TREASURERS FUND INC /MD/, 497, 1998-03-11

TREASURERS FUND INC /MD/
497, 1998-03-11

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PROSPECTUS February 27, 1998

The Treasurer's Fund, Inc.
19 Old Kings Highway South, Darien, Connecticut 06820-4526
For information call 1-800-TSR-FUND/1-800-877-3863

The Treasurer's Fund is composed of six portfolios designed to meet the
short and intermediate term investment needs of corporate and institutional cash
managers. At this time, only the Domestic Prime Money Market, Tax Exempt Money
Market and U.S. Treasury Money Market Portfolios of the Fund have been activated
by the Advisor. There are no sales loads or exchange or redemption fees
associated with the Fund.

U.S. Treasury Money Market Portfolio--seeks to maximize current income and
maintain liquidity and a stable net asset value of $1 per share by
investing in short term U.S. Treasury obligations. This Portfolio may also
invest in repurchase agreements and reverse repurchase agreements which
are collateralized by U.S. Treasury obligations.

Domestic Prime Money Market Portfolio--seeks to maximize current income
and maintain liquidity and a stable net asset value of $1 per share by
investing in prime quality, domestic money market instruments.

Global Money Market Portfolio--seeks to maximize current income and
maintain liquidity and a stable net asset value of $1 per share by
investing in prime quality money market instruments of both domestic and
foreign issuers.

Tax Exempt Money Market Portfolio--seeks to maximize current tax exempt
income and maintain liquidity and a stable net asset value of $1 per share
by investing in high quality money market instruments which are exempt
from federal income tax.

Limited Term Portfolio--seeks to maximize current income consistent with
moderate risk of capital by investing in a liquid portfolio with a maximum
weighted average maturity of two years. Designed for investors who seek
yields greater than available from a portfolio of exclusively money market
obligations. The net asset value per share will fluctuate.

Tax Exempt Limited Term Portfolio--seeks to maximize current income exempt
from federal income tax consistent with moderate risk of capital by
investing in a liquid portfolio with a maximum weighted average maturity
of three years. Designed for investors who seek tax exempt yields greater
than available from a portfolio of exclusively tax exempt money market
obligations. The net asset value per share will fluctuate.

This Prospectus sets forth concisely the information about each Portfolio
that a prospective investor ought to know before investing and it should be
retained for future reference. Additional information about each Portfolio,
including additional information concerning risk factors relating to an
investment in each Portfolio, has been filed with the Securities and Exchange
Commission in a Statement of Additional Information for the Fund, dated or
supplemented the date of this Prospectus and as supplemented from time to time.
This information is incorporated by reference and is available without charge
upon request from Gabelli Fixed Income Distributors, Inc., 19 Old Kings Highway
South, Darien, Connecticut 06820-4526, Attention: The Treasurer's Fund or call
1-800-TSR-FUND/1-800-877-3863.

An investment in the Money Market Portfolios is neither insured nor
guaranteed by the U.S. Government. There can be no assurance that the
Portfolios' objectives will be achieved or that the Money Market Portfolios'
stable net asset value of $1 per share can be maintained.

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

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

TABLE OF CONTENTS

Page
----

Summary..................................................................... 1
Table of Fees and Expenses.................................................. 3
Financial Highlights........................................................ 4
U.S. Treasury Money Market Portfolio........................................ 8
Domestic Prime Money Market Portfolio....................................... 9
Global Money Market Portfolio............................................... 10
Tax Exempt Money Market Portfolio........................................... 12
Limited Term Portfolio...................................................... 14
Tax Exempt Limited Term Portfolio........................................... 15
Additional Investment Information and
Risk Factors............................................................ 17
Investment Restrictions..................................................... 24
Management of the Fund...................................................... 25
Purchase of Shares.......................................................... 28
Redemption of Shares........................................................ 29
Exchange of Shares.......................................................... 30
Dividends and Distributions................................................. 30
Net Asset Value............................................................. 31
Yield and Total Return Information.......................................... 31
Description of Common Stock................................................. 32
Distribution Plan........................................................... 32
Taxes....................................................................... 33
Custodian, Transfer Agent and
Dividend Agent.......................................................... 36
General Information......................................................... 36
<PAGE>

The Treasurer's Fund Portfolios

SUMMARY

<TABLE>
<CAPTION>
Quality Ratings**
Maturity Representative*
Objectives Restrictions Investments Moody's S&P
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Money Market Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Composed of U.S. Treasury Maximum weighted U.S. Treasury obligations -- --
obligations only. Seeks to average maturity: 90 days
maintain a stable $1 net asset Maximum maturity of
value per share. individual securities: 397 days

Domestic Prime Money Market Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
Composed of prime quality U.S. Maximum weighted U.S. Government obligations -- --
dollar denominated money market average maturity: 90 days Commercial paper P-1 A-1
obligations of domestic issuers Maximum maturity of Negotiable CDs -- --
only. Seeks to maintain a individual securities: 397 days Bankers acceptances -- --
stable $1 net asset value per Short term corporate
share. obligations Aa or Aaa Aa or Aaa

Global Money Market Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
Composed of prime quality U.S. Maximum weighted U.S. Government obligations -- --
dollar denominated money market average maturity: 90 days Commercial paper P-1 A-1
obligations of domestic and Maximum maturity of Negotiable CDs -- --
foreign issuers. Seeks to individual securities: 397 days Bankers acceptances -- --
maintain a stable $1 net asset Eurodollar and Yankee CDs -- --
value per share. Short term corporate and
government obligations Aa or Aaa Aa or Aaa

Tax Exempt Money Market Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
Composed of high quality Maximum weighted Municipal notes MIG-1 or SP-1 or
municipal securities exempt average maturity: 90 days Short term municipal bonds MIG-2 SP-2
from federal income tax. Seeks Maximum maturity of Tax exempt commercial paper Aa or Aaa Aa or Aaa
to maintain a stable $1 net individual securities: 397 days Variable and floating rate P-1 or P-2 A-1 or A-2
asset value per share demand notes VMIG-1 or SP-1 or
VMIG-2 SP-2

Limited Term Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
Composed of prime quality U.S. Maximum weighted U.S. Government obligations -- --
dollar denominated securities. average maturity: 2 years Commercial paper P-1 A-1
Seeks to obtain a current yield Maximum maturity of Corporate notes, bonds and
greater than that obtainable individual securities: 3 years other obligations Aa or Aaa Aa or Aaa
from the Money Market Asset-backed debt Aa or Aaa Aa or Aaa
Portfolios by actively managing Negotiable CDs -- --
securities in the short and Eurodollar and Yankee CDs -- --
intermediate maturity ranges. Hedging instruments -- --
Net asset value per share will Private placements -- --
fluctuate.

Tax Exempt Limited Term Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
Composed of municipal Maximum weighted Municipal notes MIG-1 or SP-1 or
securities exempt from federal average maturity: 3 years Intermediate term municipal bonds MIG-2 SP-2
income tax. Seeks to obtain a Maximum maturity of Tax exempt commercial paper A, Aa or A, Aa or
current yield greater than individual securities: 5 years Variable and floating rate Aaa Aaa
that obtainable from the Tax demand notes P-1 or P-2 A-1 or A-2
Exempt Money Market Portfolio Hedging instruments VMIG-1 or SP-1 or
by actively managing securities Private placements VMIG-2 SP-2
in the short and intermediate -- --
maturity ranges. Net asset -- --
value per share will fluctuate.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

- ----------
* In addition, each Portfolio may invest in repurchase agreements and
reverse repurchase agreements with member banks of the Federal Reserve
System and primary dealers in U.S. Government Securities.
** Unrated securities may be purchased if they are determined by the Fund's
Board of Directors to be of comparable quality to the permitted
investments of the Portfolio. There is no assurance that the Portfolios
will achieve their objectives or that the stable net asset value of $1 per
share for the Money Market Portfolios can be maintained.

1
<PAGE>

The Treasurer's Fund

The Treasurer's Fund, Inc. (the "Fund") is a no-load, diversified,
open-end, management investment company, organized under Maryland law, that is
composed of six portfolios designed to meet the distinctive cash management
objectives of treasurers and financial officers of corporations and other
institutions and individuals.

The Fund offers a choice of four Money Market Portfolios -- three taxable
and the other tax exempt -- which seek to maintain stable net asset values of $1
per share. There can be no assurance that the Money Market Portfolios will be
able to maintain stable net asset values of $1 per share. The Fund also offers
two Limited Term Portfolios -- one taxable and the other tax exempt. The net
asset value per share of the Limited Term Portfolios will fluctuate. At this
time, only the Domestic Prime Money Market, Tax Exempt Money Market and U.S.
Treasury Money Market Portfolios of the Fund have been activated by the Advisor.

An investment in the Portfolios of the Fund entails certain risks,
including, for certain Portfolios, risks associated with the purchase of
when-issued securities, repurchase agreements, reverse repurchase agreements,
puts and foreign securities, and with the lending of Portfolio securities, which
are further described under "Additional Investment Information and Risk Factors"
herein and "Risk Factors" in the Statement of Additional Information.

Investment Requirements

Minimum Initial Investment $100,000 per Portfolio

Subsequent Investments No minimum amount

Minimum Balance $50,000 per Portfolio

Investors may allocate their investment among the Portfolios at their
discretion and may change their allocation at any time, subject only to the
minimum initial investment required for each Portfolio. There are no fees for
exchanges among Portfolios.

Advisory Fee Expenses

The Fund will pay Gabelli Fixed Income LLC, the Fund's investment advisor
(the "Advisor"), a monthly advisory fee at the annual rate of .30% of the
average daily net assets of the Money Market Portfolios and .45% of the average
daily net assets of the Limited Term Portfolios. Each Portfolio will also be
responsible for payment of its expenses, including administrator fees, custodian
fees, fund accounting fees, transfer and dividend paying agent fees, legal fees,
auditing fees, directors' fees, the expense of issuing reports to shareholders
and other expenses of administering the Portfolio.

The Fund expects to achieve a significantly lower total expense ratio than
funds designed for individual investors because it:

o is designed specifically for corporate and institutional investors
who normally maintain high average account balances;

o requires a $100,000 minimum investment per Portfolio.

Furthermore, there are no sales loads, exchange fees or redemption fees.
All distribution and promotional expenses payable pursuant to the Portfolios'
Rule 12b-1 Plans will be paid by the Advisor from its own resources which
include the advisory fee. From time to time, Gabelli Fixed Income LLC may
voluntarily assume certain expenses of any Portfolio of the Fund. This would
have the effect of lowering the overall expense ratio of that Portfolio and of
increasing yield to investors in that Portfolio. Additionally, the Fund may
reduce the investment minimums under certain circumstances.

2
<PAGE>

Operational Benefits

The Fund's six Portfolios are specifically designed to meet the
distinctive cash management needs and objectives of treasurers and financial
officers of corporations and other institutions and individuals:

o diversification, without the cost and inconvenience of direct
investment in individual securities

o a comprehensive package of convenient services:

-- dedicated line (1-800-TSR-FUND/1-800-877-3863) direct to the
Advisor's shareholder service representatives for shareholder
inquiries and for placing purchase, redemption or exchange
instructions
-- free exchange among the Portfolios
-- checkwriting option, without cost (Money Market Portfolios
only)
-- custodial services, security safekeeping, record keeping
-- dividends, accrued daily and paid monthly, may be
automatically reinvested or wired to a designated bank account
-- confirmation statement for each transaction
-- consolidated monthly statement for all six Portfolios

o liquidity:
-- telephone purchase orders for the four Money Market Portfolios
received before 12:00 noon Eastern time will become effective
and begin earning income that day provided Federal Funds are
received by the Fund's Custodian prior to the close of
business; redemptions made before 12:00 noon Eastern time will
be wired that day (but no dividend will be earned that day);
-- telephone purchase orders for the two Limited Term Portfolios
received by 4:00 pm Eastern time will be invested at that
day's NAV and will begin earning income on the next business
day; redemptions made before 4:00 pm Eastern time will be made
at that day's NAV and wired the next business day.

