the Portfolio may be required to sell securities at a loss.

PORTFOLIO TRANSACTIONS

Portfolio transactions are undertaken principally to pursue the objective of
each Portfolio in relation to movements in the general level of interest rates,
to invest money obtained from the sale of Company shares, to reinvest proceeds
from maturing portfolio securities and to meet redemptions of Company shares.
This may increase or decrease the yield of a Portfolio depending upon the
Investment Manager's ability to correctly time and execute such transactions.
Each Portfolio normally intends to hold its portfolio securities to maturity.
The Portfolios do not intend to trade portfolio securities although they may do
so to take advantage of short-term market movements.

In effecting purchases and sales of portfolio securities for the account of each
Portfolio, the Investment Manager will implement the Company's policy of seeking
the best execution of orders, which includes best net prices. Consistent with
this policy, orders for portfolio transactions are placed with broker-dealer
firms giving consideration to the quality, quantity and nature of the firms'
professional services which include execution, clearance procedures, reliability
and other factors. In selecting among the firms believed to meet the criteria
for handling a particular transaction, the Investment Manager may give
consideration to those firms that provide market, statistical and other research
information to the Company and the Investment Manager, although the Investment
Manager is not authorized to pay higher prices to firms that provide such

services. Any research benefits derived are available for all clients. Because
statistical and other research information is only supplementary to the
Investment Manager's research efforts and still must be analyzed and reviewed by
its staff, the receipt of research information is not expected to significantly
reduce its expenses. The Company expects that purchases and sales of portfolio
securities usually will be principal transactions. Portfolio

B-11

<PAGE>

securities will normally be purchased directly from the issuer or from an
underwriter or market maker for the securities. Purchases from underwriters may
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers will include the spread between
the bid and asked prices.

The investment decisions for each Portfolio will be reached independently from
those for each other and for other accounts, if any, managed by the Investment
Manager. On occasions when the Investment Manager deems the purchase or sale of
securities to be in the best interest of one or more Portfolios as well as other
clients of the Investment Manager, the Investment Manager, to the extent
permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be so sold or purchased in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the Investment
Manager in accordance with its policy for aggregation of orders, as in effect
from time to time. In some cases this procedure may affect the size or price of
the position obtainable for a Portfolio.

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company, their principal occupations
over the past five years and their affiliations, if any, with the Investment
Manager and Funds Distributor, Inc. ("FDI" or the "Distributor"), the Company's
distributor, are as follows:

RICHARD W. DALRYMPLE, Director. Mr. Dalrymple has served as a Director of each
of the Company and Waterhouse Investors Family of Funds, Inc. ("WIFF") since
February 26, 1998 and December 12, 1995, respectively. Mr. Dalrymple has been
the President of Teamwork Management, Inc. since January 1997. Mr. Dalrymple
has served as a Director of Dime Bancorp, Inc. since 1990. Mr. Dalrymple has
been a Trustee of The Shannon McCormack Foundation since 1988, the Kevin Scott
Dalrymple Foundation since 1993 and a Director of National Center for
Disability Services since 1983. From 1990 through 1995, Mr. Dalrymple served
as President and Chief Operating Officer of Anchor Bank. From 1985 through
1990, Mr. Dalrymple worked for the Bank of Boston. During this time, Mr.
Dalrymple served as the President of Massachusetts Banking and the Southern New
England Region, and as Department Executive of Banking Services. He is 54
years old. Mr. Dalrymple's address is 45 Rockefeller Plaza, New York, NY
10111.

CAROLYN B. LEWIS, Director. Ms. Lewis has served as a Director of each of the

Company and WIFF since February 26, 1998. Since March 1997, Ms. Lewis has
served as President of The CBL Group providing professional services to clients
in the securities and healthcare industries. Ms. Lewis spent over 30 years at
the SEC in various positions including Senior Financial Analyst, Branch Chief
and Assistant Director. In September 1997, Ms. Lewis was appointed a member of
the Board of Governors of the Philadelphia Stock Exchange. Presently, Ms.
Lewis is a member of the Board of Directors of the Metropolitan Washington
Airports

B-12

<PAGE>

Authority and a director on various healthcare and hospital Boards, including
the Board of Trustees of the American Hospital Association. She is 61 years
old. Ms. Lewis' address is 2920 W. Street, Southeast, Washington, DC 20020.

THEODORE ROSEN, Director. Mr. Rosen has served as a Director of the Company
since February 26, 1998. From December, 1995 through February, 1998, Mr. Rosen
served as a Director of WIFF. Since 1993, Mr. Rosen has been a Managing Director
of Burnham Securities Inc. and Chairman of the Board of Directors of U.S. Energy
Systems, Inc. Mr. Rosen has held senior management positions in retail sales,
investment management, and corporate finance. From 1991 to 1993, Mr. Rosen was a
Senior Vice President at Oppenheimer & Co., and from 1989 to 1991 was a Vice
President-Sales at Smith Barney. Prior to 1989, Mr. Rosen held senior management
positions with other firms including D.H. Blair & Co., Morgan Stanley & Co.,
Ladenburg Thalman, and Burnham & Co. Mr. Rosen was the founder and President of
Summit Capital Group, a money management and investment banking form. He is 73
years old. Mr. Rosen's address is 1325 Avenue of the Americas, New York, NY
10019.

ANTHONY J. PACE*, Director. Mr. Pace has served as a Director of the Company
since February 26, 1998. Since January 1988, Mr. Pace has served as the
President and Chief Executive Officer of A. J. Pace & Co. Inc., an investment
management firm. From December 1995 through October 1996, Mr. Pace served as a
Director of Waterhouse Investors Cash Management Fund, Inc. From December 1979
through December 1987, Mr. Pace was an Associate Director of Bear Stearns & Co.
Inc. He is 60 years old. Mr. Pace's address is 981 Madison Avenue, New York, NY
10021.

JAMES F. RITTINGER*, Director. Mr. Rittinger has served as a Director of the
Company since February 26, 1998. Since 1979, Mr. Rittinger has served as a
Partner of Satterlee Stephens Burke & Burke LLP, a law firm. From 1987 through
1996, Mr. Rittinger was a member of the Board of Directors of Waterhouse
Investor Services, Inc., a New York Stock Exchange listed company. From 1983
through 1994, Mr. Rittinger served as Justice of the Village of Briarcliffe
Manor, New York. Mr. Rittinger is a member of the Association of the Bar of the
State of New York. He is 51 years old. Mr. Rittinger's address is 230 Park
Avenue, New York, NY 10169-0079.

RICHARD W. INGRAM**, President, Treasurer and Chief Financial Officer. Senior
Vice President and Director of Client Services and Treasury Administration of
FDI, Executive Vice President of Premier Mutual Fund Services, Inc., an
affiliate of FDI ("Premier Mutual"), and an officer of certain investment

companies distributed or administered by FDI. From March 1994 to November 1995,
Mr. Ingram was Vice President and Division Manager of First Data Investor
Services Group, Inc. From 1989 to 1994, Mr. Ingram was Vice President, Assistant
Treasurer and Tax Director - Mutual Funds of The Boston Company, Inc. He is 42
years old.

- --------
* Each of these directors is an "interested person" of the Company.
** Address: 60 State Street, Suite 1300, Boston, MA 02109

B-13

<PAGE>

CHRISTOPHER J. KELLEY**, Vice President and Secretary. Vice President and
Senior Associate General Counsel of FDI and Premier Mutual, and an officer of
certain investment companies distributed or administered by FDI. From April
1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial Group.
From October 1992 to March 1994, Mr. Kelley was employed by Putnam Investments
in legal and compliance capacities. He is 33 years old.

Officers and directors who are interested persons of the Investment Manager or
FDI will receive no compensation from the Company. The Company expects to pay or
accrue total directors' fees of approximately $45,000 per year to those
directors who are not designated above as "interested persons." Directors who
are interested persons of the Company may be compensated by the Investment
Manager for their services to the Company. On May 15, 1998, the officers and
directors of the Company, as a group, owned less than 1% of the then outstanding
shares of each Portfolio and FDI Distribution Services, Inc., an affiliate of
FDI, owned of record 100% of the outstanding shares of each of the Portfolios as
the initial shareholder. Because the initial shareholder's ownership interest
will be diluted upon the sale of shares to the public, such control will not
affect the rights of shareholders of the Company.

B-14

<PAGE>

The Company pays its directors an annual retainer and a per meeting fee and
reimburses them for their expenses. The amounts of compensation that the Company
estimates it will pay to each director for the fiscal year ending April 30,
1999, are as follows:

Aggregate Pension or Total Compensation
Compensation Retirement Estimated Annual from
Name of Board from Benefits Accrued Benefits Upon Fund Complex (3)
Member Company as Retirement Paid to Board
Part of Company's Members

Expenses
- -------------------------- ------------ ----------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Richard W. Dalrymple $12,500 $0 $0 (1)$ 25,000

Carolyn B. Lewis $12,500 $0 $0 (1)$ 25,000

Anthony J. Pace (2) $0 $0 $0 $0

James F. Rittinger (2) $0 $0 $0 $0

Theodore Rosen $20,000 $0 $0 (1)$ 20,000
</TABLE>

(1) Amounts do not include reimbursed expenses for attending
Board meetings.

(2) Interested director of the Company.

(3) "Fund Complex" includes the Company, and WIFF.

THE INVESTMENT MANAGER

Waterhouse Asset Management, Inc., a Delaware corporation, is the Investment
Manager of each Portfolio. The Investment Manager is a wholly owned subsidiary
of Waterhouse National Bank (the "Bank"), which is a wholly owned subsidiary of
Waterhouse Investor Services, Inc. ("Waterhouse"), which is in turn a wholly
owned subsidiary of The Toronto-Dominion Bank ("TD Bank"). The Bank offers
various banking products and services primarily to the customers of Waterhouse
Securities, the principal subsidiary of Waterhouse. TD Bank, a Canadian
chartered bank, is subject to the provisions of the Bank Act of Canada. The
Investment Manager also currently serves as investment

B-15
<PAGE>

manager to the Bank and WIFF and, as of March 31, 1998, had total assets under
management in excess of $4.7 billion.

Personnel of the Investment Manager may invest in securities for their own
account pursuant to a code of ethics that sets forth all employees' fiduciary
responsibilities regarding the Company, establishes procedures for personal
investing and restricts certain transactions. Restrictions on the timing of
personal investing relative to trades by the Company have been adopted.

The following persons are senior officers of the Investment Manager, each of
whom have substantial responsibilities in connection with the management of the
Portfolios:

FRANK J. PETRILLI, Chairman, President and Chief Executive Officer of the
Investment Manager since January 1997. Mr. Petrilli has served as President and
Chief Operating Officer of Waterhouse since January 1995 and Chief Executive
Officer since February 1998. Mr. Petrilli has served as a Director of the Bank

and National Investor Services Corp. since March 1995 and September 1995,
respectively. From May 1993 to January 1995, Mr. Petrilli served as President
and Chief Operating Officer of American Express Centurion Bank. From January
1991 to May 1993, Mr. Petrilli served as Chief Financial Officer of American
Express Centurion Bank. Mr. Petrilli is 47 years old. Mr. Petrilli's address is
100 Wall Street, New York, NY 10005.

DAVID HARTMAN, Senior Vice President and Chief Investment Officer of the
Investment Manager. Mr. Hartman has been serving as Senior Vice President and
Chief Investment Officer of the Investment Manager since October 1995. From
February 1995 through August 1995, Mr. Hartman served as Senior Vice President
and Senior Portfolio Manager in charge of Fixed Income Separate Accounts at
Mitchell Hutchins - Paine Webber. From 1983 to 1995, Mr. Hartman was a Senior
Vice President of Kidder Peabody & Co. In this capacity, Mr. Hartman served as
the Chief Investment Officer for Fixed Income accounts and both taxable and
municipal money market funds. From 1976 to 1983, Mr. Hartman served as Vice
President of Federated Investors Inc. and was responsible for managing $5
billion in mutual funds. From 1967 to 1976, Mr. Hartman was a Senior Auditor at
Arthur Andersen & Co. where he was a small business consultant. Mr. Hartman is
51 years old. Mr. Hartman's address is 100 Wall Street, New York, NY 10005.

MICHELE R. TEICHNER, Senior Vice President of the Investment Manager. Ms.
Teichner has been serving as Senior Vice President of the Investment Manager
since August 1996, with responsibility for operations and compliance. Ms.
Teichner has served as Senior Vice President of Waterhouse Securities since
June 1997 and Senior Vice President and Senior Trust Officer of the Bank since
January 1997. From August 1994 to July 1996, Ms. Teichner served as President
of Mutual Fund Training & Consulting, Inc. From July 1993 to July 1994, Ms.
Teichner served as

B-16

<PAGE>

Assistant Vice President of Concord Financial Group, Inc. From 1987 to 1992,
Ms. Teichner served as Assistant Vice President of Dillon, Read & Co. Inc. and
was responsible for the administration, operations and compliance for mutual
funds and the investment adviser. Ms. Teichner is 38 years old. Ms.
Teichner's address is 100 Wall Street, New York, NY 10005.

INVESTMENT MANAGEMENT, DISTRIBUTION AND OTHER SERVICES

INVESTMENT MANAGEMENT

Pursuant to the Investment Management Agreement with the Company on behalf of
each Portfolio, the Investment Manager manages each Portfolio's investments in
accordance with its stated policies and restrictions, subject to oversight by
the Company's Board of Directors.

The Investment Management Agreement continues in effect for two years from the
date of execution, and thereafter from year to year so long as its continuation
is approved at least annually by (i) a majority vote of the directors who are
not parties to such agreement or interested persons of any such party except in
their capacity as directors of the Company ("Disinterested Directors"), cast in

person at a meeting called for such purpose, and (ii) by the vote of a majority
(as defined in the Investment Company Act) of the outstanding voting securities
of each Portfolio, or by the Company's Board of Directors. The agreement may be
terminated as to any Portfolio at any time upon 60 days prior written notice,
without penalty, by either party, or by a majority vote of the outstanding
shares of a Portfolio with respect to that Portfolio, and will terminate
automatically upon assignment. The Investment Management Agreement was approved
by the Board of Directors of the Company, including a majority of the
Disinterested Directors who have no direct or indirect financial interest in the
Agreement, and by the shareholders of each Portfolio.