TABLE OF FEES AND EXPENSES

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

Domestic Prime Tax Exempt U.S. Treasury
Money Market Money Market Money Market
Portfolio Portfolio Portfolio
------ ------ ------
Management Fees................ .30% .30% .30%
Other Operating Expenses....... .22% .23% .31%
---- ---- ----
Total Fund Operating Expenses.. .52% .53% .61%
==== ==== ====

3
<PAGE>

Example:

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

Domestic Prime Tax Exempt U.S. Treasury
Money Market Money Market Money Market
Portfolio Portfolio Portfolio
--------- --------- ---------
1 Year............ $ 5 $ 5 $ 6
3 Years........... 17 17 20
5 Years........... 29 30 34
10 Years.......... 65 66 76

The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in each Portfolio
will bear directly and indirectly. (For more complete descriptions of the
various costs and expenses, see "Management of the Fund"). The Example shown in
the table above should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. At this
time, only the Domestic Prime Money Market, Tax Exempt Money Market and U.S.
Treasury Money Market Portfolios of the Fund have been activated by the Advisor.

Financial Highlights

The following financial highlights of The Treasurer's Fund and the related
financial statements for fiscal years 1990 through 1997 have been audited by
Ernst & Young LLP, Independent Auditors. Prior to 1990, the Financial Highlights
were audited by other auditors. This information should be read in conjunction
with the financial statements which appear in the Statement of Additional
Information.

4
<PAGE>
Domestic Prime
Money Market Portfolio

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988(e)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value:
Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Income from Investment
Operations:
Net Investment Income(b) 0.050 0.049 0.054 0.035 0.028 0.038 0.061 0.080 0.090 0.057
Net Realized Gain
(Loss) on Investments 0.000 0.000 (0.002) 0.000 0.000 0.000 0.001 0.000 0.000 0.000
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total from Investment
Operations 0.050 0.049 0.052 0.035 0.028 0.038 0.062 0.080 0.090 0.057
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Less Distributions:
Dividends from Net
Investment Income (0.049) (0.049) (0.054) (0.035) (0.028) (0.038) (0.061) (0.080) (0.090) (0.057)
Dividends from Net
Realized Gain on
Investments (0.001) (0.000) (0.000) (0.000) (0.000) (0.000) (0.001) (0.000) (0.000) (0.000)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total Distributions (0.050) (0.049) (0.054) (0.035) (0.028) (0.038) (0.062) (0.080) (0.090) (0.057)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Contributions from
Affiliate(c) ----- ----- 0.002 ----- ----- ----- ----- ----- ----- -----
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Net Asset Value:
End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ======== ======== ======== ======== ======== =======
Total Return(a) 5.19% 5.12% 5.50% 3.56% 2.90% 3.82% 6.42% 8.26% 9.29% 7.33%(f)
Ratios/Supplemental Data:
Net Assets, End of
Period (in thousands) $280,339 $236,812 $169,297 $143,744 $145,021 $169,357 $205,282 $155,732 $185,068 $95,073
Ratio of Operating
Expenses to Average
Net Assets(d) 0.52% 0.52% 0.50% 0.53% 0.55% 0.54% 0.49% 0.45% 0.45% 0.45%(f)

Ratio of Interest
Expenses to Average Net
Assets --- 0.01% 0.02% 0.13% 0.07% --- 0.39% 0.59% 0.08% ---
Ratio of Net Investment
Income to Average
Net Assets 4.99% 4.93% 5.33% 3.49% 2.82% 3.82% 6.12% 7.99% 8.98% 7.33%(f)

Decrease reflected in
above expense ratios
due to undertakings
by the Advisor/
Administrator ----- 0.01% 0.01% ----- ----- 0.01% 0.06% 0.09% 0.16% 0.40%(f)
</TABLE>

- --------------
(a) Total return represents aggregate total return off a hypothetical $1,000
investment at the beginning of the period and sold at the end of the
period including reinvestment of dividends.
(b) Net investment income before fees waived by the administrator for the
years ended October 31, 1996, 1995 and 1994 was $0.048, $0.053, and
$0.034, respectively.
(c) During the year ended October 31, 1995, the Portfolio realized losses on
the sale of certain securities. Pursuant to an undertaking, losses in the
amount of $262, 913 were reimbursed to the Portfolio by the former
Adviser.
(d) Operating expense ratios before custodian fee credits on cash balances
maintained with the custodian and fees waived by the administrator for the
years ended October 31, 1996 and 1995 were 0.54% and 0.53%, respectively.
(e) The Domestic Prime Money Market Portfolio commenced operations on December
18, 1987.
(f) Annualized.

5
<PAGE>

Tax-Exempt
Money Market Portfolio

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31,
1997 1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value:
Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- -------- ------- ------- -------
Income from Investment
Operations:
Net Investment Income(b) 0.031 0.030 0.034 0.022 0.021 0.031 0.047 0.058
Total from Investment
Operations 0.031 0.030 0.034 0.022 0.021 0.031 0.047 0.058
-------- -------- -------- -------- -------- ------- ------- -------
Less Distributions:
Dividends from Net
Investment Income (0.031) (0.030) (0.034) (0.022) (0.021) (0.031) (0.047) (0.058)
Total Distributions (0.031) (0.030) (0.034) (0.022) (0.021) (0.031) (0.047) (0.058)
-------- -------- -------- -------- -------- ------- ------- -------
Net Asset Value:
End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ======== ======= ======= =======
Total Return(a) 3.12% 3.04% 3.42% 2.21% 2.16% 3.19% 4.83% 5.94%
Ratios/Supplemental Data:
Net Assets, End of Period
(in thousands) $192,834 $158,507 $140,826 $133,951 $117,751 $95,751 $86,486 $89,620
Ratio of Operating Expenses
to Average Net Assets(c) 0.52% 0.52% 0.50% 0.53% 0.57% 0.58% 0.49% 0.45%
Ratio of Net Investment
Income to Average Net
Assets 3.07% 3.00% 3.35% 2.18% 2.15% 3.10% 4.71% 5.77%
Decrease reflected in above
expense ratios due to
undertakings by the
Advisor/Administrator 0.00% 0.00% 0.01% 0.01% 0.00% 0.02% 0.09% 0.16%
</TABLE>

Fiscal Year Ended October 31,
1989 1988(d)
Net Asset Value:
Beginning of Period $ 1.000 $ 1.000
------- -------
Income from Investment
Operations:
Net Investment Income(b) 0.061 0.045
Total from Investment
Operations 0.061 0.045
------- -------
Less Distributions:
Dividends from Net
Investment Income (0.061) (0.045)
Total Distributions (0.061) (0.045)
------- -------
Net Asset Value:
End of Period $ 1.000 $ 1.000
======= =======
Total Return(a) 6.31% 5.19%(e)
Ratios/Supplemental Data:
Net Assets, End of Period
(in thousands) $68,193 $57,561
Ratio of Operating Expenses
to Average Net Assets(c) 0.45% 0.45%(e)
Ratio of Net Investment
Income to Average Net
Assets 6.12% 5.20%(e)
Decrease reflected in above
expense ratios due to
undertakings by the
Advisor/Administrator 0.27% 0.57%(e)

- ----------

(a) Total return represents aggregate total return off a hypothetical $1,000
investment at the beginning of the period and sold at the end of the
period including reinvestment of dividends.
(b) Net investment income before fees waived by the administrator for the
years ended October 31, 1995 and 1994 was $0.033, and $0.021,
respectively.
(c) Operating expense ratios before custodian fee credits on cash balances
maintained with the custodian for the years ended October 31, 1997 and
1996 were 0.53% and 0.54%, respectively. The operating expense ratio
before custodian fee credits on cash balances maintained with the
custodian and fees waived by the administrator for the year ended October
31, 1995 was 0.53%. The operating expense ratio before fees waived by the
administrator for the year ended October 31, 1994 was 0.54%.
(d) The Tax Exempt Money Market Portfolio commenced operations on December 18,
1987.
(e) Annualized.

6
<PAGE>

U. S. Treasury
Money Market Portfolio

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31,
1997 1996 1995 1994 1993 1992 1991 1990(c)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value:
Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net Investment Income 0.047 0.047 0.051 0.033 0.026 0.034 0.055 0.019
Net Realized Gain (Loss)
on Investments 0.001 -- -- -- -- -- 0.002 --
------- ------- ------- -------- -------- -------- -------- --------
Total from Investment
Operations 0.048 0.047 0.051 0.033 0.026 0.034 0.057 0.019
------- ------- ------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net
Investment Income (0.047) (0.047) (0.051) (0.0353 (0.026) (0.034) (0.055) (0.019)
Dividends from Net Realized
Gain on Investments (0.001) -- -- -- -- (0.002) (0.002) --
------- ------- ------- -------- -------- -------- -------- --------
Total Distributions (0.048) (0.047) (0.051) (0.033) (0.026) (0.036) (0.057) (0.019)
------- ------- ------- -------- -------- -------- -------- --------
Net Asset Value:
End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======== ======== ======== ======== ========
Total Return(a) 4.91% 4.83% 5.27% 3.31% 2.60% 3.68% 6.06% 1.82%(d)
Ratios/Supplemental Data:
Net Assets, End of Period
(in thousands) $85,204 $90,761 $94,834 $138,205 $224,071 $254,899 $281,257 $130,337
Ratio of Operating Expenses
to Average Net Assets(b) 0.60% 0.60% 0.54% 0.49% 0.47% 0.45% 0.49% 0.45%(d)
Ratio of Net Investment
Income to Average Net
Assets 4.74% 4.70% 5.10% 3.07% 2.55% 3.38% 5.50% 7.17%(d)
Decrease reflected in above
expense ratios due to under-
takings by the Advisor/ 0.00% 0.00% 0.00% 0.00% 0.00% 0.01% 0.03% 0.19%(d)
Administrator
</TABLE>

- ----------
(a) Total return represents aggregate total return off a hypothetical $1,000
investment at the beginning of the period and sold at the end of the
period including reinvestment of dividends.
(b) Operating expense ratios before custodian fee credits on securities
lending income for the year ended October 31, 1997 was 0.61%. Operating
expense ratios before custodian fee credits on cash balances maintained
with the custodian for the years ended October 31, 1996 and 1995 were
0.63% and 0.56%, respectively.
(c) The U.S. Treasury Money Market Portfolio commenced operations July 25,
1990.
(d) Annualized.

7
<PAGE>

U.S. TREASURY MONEY MARKET PORTFOLIO

Investment Objectives and Policies

The U.S. Treasury Money Market Portfolio's investment objectives are to
maximize current income and to maintain liquidity and a stable net asset value
of $1 per share. The Portfolio attempts to accomplish these objectives by
investing in U.S. Treasury obligations which have effective maturities of 397
days or less and repurchase agreements that are collateralized by U.S. Treasury
obligations to enable it to employ the amortized cost method of valuation. The
Portfolio may also engage in reverse repurchase agreements consistent with the
requirements of the amortized cost method of valuation. The investment
objectives stated above are fundamental and may be changed only with the
approval of a majority of the outstanding shares of the Portfolio. There can be
no assurance that the U.S. Treasury Money Market Portfolio can achieve these
objectives or that it will be able to maintain a stable net asset value of $1
per share.

Permitted Investments:

United States Treasury Obligations -- obligations issued by the United
States Treasury. These obligations are backed by the full faith and credit of
the United States.

U.S. Treasury obligations include bills, notes and bonds, which
principally differ only in their interest rates, maturities and times of
issuance. Interest on U.S. Treasury obligations is specifically exempted from
state and local income taxes under federal law. While shareholders in the U.S.
Treasury Money Market Portfolio do not directly receive interest on U.S.
Treasury obligations, the dividends from the Portfolio are derived primarily
from such interest.

States generally allow the character of the Portfolio's income to
pass-through to its shareholders, so that distributions from the Portfolio
derived from interest that would be exempt from state and local income taxes if
received directly by an individual taxpayer also will be exempt from such taxes
when earned by an individual shareholder through a distribution from the
Portfolio. The Portfolio may also invest in repurchase agreements which are
collateralized by U.S. Treasury obligations. At least 65% of the Portfolio's
total assets will consist of U.S. Treasury obligations and repurchase agreements
which are collateralized by U.S. Treasury obligations. Interest income derived
from such repurchase agreements is not considered to be income derived from U.S.
Treasury obligations and is not exempt from state and local income taxes. In
addition, some states require that, in order for the tax exempt character of the
Portfolio's interest from U.S. Treasury obligations to pass-through to its
shareholders, the Portfolio must maintain specified minimum levels of the
Portfolio's total assets in U.S. Treasury obligations. If the level of non-U.S.
Treasury obligations (including repurchase agreements) exceeds a state's limit
for this pass-through, then none of the Portfolio's interest income would be
exempt from state or local income tax in that state. While the Portfolio does
not specifically limit the amount of repurchase agreements which the Portfolio
can enter into (other than the requirement that 65% of the Portfolio's total
assets be invested in U.S. Treasury obligations and repurchase agreements
collateralized by U.S. Treasury obligations), the Portfolio will endeavor to
maintain the levels necessary to preserve the pass-through of the Portfolio's
tax exempt interest income from U.S. Treasury obligations.

Investors should recognize that the state and local income tax rules that
apply to the U.S. Treasury Money Market Portfolio and its shareholders may be
subject to change in the future and that such changes could have an adverse
impact on the Portfolio and its shareholders. Shareholders are urged to contact
their tax advisors regarding the state and local tax treatment of distributions
received from the U.S. Treasury Money Market Portfolio.

Interest income on U.S. Treasury obligations is not, however, exempt from
federal income tax. In addition, capital gains, if any, realized by the
Portfolio upon the sale of U.S. Treasury obligations is not exempt from federal
taxes or, generally, from state and local taxes.

8
<PAGE>

The U.S. Treasury Money Market Portfolio may purchase securities on a
when-issued or delayed delivery basis and may enter into repurchase and reverse
repurchase agreements with member banks of the Federal Reserve System and with
broker-dealers who are recognized as primary dealers in U.S. government
securities by the Federal Reserve Bank of New York. In addition, the Portfolio
is permitted to lend its securities. For a discussion of these transactions, see
"Additional Investment Information and Risk Factors."

DOMESTIC PRIME MONEY MARKET PORTFOLIO

Investment Objectives and Policies

The Domestic Prime Money Market Portfolio's investment objectives are to
maximize current income and to maintain liquidity and a stable net asset value
of $1 per share. The Portfolio attempts to accomplish these objectives by
investing exclusively in prime quality, U.S. dollar denominated obligations of
domestic issuers which have effective maturities of 397 days or less. The
investment objectives stated above are fundamental and may be changed only with
the approval of a majority of the outstanding shares of the Portfolio. There can
be no assurance that the Domestic Prime Money Market Portfolio can achieve these
objectives or that it will be able to maintain a stable net asset value of $1
per share.

Permitted Investments:

United States Government Obligations -- obligations issued or guaranteed
by the United States Government or by its agencies or instrumentalities. These
obligations are backed by the full faith and credit of the United States, by the
credit of the issuing or guaranteeing agency or by the agency's right to borrow
from the U.S. Treasury. For further description of the government obligations in
which the Portfolio will invest, see "Additional Investment Information and Risk
Factors."

Bank Obligations -- certificates of deposit, bankers' acceptances and
other obligations issued or guaranteed by the 50 largest banks in the United
States. For this purpose, banks are ranked by total deposits as shown by their
most recent annual financial statements. The "other obligations" in which the
Portfolio may invest include instruments (such as bankers' acceptances,
commercial paper and certificates of deposit) issued by U.S. subsidiaries of the
50 largest banks in the U.S. which are guaranteed as to principal and interest
by such banks.

Commercial Paper and other Short Term Corporate Obligations -- commercial
paper and other short term domestic corporate obligations, including corporate
bonds, variable amount master demand notes and participations in corporate
loans, with maturities of 397 days or less. For further description of these
obligations, including the liquidity of participations in corporate loans, see
"Additional Investment Information and Risk Factors" herein and "Investments and
Investment Techniques Common to Two or More Portfolios" in the Statement of
Additional Information.

Quality Information. The Portfolio will only purchase high quality
domestic money market instruments that have been determined by the Fund's Board
of Directors to present minimal credit risks and that are First Tier Eligible
Securities at the time of acquisition so that the Portfolio is able to employ
the amortized cost method of valuation. The term First Tier Eligible Securities
means (i) securities that have remaining maturities of 397 days or less and are
rated in the highest short-term rating category by any two nationally recognized
statistical rating organizations ("NRSROs") or in such category by the only
NRSRO that has rated the securities (collectively, the "Requisite NRSROs"); (ii)
securities which are subject to a Demand Feature or Guarantee (as such terms are
defined in Rule 2a-7 of the Investment Company Act of 1940) which have received
a rating in the highest short-term rating category from an NRSRO or the
guarantor of which has received a rating in the highest short-term rating
category from an NRSRO with respect to a class of debt obligations (or any debt
obligation within that class) that is comparable in priority and security to the
guarantee (unless the guarantor directly or indirectly, controls, is controlled
by or is under common control with the issuer or the security subject to the
guarantee); and the issuer of the Demand Feature or Guarantee, or another
institution, has undertaken promptly to notify the holder of the security in the
event the Demand Feature or Guarantee is substituted

9
<PAGE>

with another Demand Feature or Guarantee; and (iii) unrated securities
determined by the Fund's Board of Directors to be of comparable quality. In
addition, Securities with remaining maturities of 397 days or less but that at
the time of issuance were long-term securities (i.e. with maturities greater
than 366 days) are deemed unrated and may be purchased if such had received a
long-term rating from the Requisite NRSROs in one of the three highest rating
categories (in addition to a determination by the Fund's Board that the security
is equivalent to a First Tier Eligible Security). Provided, however, that such
may not be purchased if it (i) does not satisfy the rating requirements set
forth in the preceding sentence and (ii) has received a long-term rating from
any NRSRO that is not within the three highest long-term rating categories. A
determination of comparability by the Board of Directors is made on the basis of
its credit evaluation of the issuer, which may include an evaluation of a letter
of credit, guarantee, insurance or other credit facility issued in support of
the securities or participation certificates. While there are several
organizations that currently qualify as NRSROs, two examples of NRSROs are
Standard & Poor's Rating Group, a division of McGraw-Hill, Inc. ("S&P") and
Moody's Investors Service, Inc. ("Moody's"). The two highest ratings by Moody's
for long-term debt securities are Aaa and Aa and by S&P are AAA and AA. The
highest rating for commercial paper is Prime-1 by Moody's and A-1 by S&P. For a
more detailed discussion of the quality requirements applicable to certificates
of deposit, bankers' acceptances and other bank obligations, see "Investments
and Investment Techniques Common to Two or More Portfolios" in the Statement of
Additional Information. These standards must be satisfied at the time an
investment is made. Subsequent to its purchase by the Portfolio, the quality of
an investment may cease to be rated or its rating may be reduced so that it
ceases to qualify as a First Tier Eligible Security. If this occurs, the Board
of Directors of the Fund shall reassess promptly whether the security presents
minimal credit risks and shall cause the Portfolio to take such action as the
Board of Directors determines is in the best interest of the Portfolio and its
shareholders. However, reassessment is not required if the security is disposed
of or matures within five business days of the Advisor becoming aware of the new
rating and provided further that the Board of Directors is subsequently notified
of the Advisor's actions.

In addition, in the event that a security (1) is in default, (2) ceases to
be an Eligible Security, or (3) is determined to no longer present minimal
credit risks, or an event of insolvency occurs with respect to the issuer of a
Portfolio security or the provider of any Demand Feature or Guarantee, the
Portfolio will dispose of the security absent a determination by the Fund's
Board of Directors that disposal of the security would not be in the best
interests of the Portfolio. In the event that the security is disposed of, it
shall be disposed of as soon as practicable consistent with achieving an orderly
disposition by sale, exercise of any demand feature, or otherwise. In the event
of a default with respect to a security which immediately before default
accounted for 1/2 of 1% or more of the Portfolio's total assets, the Portfolio
shall promptly notify the Securities and Exchange Commission of such fact and of
the actions that the Portfolio intends to take in response to the situation.

The Domestic Prime Money Market Portfolio may purchase securities on a
when-issued or delayed delivery basis and may enter into repurchase and reverse
repurchase agreements with member banks of the Federal Reserve System and with
broker-dealers who are recognized as primary dealers in U.S. government
securities by the Federal Reserve Bank of New York. In addition, the Portfolio
is permitted to lend its securities. For a discussion of these transactions, see
"Additional Investment Information and Risk Factors."

GLOBAL MONEY MARKET PORTFOLIO

Investment Objectives and Policies

The Global Money Market Portfolio's investment objectives are to maximize
current income and to maintain liquidity and a stable net asset value of $1 per
share. The Portfolio seeks to produce a higher yield than the Domestic Prime
Money Market Portfolio by investing in the securities of issuers located in at
least three countries (including the United States). The securities invested in
by the Global Money Market Portfolio, described below, have effective maturities
of 397 days or less. The investment objectives stated above are fundamental and
may be changed only with the approval of a majority of the outstanding shares

10
<PAGE>

of the Portfolio. There can be no assurance that the Global Money Market
Portfolio can achieve these objectives or that it will be able to maintain a
stable net asset value of $1 per share.

Permitted Investments:

United States Government Obligations -- obligations issued or guaranteed
by the United States Government or by its agencies or instrumentalities. These
obligations are backed by the full faith and credit of the United States, by the
credit of the issuing or guaranteeing agency or by the agency's right to borrow
from the U.S. Treasury. For further description of the government obligations in
which the Portfolio may invest, see "Additional Investment Information and Risk
Factors."

Bank Obligations -- certificates of deposit, bankers' acceptances and
other obligations (or instruments secured by such obligations) of (i) domestic
banks subject to regulation by the U.S. Government or its agencies (such as the
Federal Reserve Board, the Comptroller of the Currency, or the FDIC) and having
total assets of over $1 billion unless their obligations are guaranteed by their
parent bank, which has assets of over $5 billion; (ii) foreign branches of these
banks ("Euros"); (iii) United States branches of foreign banks of equivalent
size ("Yankees"); and (iv) foreign banks. The Portfolio limits investments in
foreign bank obligations to U.S. dollar denominated obligations of foreign banks
which have more than $10 billion of assets, are among the 75 largest in the
world, and have branches or agencies in the U.S. See "Additional Investment
Information and Risk Factors" for further information on foreign investments.

Commercial Paper and Other Short Term Corporate Obligations -- commercial
paper and other short term domestic corporate obligations, including corporate
bonds, variable amount master demand notes and participations in corporate
loans, with maturities of 397 days or less; commercial paper and other short
term obligations issued by foreign corporations if the issuer is a direct parent
or subsidiary of a United States corporation, the obligation is United States
dollar denominated and is not subject to foreign withholding tax ("Euro
Commercial Paper"); and commercial paper and other short term obligations issued
by foreign governments. For further description of all the obligations in the
Portfolio, including foreign investments and the liquidity of participations in
corporate loans, see "Additional Investment Information and Risk Factors" herein
and "Investment Objectives and Policies" in the Statement of Additional
Information.