The Investment Management Agreement provides that the Investment Manager will
not be liable for any error of judgment or of law, or for any loss suffered by a
Portfolio in connection with the matters to which such agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
Investment Manager's part in the performance of its obligations and duties, or
by reason of its reckless disregard of its obligations and duties under such
agreement. The services of the Investment Manager to the Portfolios under the
Investment Management Agreement are not exclusive and it is free to render
similar services to others.

For the investment management services furnished to each Portfolio, such
Portfolio pays the Investment Manager an annual investment management fee,
accrued daily and payable monthly, on a graduated basis equal to .35 of 1% of
the first $1 billion of average daily net assets of each such Portfolio, .34 of
1% of the next $1 billion, and .33 of 1% of average daily net assets of each
Portfolio over $2 billion. The Investment Manager and its affiliates may, from
time to time, voluntarily waive its (or their) fees or assume certain expenses
of a Portfolio. The Investment Manager has agreed to waive a portion of the
annual investment management fee for the Municipal Portfolio through April 30,
1999, so that the actual fee payable annually by the Municipal Portfolio during
such period will be .25 of 1% of average daily net assets of such Portfolio. For
the first fiscal year of the Company's

B-17

<PAGE>

operations, the Investment Manager or its affiliates intends to waive fees
and/or reimburse expenses so that each Portfolio's annual expense ratio will not
exceed 0.94% for the Money Market Portfolio, 0.91% for the U.S. Government
Portfolio, and 0.75% for the Municipal Portfolio. Other voluntary fee waivers or
reductions may be reduced or rescinded at the Investment Manager's discretion.
Expense reimbursements by the Investment Manager or its affiliates will increase
each Portfolio's total returns and yield.

The Investment Manager and its affiliates may, from time to time, voluntarily
waive or reimburse all or a part of each Portfolio's operating expenses. Expense
reimbursements by the Investment Manager or its affiliates will increase each
Portfolio's total returns and yield.

DISTRIBUTION

The distributor of the Company is FDI, 60 State Street, Suite 1300, Boston,

Massachusetts 02109. Pursuant to a Distribution Agreement between the Company
and FDI, FDI has the exclusive right to distribute shares of the Company. FDI
may enter into dealer or agency agreements with affiliates of the Investment
Manager and other firms for the sale of Company shares. FDI has entered into
such an agency agreement with Waterhouse Securities. FDI receives no fee from
the Company under the Distribution Agreement for acting as distributor to the
Company.

The Distribution Agreement will continue in effect for two years from the date
of its execution, and is renewable thereafter for periods of one year, so long
as such continuance is approved at least annually by a vote of the Board of
Directors of the Company, including a majority of Disinterested Directors who
have no direct or indirect financial interest in the Agreement. The Agreement
was approved by the Board of Directors of the Company, including a majority of
Disinterested Directors who have no direct or indirect financial interest in the
Agreement. Each Portfolio may terminate the Distribution Agreement on 60 days'
prior written notice without penalty. Termination by a Portfolio may be by vote
of a majority of the Company's Board of Directors, or a majority of the
Disinterested Directors, or by a "majority of the outstanding voting securities"
of such Portfolio as defined under the Investment Company Act. The Agreement
terminates automatically in the event of its "assignment" as defined in the
Investment Company Act.

SHAREHOLDER SERVICING

The Board of Directors of the Company has approved a Shareholder Servicing Plan
("Servicing Plan") pursuant to which each Portfolio may pay banks,
broker-dealers or other financial institutions that have entered into a
shareholder services agreement with the Company ("Servicing Agents") in
connection with shareholder support services that they provide. Payments under
the Servicing Plan will be calculated daily and payable monthly at an annual
rate of .25 of 1% of the average daily net assets of each Portfolio. Waterhouse
Securities, the Servicing Agent has agreed to waive the annual fee payable
through April 30, 1999 under the Servicing Plan so as not to exceed .20 of 1% of
average daily net assets in the case of the Money Market Portfolio, .17 of 1% of
average daily net assets in the case of the U.S. Government Portfolio and .11 of
1% of average daily net assets in the case of

B-18
<PAGE>

the Municipal Portfolio. The shareholder services provided by the Servicing
Agents pursuant to the Servicing Plan may include, among other services,
providing general shareholder liaison services (including responding to
shareholder inquiries), providing information on shareholder investments,
establishing and maintaining shareholder accounts and records, and providing
such other similar services as may be reasonably requested.

The Servicing Plan was approved by the Board of Directors, including a majority
of the Disinterested Directors who have no direct or indirect financial interest
in the Plan or the Shareholder Services Agreement. The Servicing Plan continues
in effect as long as such continuance is specifically so approved at least
annually. The Servicing Plan may be terminated by the Company with respect to
any Portfolio by a vote of a majority of the Disinterested Directors who have no

direct or indirect financial interest in the Plan or any agreements relating
thereto.

Pursuant to a Shareholder Services Agreement between the Company and Waterhouse
Securities, Waterhouse Securities has agreed to provide shareholder services to
each Portfolio pursuant to the Shareholder Servicing Plan. The Company may enter
into similar agreements with other service organizations, including
broker-dealers and banks whose clients are shareholders of the Company, to act
as Servicing Agents and to perform shareholder support services with respect to
such clients.

The Shareholder Services Agreement with Waterhouse Securities will continue in
effect for two years, and is renewable thereafter for periods of one year, so
long as such continuance is approved at least annually by a vote of the Board of
Directors of the Company, including a majority of the Disinterested Directors
who have no direct or indirect financial interest in the Agreement.

The Agreement was approved by the Board of Directors of the Company, including a
majority of the Disinterested Directors who have no direct or indirect financial
interest in the Agreement. Each Portfolio or Waterhouse Securities may terminate
the Shareholder Services Agreement on 60 days' prior written notice without
penalty. Termination by a Portfolio may be by vote of the Company's Board of
Directors, or a majority of the Disinterested Directors who have no direct or
indirect financial interest in the Agreement. The Agreement terminates
automatically in the event of its "assignment" as defined in the Investment
Company Act.

Conflict of interest restrictions may apply to the receipt by Servicing Agents
of compensation from the Company in connection with the investment of fiduciary
assets in Company shares. Servicing Agents, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers are
urged to consult their legal advisers before investing such assets in Company
shares.

ADMINISTRATION

Under an Administration Agreement with the Company, the Administrator, an
affiliate of the Investment Manager, provides administrative services to the
Portfolios. Administrative services furnished by the Administrator include,
among others, maintaining and preserving the records of the

B-19

<PAGE>

Company, including financial and corporate records, computing NAV, dividends,
performance data and financial information regarding the Company, preparing
reports, overseeing the preparation and filing with the SEC and state securities
regulators of registration statements, notices, reports and other material
required to be filed under applicable laws, developing and implementing
procedures for monitoring compliance with regulatory requirements, providing
routine accounting services, providing office facilities and clerical support as
well as providing general oversight of other service providers. For its

services, the Administrator receives from each Portfolio an annual fee, payable
monthly, of .10 of 1% of the average daily net assets of each Portfolio. The fee
is accrued daily as an expense of each Portfolio. The Administrator provides
similar services to each Portfolio, for which it receives no separate fee.

The Administrator has entered into a Subadministration Agreement with FDI
pursuant to which FDI will perform certain of the foregoing administrative
services for the Company. Under this Agreement, the Administrator pays FDI's
fees for providing such services. In addition, the Administrator may enter into
subadministration agreements with other persons to perform such services from
time to time.

The Administration Agreement has an initial term of two years from the date of
execution, and is renewable thereafter for periods of one year, so long as such
continuance is approved at least annually by a vote of the Company's Board,
including a majority of Disinterested Directors of the Company who have no
direct or indirect financial interest in the Agreement. The Agreement was
approved by the Company's Board, including a majority of the Disinterested
Directors of the Company who have no direct or indirect financial interest in
the Agreement. Each Portfolio or the Administrator may terminate the
Administration Agreement on 60 days' prior written notice without penalty.
Termination by a Portfolio may be by vote of the Company's Board, or a majority
of the Disinterested Directors of the Company who have no direct or indirect
financial interest in the Agreement, or by a "majority of the outstanding voting
securities" of such Portfolio as defined under the Investment Company Act. The
Agreement terminates automatically in the event of its "assignment" as defined
in the Investment Company Act.

The Administration Agreement provides that the Administrator will not be liable
for any error of judgment or of law, or for any loss suffered by a Portfolio in
connection with the matters to which such agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the
Administrator's part in the performance of its obligations and duties, or by
reason of its reckless disregard of its obligations and duties under such
agreement.

The Glass-Steagall Act and other applicable laws generally prohibit federally
chartered or supervised banks from engaging in the business of underwriting,
selling or distributing securities. While the matter is not free from doubt, the
Investment Manager and Administrator believe that such laws should not preclude
them or their affiliates from performing the activities contemplated by the
Prospectus or this Statement of Additional Information. Accordingly, the
Investment Manager and Administrator will perform only investment management
servicing and administrative functions. However, judicial and administrative
decisions or interpretations of such laws as well as changes in

B-20

<PAGE>

either state statutes or regulations relating to the permissible activities of
banks or their subsidiaries or affiliates could prevent the Investment Manager,
the Administrator or their affiliates from continuing to perform all or a part
of their activities. If the Investment Manager, the Administrator or any of

their affiliates were prohibited from so acting, alternative means of continuing
such services would be sought by the Company's Board. It is not expected that
shareholders would suffer any adverse financial consequences as a result of such
an occurrence.

TRANSFER AGENT AND CUSTODIAN

National Investor Services Corp. (also referred to as the "Transfer Agent"), an
affiliate of the Investment Manager, serves as transfer and dividend disbursing
agent for each Portfolio. For the services provided under the Transfer Agency
and Dividend Disbursing Agency Agreement, which include furnishing periodic and
year-end shareholder statements and confirmations of purchases and sales,
reporting share ownership, aggregating, processing and recording purchases and
redemptions of shares, processing dividend and distribution payments, forwarding
shareholder communications such as proxies, shareholder reports, dividend
notices and prospectuses to beneficial owners, receiving, tabulating and
transmitting proxies executed by beneficial owners and sending year-end tax
reporting to shareholders and the Internal Revenue Service, the Transfer Agent
is entitled to an annual fee, payable monthly, of .20 of 1% of each Portfolio's
average daily net assets.

The Transfer Agent may enter into sub-transfer agency and dividend disbursing
agency agreements with other persons to perform such services for compensation
from time to time.

Pursuant to a Custodian Agreement, The Bank of New York acts as the custodian of
each of the Portfolio's assets.

DIVIDENDS AND TAXES

DIVIDENDS. On each day that the NAV per share of a Portfolio is determined, such
Portfolio's net investment income will be declared at 4:00 p.m. (Eastern time)
as a daily dividend to shareholders of record as of such day's last calculation
of NAV.

Each Portfolio calculates its dividends based on its daily net investment
income. For this purpose, the net investment income of a Portfolio consists of
accrued interest income plus or minus amortized discount or premium minus
accrued expenses. Expenses of each Portfolio are accrued each day.

Because each Portfolio's income is entirely derived from interest or gains from
the sale of debt instruments, dividends from a Portfolio will not qualify for
the dividends received deduction available to corporate shareholders.

Distributions of income realized with respect to market discount will be made,
at least annually, as determined by the Board of Directors, to maintain each
Portfolio's net asset value at $1.00 per share.

B-21

<PAGE>

CAPITAL GAINS DISTRIBUTION. If a Portfolio realizes any net capital gains, such
gains will be distributed at least once during the year as determined by the

Board of Directors, to maintain its NAV at $1.00 per share. Short-term capital
gains distributed by a Portfolio are taxable to shareholders as ordinary income,
not as capital gains. Any realized short-term capital losses to the extent not
offset by realized capital gains will be carried forward. It is not anticipated
that a Portfolio will realize any capital gains from the sale of securities held
for more than 12 months, but if it does so, these gains will be distributed
annually.

TAX STATUS OF THE COMPANY. Each Portfolio intends to meet the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its investment company taxable income and net realized gains,
if applicable, to shareholders. Therefore, it is not anticipated that any of the
Portfolios will be subject to the 4% excise tax applicable to regulated
investment companies that fail to satisfy certain distribution requirements.

Each Portfolio is treated as a separate entity from the other Portfolios for tax
purposes.

STATE AND LOCAL TAX ISSUES. Shareholders are urged to consult with their tax
advisers as to whether any of the dividends paid by the U.S. Government
Portfolio are exempt from state and local taxation. The exemption from state and
local income taxation does not preclude states from assessing other taxes on the
ownership of U.S. government securities whether such securities are held
directly or through the Company.

FEDERAL TAX ISSUES - MUNICIPAL PORTFOLIO. Distributions from the Municipal
Portfolio will constitute exempt-interest dividends to the extent of the
Portfolio's tax-exempt interest income (net of expenses and amortized bond
premium). Exempt-interest dividends distributed to shareholders of the Municipal
Portfolio are excluded from gross income for federal income tax purposes.
However, shareholders required to file a federal income tax return will be
required to report the receipt of exempt-interest dividends on their returns.
Moreover, while exempt-interest dividends are excluded from gross income for
federal income tax purposes, they may be subject to alternative minimum tax
("AMT") in certain circumstances and may have other collateral tax consequences
as discussed below. Distributions by the Municipal Portfolio of any investment
company taxable income (which include any short-term capital gains and market
discount) will be taxable to shareholders.

Dividend distributions resulting from a recharacterization of gain from the sale
of bonds purchased with market discount are not considered income for purposes
of the Municipal Portfolio's policy of investing so that at least 80% of its
income is free from federal income tax.