Quality Information. The Portfolio will only purchase high quality money
market instruments that have been determined by the Fund's Board of Directors to
present minimal credit risks and that are First Tier Eligible Securities at the
time of acquisition so that the Portfolio is able to employ the amortized cost
method of valuation. The term First Tier Eligible Securities means (i)
securities that have remaining maturities of 397 days or less and are rated in
the highest short-term rating categories by any two nationally recognized
statistical rating organizations ("NRSROs") or in such categories by the only
NRSRO that has rated the securities (collectively, the "Requisite NRSROs"); (ii)
securities which are subject to a Demand Feature or Guarantee (as such terms are
defined in Rule 2a-7 of the Investment Company Act of 1940) which have received
a rating in the highest short-term rating category from an NRSRO or the
guarantor of which has received a rating in the highest short-term rating
category from an NRSRO with respect to a class of debt obligations (or any debt
obligation within that class) that is comparable in priority and security to the
guarantee (unless the guarantor directly or indirectly, controls, is controlled
by or is under common control with the issuer or the security subject to the
guarantee); and the issuer of the Demand Feature or Guarantee, or another
institution, has undertaken promptly to notify the holder of the security in the
event the Demand Feature or Guarantee is substituted with another Demand Feature
or Guarantee; and (iii) unrated securities determined by the Fund's Board of
Directors to be of comparable quality. In addition, Municipal Obligations with
remaining maturities of 397 days or less but that at the time of issuance were
long-term securities (i.e. with maturities greater than 366 days) are deemed
unrated and may be purchased if such had received a long-term rating from the
Requisite NRSROs in one of the three highest rating categories (in addition to a
determination by the Fund's Board that the securities rating is equivalent to a
First Tier Eligible Security). Provided, however, that such may not be purchased
if it (i) does not satisfy the rating requirements set forth in the preceding
sentence and (ii) it has received a long-

11
<PAGE>

term rating from any NRSRO that is not within the three highest long-term rating
categories. A determination of comparability by the Board of Directors is made
on the basis of its credit evaluation of the issuer, which may include an
evaluation of a letter of credit, guarantee, insurance or other credit facility
issued in support of the securities or participation certificates. While there
are several organizations that currently qualify as NRSROs, two examples of
NRSROs are S&P and Moody's. The two highest ratings by Moody's for long-term
debt securities are Aaa and Aa and by S&P are AAA and AA; the highest ratings
for domestic and foreign commercial paper are Prime-1 by Moody's and A-1 by S&P.
For a more detailed discussion of quality requirements applicable to
certificates of deposit, bankers' acceptances and other bank obligations, see
"Investments and Investment Techniques Common to Two or More Portfolios" in the
Statement of Additional Information. Subsequent to its purchase by the
Portfolio, the quality of an investment may cease to be rated or its rating may
be reduced so that it ceases to qualify as a First Tier Security. If this
occurs, the Board of Directors of the Fund shall reassess promptly whether the
security presents minimal credit risks and shall cause the Portfolio to take
such action as the Board of Directors determines is in the best interest of the
Portfolio and its shareholders. However, reassessment is not required if the
security is disposed of or matures within five business days of the Advisor
becoming aware of the new rating and provided further that the Board of
Directors is subsequently notified of the Advisor's action.

In addition, in the event that a security (1) is in default, (2) ceases to
be an Eligible Security, or (3) is determined to no longer present minimal
credit risks, or in event of insolvency occurs with respect to the issuer of a
Portfolio security or the provider of any demand feature or guarantee, the
Portfolio will dispose of the security absent a determination by the Fund's
Board of Directors that disposal of the security would not be in the best
interests of the Portfolio. In the event that the security is disposed of, it
shall be disposed of as soon as practicable consistent with achieving an orderly
disposition by sale, exercise of any demand feature, or otherwise. In the event
of a default with respect to a security which immediately before default
accounted for 1/2 of 1% or more of the Portfolio's total assets, the Portfolio
shall promptly notify the Securities and Exchange Commission of such fact and of
the actions that the Portfolio intends to take in response to the situation.

The Global Money Market Portfolio may also purchase securities on a
when-issued or delayed delivery basis and may enter into repurchase and reverse
repurchase agreements with member banks of the Federal Reserve System and with
broker-dealers who are recognized as primary dealers in U.S. government
securities by the Federal Reserve Bank of New York. In addition, the Portfolio
is permitted to lend its securities. For a discussion of these transactions, see
"Additional Investment Information and Risk Factors."

TAX EXEMPT MONEY MARKET PORTFOLIO

Investment Objectives and Policies

The Tax Exempt Money Market Portfolio's investment objectives are to
maximize current income that is exempt from federal income tax and to maintain
liquidity and a stable net asset value of $1 per share. The Portfolio attempts
to accomplish these objectives by investing in high quality municipal securities
which, in the opinion of bond counsel at the date of issuance, earn interest
exempt from federal income tax and which have effective maturities of 397 days
or less. Interest on these securities may be subject to state and local taxes.
See "Taxes." The Portfolio intends to invest all of its assets in tax exempt
obligations and in no event shall invest less than 80% of its total assets in
such obligations; however, it reserves the right to invest up to 20% of its
total assets in taxable obligations (including securities the interest income on
which may be subject to alternative minimum tax). The investment objectives
stated above are fundamental and may be changed only with the approval of a
majority of the outstanding shares of the Portfolio. There can be no assurance
that the Tax Exempt Money Market Portfolio can achieve these objectives or that
it will be able to maintain a stable net asset value of $1 per share.

12
<PAGE>

Although the Supreme Court has determined that Congress has the authority
to subject the interest on municipal securities, such as the securities in which
the Portfolio will invest, to regular federal income taxation, existing law
excludes such interest from regular federal income tax.

Permitted Investments:

Municipal Bonds -- bonds issued by or on behalf of states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies, authorities and instrumentalities. These
obligations may be general obligation bonds secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest, or they may be revenue bonds payable from specific revenue sources,
but not generally backed by the issuer's taxing power. These include industrial
revenue bonds or "private activity bonds" where payment is the responsibility of
the private industrial user of the facility financed by the bonds; such bonds
are issued by or on behalf of public authorities to provide funding for various
privately operated industrial facilities. Interest on such bonds is generally
exempt, with certain exceptions, from regular federal income tax provided the
issuer and corporate obligor thereof continue to meet certain conditions. See
"Taxes." The Portfolio may invest more than 25% of its assets in industrial
revenue bonds, but may not invest more than 25% of its assets in industrial
revenue bonds of projects of similar type or in the same state.

Municipal Notes -- municipal notes of various types, including notes
issued in anticipation of receipt of taxes, the proceeds of the sale of bonds,
other revenues or grant proceeds, as well as municipal commercial paper and
variable rate demand notes. The interest rate on variable rate demand notes is
adjustable at periodic intervals of 397 days or less as specified in the notes.
There is no specific percentage limitation on these investments. For more
information about municipal notes, see "Investments and Investment Techniques
Common to Two or More Portfolios" in the Statement of Additional Information.

Municipal Leases -- municipal leases, which may take the form of a lease
or an installment purchase or conditional sale contract, are issued by state and
local governments and authorities to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, telecommunications equipment
and other capital assets. Municipal leases frequently have special risks not
normally associated with general obligation or revenue bonds. Leases and
installment purchases or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the government issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations of many state constitutions and statutes
are deemed to be inapplicable because of the inclusion in many leases or
contracts of "non-appropriation" clauses that provide that the governmental
issuer has no obligation to make future payments under the lease or contract
unless money is appropriated for such purpose by the appropriate legislative
body on a yearly or other periodic basis. These types of municipal leases may be
considered illiquid and subject to the 10% limitation of investment in illiquid
securities set forth under "Investment Restrictions" contained herein. The Board
of Directors may adopt guidelines and delegate to the Advisor the daily function
of determining and monitoring the liquidity of municipal leases. In making such
determination, the Board and the Advisor may consider such factors as the
frequency of trades for the obligations, the number of dealers willing to
purchase or sell the obligations and the number of other potential buyers and
the nature of the marketplace for the obligations, including the time needed to
dispose of the obligations and the method of soliciting offers. If the Board
determines that any municipal leases are illiquid, such leases will be subject
to the 10% limitation on investments in illiquid securities. The Board of
Directors is also responsible for determining the credit quality of municipal
leases, on an ongoing basis, including an assessment of the likelihood that the
leases will not be canceled.

Quality Information. The Portfolio will only purchase high quality tax
exempt money market instruments ("Municipal Obligations") that have been
determined by the Fund's Board of Directors to present minimal credit risks and
that are Eligible Securities at the time of acquisition so that the Portfolio is
able to employ the amortized cost method of valuation. The term Eligible
Securities means (i) Municipal Obligations that have remaining maturities of 397
days or less and are rated in the two highest short-term

13
<PAGE>

rating categories by any two nationally recognized statistical rating
organizations ("NRSROs") or in such categories by the only NRSRO that has rated
the Municipal Obligations (collectively, the "Requisite NRSROs"); (ii) Municipal
Obligations which are subject to a Demand Feature or Guarantee (as such terms
are defined in Rule 2a-7 of the Investment Company Act of 1940) which have
received a rating in the highest short-term rating category from an NRSRO or the
guarantor of which has received a rating in the highest short-term rating
category from an NRSRO with respect to a class of debt obligations (or any debt
obligation within that class) that is comparable in priority and security to the
guarantee (unless the guarantor directly or indirectly, controls, is controlled
by or is under common control with the issuer or the security subject to the
guarantee); and the issuer of the Demand Feature or Guarantee, or another
institution, has undertaken promptly to notify the holder of the security in the
event the Demand Feature or Guarantee is substituted with another Demand Feature
or Guarantee, and (iii) unrated Municipal Obligations determined by the Fund's
Board of Directors to be of comparable quality. In addition, Municipal
Obligations with remaining maturities of 397 days or less but that at the time
of issuance were long-term securities (i.e. with maturities greater than 366
days) are deemed unrated and may be purchased if such had received a long-term
rating from the Requisite NRSROs in one of the three highest rating categories
(in addition to a determination by the Fund's Board that the securities rating
is equivalent to a First Tier Eligible Security). Provided, however, that such
may not be purchased if it (i) does not satisfy the rating requirements set
forth in the preceding sentence and (ii) it has received a long-term rating from
any NRSRO that is not within the three highest long-term rating categories. A
determination of comparability by the Board of Directors is made on the basis of
its credit evaluation of the issuer, which may include an evaluation of a letter
of credit, guarantee, insurance or other credit facility issued in support of
the Municipal Obligations or participation certificates. While there are several
organizations that currently qualify as NRSROs, two examples of NRSROs are S&P
and Moody's. The two highest long-term ratings by S&P and Moody's are Aaa and Aa
by Moody's and AAA and AA by S&P, for debt securities; MIG-1, VMIG-1, Prime-1
and MIG-2, VMIG-2, Prime-2 by Moody's and A-1, SP-1 and A-2, SP-2 by S&P, for
short-term municipal securities. These standards must be satisfied at the time
an investment is made. Subsequent to its purchase by the Portfolio, the quality
of an investment may cease to be rated or its rating may be reduced below the
minimum required for purchase by the Portfolio. If this occurs, the Board of
Directors of the Fund shall reassess promptly whether the Municipal Obligation
presents minimal credit risks and shall cause the Portfolio to take such action
as the Board of Directors determines is in the best interest of the Portfolio
and its shareholders. However, reassessment is not required if the Municipal
Obligation is disposed of or matures within five business days of the Advisor
becoming aware of the new rating and provided further that the Board of
Directors is subsequently notified of the Advisor's actions.

In addition, in the event that a municipal obligation (1) is in default,
(2) ceases to be an Eligible Security, or (3) is determined to no longer present
minimal credit risks or an event of insolvency occurs with respect to the issuer
of a Portfolio security or the provider of any Demand Feature or Guarantee, the
Portfolio will dispose of the Municipal Obligation absent a determination by the
Fund's Board of Directors that disposal of the Municipal Obligation would not be
in the best interests of the Portfolio. In the event that the Municipal
Obligation is disposed of, it shall be disposed of as soon as practicable
consistent with achieving an orderly disposition by sale, exercise of any demand
feature, or otherwise. In the event of a default with respect to a Municipal
Obligation which immediately before default accounted for 1/2 of 1% or more of
the Portfolio's total assets, the Fund shall promptly notify the Securities and
Exchange Commission of such fact and of the actions that the Fund intends to
take in response to the situation.

The Tax Exempt Money Market Portfolio may purchase municipal obligations
on a when-issued or delayed delivery basis and may also purchase municipal
obligations with puts and stand-by commitments. The Advisor currently does not
anticipate entering into any transactions which would result in income subject
to federal income tax. However, the Portfolio may invest up to 20% of the value
of its total assets in taxable securities in certain circumstances, including
repurchase and reverse repurchase agreements with member banks of the Federal
Reserve System and with broker-dealers who are recognized as primary dealers in
U.S. government securities by the Federal Reserve Bank of New York. The
Portfolio may also lend its portfolio securities. Income from taxable
securities, repurchase and reverse repurchase agreements

14
<PAGE>

and portfolio lending will be subject to income taxation. For a discussion of
these transactions, see "Additional Investment Information and Risk Factors."

LIMITED TERM PORTFOLIO

Investment Objectives and Policies

The Limited Term Portfolio's investment objective is to maximize current
income consistent with moderate risk of capital by investing in a liquid
portfolio with a maximum weighted average maturity of two years. The investment
objective stated above is fundamental and may be changed only with the approval
of a majority of the outstanding shares of the Portfolio. There can be no
assurance that the Limited Term Portfolio will be able to achieve this
objective.

The Limited Term Portfolio seeks to maintain a current yield that is
greater than that obtainable from a portfolio of high quality money market
obligations. The Portfolio seeks to increase returns by actively managing
securities in the short term and intermediate term ranges. The Portfolio will
consist only of securities with a maximum dollar weighted average maturity of
two years and a maximum maturity of three years (three years and sixty days for
new issues) at the time of investment. However, it seeks to minimize market risk
by employing a "laddered" portfolio approach as opposed to a market timing
approach. The laddered approach to portfolio management involves the maintenance
of securities positions of varying amounts staggered at appropriate points along
the fixed income yield curve in an effort to maximize income and to minimize
interest rate risk. Assuming a positively sloping yield curve, a portfolio
designed with a series of periodic maturities can produce higher yields at the
horizon of its maturity restriction, balanced by the interest rate protection
provided by shorter, more quickly maturing securities.

In addition, the Portfolio seeks investment in securities which the
Advisor believes to be undervalued and, therefore, have capital appreciation
potential. Any realized capital gains, as well as interest income, will be
subject to federal income taxes. See "Management Strategies" in the Statement of
Additional Information.

Purchases and sales are made for the Portfolio whenever necessary, in the
Advisor's opinion, to meet the Portfolio's objective. This is expected to result
in a maximum average annual portfolio turnover rate of not greater than 200%.

The Portfolio may purchase or sell certain financial instruments in order
to attempt to reduce the volatility of its portfolio, moderate market risk and
minimize fluctuations in its net asset value per share. For a discussion of
these transactions, see "Additional Investment Information."

Permitted Investments:

The Portfolio will invest in the same types of securities that are
permitted investments for the Global Money Market Portfolio, with varying and
longer maturities. However, when purchasing securities with effective maturities
in excess of one year the Portfolio will purchase only domestic issues.

From time to time, the assets of the Portfolio may be substantially
invested in short term obligations in order to attempt to reduce the volatility
of the Portfolio, moderate market risk, and minimize fluctuation in its net
asset value. Short term obligations may also be purchased pending investment of
proceeds of sales of Portfolio shares or Portfolio securities, or to maintain
liquidity to meet anticipated redemptions.

Quality Information. The Limited Term Portfolio's rated debt securities
must be rated Aa or higher by Moody's or AA or higher by S&P, or the equivalent.
Rated domestic and foreign commercial paper must be rated Prime-1 by Moody's or
A-1 by S&P, or the equivalent. The Portfolio may also invest in unrated
securities if, in the opinion of the Fund's Board of Directors, such securities
are of comparable quality to

15
<PAGE>

the rated securities in which the Portfolio may invest. These standards must be
satisfied at the time an investment is made. If the quality of the investment
later declines, the Portfolio may continue to hold the investment. However, if
the Portfolio holds any variable rate demand instruments with stated maturities
in excess of one year, such instruments must maintain their high quality rating
or must be sold from the Portfolio.

The Limited Term Portfolio may also invest in hedging instruments in
certain circumstances. In addition, the Portfolio may purchase obligations on a
when-issued or delayed delivery basis, enter into repurchase and reverse
repurchase agreements with member banks of the Federal Reserve System and with
broker-dealers who are recognized as primary dealers in U.S. government
securities by the Federal Reserve Bank of New York. The Portfolio is also
permitted to lend its securities and purchase certain privately placed
securities. For a discussion of these transactions, see "Additional Investment
Information and Risk Factors."

The Portfolio may also purchase zero coupon bonds. Zero coupon bonds do
not provide for the payment of any current interest and provide for payment at
maturity at par value unless sooner sold or redeemed. The market value of zero
coupon bonds is subject to greater fluctuations than coupon bonds in response to
changes in interest rates. For a discussion of the tax consequences of an
investment in zero coupon bonds, see "Taxes" herein.

TAX EXEMPT LIMITED TERM PORTFOLIO

Investment Objectives and Policies

The Tax Exempt Limited Term Portfolio's investment objective is to
maximize current income exempt from federal income tax consistent with moderate
risk of capital by investing in a liquid portfolio with a maximum weighted
average maturity of three years. The Portfolio attempts to accomplish this
objective by investing primarily in municipal securities which, in the opinion
of bond counsel at the date of issuance, earn interest exempt from federal
income tax. Any realized capital gains will be subject to federal income taxes.
Interest on these securities may be subject to state and local income taxes. See
"Taxes." The Portfolio intends to invest all of its assets in tax exempt
obligations; however, it reserves the right to invest up to 20% of its assets in
taxable obligations. The investment objectives stated above are fundamental and
may be changed only with the approval of a majority of the outstanding shares of
the Portfolio. There can be no assurance that the Tax Exempt Limited Term
Portfolio will be able to achieve these objectives.

The Tax Exempt Limited Term Portfolio seeks to maintain a current yield
that is greater than that obtainable from a portfolio of short term, high
quality tax exempt money market obligations. The Portfolio seeks to increase
returns by actively managing securities in the short term and intermediate term
ranges. The Portfolio will consist only of securities with a maximum dollar
weighted average maturity of three years and a maximum maturity of five years
(five years and sixty days for new issues) at the time of investment. However,
it seeks to minimize market risk by employing a "laddered" portfolio approach as
opposed to a market timing approach. The laddered approach to portfolio
management involves the maintenance of securities positions of varying amounts
staggered at appropriate points along the fixed income yield curve in an effort
to maximize income and to minimize interest rate risk. Assuming a positively
sloping yield curve, a portfolio designed with a series of periodic maturities
can produce higher yields at the horizon of its maturity restriction, balanced
by the interest rate protection provided by shorter, more quickly maturing
securities. In addition, the Portfolio seeks investments in securities which the
Advisor believes to be undervalued and, therefore, have capital appreciation
potential. The value of municipal securities in the Portfolio can also be
affected by market reaction to legislative consideration of

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various tax reform proposals. See "Management Strategies" in the Statement of
Additional Information. Purchases and sales are made for the Portfolio whenever
necessary, in the Advisor's opinion, to meet the Portfolio's objective. This is
expected to result in a maximum average annual portfolio turnover rate of not
greater than 200%.

Permitted Investments:

The Portfolio will invest in the same types of securities that are
permitted investments for the Tax Exempt Money Market Portfolio, with varying
and longer maturities, such as Municipal Bonds and Municipal Notes, whose
interest is exempt from federal income tax.

From time to time, the assets of the Portfolio may be substantially
invested in short term municipal obligations in order to attempt to reduce the
volatility of the Portfolio, moderate market risk, and minimize fluctuation in
its net asset value. Short term obligations may also be purchased pending
investment of proceeds of sales of Portfolio shares or Portfolio securities, or
to maintain liquidity to meet anticipated redemptions.

Quality Information. The Tax Exempt Limited Term Portfolio's rated debt
securities must be rated A or higher by Moody's or A or higher by S&P, or the
equivalent. Rated short term municipal securities must be rated MIG-2, VMIG-2,
P-2 or higher by Moody's or SP-2, A-2 or higher by S&P, or the equivalent. The
Portfolio may also invest in unrated securities if, in the opinion of the Fund's
Board of Directors, such securities are of comparable quality to the rated
securities in which the Portfolio may invest. These standards must be satisfied
at the time an investment is made. If the quality of the investment later
declines, the Fund may continue to hold the investment. However, if the
Portfolio holds any variable rate demand instruments with stated maturities in
excess of one year, such instruments must maintain their high quality rating or
must be sold from the Portfolio.

The Tax Exempt Limited Term Portfolio may purchase municipal obligations
on a when-issued or delayed delivery basis and may purchase municipal
obligations with puts and stand-by commitments. The Advisor currently does not
anticipate entering into any transaction which would result in income subject to
federal income tax. However, the Portfolio may invest up to 20% of the value of
its total assets in taxable securities in certain circumstances, including
hedging instruments and repurchase and reverse repurchase agreements with member
banks of the Federal Reserve System and with broker-dealers who are recognized
as primary dealers in U.S. government securities by the Federal Reserve Bank of
New York. The Portfolio may also lend its securities. Income from taxable
securities, repurchase and reverse repurchase agreements and portfolio lending
will be subject to income taxation. The Portfolio may purchase certain privately
placed securities. For a discussion of these transactions, see "Additional
Investment Information and Risk Factors."

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ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS

When-Issued and Delayed Delivery Securities. Each of the Portfolios may
purchase securities on a when-issued or delayed delivery basis. Delivery of and
payment for these securities may occur a month or more after the date of the
purchase commitment. The securities are subject to market fluctuation during
this period and no interest accrues to the Portfolio until settlement. Each
Portfolio maintains with the Custodian a separate account with a segregated
portfolio of liquid high grade debt securities in an amount at least equal to
these commitments.