AMT is imposed in addition to, but only to the extent it exceeds, the regular
tax and is computed at a maximum marginal rate of 28% for noncorporate taxpayers
and 20% for corporate taxpayers on the excess of the taxpayer's alternative
minimum taxable income ("AMTI") over an exemption amount. 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

B-22

<PAGE>

for both corporate and noncorporate taxpayers. Corporate investors should note
that 75% of the amount by which adjusted current earnings (which includes all
tax-exempt interest) exceeds the AMTI of the corporation constitutes an upward
adjustment for purposes of the corporate AMT.

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.
Receipt of exempt-interest dividends may result in other collateral federal
income tax consequences to certain taxpayers. Prospective investors should
consult their own tax advisers as to such consequences.

Interest on indebtedness which is incurred to purchase or carry shares of a
mutual fund portfolio which distributes exempt-interest dividends during the
year is not deductible for federal income tax purposes. Further, the Municipal
Portfolio may not be an appropriate investment for (i) persons who are
"substantial users" of facilities financed by industrial development bonds held
by the Municipal Portfolio or are "related persons" to such users; or (ii)
persons who are investing through a tax-exempt retirement plan, IRA or Keogh
Account.

A separate tax is imposed on corporations at a rate of 0.12 percent of the
excess of such corporation's "modified" AMTI over $2,000,000. A portion of
tax-exempt interest, including exempt-interest dividends, may be includable in
modified AMTI. Corporate shareholders are advised to consult with their tax
advisers.

The Municipal Portfolio purchases municipal obligations based on opinions of
bond counsel regarding the federal income tax status of the obligations. These
opinions generally will be based on covenants by the issuers regarding
continuing compliance with federal tax requirements. If the issuer of an
obligation fails to comply with its covenant at any time, interest on the
obligation could become federally taxable, either prospectively or retroactively
to the date the obligation was issued.

Each of the Portfolios may invest in obligations such as zero coupon bonds,
issued with original issue discount ("OID") for federal income tax purposes.
Accrued OID constitutes income subject to the distribution requirements
applicable to regulated investment companies, although such income may not be
represented by any cash payment. Accordingly, it may be necessary for a
Portfolio to dispose of other assets in order to satisfy such distribution
requirements.

OTHER TAX INFORMATION. The Transfer Agent will send each shareholder a notice in
January describing the tax status of dividend and capital gain distributions
(where applicable) for the prior year.

The information above, together with the information set forth in the
Prospectus, is only a summary of some of the federal income tax consequences
generally affecting each Portfolio and its shareholders, and no attempt has been
made to present a detailed explanation of the tax treatment of each Portfolio or
to discuss individual tax consequences. In addition to federal income taxes,

shareholders may be subject to state and local taxes on Company distributions,
and shares may be

B-23

<PAGE>

subject to state and local personal property taxes. Investors should consult
their tax advisers to determine whether a Portfolio is suitable to their
particular tax situation.

Foreign shareholders should consult their tax advisers regarding foreign tax
consequences applicable to their purchase of Company shares.

INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Company's independent
auditors, Ernst & Young LLP, whose address is 787 Seventh Avenue, New York, New
York 10019, audit and report on the Company's annual financial statements,
review certain regulatory reports and the Company's federal income tax returns,
and perform other professional accounting, auditing, tax and advisory services
when engaged to do so by the Company. Shareholders will receive annual audited
financial statements and semi-annual unaudited financial statements.

SHARE PRICE CALCULATION

Each Portfolio values its portfolio instruments at amortized cost, which means
that they are valued at their acquisition cost, as adjusted for amortization of
premium or accretion of discount, rather than at current market value. The
amortized cost value of an instrument may be higher or lower than the price each
Portfolio would receive if it sold the instrument.

Valuing a Portfolio's instruments on the basis of amortized cost and use of the
term "money market fund" are permitted by Rule 2a-7. Each Portfolio must adhere
to certain conditions under Rule 2a-7.

The Board of Directors of the Company oversees the Investment Manager's
adherence to SEC rules concerning money market funds, and has established
procedures designed to stabilize each Portfolio's NAV per share at $1.00. At
such intervals as they deem appropriate, the Board of Directors considers the
extent to which NAV calculated by using market valuations would deviate from
$1.00 per share. Market valuations are obtained by using actual quotations
provided by market makers, estimates of current market value, or values obtained
from yield data relating to classes of money market instruments published by
reputable sources at the mean between the bid and asked prices of the
instruments. If a deviation were to occur between the NAV per share calculated
by reference to market values and a Portfolio's NAV per share, which the Board
of Directors of the Company believed may result in material dilution or other
unfair results to shareholders, the directors have agreed promptly to consider
what corrective action they deem appropriate to eliminate or reduce, to the
extent reasonably practicable, the dilution or unfair results. Such corrective
action could include selling portfolio securities prior to maturity; withholding
dividends; redeeming shares in kind; establishing NAV by using available market
quotations; and such other measures as the directors may deem appropriate.

During periods of declining interest rates, each Portfolio's yield based on

amortized cost may be higher than the yield based on market valuations. Under
these circumstances, a shareholder of any Portfolio would be able to retain a
somewhat higher yield than would result if each Portfolio utilized

B-24

<PAGE>

market valuations to determine its NAV. The converse would apply in a period of
rising interest rates.

NAV is calculated by the Company as to each Portfolio on each day that the NYSE
and the Custodian are open. Currently, the NYSE is closed on weekends and New
Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
In addition to these holidays, the Custodian generally is closed on Veteran's
Day and Columbus Day.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Each Portfolio does not currently impose a minimum for initial or subsequent
investments. However, minimum requirements may be imposed or changed at any
time. Each Portfolio may waive minimum investment requirements for purchases by
directors, officers or employees of the Company, Waterhouse or any of its
subsidiaries. Each Portfolio is open for business and its NAV is calculated each
day the Custodian is open and the NYSE is open for trading.

The Company normally calculates the NAV of each Portfolio as of 12:00 noon and
4:00 p.m. Eastern time each day that the NYSE and the bank that serves as the
Custodian are open. To the extent that portfolio securities are traded in other
markets on days when the NYSE or the Custodian are closed, a Portfolio's NAV may
be affected on days when investors do not have access to the Company to purchase
or redeem shares. In addition, trading in some of a Portfolio's portfolio
securities may not occur on days when the Company is open for business.

If the Board of Directors determines that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing a
Portfolio's NAV. Shareholders receiving securities or other property on
redemption may realize a gain or loss for tax purposes, and will incur any costs
of sale, as well as the associated inconveniences.

The Company may suspend redemption rights and postpone payments at times when
trading on the NYSE is restricted, the NYSE is closed for any reason other than
its customary weekend or holiday closings, emergency circumstances as determined
by the SEC exist, or for such other circumstances as the SEC may permit.

PERFORMANCE

As reflected in the Prospectus, the historical performance calculation for a
Portfolio may be shown in the form of "yield," "effective yield" and, for the
Municipal Portfolio only, "tax equivalent yield" and "tax equivalent effective
yield." These various measures of performance are described below.

B-25

<PAGE>

Each Portfolio's yield is computed in accordance with a standardized method
prescribed by rules of the SEC. Under that method, the yield quotation is based
on a seven-day period and is computed for each Portfolio as follows: the first
calculation is net investment income per share for the period, which is accrued
interest on portfolio securities, plus or minus amortized discount or premium
(excluding market discount for the Municipal Portfolio), less accrued expenses.
This number is then divided by the price per share (expected to remain constant
at $1.00) at the beginning of the period ("base period return"). The result is
then divided by 7 and multiplied by 365 and the resulting yield figure is
carried to the nearest one-hundredth of one percent. Realized capital gains or
losses and unrealized appreciation or depreciation of investments are not
included in the calculation.

Each Portfolio's effective yield is determined by taking the base period return
(computed as described above) and calculating the effect of assumed compounding.
The formula for effective yield is:

[(base period return + 1)365/7] - 1.

The tax equivalent yield of the shares of the Municipal Portfolio is computed by
dividing that portion of the yield of the Portfolio (computed as described
above) that is tax-exempt by an amount equal to one minus the stated federal
income tax rate (normally assumed to be the maximum applicable marginal tax
bracket rate) and adding the result to that portion, if any, of the yield of the
Portfolio that is not tax-exempt.

Tax equivalent effective yield is computed in the same manner as tax equivalent
yield, except that effective yield is substituted for yield in the calculation.

Each Portfolio's yield fluctuates, and the publication of an annualized yield
quotation is not a representation as to what an investment in that Portfolio
will actually yield for any given future period. Actual yields will depend not
only on changes in interest rates on money market instruments during the period
in which the investment in the Portfolio is held, but also on such matters as
expenses of that Portfolio.

As indicated in the Prospectus (see "Performance"), the performance of the
Company's Portfolios may be compared to that of other money market mutual funds
tracked by Lipper Analytical Services, Inc. ("Lipper"), a widely used
independent research firm that ranks mutual funds by overall performance,
investment objectives and assets. Lipper performance calculations include the
reinvestment of all capital gain and income dividends for the periods covered by
the calculations. A Portfolio's performance also may be compared to other money
market funds as reported by IBC/Donoghue's Money Fund Report(R), a reporting
service on money market funds. As reported by Money Fund Report, all investment
results represent total return (annualized results for the period net of
management fees and expenses) and one year investment results are effective
annual yields assuming reinvestment of dividends.

B-26

<PAGE>

BANK RATE MONITOR(TM), N. Palm Beach, Florida 33408, a financial reporting
service which each week publishes average rates of bank and thrift institution
money market deposit accounts and interest bearing checking accounts, reports
results for the BANK RATE MONITOR National Index. The rates published by the
BANK RATE MONITOR National Index are averages of the personal account rates
offered on the Wednesday prior to the date of publication by 100 of the leading
bank and thrift institutions in the ten largest Consolidated Metropolitan
Statistical Areas. Account minimums range upward from $2,000 in each institution
and compounding methods vary. Interest bearing checking accounts generally offer
unlimited checking while money market deposit accounts generally restrict the
number of checks that may be written. If more than one rate is offered, the
lowest rate is used. Rates are determined by the financial institution and are
subject to change at any time specified by the institution. Bank products
represent a taxable alternative income producing product. Bank and thrift
institution account deposits may be insured. Shareholder accounts in the Company
are not insured. Bank savings accounts compete with money market mutual fund
products with respect to certain liquidity features but may not offer all of the
features available from a money market mutual fund, such as checkwriting. Bank
checking accounts normally do not pay interest but compete with money market
mutual fund products with respect to certain liquidity features (e.g., the
ability to write checks against the account). Bank certificates of deposit may
offer fixed or variable rates for a set term. (Normally, a variety of terms are
available.) Withdrawal of these deposits prior to maturity will normally be
subject to a penalty. In contrast, shares of a Portfolio are redeemable at the
net asset value next determined (normally, $1.00 per share) after a request is
received without charge.

Investors may also want to compare a Portfolio's performance to that of United
States Treasury Bills or Notes because such instruments represent alternative
income producing products. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the United States Treasury. The market value of such instruments will generally
fluctuate inversely with interest rates prior to maturity and will equal par
value at maturity. Generally, the values of obligations with shorter maturities
will fluctuate less than those with longer maturities. A Portfolio's yield will
fluctuate.

TAX-EXEMPT VERSUS TAXABLE YIELD. Investors may want to determine which
investment -- tax exempt or taxable -- will provide a higher after-tax return.
To determine the tax equivalent yield, simply divide the yield from the
tax-exempt investment by an amount equal to 1 minus the investor's marginal
federal income tax rate.

GENERAL INFORMATION

SHAREHOLDER RIGHTS

separate portfolios of investments, with various

B-27

<PAGE>

investment objectives and policies. The Company has currently authorized one
class of shares to be issued by each Portfolio.

The Board of Directors may authorize the issuance of additional series or
classes of shares. The Board of Directors anticipates that it will from time to
time, classify or reclassify issued or any unissued shares to create one or more
new series or classes of shares in addition to the existing series or class
setting or changing in any one or more respects the designations, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption, of such
classes; provided, however, that any such classification or reclassification
shall not substantially adversely affect the rights of holders of issued shares.
Any such classification or reclassification will comply with the provisions of
the Investment Company Act. The Portfolios may convert to a "master/feeder"
structure without shareholder vote. A master/feeder structure involves
investment in a single central portfolio (the "master fund") by a variety of
pooled investment vehicles (the "feeder funds") sharing a common investment
objective.

Shares of the Company have equal rights with respect to voting, except that the
holders of shares of a particular Portfolio or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such
Portfolio or class. For example, holders of a particular Portfolio will have the
exclusive right to vote on any investment advisory agreement or investment
restriction that relates only to such Portfolio. Shareholders of the Portfolios
do not have cumulative voting rights, and therefore the holders of more than 50%
of the outstanding shares of the Company voting together for the election of
directors may elect all of the members of the Board of Directors. In such event,
the remaining holders cannot elect any members of the Board of Directors.

The Articles of Incorporation permit the Directors to issue 100 billion full and
fractional shares, par value $.0001, of the Portfolios, as follows: 60 billion
shares of the Kennedy Cabot Money Market Portfolio; 20 billion shares of the
Kennedy Cabot U.S. Government Portfolio; and 20 billion shares of the Kennedy
Cabot Municipal Portfolio. Each Portfolio share is entitled to participate pro
rata in the dividends and distributions from that Portfolio.

As described in each Prospectus, the Company will not normally hold annual
shareholders' meetings. Under Maryland law and the Company's By-Laws, an annual
meeting is not required to be held in any year in which the election of
directors is not required to be acted upon under the Investment Company Act. The
Company's By-Laws provide that special meetings of shareholders, unless
otherwise provided by law or by the Articles of Incorporation, may be called for
any purpose or purposes by a majority of the Board of Directors, the Chairman of
the Board, the President, or the written request of the holders of at least 10%
of the outstanding shares of capital stock of the corporation entitled to be
voted at such meeting to the extent permitted by Maryland law.

Each Director serves until the next election of Directors and until the election
and qualification of his or her successor or until such Director sooner dies,
resigns, retires or is removed by the affirmative vote of a majority of the
outstanding voting securities of the Company. In accordance with the Investment
Company Act (i) the Company will hold a shareholder meeting for the election

B-28

<PAGE>

of Directors at such time as less than a majority of the Directors have been
elected by shareholders, and (ii) if, as a result of a vacancy in the Board of
Directors, less than two-thirds of the Directors have been elected by the
shareholders, that vacancy will be filled only by a vote of the shareholders.