Repurchase Agreements. When a Portfolio purchases securities, it may enter
into a repurchase agreement with the seller wherein the seller agrees, at the
time of sale, to repurchase the security at a mutually agreed upon time and
price. Each Portfolio may enter into repurchase agreements with member banks of
the Federal Reserve System and with broker-dealers who are recognized as primary
dealers in United States government securities by the Federal Reserve Bank of
New York whose creditworthiness has been reviewed and found to meet the
investment criteria of the Portfolio. Although the securities subject to the
repurchase agreement might bear maturities exceeding 397 days, settlement for
the repurchase would never be more than one year after the Portfolio's
acquisition of the securities and normally would be within a shorter period of
time. The resale price will be in excess of the purchase price, reflecting an
agreed upon market rate effective for the period of time the Portfolio's money
will be invested in the security, and will not be related to the coupon rate of
the purchased security. At the time a Portfolio enters into a repurchase
agreement the value of the underlying security, including accrued interest, will
be equal to or exceed the value of the repurchase agreement and, in the case of
a repurchase agreement exceeding one day, the seller will agree that the value
of the underlying security, including accrued interest, will at all times be
equal to or exceed the value of the repurchase agreement. Each Portfolio may
engage in a repurchase agreement with respect to any security in which that
Portfolio is authorized to invest, even though the underlying security may
mature in more than one year. The collateral securing the seller's obligation
must be of a credit quality at least equal to the Portfolio's investment
criteria for Portfolio securities and will be held by the Portfolio's Custodian
or in the Federal Reserve Book Entry System. If the seller defaults and the
collateral value declines, the Portfolio might incur a loss. If bankruptcy
proceedings are commenced with respect to the seller, the Fund's realization
upon the collateral may be delayed or limited. See "Investment Restrictions."
Each Portfolio may invest no more than 10% of its net assets in illiquid
securities including repurchase agreements maturing in more than seven days. See
"Investment Restrictions."

Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by a Portfolio pursuant to an agreement to repurchase
the securities at an agreed upon price and date. Each Portfolio is permitted to
enter into reverse repurchase agreements for liquidity purposes or when it is
able to purchase other securities which will produce more income than the cost
of the agreement. Each Portfolio permitted to enter into reverse repurchase
agreements may do so only with those member banks of the Federal Reserve System
and broker-dealers who are recognized as primary dealers in U.S. government
securities by the Federal Reserve Bank of New York whose creditworthiness has
been reviewed and found to meet the investment criteria of the Portfolio. When
engaging in reverse repurchase transactions, the Fund will maintain, in a
segregated account with its Custodian, securities equal in value to those
subject to the agreement. These agreements are considered to be borrowings and
therefore are included in the asset restriction contained under "Investment
Restrictions" relating to borrowings which allows a Portfolio to borrow money
from banks for extraordinary or emergency purposes and to engage in reverse
repurchase agreements provided that such in the aggregate do not exceed
one-third of the value of the total assets of that Portfolio less its
liabilities. Any Portfolio that utilizes reverse repurchase agreements to this
extent may be considered to be leveraging its portfolio; however, since the
Portfolios are required to maintain segregated accounts to cover their positions
on these reverse repurchase agreements, the risks inherent in this leveraging
technique are minimized.

The Portfolios could experience delays in recovering securities in the
event of the bankruptcy of the other party to a reverse repurchase agreement and
could experience a loss to the extent that the value of the securities may have
decreased in the meantime.

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<PAGE>

Portfolio Lending. Each Portfolio may from time to time lend securities on
a short-term basis to banks, brokers and dealers and receive as collateral cash,
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, or irrevocable bank letters of credit (or any combination
thereof), which collateral will be marked to market daily and will be required
to be maintained at all times in an amount equal to at least 100% of the current
value of the loaned securities plus accrued interest. Such loans are not made
with respect to any Portfolio if as a result the aggregate of all outstanding
loans exceeds one-third of the value of the Portfolio's total assets. Securities
lending will afford a Portfolio the opportunity to earn additional income
because the Portfolio will continue to be entitled to the interest payable on
the loaned securities and also will either receive as income all or a portion of
the interest on the investment of any cash loan collateral or, in the case of
collateral other than cash, a fee negotiated with the borrower. Such loans will
be terminable at any time. Loans of securities involve risks of delay in
receiving additional collateral or in recovering the securities lent or even
loss of rights in the collateral in the event of the insolvency of the borrower
of the securities. A Portfolio will have the right to retain record ownership of
loaned securities in order to exercise beneficial rights. A Portfolio may pay
reasonable fees in connection with arranging such loans.

Foreign Investment Information for the Global Money Market Portfolio and
the Limited Term Portfolio. The Global Money Market Portfolio and the Limited
Term Portfolio may invest in certain U.S. dollar denominated foreign securities.
Investment in obligations of foreign issuers and in foreign branches of domestic
banks involves somewhat different investment risks from those affecting
obligations of United States domestic issuers. There may be limited publicly
available information with respect to foreign issuers and foreign issuers are
not generally subject to uniform accounting, auditing and financial standards
and requirements comparable to those applicable to domestic companies. There may
also be less government supervision and regulation of foreign securities
exchanges, brokers and listed companies than in the United States. Foreign
securities markets have substantially less volume than national securities
exchanges and securities of some foreign companies are less liquid and more
volatile than securities of comparable domestic companies. Brokerage commissions
and other transaction costs on foreign securities exchanges are generally higher
than in the United States. Dividends and interest paid by foreign issuers may be
subject to withholding and other foreign taxes, which may decrease the net
return on foreign investments as compared to dividends and interest paid to the
Portfolio by domestic issuers. Additional risks include future political and
economic developments; the possibility that a foreign jurisdiction might impose
or change withholding taxes on income payable with respect to foreign
securities; the possible seizure, nationalization or expropriation of the
foreign issuer or foreign deposits; and the possible adoption of foreign
governmental restrictions such as exchange controls.

Taxable Investments for the Tax Exempt Portfolios. The Advisor currently
does not anticipate entering into any transactions which would result in income
subject to federal income tax. However, the Tax Exempt Money Market Portfolio
and the Tax Exempt Limited Term Portfolio are permitted to invest up to 20% of
the value of their respective total assets in securities the interest income on
which is subject to federal income tax. These Portfolios may make taxable
investments pending investment of proceeds from sales of their shares or
portfolio securities, pending settlement of purchases of portfolio securities,
to maintain liquidity to meet anticipated redemptions or when it is advisable in
the Advisor's opinion because of adverse market conditions. The taxable
investments permitted for these Portfolios include Obligations of the United
States government and its agencies and instrumentalities, bank obligations,
commercial paper and repurchase agreements and, in the case of the Tax Exempt
Limited Term Portfolio, other debt securities which meet the Portfolio's quality
requirements. See "Taxes." Any securities, the interest income on which may be
subject to the federal alternative minimum tax for individuals (including
participation certificates in such securities) are included with taxable
investments in determining the 20% limitation.

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<PAGE>

is known as a put. The aggregate price paid for securities with puts may be
higher than the price which otherwise would be paid. Consistent with the
investment objectives of these Portfolios and subject to the supervision of the
Directors, the purpose of this practice is to permit the Portfolios to be fully
invested in tax exempt securities while maintaining the necessary liquidity to
purchase securities on a when-issued basis, to meet unusually large redemptions,
to purchase at a later date securities other than those subject to the put and,
in the case of the Tax Exempt Limited Term Portfolio, to facilitate the
Advisor's ability to manage the Portfolio actively. The principal risk of puts
is that the put writer may default on its obligation to repurchase. The Advisor
will monitor each writer's ability to meet its obligations under puts. See
"Investment Restrictions" and "Taxes" in the Statement of Additional
Information.

The amortized cost method is used by the Domestic Prime Money Market
Portfolio, the Global Money Market Portfolio and the Tax Exempt Money Market
Portfolio to value any municipal securities; no value is assigned to any puts on
such municipal securities. This method is also used by the Tax Exempt Limited
Term Portfolio to value certain high quality municipal securities which meet the
requirements specified for use of the amortized cost method; when these
securities are subject to puts separate from the underlying securities, no value
is assigned to the puts. The cost of any such put is carried as an unrealized
loss from the time of purchase until it is exercised or expires. See the
Statement of Additional Information for the valuation procedure if the Tax
Exempt Limited Term Portfolio were to invest in municipal securities that could
not be valued by the amortized cost method and that are subject to separate
puts.

These Portfolios may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 (the "Securities
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A of the Securities Act. These portfolios may also purchase certain
commercial paper issued in reliance on the exemption from regulations in Section
4(2) of the Securities Act ("4(2) Paper"). However, a Portfolio will not invest
more than 10% of its net assets in illiquid investments, which include
securities for which there is no readily available market, securities subject to
contractual restriction on resale, certain investments in asset-backed and
receivable-backed securities and restricted securities (unless, with respect to
these securities and 4(2) Paper, the Fund's Directors continuously determine,
based on the trading markets for the specific restricted security, that it is
liquid). The Directors may adopt guidelines and delegate to the Advisor the
daily function of determining and monitoring liquidity of restricted securities
and 4(2) Paper. The Directors, however, will retain sufficient oversight and be
ultimately responsible for these determinations.

Since it is not possible to predict with assurance exactly how this market
for restricted securities sold and offered under Rule 144A will develop, the
Directors will carefully monitor the Portfolios' investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in a Portfolio to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.

Hedging for the Limited Term Portfolio and the Tax Exempt Limited Term
Portfolio. Hedging is a means of transferring risk which an investor does not
desire to assume during an uncertain market environment. The Limited Term
Portfolio and the Tax Exempt Limited Term Portfolio are permitted to enter into
the transactions more fully described in the Statement of Additional Information
solely (a) to

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<PAGE>

hedge against changes in the market value of portfolio securities or (b) to
close out or offset existing positions. The transactions must be appropriate to
reduction of risk; they cannot be for speculation. The Limited Term Portfolio
and the Tax Exempt Limited Term Portfolio may (a) sell futures contracts on
non-municipal and municipal debt securities and indexes of non-municipal and
municipal debt securities, respectively, and (b) purchase or write (sell)
options on these futures, on non-municipal and municipal debt securities and on
indexes of non-municipal and municipal debt securities traded on registered
securities exchanges and contract markets, respectively.

To the extent the Portfolios use hedging instruments which do not involve
specific portfolio securities, offsetting price changes between the hedging
instruments and the securities being hedged will not always be possible, and
market value fluctuations of the Portfolio may not be completely eliminated.
When using hedging instruments that do not specifically correlate with
securities in the Portfolio, the Advisor will attempt to create a very closely
correlated hedge. Hedging activities based on non-municipal debt securities or
indexes may not correlate as closely to the Portfolios as hedging activities
based on municipal debt securities or indexes. Less closely correlated hedges
are likely to occur if a Portfolio hedges municipal securities with a futures
contract in United States government obligations, other non-municipal securities
or an index that does not include municipal securities. This type of hedging
activity may be useful to a Portfolio, especially where closely correlated
hedging activities based on municipal securities or indexes are not available.
For more detailed information about these transactions, see the Statement of
Additional Information.

United States Government Obligations for the Domestic Prime Money Market
Portfolio, the Global Money Market Portfolio and the Limited Term Portfolio.
These Portfolios may purchase any obligations issued or guaranteed by the United
States Government or by its agencies or instrumentalities. Securities issued or
guaranteed as to principal and interest by the United States Government or by
agencies or instrumentalities thereof include obligations of several different
kinds. Such securities in general include a variety of United States Treasury
obligations, consisting of bills, notes and bonds, which principally differ only
in their interest rates, maturities and times of issuance, and obligations
issued or guaranteed by United States Government agencies and instrumentalities
which are supported by (a) the full faith and credit of the United States
Treasury (such as Government National Mortgage Association participation
certificates), (b) the limited authority of the issuer to borrow from the United
States Treasury (such as securities of the Student Loan Marketing Association),
(c) the authority of the United States Government to purchase certain
obligations of the issuer (such as securities of the Federal National Mortgage
Association), or (d) only the credit of the issuer. No assurance can be given
that the United States Government will provide financial support to United
States Government agencies or instrumentalities as described in clauses (b), (c)
or (d) above in the future, other than as set forth above, since it is not
obligated to do so by law. Certain instruments issued or guaranteed by the
United States Government or agencies thereof which have a variable rate of
interest readjusted no less frequently than annually are deemed to have a
maturity equal to the period remaining until the next readjustment of the
interest rate. Custodial Receipts for the Domestic Prime Money Market Portfolio,
the Global Money Market Portfolio and the Limited Term Portfolio. Securities
issued or guaranteed as to principal and interest by the United States
Government may be acquired by the Portfolios in the form of custodial receipts
that evidence ownership of future interest payments, principal payments or both
on certain United States Treasury notes or bonds. Such notes and bonds are held
in custody by a bank on behalf of the owners. These custodial receipts are known
by various names, including "Treasury Receipts," "Treasury Investment Growth
Receipts" ("TIGR"s') and "Certificates of Accrual on Treasury Securities"
("CATS"). The Portfolios may also invest in separately traded principal and
interest components of securities issued or guaranteed by the United States
Treasury. The principal and interest components of selected securities are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program ("STRIPS"). Under the STRIPS program, the
principal and interest components are individually numbered and separately
issued by the U.S. Treasury at the request of depository financial institutions,
which then trade the component parts independently. The Portfolios may also
invest in stripped mortgage-backed securities that represent beneficial
ownership interests in either principal or interest distributions on certain
mortgage pass-through

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certificates which are guaranteed by the Federal National Mortgage Association.
Such certificates are held by a trust which sells such securities through the
Federal Reserve.

Securities guaranteed as to principal and interest by the United States
Government, its agencies or instrumentalities are deemed to include securities
for which the payment of principal and interest is backed by an irrevocable
letter of credit issued by the United States Government, its agencies or
instrumentalities.

Mortgage-Backed Securities. All of the Portfolios, except the U.S.
Treasury Money Market Portfolio, may purchase securities issued or guaranteed by
federal agencies or U.S. Government sponsored corporations. Such securities
include those issued and guaranteed by the Government National Mortgage
Association (GNMA, or "Ginnie Mae"), the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").

GNMA Mortgage-Backed Securities are mortgage-backed securities
representing part ownership of a pool of mortgage loans. These loans issued by
lenders such as mortgage bankers, commercial banks, and savings and loan
associations are either insured by the Federal Housing Administration (FHA) or
guaranteed by the Veterans Administration (VA). A "pool" or group of such
mortgages is assembled and, after being approved by GNMA, is offered to
investors through securities dealers. Once approved by GNMA (a U.S. Government
corporation within the U.S. Department of Housing and Urban Development) the
timely payment of interest and principal is guaranteed by the full faith and
credit of the U.S. Government.

As mortgage-backed securities, GNMAs differ from bonds in that principal
is paid back by the borrower over the length of the loan rather than returned in
a lump sum at maturity. GNMAs are called "pass-through" securities because both
interest and principal payments, including prepayments, are passed through to
the holder of the security (in this case, the Portfolio).

The payment of principal of the underlying mortgages may exceed the
minimum required by the schedule of payments for the mortgages. Such prepayments
are made at the option of the mortgagors for a wide variety of reasons
reflecting their individual circumstances and may involve capital losses if the
mortgages were purchased at a premium. For example, mortgagors may speed up the
rate at which they prepay their mortgages when interest rates decline
sufficiently to encourage refinancing. A Portfolio, when such prepayments are
passed through to it, may be able to reinvest them only at a lower rate of
interest. The Advisor, in determining the attractiveness of GNMAs relative to
alternative fixed income securities, and in choosing specific GNMA issues, will
have made assumptions as to the likely speed of prepayment. Actual experience
may vary from these assumptions, resulting in a higher or lower investment
return than anticipated.

FNMA is a U.S. Government sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases residential mortgages from a list of
approved seller/servicers, which include state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks, credit unions,
and mortgage banks. Pass-through securities issued by FNMA are guaranteed as to
timely payment of principal and interest by FNMA but are not backed by the full
faith and credit of the U.S. Government.

FHLMC is a corporate instrumentality of the U.S. Government, created by
Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. FHLMC issues Federal Home Loan Mortgage
Corporation Participation Certificates ("PCs") which represent interests in
mortgages from FHLMC's mortgage portfolio. FHLMC guarantees the timely payment
of interest and ultimate collection of principal, but PCs are not backed by the
full faith and credit of the U.S. Government.

FHLMC PCs differ from FNMA pass-throughs in that the mortgages underlying
PCs are mostly conventional mortgages rather than FHA insured or VA guaranteed
mortgages, although FHLMC has

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<PAGE>

occasionally purchased FHA or VA loans. However, in several other respects (such
as the monthly pass-through of interest and principal and the unpredictability
of future prepayment experience) PCs are similar to FNMAs.

These types of securities generally are less effective than other debt
securities in providing a means of "locking" in attractive long term interest
rates because the underlying mortgages can be prepaid. However, this risk is far
less significant for the Portfolios because of their shorter weighted average
maturities than for a long term portfolio. During periods of declining interest
rates, mortgage-backed securities may have less potential for capital
appreciation because of the possibility of increased prepayments. During periods
of increasing interest rates, mortgage-backed securities may have a greater risk
of capital depreciation because of the possibility of decreased prepayments.

All of the Portfolios, except the U.S. Treasury Money Market Portfolio,
may also invest in Collateralized Mortgage Obligations ("CMOs"), a type of
mortgage-backed security. CMOs are debt securities collateralized by
mortgage-backed certificates issued by federal agencies or U.S. Government
sponsored corporations such as GNMA, FNMA and FHLMC. The payment of CMOs depends
upon the cash flow from the pool of mortgages represented by the mortgage-backed
certificates.

CMOs are divided into multiple classes. Generally, the interest on the
classes is distributed currently to the holders of each class. However,
principal is not paid in this manner. Instead, holders of the first class
receive all payments of principal until their bond is fully paid. Thereafter,
principal is paid on each succeeding class with the earliest maturing securities
being retired first.

One or more classes, usually the last, may be zero-coupon bonds ("Z
bonds"). The cash flow that would otherwise be used to pay interest on this
class is used instead to pay principal on the earlier maturing classes. After
all prior classes are retired, the Z bond pays interest and principal until
final maturity. Interest accrued but not paid on the Z bond is added to the
principal of the Z bond and thereafter accrues interest.

Any guarantee or insurance on a mortgage-backed certificate does not
extend to a Portfolio's investment in CMOs. There is a possibility of limited
liquidity as there is no assurance that a secondary market will develop for CMOs
or, if such market does develop, that it will provide a Portfolio with liquidity
or remain for the term of the investment. If an event of default occurs with
respect to the CMOs purchased by a Portfolio, there can be no assurance that the
collateral pledged as security therefor will be sufficient to pay the principal
and interest due on such bonds. The payment of principal of the underlying
mortgages may exceed the minimum required by the schedule of payments for the
mortgages. Such prepayments are made at the option of the mortgagors for a wide
variety of reasons reflecting their individual circumstances and may involve
capital losses if the mortgages were purchased at a premium. For example,
mortgagors may speed up the rate at which they prepay their mortgages when
interest rates decline sufficiently to encourage refinancing. The Advisor, in
determining the attractiveness of CMOs relative to alternative fixed income
securities, and in choosing specific CMO issues, will have made assumptions as
to the likely speed of prepayment. Actual experience may vary from these
assumptions, resulting in a higher or lower investment return than anticipated.

Variable Rate Demand Instruments. All of the Portfolios, except the U.S.
Treasury Money Market Portfolio, may purchase variable rate demand instruments.
These instruments may be tax exempt or taxable (variable amount master demand
notes) and provide for a periodic adjustment in the interest rate paid on the
instrument and permit the holder to demand payment of the unpaid principal
balance plus accrued interest upon not more than 30 days' notice either from the
issuer or by drawing on a bank letter of credit, a guarantee, insurance or other
credit facility issued with respect to such interest. These instruments are
payable either on demand or at specified intervals not exceeding one year. The
Money Market Portfolios may only purchase variable rate demand instruments if
(i) the instrument is subject to an unconditional demand feature, exercisable by
the Portfolio in the event of default in the payment of principal or interest on
the underlying securities, and such unconditional demand feature qualifies as an

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<PAGE>

Eligible Security, or (ii) the instrument is not subject to an unconditional
demand feature but does qualify as an Eligible Security. The remaining
Portfolios can only purchase such instruments if the Board of Directors
determines that they meet the particular Portfolio's quality requirements. While
transfer of these instruments is usually restricted by their issuers and there
are no trading markets for them, the liquidity of such investments is assured
through their demand features. See "Investments and Investment Techniques Common
to Two or More Portfolios" in the Statement of Additional Information for
further description of these instruments.

While the value of the underlying variable rate demand instruments may
change with changes in interest rates generally, the variable rate nature of the
underlying variable rate demand instruments should minimize changes in value of
the instruments. Accordingly, as interest rates decrease or increase, the
potential for capital appreciation and the risk of potential capital
depreciation is less than would be the case with a portfolio of fixed income
securities. The Portfolios may contain variable rate demand instruments on which
stated minimum or maximum rates, or maximum rates set by state law, limit the
degree to which interest on such variable rate demand instruments may fluctuate;
to the extent it does, increases or decreases in value may be somewhat greater
than would be the case without such limits. Additionally, these Portfolios may
contain variable rate demand participation certificates in fixed rate municipal
obligations and taxable debt obligations. The fixed rate of interest on these
obligations will be a ceiling on the variable rate of the participation
certificate. In the event that interest rates increased so that the variable
rate exceeded the fixed rate on the obligations, the obligations could no longer
be valued at par and this may cause the Portfolios to take corrective action,
including the elimination of the instruments. Because the adjustment of interest
rates on the variable rate demand instruments is made in relation to movements
of the applicable banks' "prime rate", or other interest rate adjustment index,
the variable rate demand instruments are not comparable to long-term fixed rate
securities. Accordingly interest rates on the variable rate demand instruments
may be higher or lower than current market rates for fixed rate obligations or
obligations of comparable quality with similar maturities.

Participation Interests. All of the Portfolios, except the U.S. Treasury
Money Market Portfolio, may purchase from banks participation interests in all
or part of specific holdings of municipal or other debt obligations (including
corporate loans). Where the institution issuing the participation does not meet
a Portfolio's quality standard the participation interest will be backed by an
irrevocable letter of credit or guarantee that the Board of Directors has
determined meets the prescribed quality standards of each Portfolio. Thus, even
if the credit of the selling bank does not meet the quality standards of a
Portfolio, the credit of the entity issuing the credit enhancement will. Each
Portfolio will have the right to sell the participation interest back to the
bank for the full principal amount of the Portfolio's interest in the municipal
or debt obligation plus accrued interest, but only (1) as required to provide
liquidity to that Portfolio, (2) to maintain the quality standards of each
Portfolio's investment portfolio or (3) upon a default under the terms of the
debt obligation. The selling bank may receive a fee from a Portfolio in
connection with the arrangement. The terms of certain of the participations in
corporate loans in which a Portfolio may invest may not enable the Portfolios to
sell such instruments to the bank, and the secondary markets, if any, for such
instruments are extremely limited.

INVESTMENT RESTRICTIONS

As a diversified investment company, 75% of the assets of each of the
Portfolios is subject to the following limitations: (a) each Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except obligations of the United States government and its agencies and
instrumentalities, and (b) each portfolio may not own more than 10% of the
outstanding voting securities of any one issuer. The classification of the Fund
as a diversified investment company is a fundamental policy of the Fund and may
be changed only with the approval of the holders of a majority of the Fund's
outstanding shares. As used in this Prospectus, the term "majority of the
outstanding shares" of a Portfolio means, respectively, the vote of the lesser
of (i) 67% or more of the shares of the Portfolio present at the meeting, if
more than 50% of the outstanding shares of the Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Portfolio.