B-29

<PAGE>

ANNEX -- RATINGS OF INVESTMENTS

STANDARD AND POOR'S RATINGS GROUP AND
MOODY'S INVESTORS SERVICE, INC.
COMMERCIAL PAPER RATINGS

Commercial paper rated by Standard & Poor's Ratings Group has the following
characteristics: Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry. The reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determine whether the
issuer's commercial paper is rated A-1, A-2 or A-3.

The ratings Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investors Service. Among the factors considered by them
in assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of a public interest questions and preparations to meet such obligations.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated Prime-1, 2 or 3.

MIG-1 AND MIG-2 MUNICIPAL NOTES

Moody's Investors Service's ratings for state and municipal notes and other
short-term loans will be designated Moody's Investment Grade ("MIG"). This
distinction is in recognition of the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while various factors of the
first importance in bond risk are of lesser importance in the short run. Loans
designated MIG-1 are of the best quality, enjoying strong protection from
established cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both. Loans designated
MIG-2 are of high quality, with margins of protection ample although not so
large as in the preceding group.

STANDARD & POOR'S RATINGS GROUP BOND RATINGS, CORPORATE BONDS

AAA. This is the highest rating assigned by Standard & Poor's Ratings Group to a
debt obligation and indicates an extremely strong capacity to pay principal and
interest.

B-30

<PAGE>

AA. Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.

A. Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to adverse effects of changes in
circumstances and economic conditions.

MOODY'S INVESTORS SERVICE, INC. BOND RATINGS

Aaa. Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-edge."
Interest payments are protected by a large or 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 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 rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

B-31

<PAGE>

Report of Independent Auditors

Shareholder and Board of Directors
National Investors Cash Management Fund, Inc.

We have audited the accompanying statement of net assets of National Investors
Cash Management Fund, Inc. (comprising, respectively, the Kennedy Cabot Money
Market Portfolio, the Kennedy Cabot U.S. Government Portfolio and the Kennedy
Cabot Municipal Portfolio) as of May 14, 1998. This statement of net assets is
the responsibility of the Fund's management. Our responsibility is to express an
opinion on this statement of net assets based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of net assets. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall statement of net assets
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of each of the respective
Portfolios constituting National Investors Cash Management Fund, Inc. at May 14,
1998, in conformity with generally accepted accounting principles.

/s/Ernst & Young LLP
--------------------
ERNST & YOUNG LLP

New York, New York
May 15, 1998

B-32

<PAGE>

National Investors Cash Management Fund, Inc.
Statement of Net Assets
May 14, 1998

<TABLE>
<CAPTION>
Kennedy Cabot Kennedy Cabot Kennedy Cabot
Money Market U.S. Government Municipal
Portfolio Portfolio Portfolio
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Cash $50,000 $25,000 $25,000
======= ======= =======

NET ASSETS $50,000 $25,000 $25,000
======= ======= =======

Outstanding shares of $.0001 par
value Common Stock, equivalent
to a net asset value of $1.00
for each series (60 billion
shares of the Money Market, 20
billion shares each of the U.S.
Government and Municipal
Portfolios authorized,
respectively.) 50,000 25,000 25,000
====== ====== ======
</TABLE>

See notes of statement of net assets.

B-33

<PAGE>

National Investors Cash Management Fund, Inc.
Notes to Statement of Net Assets
May 14, 1998

Note A - Organization
National Investors Cash Management Fund, Inc. (the "Fund") was incorporated on
August 19, 1996 and has had no operations since that date other than matters
relating to its organization as an open-end, diversified management investment
company under the Securities Act of 1933 and the sale and issuance of 50,000
shares of common stock of the Kennedy Cabot Money Market Portfolio (the "Money
Market Portfolio"), 25,000 shares of common stock of the Kennedy Cabot U.S.
Government Portfolio (the "U.S. Government Portfolio") and 25,000 shares of
common stock of the Kennedy Cabot Municipal Portfolio (the "Municipal
Portfolio") to FDI Distribution Services, Inc. an affiliate of Funds
Distributor, Inc., the distributor of the Fund (the "Distributor"). The Fund is
a series company and currently consists of the three portfolios noted above (the
"Portfolios"). Each of the Portfolios seeks maximum current income to the extent
consistent with liquidity and preservation of capital and a stable price of
$1.00 per share.

Note B - Agreements
Under the terms of an Investment Management Agreement with Waterhouse Asset
Management, Inc. (the "Investment Manager"), for the investment management
services furnished to each Portfolio, such Portfolio pays the Investment Manager
an annual investment management fee, on a graduated basis, equal to .35 of 1% of
the first $1 billion of average daily net assets of each such Portfolio, .34 of
1% of the next $1 billion, and .33 of 1% of average daily net assets of each
such Portfolio over $2 billion. The Investment Manager has agreed to waive a
portion of its fee payable by the Municipal Portfolio through April 30, 1999, so
that the actual fee payable annually by such Portfolio during such period will
be equal to .25 of 1% of its average daily net assets.

The Investment Manager or its affiliates have agreed through April 30, 1999 to
waive fees and/or reimburse expenses so that each Portfolio's annual expense
ratio will not exceed .94 of 1% for the Money Market Portfolio, .91 of 1% for
the U.S. Government Portfolio, and .75 of 1% for the Municipal Portfolio. In
addition, costs incurred in connection with the Fund's organization will be paid
by the Investment Manager.

Waterhouse Securities, Inc. ("Waterhouse Securities"), an affiliate of the
Investment Manager, has been retained under a Shareholder Services Agreement to
perform shareholder services necessary for the operation of the Fund. For the
shareholder services rendered, each Portfolio will pay Waterhouse Securities a

monthly fee at an annual rate of up to .25 of 1% of average daily net assets.
Waterhouse Securities has agreed to limit the annual fee payable through April
30, 1999 under the Shareholder Servicing plan so as not to exceed .20 of 1% of
average daily net assets in the case of the Money Market Portfolio, .17 of 1% of
average daily net assets in the case of the U.S. Government Portfolio and .11 of
1% of average daily net assets in the case of the Municipal Portfolio.

Waterhouse Securities has also been retained under an Administration Agreement
to perform certain administrative services for the Fund. For the administrative
services rendered to the Fund, each Portfolio will pay Waterhouse Securities a
monthly fee at an annual rate of .10 of 1% of each Portfolio's average daily net
assets.

B-34

<PAGE>

National Investors Cash Management Fund, Inc.
Notes to Statement of Net Assets (continued)

The Fund has entered into a Transfer Agency and Dividend Disbursing Agency
Agreement with National Investors Services Corp. ("NISC"), an affiliate of the
Investment Manager, to perform transfer and dividend disbursing agency-related
services. For such services, each Portfolio will pay NISC a monthly fee at an
annual rate of .20 of 1% of average daily net assets.

Note C - Federal Income Taxes
Each of the Portfolios intend to qualify as a "regulated investment company" and
as such (and by complying with the applicable provisions of the Internal Revenue
Code of 1986, as amended) will not be subject to Federal income tax on taxable
income that is distributed to shareholders.

B-35

<PAGE>

PART C. OTHER INFORMATION

NATIONAL INVESTORS CASH MANAGEMENT FUND, INC.

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(a) FINANCIAL STATEMENTS:

Contained in Part A, the Prospectus:
None
Contained in Part B, the Statement of Additional Information:
Statement of Net Assets as of May 14, 1998
Report of Ernst & Young LLP dated May 15, 1998

(b) EXHIBITS:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C> <C>
1(a) -- Articles of Incorporation of Registrant (a)
(b) -- Articles of Amendment (b)
2 -- By-Laws of Registrant, as amended to date(a)
3 -- Inapplicable
4 -- Instrument defining rights of Shareholders (Incorporated by
Reference to Exhibits 1 and 2 above)
5 -- Investment Management Agreement (b)
6 -- Distribution Agreement
7 -- Inapplicable
8(a) -- Form of Custody Agreement(b)
(b) -- Foreign Custody Manager Agreement (b)
9(a) -- Transfer Agency and Dividend Disbursing Agency Agreement (b)
(b) -- Accounting Services Agreement (b)
(c) -- State Filing Services Agreement
(d) -- Administration Agreement (b)
(e) -- Subadministration Agreement (b)
(f) -- Shareholder Servicing Plan (b)
(g) -- Shareholder Servicing Agreement (b)
(h) -- Shareholder Services Agreement for Waterhouse
Securities, Inc.
(i) -- License Agreement
(j) -- Form of Selling Agreement
10 -- Opinion and Consent of Shereff, Friedman, Hoffman and
Goodman, LLP as to legality of the securities being
registered
11 -- Consent of Independent Auditors
12 -- Inapplicable
13 -- Subscription Agreement between Registrant and FDI
Distribution Services, Inc.

14 -- Model Plan to Establish Retirement Plans (b)
</TABLE>

C-1

<PAGE>

<TABLE>
<S> <C> <C>
15 -- Inapplicable
16 -- Inapplicable
17 -- Other Exhibits(b) - Power of attorney for:
James F. Rittinger
Anthony J. Pace
Richard W. Dalrymple
Theodore Rosen
Carolyn B. Lewis
18 -- Inapplicable
</TABLE>

- ----------
(a) incorporated by reference to Registrant's Registration
Statement, on Form N-1A filed on October 21, 1996.

(b) incorporated by reference to Registrant's Pre-effective
Amendment #1 to Registrant's Registration Amendment dated April 29, 1998.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

None

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

As of May 15, 1998, the number of record holders of each class of
securities of the Registrant were as follows:

Title of Series Number of Record Holders
Kennedy Cabot Money Market Portfolio 1
Kennedy Cabot U.S. Government Portfolio 1
Kennedy Cabot Municipal Portfolio 1

ITEM 27. INDEMNIFICATION.

Section 2-418 of the General Corporation Law of the State of Maryland,
Article IX of the Registrant's Articles of Incorporation, filed as Exhibit
(1)(a) hereto, Article V of the Registrant's ByLaws, filed as Exhibit (2)
hereto, and the Investment Management Agreement, a form of which has been filed
as Exhibit 5 hereto, provide for indemnification.

The Articles of Incorporation and By-Laws provide that to the fullest
extent that limitations on the liability of directors and officers are permitted
by the Maryland General Corporation Law, no director or officer of the
Registrant shall have any liability to the Registrant or to its shareholders for
damages.

The Articles of Incorporation and By-Laws further provide that the
Registrant shall indemnify and advance expenses to its currently acting and its
former directors to the fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law and the

C-2

<PAGE>

Investment Company Act; that the Registrant shall indemnify and advance expenses
to its officers to the same extent as its directors and to such further extent
as is consistent with applicable law. The Board of Directors may, through
by-law, resolution or agreement, make further provisions for indemnification of
directors, officers, employees and agents to the fullest extent permitted by the
Maryland General Corporation Law. However, nothing in the Articles of
Incorporation or By-Laws protects any director or officer of the Registrant
against any liability to the Registrant or to its shareholders to which he or
she 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 or her office.

Section 2-418 of the General Corporation Law of the State of Maryland
provides that a corporation may indemnify any director made a party to any
proceeding by reason of service in that capacity unless it is established that
(i) the act or omission of the director was material to the matter giving rise
to the proceeding; and (a) was committed in bad faith; or (b) was the result of
active and deliberate dishonesty; or (ii) the director actually received an
improper personal benefit in money, property, or services; or (iii) in the case
of any criminal proceeding, the director had reasonable cause to believe that
the act or omission was unlawful. Section 2-418 permits indemnification to be
made against judgments, penalties, fines, settlements, and reasonable expenses
actually incurred by the director in connection with the proceeding; however, if
the proceeding was one by or in the right of the corporation, indemnification
may not be made in respect of any proceeding in which the director shall have
been adjudged to be liable to the corporation. A director may not be indemnified
under Section 2-418 in respect of any proceeding charging improper personal
benefit to the director, whether or not involving action in the director's
official capacity, in which the director was adjudged to be liable on the basis
that personal benefit was improperly received.

Unless limited by the Registrant's charter, a director who has been
successful, on the merits or otherwise, in the defense of any proceeding
referred to above shall be indemnified against any reasonable expenses incurred
by the director in connection with the proceeding. Reasonable expenses incurred
by a director who is a party to a proceeding may be paid or reimbursed by the
corporation in advance of the final disposition of the proceeding upon receipt
by the corporation of (i) a written affirmation by the director of the

director's good faith belief that the standard of conduct necessary for
indemnification by the corporation has been met; and (ii) a written undertaking
by or on behalf of the director to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.

The indemnification and advancement of expenses provided or authorized
by Section 2-418 may not be deemed exclusive of any other rights, by
indemnification or otherwise, to which a director may be entitled under the
charter, the bylaws, a resolution of stockholders or directors, an agreement or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office.

C-3

<PAGE>

Under Section 2-418, a corporation may indemnify and advance expenses
to an officer, employee, or agent of the corporation to the same extent that it
may indemnify directors and a corporation, in addition, may indemnify and
advance expenses to an officer, employee, or agent who is not a director to such
further extent, consistent with law, as may be provided by its charter, bylaws,
general or specific action of its board of directors or contract.

Under Section 2-418, a corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or agent of
the corporation, or who, while a director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan against any liability asserted against and incurred by such person
in any such capacity or arising out of such person's position, whether or not
the corporation would have the power to indemnify against liability under the
provisions of such Section. A corporation also may provide similar protection,
including a trust fund, letter of credit, or surety bond, not inconsistent with
the foregoing. The insurance or similar protection may be provided by a
subsidiary or an affiliate of the corporation.

Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the 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 Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

Set forth below is a list of each Director and officer of the
Investment Manager indicating each business, profession, vocation or employment
of a substantial nature in which each such person or entity has been engaged
during the last two fiscal years.

*DAVID HARTMAN, Senior Vice President and Chief Investment Officer.
From February 1995 through August 1995, Mr. Hartman served as Senior Vice
President and Senior Portfolio Manager of Fixed Income Separate Accounts at
Mitchell Hutchins - Paine Webber. Mr. Hartman also served in similar
capacities for Kidder Peabody & Co. from 1983 to 1995.

*RICHARD H. NEIMAN, Director and Secretary. Mr. Neiman has served as
Executive Vice President, General Counsel, Director and Secretary of Waterhouse
Investor Services, Inc. since

C-4

<PAGE>

July 1994. Mr. Neiman also serves in similar capacities for Waterhouse
Securities, Inc. Mr. Neiman has served as General Counsel, Director and
Secretary of Waterhouse National Bank and National Investor Services Corp.
since July 1994 and September 1995, respectively.

*FRANK J. PETRILLI, Chairman, Director, President, CEO. Mr. Petrilli
has served as President and Chief Operating Officer of Waterhouse Investor
Services, Inc. since January 1995. Since February 1998 Mr. Petrilli has served
as CEO of Waterhouse Investor Services. Mr. Petrilli has served as a Director
of Waterhouse National Bank and National Investor Services Corp. since March
1995 and September 1995, respectively.

**M. BERNARD SIEGEL, Senior Vice President, Chief Financial Officer
and Treasurer. Mr. Siegel has served as Executive Vice President of Finance and
Administration of Waterhouse Investor Services, Inc., since January 1997. Mr.
Siegel served as Chief Financial Officer of Waterhouse Investor Services, Inc.,
from November 1993 to January 1997. Mr. Siegel has served as Director of
National Investor Services Corp. since September 1995.

*MICHELE R. TEICHNER, Senior Vice President Operations and Compliance.
Ms. Teichner has been serving as Senior Vice President of Waterhouse Asset
Management, Inc. since August 1996, with responsibility for operations and
compliance. Michele Teichner has served as Senior Vice President of Waterhouse
Securities, Inc. since June 1997 and Senior Vice President and Senior Trust
Officer of Waterhouse National Bank since January 1997. From August 1994 to
July 1996, Ms. Teichner served as President of Mutual Fund Training &
Consulting, Inc.

*LAWRENCE M. WATERHOUSE, JR., Director. As of February 1998, Mr.
Waterhouse has served as Chairman of Waterhouse Investor Services. Mr.
Waterhouse has served as Chief Executive Officer and Chairman of Waterhouse
Investor Services, Inc. since its inception in 1987. Mr. Waterhouse is the
founder of Waterhouse Securities, Inc. and has served as Chief Executive
Officer since its inception in March 1979. Mr. Waterhouse has also served as

Chairman of Waterhouse National Bank and Director of National Investor Services
Corp. since July 1994 and September 1995, respectively.

* Address: 100 Wall Street, New York, NY 10005
**Address: 55 Water Street, New York, NY 10041

ITEM 29. PRINCIPAL UNDERWRITERS.

(a) Funds Distributor, Inc. (the "Distributor") acts as principal
underwriter and distributor of the Registrant's shares. The Distributor
currently acts as a principal underwriter, for the following other investment
companies:

American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.

C-5

<PAGE>

American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
BJB Investment Funds
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
J.P. Morgan Institutional Funds
J.P. Morgan Funds
J.P. Morgan Series Trust
JPM Series Trust II
LaSalle Partners Funds, Inc.
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
Orbitex Group of Funds
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors Family of Funds, Inc.
WEBS Index Fund, Inc.

The Distributor is registered with the SEC as a broker-dealer and is a
member of the National Association of Securities Dealers. The Distributor is an
indirect wholly-owned subsidiary of Boston Institutional Group, Inc., a holding
company all of whose outstanding shares are owned by key employees.

(b) The following is a list of the executive officers, directors
and partners of Funds Distributor, Inc.

C-6

<PAGE>

<TABLE>
<S> <C> <C>
Director, President and Chief Executive Officer - Marie E. Connolly
Executive Vice President - Richard W. Ingram
Executive Vice President - George A. Rio
Executive Vice President - Donald R. Roberson
Executive Vice President - William S. Nichols
Senior Vice President, General Counsel, Chief - Margaret W. Chambers
Compliance Officer, Secretary and Clerk
Senior Vice President - Michael S. Petrucelli
Director, Senior Vice President, Treasurer and - Joseph F. Tower, III
Chief Financial Officer
Senior Vice President - Paula R. David
Senior Vice President - Allen B. Closser
Senior Vice President - Bernard A. Whalen
Director - William J. Nutt
</TABLE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required to be maintained
pursuant to Section 31(a) of the Investment Company Act and the Rules thereunder
are maintained at the offices of the Registrant, the offices of the Registrant's
Investment Manager and Administrator, Waterhouse Asset Management, Inc. and
Waterhouse Securities, Inc., respectively, 100 Wall Street, New York, New York
10005, or (i) in the case of records concerning custodial functions, at the
offices of the Registrant's Custodian, The Bank of New York, 48 Wall Street, New
York, New York 10286; (ii) in the case of records concerning transfer agency
functions, at the offices of the Registrant's transfer agent, National Investor
Services Corp., 55 Water Street, New York, New York 10041; (iii) in the case of
records concerning distribution, administration and certain other functions, at
the offices of the Registrant's or Company's Distributor and Sub-Administrator,
Funds Distributor, Inc., 60 State Street, Suite 1300, Boston, Massachusetts
02109; and (iv) in the case of records concerning fund accounting functions, at
the offices of the Registrant's or Company's fund accountant, Countrywide Fund
Services, Inc., 312 Walnut Street, Cincinnati, Ohio 45202.

ITEM 31. MANAGEMENT SERVICES.

Not applicable.

ITEM 32. UNDERTAKINGS.

(a) If requested to do so by the holders of at least 10% of the Fund's
outstanding shares, the Company will call a meeting of shareholders for the
purpose of voting upon the removal of a Director or Directors and the Company
will assist with communications

C-7

<PAGE>

with other shareholders as required by Section 16(c) of the Investment Company
Act of 1940.

(b) Registrant hereby undertakes to file a post-effective amendment,
using reasonably current financial statements which need not be certified,
within four to six months from the effective date of Registrant's Registration
Statement under the Securities Act of 1933, as amended.

C-8

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of New York, County of New York, and State of New York
the 15th day of May, 1998.

NATIONAL INVESTORS CASH MANAGEMENT FUND, INC.
Registrant

By: /s/ Christopher J. Kelley
-------------------------------
Christopher J. Kelley
Vice President and Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on May 15, 1998 on behalf of the
following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Richard W. Ingram President, Treasurer and May 15, 1998
Richard W. Ingram Chief Financial Officer

* Director
James F. Rittinger

* Director
Anthony J. Pace

* Director
Richard W. Dalrymple

* Director
Theodore Rosen

* Director
Carolyn B. Lewis
</TABLE>

* By: /s/ Richard H. Neiman, Attorney-in-Fact, May 15, 1998

* This amendment has been signed by each of the persons so indicated by
the undersigned as Attorney-in-Fact.

C-9

<PAGE>
EXHIBIT NUMBER

<TABLE>
<S> <C>
6 Distribution Agreement
9(c) State Filing Services Agreement
(h) Shareholder Services Agreement for Waterhouse Securities, Inc.
(i) License Agreement
(j) Form of Selling Agreement
10 Opinion and Consent of Shereff, Friedman, Hoffman and
Goodman, LLP
11 Consent of Independent Auditors
13 Subscription Agreement

</TABLE>

C-10

<PAGE>

DISTRIBUTION AGREEMENT

NATIONAL INVESTORS CASH MANAGEMENT FUND, INC.
100 Wall Street
New York, NY 10005

February 26, 1998

Funds Distributor, Inc.
60 State Street
Suite 1300
Boston, Massachusetts 02109

Dear Sirs:

This is to confirm that, in consideration of the agreements hereinafter
contained, the above-named investment company (the "Company") has agreed that
you shall be, for the period of this agreement, the distributor of (a) shares of
each Series of the Company set forth on Exhibit A hereto, as such Exhibit may be
revised from time to time (each, a "Series") or (b) if no Series are set forth
on such Exhibit, shares of the Company. For purposes of this agreement, the term
"Shares" shall mean the authorized shares of the relevant Series, if any, and
otherwise shall mean the Company's authorized shares.

1. Services as Distributor

1.1 You will act as agent for the distribution of Shares covered by, and in
accordance with, the registration statement and prospectus of the Company then
in effect under the Securities Act of 1933, as amended, and will transmit
promptly any orders received by you for purchase or redemption of Shares to the
Transfer and Dividend Disbursing Agent for the Company of which the Company has
notified you in writing.

1.2 You agree to use your best efforts to solicit orders for the sale of
Shares in accordance with the terms and conditions of the aforementioned
prospectus. It is contemplated that you may enter into sales or servicing
agreements with securities dealers, financial institutions and other industry
professionals, such as investment advisers, accountants and estate planning
firms, and in so doing you will act only on your own behalf as principal.

1.3 You shall act as distributor of Shares in compliance with all
applicable laws, rules and regulations, including, without limitation, all rules
and regulations made or adopted pursuant to the Investment Company Act of 1940,
as amended (the "1940 Act"), by the Securities and Exchange Commission or any
securities association registered under the Securities Exchange Act of 1934, as
amended, and the Glass-Steagall Act to the extent applicable.

<PAGE>

1.4 Whenever in their judgment such action is warranted by unusual market,
economic or political conditions, or by abnormal circumstances of any kind
deemed by the parties hereto to render sales of a Company's Shares not in the
best interest of the Company, the parties hereto may decline to accept any
orders for, or make any sales of, any Shares until such time as those parties
deem it advisable to accept such orders and to make such sales; and each party
shall advise promptly the other party of any such determination.

1.5 The Company agrees to pay all costs and expenses in connection with the
registration of Shares under the Securities Act of 1933, as amended, and all
expenses in connection with maintaining facilities for the issue and transfer of
Shares and for supplying information, prices and other data to be furnished by
the Company hereunder, and all expenses in connection with the preparation and
printing of the Company's prospectuses and statements of additional information
for regulatory purposes and for distribution to shareholders; provided however,
that the Company shall not pay any of the costs of advertising or promotion for
the sale of Shares.

1.6 The Company agrees to execute any and all documents and to furnish any
and all information and otherwise use its best efforts to take all actions that
may be reasonably necessary in the discretion of the Company' s officers in
connection with the qualification of Shares for sale in such states as you may
designate to the Company and the Company may approve, and the Company agrees to
pay all expenses that may be incurred in connection with such qualification;
provided, however that the Company shall not be required to qualify to do
business as a foreign corporation in any jurisdiction. You shall pay all
expenses connected with your own qualification as a dealer under state or
Federal laws and, except as otherwise specifically provided in this agreement,
all other expenses incurred by you in connection with the sale of Shares as
contemplated in this agreement.

1.7 The Company shall furnish you from time to time, for use in connection
with the sale of Shares, such information with respect to the Company or any
relevant Series and the Shares as you may reasonably request, all of which shall
be signed by one or more of the Company's duly authorized officers; and the
Company warrants that the statements contained in any such information, when so
signed by the Company's officers, shall be true and correct. The Company also
shall furnish you upon request with: (a) semi-annual reports and annual audited
reports of the Company's books and accounts made by independent public
accountants regularly retained by the Company, (b) quarterly earnings statements
prepared by the Company, (c) a monthly itemized list of the securities in the
Company's or, if applicable, each Series portfolio, (d) monthly balance sheets
as soon as practicable after the end of each month, and (e) from time to time
such additional information regarding the Company's financial condition as you
may reasonably request.

1.8 The Company represents to you that all registration statements and
prospectuses filed by the Company with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, and under the 1940 Act, with
respect to the Shares have been carefully prepared in conformity with the
then-current requirements of said Acts and rules and regulations of the
Securities and Exchange Commission thereunder. As used in this agreement the
terms "registration statement" and "prospectus" shall mean any registration
statement and prospectus, including the

2
<PAGE>

statement of additional information incorporated by reference therein,
filed with the Securities and Exchange Commission and any amendments and
supplements thereto that at any time shall have been filed with said Commission.
The Company represents and warrants to you that any registration statement and
prospectus, when such registration statement becomes effective, will contain all
statements required to be stated therein in conformity with said Acts and the
rules and regulations of said Commission; that all statements of fact contained
in any such registration statement and prospectus will be true and correct when
such registration statement becomes effective; and that neither any registration
statement nor any prospectus when such registration statement becomes effective
will include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
The Company may, but shall not be obligated to, propose from time to time such
amendment or amendments to any registration statement and such supplement or
supplements to any prospectus as, in the light of future developments, may, in
the opinion of the Company's counsel, be necessary or advisable. If the Company
shall not propose such amendment or amendments and/or supplement or supplements
within fifteen days after receipt by the Company of a written request from you
to do so, you may, at your option, terminate this agreement or decline to make
offers of the Company's securities until such amendments are made. The Company
shall not file any amendment to any registration statement or supplement to any
prospectus without giving you reasonable notice thereof in advance; provided,
however, that nothing contained in this agreement shall in any way limit the
Company's right to file at any time such amendments to any registration
statement and/or supplements to any prospectus, of whatever character, as the
Company may deem advisable, such right being in all respects absolute and
unconditional.

1.9 The Company authorizes you and any dealers with whom you have entered
into dealer agreements to use any prospectus in the then-current form furnished
by the Company in connection with the sale of Shares. The Company agrees to
indemnify, defend and hold you, your several officers and directors, and any
person who controls you within the meaning of Section 15 of the Securities Act
of 1933, as amended, free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of investigating or
defending such claims, demands or liabilities and any counsel fees incurred in
connection therewith) which you, your officers and directors, or any such
controlling persons, may incur under the Securities Act of 1933, as amended, the
1940 Act, or common law or otherwise, arising out of or on the basis of any
untrue statement, or alleged untrue statement, of a material fact required to be
stated in either any registration statement or any prospectus or any statement
of additional information, or arising out of or based upon any omission, or
alleged omission, to state a material fact required to be stated in any
registration statement, any prospectus or any statement of additional
information or necessary to make the statements in any of them, in the light of
the circumstances under which they were made, not misleading, except that the
Company's agreement to indemnify you, your officers or directors, and any such
controlling person will not be deemed to cover any such claim, demand, liability
or expense to the extent that it arises out of or is based upon any such untrue

statement, alleged untrue statement, omission or alleged omission made in any
registration statement, any prospectus or any statement of additional
information in reliance upon information furnished by you your officers,
directors or any such controlling person to the Company or its representatives
for use in the

<PAGE>

preparation thereof, and except that the Company's agreement to indemnify
you and the Company's representations and warranties set out in paragraph 1.8 of
this Agreement will not be deemed to cover any liability to the Company or its
shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties under this
Agreement ("Disqualifying Conduct"). The Company's agreement to indemnify you,
your officers and directors, and any such controlling person, as aforesaid, is
expressly conditioned upon the Company being notified of any action brought
against you, your officers or directors, or any such controlling person, such
notification to be given by letter, by facsimile or by telegram addressed to the
Company at its address set forth above within a reasonable period of time after
the summons or other first legal process shall have been served. The failure so
to notify the Company of any such action shall not relieve the Company from any
liability that the Company may have to the person against whom such action is
brought by reason of any such untrue, or alleged untrue, statement or omission,
or alleged omission, (i) except to the extent the Company's ability to defend
such action has been materially adversely affected by such failure, or (ii)
otherwise than on account of the Company's indemnity agreement contained in this
paragraph 1.9. The Company will be entitled to assume the defense of any suit
brought to enforce any such claim, demand or liability, but, in such case, such
defense shall be conducted by counsel of good standing chosen by the Company and
approved by you. In the event the Company elects to assume the defense of any
such suit and retain counsel of good standing approved by you, the defendant or
defendants in such suit shall bear the fees and expenses of any additional
counsel retained by any of them but in case the Company does not elect to assume
the defense of any such suit, the Company will reimburse you, your officers and
directors, or the controlling person or persons named as defendant or defendants
in such suit, for the fees and expenses of any counsel retained by you or them,
subject to the right of the Company to assume the defense of such suit with
counsel of good standing at any time prior to the settlement or final
determination thereof. The Company' s indemnification agreement contained in
this paragraph 1.9 and the Company's representations and warranties in this
Agreement shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of you, your officers and directors, or any
controlling person, and shall survive the delivery of any Shares. This agreement
of indemnity will inure exclusively to your benefit, to the benefit of your
several officers and directors, and their respective estates, and to the benefit
of any controlling persons and their successors. The Company agrees promptly to
notify you of the commencement of any litigation or proceedings against the
Company or any of its officers or Board members in connection with the issue and
sale of Shares.

1.10 You agree to indemnify, defend and hold the Company, its several

officers and Board members, and any person who controls the Company within the
meaning of Section 15 of the Securities Act of 1933, as amended, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Company, its officers or Board members, or any such controlling person, may
incur under the Securities Act of 1933, as amended, the 1940 Act, or under
common law or otherwise, but only to the extent that such liability or expense
incurred by the Company, its officers or Board members, or such controlling
person resulting from such claims or demands, (a) shall arise out of or be based
upon

<PAGE>

any unauthorized sales literature, advertisements, information, statements
or representations or any Disqualifying Conduct in connection with the offering
and sale of any Shares, or (b) shall arise out of or be based upon any untrue,
or alleged untrue, statement of a material fact contained in information
furnished in writing by you to the Company specifically for use in the Company's
registration statement and used in the answers to any of the items of the
registration statement or in the corresponding statements made in the prospectus
or statement of additional information, or shall arise out of or be based upon
any omission, or alleged omission, to state a material fact in connection with
such information furnished in writing by you to the Company and required to be
stated in such answers or necessary to make such information, in the light of
the circumstances under which it was made, not misleading. Your agreement to
indemnify the Company, its officers and Board members, and any such controlling
person, as aforesaid, is expressly conditioned upon your being notified of any
action brought against the Company, its officers or Board members, or any such
controlling person, such notification to be given by letter, by facsimile or by
telegram addressed to you at your address set forth above within a reasonable
period of time after the summons or other first legal process shall have been
served. You shall have the right to control the defense of such action, with
counsel of your own choosing, satisfactory to the Company, if such action is
based solely upon such alleged misstatement or omission on your part, and in any
other event the Company, its officers or Board members, or such controlling
person shall each have the right to participate in the defense or preparation of
the defense of any such action. The failure so to notify you of any such action
shall not relieve you from any liability that you may have to the Company, its
officers or Board members, or to such controlling person by reason of any such
untrue, or alleged untrue, statement or omission, or alleged omission, (i)
except to the extent your ability to defend such action has been materially
adversely affected by such failure, or (ii) otherwise than on account of your
indemnity agreement contained in this paragraph 1.10. This agreement of
indemnity will inure exclusively to the Company's benefit, to the benefit of the
Company' s officers and Board members, and their respective estates, and to the
benefit of any controlling persons and their successors. You agree promptly to
notify the Company of the commencement of any litigation or proceedings against
you or any of your officers or directors in connection with the issue and sale
of Shares.

1.11 No Shares shall be offered by either you or the Company under any of
the provisions of this agreement and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Company if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act of 1933, as amended, or if and so long as a current prospectus as
required by Section 10 of said Act, as amended, is not on file with the
Securities and Exchange Commission provided, however, that nothing contained in
this paragraph 1.11 shall in any way restrict or have an application to or
bearing upon the Company's obligation to repurchase any Shares from any
shareholder in accordance with the provisions of the Company's prospectus or
charter documents.

1.12 The Company agrees to advise you immediately in writing:

(a) of any request by the Securities and Exchange Commission for amendments
to the registration statement or prospectus then in effect or for additional
information;

<PAGE>

(b) in the event of the issuance by the Securities and Exchange Commission
of any stop order suspending the effectiveness of the registration statement or
prospectus then in effect or the initiation of any proceeding for that purpose;

(c) of the happening of any, event that in the judgment of the Company's
Board of Directors makes untrue any statement of a material fact made in the
registration statement or prospectus then in effect or that requires the making
of a change in such registration statement or prospectus in order to make the
statements therein not misleading in any material respect; and

(d) of all declarations of effectiveness and other actions of the
Securities and Exchange Commission with respect to any amendments to the
registration statement or prospectus that may from time to time be filed with
the Securities and Exchange Commission.

2. Offering Price

Shares of any class or series of the Company offered for sale by you shall
be offered at a price per share (the "offering price") equal to (a) the net
asset value (determined in the manner set forth in the Company's charter
documents) plus (b) a sales charge, if any, and except to those persons set
forth in the then-current prospectus, which shall be the percentage of the
offering price of such Shares as set forth in the Company's then-current
prospectus. The offering price, if not an exact multiple of one cent, shall be
adjusted to the nearest cent. In addition, Shares of any class of the Company
offered for sale by you may be subject to a contingent deferred sales charge, to
the extent set forth in the Company's then-current prospectus. You shall be
entitled to receive any sales charge or contingent deferred sales charge in
respect of the Shares. Any payments to dealers shall be governed by a separate
agreement between you and such dealer and the Company's then-current prospectus.

3. Term

This Agreement shall become effective with respect to the Company as of the
date hereof and will continue for an initial two-year term and will continue
thereafter so long as such continuance is specifically approved at least
annually (i) by the Company's Board or (ii) by a vote of a majority (as defined
in the 1940 Act) of the Shares of the Company or the relevant Series, as the
case may be, provided that in either event its continuance also is approved by a
majority of the Board members who are not "interested persons" (as defined in
the 1940 Act) of any party to this Agreement and who have no direct or indirect
financial interest in this Agreement, by vote cast in person at a meeting called
for the purpose of voting on such approval. This agreement is terminable with
respect to any Series or the Company, without penalty, on not less than sixty
days notice, by the Company's Board of Directors, by vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of such Company,
or by you. This Agreement shall terminate automatically in the event of its
"assignment" (as defined in the 1940 Act).

4. Miscellaneous

<PAGE>

4.1 The Company recognizes that your directors, officers and employees may
from time to time serve as directors, trustees, officers and employees of
corporations and business trusts (including other investment companies), and
that you or your affiliates may enter into distribution or other agreements with
such other corporations and trusts.

4.2 No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.

4.3 This Agreement shall be governed by the internal laws of the State of
New York without giving effect to principles of conflicts of laws.

4.4 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.

4.5 Funds Distributor, Inc. ("FDI") represents and warrants that it is a
member of the National Association of Securities Dealers (NASD) and agrees to
abide by all of the rules and regulations of the NASD, including, without
limitation, its Conduct Rules. FDI agrees to comply with all applicable federal
and state laws, rules and regulations. FDI agrees to notify the Company
immediately in the event of its expulsion or suspension by the NASD. Expulsion
of FDI by the NASD will automatically terminate this Agreement immediately
without notice. Suspension of FDI by the NASD will terminate this Agreement
effective immediately upon written notice of termination to FDI from the
Company.

4.6 All notices or other communications hereunder to either party shall be
in writing and shall be deemed sufficient if mailed to such party at the address
of such party set forth on page 1 of this Agreement or at such other address as
such party may be designated by written notice to the other, or by telex,
telecopier, telegram or similar means of same day delivery (with a confirming
copy by mail as provided herein).

<PAGE>

Please confirm that the foregoing is in accordance with your understanding
and indicate your acceptance hereof by signing below, whereupon it shall become
a binding agreement between us.

Very truly yours,

NATIONAL INVESTORS CASH
MANAGEMENT FUND INC.

By: /s/ Richard W. Ingram
----------------------

Accepted:

FUNDS DISTRIBUTOR, INC.

By: /s/ Joseph F. Tower III
-------------------------

<PAGE>

EXHIBIT A

NATIONAL INVESTORS CASH MANAGEMENT FUND, INC.
Kennedy Cabot Money Market Portfolio
Kennedy Cabot U.S. Government Portfolio
Kennedy Cabot Municipal Portfolio

<PAGE>

STATE FILING SERVICES AGREEMENT

THIS AGREEMENT is made as of the 26th day of February, 1998 by
and between National Investors Cash Management Fund, Inc. (the "Fund") and
Automated Business Development Corporation ("ABD"), a Massachusetts corporation
on behalf of ClearSky ("ClearSky"), a division of ABD.

W I T N E S S E T H:

WHEREAS, the Fund is an investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), and,

WHEREAS, the Fund wishes to retain ClearSky to provide certain
administration services, and ClearSky is willing to furnish such services;

NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:

1. Appointment. The Fund hereby appoints ClearSky to provide certain
administration services for the period and on the terms set forth in this
Agreement. ClearSky accepts such appointment and agrees to furnish the services
herein set forth in return for the compensation as provided in Paragraph 4 of
this Agreement. In the event that the Fund decides to add one or more new
portfolio series or classes, with respect to which it wishes to retain ClearSky
to provide services hereunder, the Fund or its Administrator, Waterhouse Asset
Management, Inc. ("Waterhouse") on its behalf, shall notify ClearSky in writing.
If ClearSky is willing to render such services, it shall notify the Fund in
writing of any terms and compensation that differ from the provisions of this
Agreement, and upon acceptance by the Fund, such portfolio or class shall become
a Fund hereunder.

2. Delivery of Documents. The Fund or Waterhouse will furnish ClearSky
with copies of each of the following:

(a) A listing of all jurisdictions in which the Fund is lawfully
available for sale as of the date of this Agreement and in which the Fund
desires ClearSky to effect such notice filing;

(b) The Fund's most recent Post-Effective Amendment under the
Securities Act of 1933 and under the 1940 Act as filed with the Securities and
Exchange Commission (the "SEC") and all amendments thereto;

(c) The Fund's most recent prospectus and statement of additional
information and all amendments and supplements thereto (the "Prospectus"); and

The Fund's most recent annual and semi-annual reports.

The Fund will furnish ClearSky from time to time with copies of all
amendments of or supplements to the foregoing, if any.

3. Services and Duties. Subject to the supervision and control of the
Fund, ClearSky undertakes to perform the following specific services:

(a) Effecting and maintaining, as the case may be, the qualification of
shares of the Fund for sale under the securities laws of the jurisdictions
indicated for the Fund on the list furnished to ClearSky pursuant to Paragraph
2(a) of this Agreement;

<PAGE>

(b) Filing with each appropriate jurisdiction, as required, the
appropriate materials relating to the Fund, such filings to be made promptly
after receiving such materials from the Fund: Post Effective Amendments to the
Fund's Registration Statements; definitive copies of the Fund's Prospectuses and
Statements of Additional Information and any Supplements thereto; Annual and
Semi-Annual Reports; and Notices of Special Meetings of Shareholders and related
Proxy materials which propose the merger, reorganization or liquidation of the
Fund;

(c) Conveying to the Fund or Waterhouse any comments received on such
filings and, if desired by the Fund, responding to such comments in such manner
as authorized by the Fund or Waterhouse; and

(d) In connection with the foregoing, receiving limited power of
attorney on behalf of the Fund to sign all Blue Sky filings and other related
documents.

Subject to payment to ClearSky in advance, ClearSky will remit to the
respective jurisdictions notice filing fees for the shares of the Fund, and any
fees for qualifying or continuing the qualification of the Fund, The Fund will,
from time to time as specifically agreed between the parties, wire transfer
funds to ClearSky for the payment of said fees payable pursuant to this
provision promptly upon request by ClearSky. ClearSky will request the funds
necessary for the payment of fees in advance of the date the fees become due.
Upon receipt of the funds by ClearSky, it will issue checks for the payment of
fees.

In performing its duties under this Agreement, ClearSky will act in
accordance with the instructions and directions of the Fund.

The Fund or Waterhouse will provide ClearSky with the appropriate
number of copies of each document which must be filed pursuant to this
provision.

4. Compensation. For the services provided by ClearSky under this
Agreement, the Fund will pay to ClearSky a monthly fee based upon the number of
state securities notice filings (permits). The fee shall be based upon the rate
of $125.00 per state securities notice filings per year and billed monthly in
arrears. When the number of state securities notice filings (permits) reaches
300, the fee will be based upon the rate of $100.00 per state securities notice
filings (permits) per year and billed monthly in arrears. There will be not
retroactive credit for permits which were previously maintained at $125.00.

5. Limitations of Liability and Indemnification. ClearSky shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which this Agreement relates, so long

as it acts in good faith and with due diligence and is not negligent or guilty
of any willful misconduct. Without in any way limiting the foregoing, ClearSky
shall have no liability for failing to file on a timely basis any material to be
provided by the Fund or Waterhouse that it has not received on a timely basis
from the Fund or Waterhouse; ClearSky shall have no responsibility to review the
accuracy or adequacy of materials it receives from the Fund or Waterhouse for
filing or bear any liability arising out of the timely filing of such materials.

The Fund agrees and acknowledges that ClearSky has not prior to the
date hereof assumed, and will not assume, any obligations or liabilities arising
out of the conduct of the Fund prior to the date hereof of those duties which
ClearSky has agreed to perform pursuant to this Agreement. The Fund further
agrees to indemnify ClearSky against any losses, claims, damages or liabilities
to which ClearSky may become subject in connection with the conduct by the Fund
of such duties prior to the date hereof.

The Fund represents and warrants to ClearSky that as of the date hereof
it is lawfully available for sale in each jurisdiction indicated on the list
furnished to ClearSky pursuant to Paragraph 2(a) of this Agreement.

<PAGE>

6. Service to Other Companies or Accounts. The Fund understands that
the persons employed by ClearSky to assist in the performance of ClearSky's
duties hereunder will not devote their full time to such service and nothing
contained herein shall be deemed to limit or restrict the right of ClearSky or
any affiliate of ClearSky to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.

7. Notices. Any notice or other instrument or materials authorized or
required by this Agreement to be given in writing to the Fund or to ClearSky
shall be sufficiently given if addressed to such party and received by it at its
office set forth below or at such other place as it may from time to time
designate in writing.

TO the Fund:

National Investors Cash Management Fund, Inc.
100 Wall Street
New York, NY 10005
Attention: Michele Teichner

TO ClearSky:

ClearSky
529 Main Street
Schrafft Center Annex
Boston, MA 02129
Attention: Elizabeth A. Nystedt

8. Files. All files maintained by ClearSky with respect to the Funds
shall be the property of the Fund and shall be returned to the Fund at the
termination of this Agreement or as mutually agreeable to ClearSky and the Fund.

9. Duration and Termination. This Agreement shall continue thereafter
until termination by the Fund or ClearSky on 60 days written notice.

10. Conversion. There will be no charge for system conversion provided
the Fund allow ClearSky to administrate complete Blue Sky filing services for a
period of at least six months. In the event the Fund terminates this Agreement
prior to this six month obligation, a one time conversion fee equivalent to
$10/permit shall be applied.

11. Amendment to this Agreement. No provision of this Agreement may be
changed, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, discharge or
termination is sought.

12. Governing Law. This Agreement shall be governed by the laws of the
State of New York.

13. Confidentiality. ClearSky agrees to maintain all information
about the the Fund that ClearSky acquires pursuant to this Agreement in
confidence, and ClearSky agrees not to use, or permit the use of, any such
information for any purpose except that set forth herein, or to disclose any
such information to any person, without the prior written consent of the Fund
or Waterhouse.

14. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their constructions or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the date and year first above
written.

Attest: National Investors Cash Management Fund, Inc.

/s/ Karen Jacoppo Wood /s/ Richard W. Ingram
- --------------------------- ----------------------------

Attest: Automated Business
Development Corporation

/s/ Peter Lemay
- --------------------------- -----------------------------

<PAGE>

SHAREHOLDER SERVICES AGREEMENT FOR
WATERHOUSE AFFILIATED BROKER/DEALERS

Dear Sirs:

You wish to enter into an Agreement with National Investors Cash Management
Fund, Inc. (hereinafter referred to as the "Fund"), a registered investment
company, as defined in the Investment Company Act of 1940, as amended (the
"Act"), with certain portfolios (each a "Portfolio", collectively the
"Portfolios"), for servicing shareholders of, and administering shareholder
accounts in the Fund.

The terms and conditions of this Agreement are as follows:

1. You agree to provide shareholder and administrative services for your clients
who own shares of the Fund ("clients"), which services may include, without
limitation: providing general shareholder liaison services, including responding
to shareholder inquiries; assisting to the extent necessary with the
transmission of semi-annual and annual reports and annual tax reporting
information to shareholders; assisting clients in changing dividend options,
account designations and addresses; performing sub-accounting; establishing and
maintaining shareholder accounts and records; providing periodic statements
and/or reports showing a clients account balance and integrating such statements
with those of other transactions and balances in the clients other accounts
serviced by you; arranging for bank wires; and providing such other information
and services as the Fund reasonably may request, to the extent you are permitted
by applicable statute, rule or regulation. You represent and warrant to, and
agree with the Fund, that the compensation payable to you hereunder, together
with any other compensation payable to you by clients in connection with the
investment of their assets in shares of the Fund, will be properly disclosed by
you to your clients, will be authorized by your clients and will not result in
an excessive or unauthorized fee to you. You will act solely as agent for, upon
the order of, and for the account of, your clients.

2. You shall provide such office space and equipment, telephone facilities and
personnel (which may be all or any part of the space, equipment and facilities
currently used in your business, or all or any personnel employed by you) as is
necessary or beneficial for providing information and services to the Fund's
shareholders, and to assist the Fund in servicing accounts of clients. You shall
transmit promptly to clients all communications sent to you for transmittal to
clients by or on behalf of the Fund, or the Funds investment adviser,
distributor, custodian or transfer or dividend disbursing agent.

3. You agree that neither you nor any of your employees or agents are authorized
to make any representation concerning the Fund, the Portfolios or the shares of
the Fund, except those contained in the then current Prospectus or Statement of
Additional Information ("SAI") for

<PAGE>

such Fund, copies of which will be supplied by the Fund to you in

reasonable quantities upon request. You shall have no authority to act as agent
for the Fund.

4. The Fund reserves the right, at its discretion and without notice, to suspend
the sale of shares or withdraw the sale of shares of any or all of the
Portfolios. This agreement may be amended only by written instruments signed by
both parties.

5. You acknowledge that this Agreement shall become effective for a Fund only
following approval when approved by a vote of a majority of (i) the Fund's Board
of Directors or Trustees or Managing General Partners, as the case may be
(collectively "Directors", individually "Director"), and (ii) Directors who are
not interested persons (as defined in the 1940 Act) of the Fund and have no
direct or indirect financial interest in this Agreement.

6. This Agreement shall continue until the last day of the calendar year next
following the date of execution, continue for an initial two year term
commencing on the date hereof, and thereafter shall continue automatically for
successive annual periods ending on the last day of each calendar year. Such
continuance must be approved specifically at least annually by a vote of a
majority of (i) the Fund's Board of Directors and (ii) Directors who are not
interested persons (as defined in the Act) of the Fund and have no direct or
indirect financial interest in this Agreement. This Agreement is terminable
without penalty, at any time, by a majority of the Fund's Directors who are not
interested persons (as defined in the Act) and have no direct or indirect
financial interest in this Agreement. This Agreement is terminable without
penalty upon 15 days notice by either party. In addition, the Fund may terminate
this Agreement as to any or all Portfolios immediately, without penalty, if the
present investment adviser of such Portfolio(s) ceases to serve the Portfolio(s)
in such capacity. Notwithstanding anything contained herein, if you fail to
perform the shareholder servicing and administrative functions contemplated
herein by the Fund, this Agreement shall be terminable effective upon receipt of
notice thereof by you. This Agreement also shall terminate automatically in the
event of its assignment (as defined in the Act).

7. In consideration of the services and facilities described herein, you shall
be entitled to receive from the Fund, and the Fund agrees to pay to you, the
fees described as payable to you in the Funds Shareholder Services Plan and
Prospectus and related Statement of Additional Information. You understand that
any payments pursuant to this Agreement shall be paid only so long as this
Agreement and such Plan are in effect. You agree that no Director, officer or
shareholder of the Fund shall be liable individually for the performance of the
obligations hereunder or for any such payments.

8. You agree to comply with and to provide to the Fund such information relating
to your services hereunder as may be required to be maintained by the Fund
under, applicable federal or state laws, and the rules, regulations,
requirements or conditions of applicable regulatory and self-regulatory agencies
or authorities.

9. This Agreement shall not constitute either party the legal representative of
the other, nor shall either party have the right or authority to assume, create
or incur any liability or any

<PAGE>

obligation of any kind, express or implied, against or in the name of or in
the name of or on behalf of the other party.

10. All notices or other communications hereunder to either party shall be in
writing and shall be deemed sufficient if mailed to such party at the address of
such party set forth on page four of this Agreement or at such other address as
such party may be designated by written notice to the other or by telex,
telecopier, telegram or similar means of same day delivery (with a confirming
copy by mail as provided herein).

11. This Agreement shall be construed in accordance with the internal laws of
the State of New York, without giving effect to principles of conflict of laws.

For National Investors Cash Management Fund, Inc.
100 Wall Street
New York, NY 10005

/s/ Arnold J. Feist May 8, 1998
- ----------------------------------------------------------------
By: Date

For: Waterhouse Securities, Inc.
- ----------------------------------------------------------------

100 Wall Street
- ----------------------------------------------------------------
Address of Principal Office

New York NY 10005
- ----------------------------------------------------------------
City State Zip Code

By: /s/ John A. Chapel Its: President May 11, 1998
---------------------------- ------------- ------------
Authorized Signature Title Date

John A. Chapel
- -------------------------------
Print Name

<PAGE>

LICENSE AGREEMENT

LICENSE AGREEMENT, dated as of this 12th day of May, 1998, by
and between Waterhouse Securities, Inc. (hereinafter referred to as "Licensor"),
a corporation organized and existing under the laws of the State of New York,
having an office at 100 Wall Street, New York, New York 10005, and National
Investors Cash Management Fund, Inc. (hereinafter referred to as "User"), an
open-end, diversified, management investment company organized and existing
under the laws of the State of Maryland, having an office at 100 Wall Street,
New York, New York 10005.

WHEREAS, User has adopted Articles of Incorporation dated
August 19, 1996, as amended March 13, 1998 (collectively, the "Articles"), a
copy of which are on file with the Secretary of State of Maryland and the
Securities and Exchange Commission (the "Commission");

WHEREAS, User initially consists of three portfolios, namely
the Kennedy Cabot Money Market Portfolio, the Kennedy Cabot U.S. Government
Portfolio and the Kennedy Cabot Municipal Portfolio (each a "Portfolio" and,
collectively, the "Portfolios"), and the Directors of the User are authorized
from time to time to create additional portfolios which shall be deemed
"Portfolios" under this Agreement unless User receives from Licensor written
notice to the contrary within fifteen (15) days of the creation of such
additional portfolios;

WHEREAS, Licensor is the owner, in the United States and
elsewhere, of certain trademarks as set out on Schedule A hereto (hereinafter,
the "Marks");

WHEREAS, User wishes to use the Marks, pursuant to the terms
and conditions hereinafter set forth, in connection with the issuance, marketing
and promotion of the Portfolios;

NOW, THEREFORE, in consideration of the foregoing and of the
mutual promises hereinafter set forth, the parties agree as follows:

1. Grant of License
Except as hereinafter provided, Licensor hereby grants to User
a non-exclusive, non-transferrable, royalty-free license, subject to the terms
and conditions set forth herein, to use the Marks during the term of this
License Agreement solely in connection with the issuance, marketing and
promotion of the Portfolios and in accordance with the criteria and standards
established by the Licensor and User accepts the license subject to such terms
and conditions.

<PAGE>

2. Licensor's Concurrent Right to Use the Marks
Notwithstanding any of the provisions of Sections 1 of this
License Agreement, Licensor shall retain the right to use the Marks in

connection with its own business activities in the United States and throughout
the world. In addition, Licensor reserves the right to grant to any other person
or entity the rights to use the the Marks, and no consent or permission of the
User shall be necessary, but, if required by an applicable law of any state,
User agrees that it will forthwith grant all requisite consents.

3. Term
a. This License Agreement may be executed in counterparts by
the parties hereto and shall become effective and binding upon the parties at
such time as each of the parties has signed and delivered to the other party one
or more counterparts of this License Agreement (the "Effective Date").

b. This License Agreement shall continue in force and effect
unless and until terminated in accordance with the provisions in Sections 9 and
10 of this License Agreement.

4. Ownership of Marks
User acknowledges the ownership of the Marks in Licensor,
agrees that it will do nothing inconsistent with such ownership and that all use
of the Marks by User shall inure to the benefit of Licensor. User agrees that
nothing in this License Agreement shall give User any right, title or interest
in the the Marks other than the right to use such designations in accordance
with this License Agreement.

5. Quality Standards
User agrees that the nature and quality of all goods sold and
services rendered by User in connection with the Marks shall conform to
reasonable standards set by, and be under the control of, the Licensor. Licensor
may make reasonable amendments to these standards from time to time and shall
give the User ninety (90) days advance notice in writing of such amendments.

- 2 -

<PAGE>

6. Quality Maintenance
a. User agrees to cooperate with the Licensor in facilitating
Licensor's control of such nature and quality, to permit reasonable inspection
of User's operations and activities, and to supply the Licensor with specimens
of all uses of the the Marks. Prior to disseminating any sales literature,
promotional material or other printed matter using the Marks, User shall submit
all such materials to Licensor in draft form for approval, allowing sufficient
time for review by Licensor and its counsel prior to any deadline for printing.
If Licensor does not notify the User in writing of any objections to the
materials within ten (10) business days after they are received by Licensor, the
materials shall be deemed approved. The User shall not distribute any materials
to which the Licensor has objected in accordance with this Section unless and
until Licensor delivers to User a written approval of the materials.
b. User shall comply with all applicable laws and regulations
and obtain appropriate government approvals pertaining to the sale, distribution
and advertising of services covered by this License Agreement.

7. Form of Use
User agrees to use the Marks only in the form and manner and

with appropriate legends as prescribed from time to time by the Licensor, and
not to use any other trademark or service mark in combination with the Marks
without prior written approval of the Licensor.

8. Infringement Proceedings
a. User agrees to notify the Licensor of any
unauthorized use of the Marks by others promptly as it comes to User's
attention.
b. The Licensor shall have the right, in its sole discretion,
to bring infringement or unfair competition proceedings involving the Marks at
Licensor's expense and to take all reasonable steps to prevent the unauthorized
use of the Marks (hereinafter called "Enforcement Proceedings"). Licensor shall
be entitled to any money damages or settlement payments ("Damages") recovered as
the result of a judgment or settlement of Enforcement Proceedings initiated by
the Licensor. User shall cooperate fully in the prosecution of any Enforcement
Proceedings initiated by Licensor.

9. Termination
a. Except as otherwise provided herein, Licensor shall give
User written notice of any material breach of this License Agreement, whereupon
User shall have sixty (60) days from the date such notice is received to cure
such breach (the "Cure Period"). If a complete cure is not effected within the
Cure Period, or if at any time User indicates that it is unwilling or unable to
cure the breach, the License Agreement shall then terminate automatically
without the necessity of any further notice to User.

- 3 -
<PAGE>

b. This License Agreement shall terminate immediately and
automatically, without the necessity of any notice to the User, in the event
that User undertakes to license or assign the Marks to any person or entity
without the prior written consent of the Licensor. The cure provisions of
Section 9(a) shall not apply to any termination under this Section 9(b).
c. To the extent permitted by law, Licensor shall have the
right to terminate this License Agreement immediately upon written notice to
User in the event of any affirmative act of insolvency by User, or upon the
appointment of any receiver or trustee to take possession of the properties of
User or upon the winding-up, sale, consolidation, merger or any sequestration by
governmental authority of User. The cure provisions of Section 9(a) shall not
apply to any termination under this Section 9(c).
d. This License Agreement shall terminate ninety (90) days
after written notice terminating this License Agreement is received by the User.
The cure provisions of Section 9(a) shall not apply to any termination under
this Section 9(d).

10. Effect of Expiration or Termination
a. Upon expiration or termination of this License Agreement
for any reason, User agrees: (i) to discontinue immediately the preparation and
manufacture of any sales literature, promotional material or other materials
using the Marks or any marks confusingly similar thereto; and (ii) to
discontinue immediately the use of any signage displaying the Marks or any other
use of such designations.
b. Within 90 days after the expiration or termination of this

License Agreement for any reason, User agrees (i) to cease to use in any manner,
including but not limited to use in any sales literature, promotional material
or other materials, any of the Marks or any marks confusingly similar thereto;
and (ii) to deliver to Licensor all materials using the Marks.

11. Legal Relationship of the Parties and Indemnification
a. The parties shall act solely as independent entities under
this License Agreement and nothing contained herein shall create or be construed
as creating a partnership, joint venture, agency, or any other relationship
between the parties other than one of licensor and licensee of the Marks.
b. Licensor assumes no liability to User or to third parties
with respect to the performance of the services rendered by User in connection
with the Marks. User agrees to protect, exonerate, defend, indemnify and hold
Licensor harmless from any and all losses, costs, damages, claims, liabilities
or expenses, joint or several, incurred by Licensor, including reasonable
attorneys' fees, based upon or arising out of User's services or out of User's
use or misuse of the Marks.

- 4 -

<PAGE>

12. Notices
All notices or other communications hereunder to either party
shall be in writing and shall be addressed to the respective parties at the
addresses as set forth above. Notice shall also be deemed sufficient if given by
telex, telecopier, telegram or similar means of delivery.

13. Interpretation of License Agreement and Assignment
a. This License Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to its
conflicts of laws provisions.
b. Any purported assignment of rights or delegation of duties
by the User under this License Agreement, in whole or in part, without the prior
written approval by the Licensor shall be null and void and totally without
effect.

IN WITNESS WHEREOF, the parties hereto have caused this
License Agreement to be executed as of the day and year first above written.

WATERHOUSE SECURITIES, INC. NATIONAL INVESTORS CASH
MANAGEMENT FUND, INC.

By: /s/ John Chapel By: /s/ Arnold J. Feist
------------------------ -------------------------
Title: President Title: Vice President

- 5 -

<PAGE>

SCHEDULE A

THE MARKS

1. The designation "Kennedy Cabot & Co."

- 6 -

<PAGE>

Dear Sirs:

As the principal underwriter of shares of certain registered
investment companies presently or hereafter managed, advised or administered by
Waterhouse Asset Management, Inc., shares of which companies are distributed by
us at their respective net asset values plus sales charges as applicable,
pursuant to our Distribution Agreements with such companies (the "Funds"), we
invite you to participate as a non-exclusive agent in the distribution of shares
of any and all of the Funds upon the following terms and conditions:

1. You are to offer and sell such shares only at the public offering prices
that shall be currently in effect, in accordance with the terms of the then
current prospectuses and statements of additional information of the Funds
subject in each case to the delivery prior to or at the time of such sales
of the then current prospectus. You agree to act only as agent in such
transactions and nothing in this Agreement shall constitute either of us
the agent of the other or shall constitute you or the Fund the agent of the
other. In all transactions in these shares between you and us, we are
acting as agent for the Fund and not as principal. All orders are subject
to acceptance by us and become effective only upon confirmation by us. We
reserve the right in our sole discretion to reject any order. The minimum
dollar purchase of shares of the Funds shall be the applicable minimum
amounts described in the then current prospectuses and statements of
additional information and no order for less than such amounts will be
accepted.

2. On each purchase of shares by you from us, the total sales charges and
discount to selected dealer, if any, shall be as stated in each Fund's then
current prospectus.

Such sales charges and discount to selected dealers are subject to
reductions under a variety of circumstances as described in each Fund's
then current prospectus and statement of additional information. To obtain
these reductions, we must be notified when the sale takes place which would
qualify for the reduced charge.

There is no sales charge or discount to selected dealers on the
reinvestment of any dividends or distributions.

3. All purchases of shares of a Fund made under any cumulative purchase
privilege as set forth in a Fund's then current effective Prospectus shall
be considered an individual transaction for the purpose of determining the
concession from the public offering price which you are entitled as set
forth in paragraph 2 hereof.

4. As an authorized agent to sell shares of the Fund, you agree to purchase
shares of the Funds only through us or from your customers. Purchases
through us shall be made only for your own investment purposes or for the
purpose of covering purchase orders already received from your customers,
and we agree that we will not place orders for the purchase of shares from
a Fund except to cover purchase orders already received by us. Purchases
from your customers shall be at a price not less than the net asset value

quoted by each such Fund at the time of such purchase. Nothing herein
contained shall prevent you from selling any

<PAGE>

shares of a Fund for the account of a record holder to us or to such Fund
at the net asset value quoted by us and charging your customer a fair
commission for handling the transaction.

5. You agree that you will not withhold placing customers' orders so as to
profit yourself as a result of such withholding.

6. You agree to sell shares of the Funds only (a) to your customers at the
public offering prices then in effect or (b) to us as agent for the Funds
or to each such Fund itself at the redemption price, as described in each
Fund's then current effective Prospectus.

7. Settlement shall be made promptly, but in no case later than the time
customary for such payments after our acceptance of the order or, if so
specified by you, we will make delivery by draft on you, the amount of
which draft you agree to pay on presentation to you. If payment is not so
received or made, the right is reserved forthwith to cancel the sale or at
our option to resell the shares to the applicable Fund, at the then
prevailing net asset value in which latter case you agree to be responsible
for any loss resulting to such Fund or to us from your failure to make
payment as aforesaid.

8. If any shares sold to you under the terms of this Agreement are repurchased
by a Fund or by us as agent, or purchased for the account of that Fund or
tendered to that Fund for purchase at liquidating value under the terms of
the Articles of Incorporation or other document governing such Fund within
seven (7) business days after the date of confirmation to you of your
original purchase order therefor, you agree to pay forthwith to us the full
amount of the concession allowed to you on the original sale and we agree
to pay such amount to the Fund when received by us. We shall notify you of
such repurchase within ten (10) days of the effective date of such
repurchase.

9. All sales will be subject to receipt of shares by us from the Funds. We
reserve the right in our discretion, without notice to you, to suspend
sales or withdraw the offering of shares entirely, or to modify or cancel
this Agreement.

10. No person is authorized to make any representations concerning the Funds
or shares of the Funds except those contained in each Fund's then current
effective Prospectus or Statement of Additional Information and any such
information as may be released by a Fund as information supplemental to
such Prospectus or Statement of Additional Information. In purchasing
shares through us you shall rely solely on the representations contained in
each Fund's then current effective Prospectus or Statement of Additional
Information and above-mentioned supplemental information.

11. Additional copies of each such Prospectus or Statement of Additional
Information and any printed information issued as supplemental to each such
Prospectus or Statement of Additional Information will be supplied by us to
you and your selling agents in reasonable quantities upon request.

<PAGE>

18. This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts and shall be binding upon both parties hereto
when signed and accepted by you in the space provided below.

For: Funds Distributor, Inc.
60 State Street, Suite 1300
Boston, MA 02109

- ----------------------------------- -----------------
By: Date

For:
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Address of Principal Office

- --------------------------------------------------------------------------------
City State Zip Code

By: Its:
- ----------------------------- -------------------------- ------------------
Authorized Signature Title Date

- -----------------------------
Print Name

<PAGE>

[SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP letterhead]

May 14, 1998

National Investors Cash Management Fund, Inc.
100 Wall Street
New York, New York 10005

Ladies and Gentlemen:

National Investors Cash Management Fund, Inc. (the "Fund")
proposes to issue and sell an indefinite number of shares (the "Shares") of its
common stock, par value $.0001 per share (the "Common Stock"), in the manner and
on the terms set forth in its Registration Statement on Form N-1A, as amended to
date, filed with the Securities and Exchange Commission (File Nos. 33-14527,
811-07871).

We have, as counsel, participated in various corporate and
other proceedings relating to the Fund and to the Shares. We have examined
copies, either certified or otherwise proved to our satisfaction to be genuine,
of its Articles of Incorporation and By-Laws, as currently in effect, a
certificate of good standing issued by the State Department of Assessments and
Taxation of the State of Maryland and other documents relating to its
organization and operation. We have also reviewed the above-mentioned
Registration Statement, as amended to date, and the documents filed as exhibits
thereto. We are generally familiar with the business affairs of the Fund.

Based upon the foregoing, it is our opinion that:

1. The Fund has been duly organized and is validly existing
under the laws of the State of Maryland.

2. The Fund is authorized to issue 100 billion
(100,000,000,000) Shares. Under Maryland law, shares of Common Stock which are
issued and subsequently redeemed by the Fund will be, by virtue of such
redemption, restored to the status of authorized and unissued shares.

<PAGE>

National Investors Cash Management Fund, Inc.
May 14, 1998
Page 2

3. Subject to the effectiveness of the above-mentioned
Registration Statement and compliance with applicable state securities laws,
upon the issuance of the Shares for a consideration not less than the par value
thereof, and not less than the net asset value thereof as required by the
Investment Company Act of 1940, as amended, and in accordance with the terms of
the Registration Statement, such Shares will be legally issued and outstanding
and fully paid and non-assessable.

We hereby consent to the filing of this opinion with the
Securities and Exchange Commission as a part of the above-mentioned Registration
Statement and with any state securities commission where such filing is
required. We also consent to the reference to our firm as counsel in the
prospectus filed as a part thereof. In giving this consent we do not admit that
we come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended.

We are members of the Bar of the State of New York and do not
hold ourselves out as being conversant with the laws of any jurisdiction other
than those of the United States of America and the State of New York. We note
that we are not licensed to practice law in the State of Maryland, and to the
extent that any opinion expressed herein involves the law of Maryland, such
opinion should be understood to be based solely upon our review of the good
standing certificate referred to above, the published statutes of that State
and, where applicable, published cases, rules or regulations of regulatory
bodies of that State.

Very truly yours,

/s/ Shereff, Friedman, Hoffman & Goodman, LLP

Shereff, Friedman, Hoffman & Goodman, LLP

SFH&G:JHG:MKN:SSD

<PAGE>

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Independent Auditors
and Reports to Shareholders" and to the use of our report dated May 15, 1998, in
this Registration Statement (Form N-1A No. 33-14527) of National Investors Cash
Management Fund, Inc.

/s/ Ernst & Young LLP
--------------------------
ERNST & YOUNG LLP

New York, New York
May 15, 1998

<PAGE>
SUBSCRIPTION AGREEMENT

National Investors Cash Management Fund, Inc. (the "Company"), a Maryland
corporation, and FDI Distribution Services, Inc. ("FDI"), a Delaware
corporation, hereby agree with each other as follows:

1. The Company hereby offers FDI and FDI hereby purchases 50,000 shares
(par value $.0001 per share) of the Kennedy Cabot Money Market Portfolio, 25,000
shares (par value $.0001 per share) of the Kennedy Cabot U.S. Government
Portfolio, and 25,000 shares (par value $.0001 per share) of the Kennedy Cabot
Municipal Portfolio of the Company (collectively known as "shares") at a price
of $1.00 per share.

2. FDI represents and warrants to the Company that the shares are being
acquired for investment purposes and not with a view to the distribution
thereof.

3. FDI agrees that if it or any direct or indirect transferee of any of
the shares redeems any of the shares prior to the fifth anniversary of the date
the Company begins its investment activities, FDI will pay to the Company an
amount equal to the number resulting from multiplying the Company's total
unamortized organizational expenses by a fraction, the numerator of which is
equal to the number of shares redeemed by FDI or such transferee and the
denominator of which is equal to the number of shares outstanding as of the date
of such redemption, as long as the administrative position of the staff of the
Securities and Exchange Commission requires such reimbursement.

4. FDI is authorized and otherwise duly qualified to purchase and hold
shares and to enter into this Subscription Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 14th day of May, 1998.

(SEAL) National Investors Cash Management
Fund, Inc.

ATTEST:

/s/ Karen Jacoppo Wood By: /s/ Joseph F. Tower III
- ---------------------- --------------------------

(SEAL) FDI Distribution Services, Inc.

ATTEST:

/s/ Karen Jacoppo Wood By: /s/ Richard W. Ingram
- ---------------------- --------------------------