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The Fund also operates under certain investment restrictions which are
deemed fundamental policies of the Fund and also may be changed only with the
approval of the holders of a majority of a Portfolio's outstanding shares. In
addition to other restrictions listed in the Statement of Additional
Information, none of the Portfolios may (except where specified):

(i) with regard to the Domestic Prime Money Market Portfolio and the
Global Money Market Portfolio, invest more than 5% of their total assets in
securities of any one issuer; however, the Portfolios may invest more than 5% of
their total assets in the First Tier Securities of a single issuer for a period
of up to three business days;

(ii) invest more than 10% of the market value of the Fund's net assets in
illiquid investments including foreign securities, privately placed securities
(including short term debt obligations issued pursuant to Section 4(2) of the
Securities Act of 1933) and bank participation interests for which a readily
available market does not exist and repurchase agreements maturing in more than
seven days;

(iii) purchase securities on margin or borrow money, except (a) from banks
for extraordinary or emergency purposes (not for leveraging or investment) or
(b) by engaging in reverse repurchase agreements, provided that (a) and (b) in
the aggregate do not exceed an amount equal to one-third of the value of the
total assets of that Portfolio less its liabilities (not including the amount
borrowed) at the time of the borrowing, and further provided that 300% asset
coverage is maintained at all times;

(iv) purchase securities while borrowings (excluding reverse repurchase
agreements entered into for other than extraordinary or emergency purposes)
exceed 5% of its total assets;

(v) mortgage, pledge or hypothecate any assets except that a Portfolio may
pledge not more than one-third of its total assets to secure borrowings made in
accordance with paragraph (iii) above. However, although not a fundamental
policy of the Fund, as a matter of operating policy in order to comply with
certain state statutes, no Portfolio will pledge its assets in excess of an
amount equal to 10% of net assets; or

(vi) lend portfolio securities of value exceeding in the aggregate
one-third of the market value of the Portfolio's total assets less liabilities
other than obligations created by these transactions.

For a more detailed discussion of these investment restrictions, see
"Investment Restrictions" in the Statement of Additional Information.

MANAGEMENT OF THE FUND

Board of Directors and Officers. The Board of Directors of the Fund
decides upon matters of general policy and reviews the actions of the Fund's
Distributor and its Advisor.

Advisor. Effective April 14, 1997, Gabelli Fixed Income LLC has been
employed by the Board of Directors as the Investment Advisor for each Portfolio
of the Fund pursuant to the Advisory Agreements entered into by the Fund on
behalf of each Portfolio. The Advisor supervises all aspects of the Fund's
operations and provides investment advice and portfolio management services to
the Fund. Subject to the supervision of the Fund's Board of Directors, the
Advisor makes the Fund's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages the Fund's
investments.

The Advisor also provides supervisory personnel who are responsible for
supervising the performance of administrative services, accounting and related
services, net asset value and yield calculations, reports to

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<PAGE>

and filings with regulatory authorities and services relating to such functions.
However, the Administrator provides personnel to perform the operational
components of such services.

Gabelli Fixed Income LLC, with offices at 19 Old Kings Highway South,
Darien, Connecticut 06820-4526, is a Delaware limited liability company
organized in 1997. It is the successor advisor to Gabelli O'Connor Fixed Income
Mutual Fund Management LP, which managed the Fund since its inception. Gabelli
Fixed Income LLC is a registered investment advisor under the Investment
Advisers Act of 1940. Mr. Mario J. Gabelli is the Chairman of the Board of
Gabelli Funds, Inc., which holds a majority interest in the Advisor. As a result
of this relationship, Mr. Gabelli may be deemed to be a "controlling person" of
the Advisor. As of December 31, 1997, the Advisor served as investment advisor
for assets aggregating in excess of $1.5 billion. The Advisor is an affiliate of
Darien Associates, LLC, which, as of December 31, 1997, served as investment
advisor for assets aggregating in excess of $200 million. The Advisor is also an
affiliate of Gabelli Funds, Inc. which, through its affiliates, acts as an
investment manager, administrator or advisor for assets aggregating in excess of
$12 billion as of December 31, 1997.

The Advisor provides persons satisfactory to the Fund's Board of Directors
to serve as officers of the Fund. Such officers, as well as certain other
employees and directors of the Fund, may be directors, officers or employees of
the Advisor or its affiliates. Due to the services performed by the Advisor and
the Administrator, the Fund currently has no employees and its officers are not
required to devote their full time to the affairs of the Fund. The Statement of
Additional Information contains general background information regarding each
Director and principal officer of the Fund.

Fees. Set forth below as a percentage of average daily net assets are the
advisory fees paid to the Advisor for each Portfolio pursuant to the respective
Advisory Agreements: the U.S. Treasury Money Market Portfolio, .30%; the
Domestic Prime Money Market Portfolio, .30%; the Global Money Market Portfolio,
.30%; the Tax Exempt Money Market Portfolio, .30%; the Limited Term Portfolio,
.45%; and the Tax Exempt Limited Term Portfolio, .45%. Any portion of the total
fees received by the Advisor may be used by the Advisor to provide shareholder
and administrative services and for distribution of Fund shares. See "Financial
Statements" in the Statement of Additional Information. The Advisor may
voluntarily assume certain expenses of any Portfolio of the Fund. This would
have the effect of lowering the overall expense ratio of the Portfolio and of
increasing yield to investors in that Portfolio. See "Expense Limitation" in the
Statement of Additional Information.

Administrator and Sub-Administrator. Gabelli Funds, Inc. ("Gabelli")
assumed responsibility as Administrator pursuant to an Administration Agreement
with each of the Portfolios, whereby Gabelli provides management and
administrative services necessary for the Fund, other than those provided by the
Investment Advisor, subject to the supervision of the Fund's Board of Directors.

As compensation for its services, the Portfolios pay the Administrator a
fee, computed and accrued daily and payable monthly, in accordance with the
following schedule: i) 0.10% of the first $500 million of aggregate average
daily net assets of the Fund, (ii) 0.65% of the next $250 million of aggregate
average daily net assets of the Fund, (iii) 0.055% of the next $250 million of
aggregate average daily net assets of the Fund, and (iv) 0.050% of all aggregate
average daily net assets of the Fund over $1 billion.

BISYS Fund Services (the "Sub-Administrator"), which is a subsidiary of
The BISYS Group, Inc. ("BISYS"), has been retained by the Administrator to
perform certain administrative services. BISYS, headquartered in Little Falls,
New Jersey, is a publicly owned company engaged in information processing, loan
servicing and 401(k) administration and recordkeeping services to and through
banking and other financial organizations. BISYS and its affiliates, BISYS Fund
Services and BISYS Fund Services, Inc., have their principal place of business
at 3435 Stelzer Road, Columbus, Ohio 43219.

BISYS Fund Services, Inc. provides the Fund with all accounting related
services. For the accounting services provided, BISYS Fund Services, Inc. shall
be paid a fee of $20,000 per Portfolio per year.

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<PAGE>

Expenses. Each Portfolio is responsible for payment of its expenses,
including the following expenses, without limitation: fees payable to the
Advisor, Administrator, Custodian, Transfer Agent and Dividend Agent, Accounting
Agent; brokerage and commission expenses; Federal, state or local taxes,
including issuance and transfer taxes incurred by or levied on them; commitment
fees, certain insurance premiums and membership fees and dues in investment
company organizations; interest charges on borrowings; telecommunications
expenses; recurring and nonrecurring legal and auditing expenses; costs of
organizing and maintaining the Fund's existence as a corporation; compensation,
including directors' fees, of any directors, officers or employees who are not
the officers of the Advisor or its affiliates; costs of other personnel
providing administrative and clerical services; costs of stockholders' services
and costs of stockholders' reports, proxy solicitations, and corporate meetings;
fees and expenses of registering their shares under the appropriate federal
securities laws and of qualifying their shares under applicable state securities
laws, including expenses attendant upon the initial registration and
qualification of these shares and attendant upon renewals of, or amendments to,
those registrations and qualifications; and expenses of preparing, printing and
delivering the Prospectus to existing shareholders and of printing shareholder
application forms for shareholder accounts. The Advisor pays the promotional and
advertising expenses related to the distribution of the Fund's shares and for
the printing of all Fund prospectuses used in connection with the distribution
and sale of Fund shares. See "Management of Fund" in the Statement of Additional
Information. The Advisor has agreed to a reduction in the amounts payable to it
and to reimburse each Portfolio, as necessary, if in any fiscal year the sum of
the Portfolio's expenses exceeds the limits set by applicable regulations of
state securities commissions.

PURCHASE OF SHARES

Gabelli Fixed Income Distributors, Inc. (the "Distributor") serves as the
exclusive Distributor of the shares of each Portfolio pursuant to its
Distribution Agreement with the Fund. Investors may open accounts in the
Portfolios in the Fund only through the exclusive Distributor for the Fund.
Under the Distribution Agreement, the Distributor, for nominal consideration and
as agent for the Fund, will solicit orders for the purchase of Fund shares,
provided that any subscriptions and orders will not be binding on the Fund until
accepted by the Fund as principal.

Shares of the Fund may be purchased through Participating Organizations.
Certain organizations may charge the investor a fee for their services. Such
fees may vary among these organizations, and such organizations may impose
higher or lower initial or subsequent investment requirements than those
established by the Fund. Services provided by these organizations may include
allowing the investor to establish a margin account and to borrow on the value
of the Fund's shares in that account.

Each Portfolio requires a minimum initial investment of $100,000. No
minimum amount is required for subsequent investments. Additionally, without
cost, investors have the flexibility to allocate their investment among the six
Portfolios at their discretion and may change such allocation at any time,
subject to the minimum initial investment requirements of each Portfolio.
Shareholders should maintain a share balance equal to at least $50,000 in any
Portfolio in which they wish to continue to invest. The Fund reserves the right
to redeem, after 60 days' written notice, shares in subminimum accounts and
return the proceeds to shareholders. The shareholder may restore and maintain a
minimum balance during the notice period or reallocate his investment among the
Portfolios to avoid involuntary redemption. See "Redemption of Shares-Optional
Redemption by the Fund." Shareholders are also provided flexibility since shares
can be redeemed or exchanged among the six Portfolios at no extra cost. For
purposes of minimum investment requirements, investments in the Portfolios by
related shareholders may be aggregated. However, under certain circumstances,
the Fund may waive the investment minimums.

Shares of each Portfolio are sold on a continuous basis without a sales
charge at the net asset value per share next determined after receipt of an
order. The Fund reserves the right to reject any subscription for the shares of
its Portfolios. No third party or foreign checks will be accepted. Purchases
made by mail should be sent to The Treasurer's Fund, Inc., P.O. Box 3808,
Boston, Massachusetts, 02266-8308.

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<PAGE>

The U.S. Treasury Money Market Portfolio, the Domestic Prime Money Market
Portfolio, the Global Money Market Portfolio and the Tax Exempt Money Market
Portfolio. To purchase shares in the U.S. Treasury Money Market Portfolio, the
Domestic Prime Money Market Portfolio, the Global Money Market Portfolio or the
Tax Exempt Money Market Portfolio, an investor should place a telephone purchase
order before 12:00 noon Eastern time and wire immediately available funds to the
appropriate Portfolio on the same day. These Portfolios must receive immediately
available funds by the close of business for the purchase to be effective and
dividends to be earned on the same day. If funds are received after the close of
business, the purchase will become effective and dividends will be earned on the
next business day. Purchases made by check will be invested and begin earning
income on the next business day after the check is received.

The Limited Term Portfolio and the Tax Exempt Limited Term Portfolio. To
purchase shares in the Limited Term Portfolio or the Tax Exempt Limited Term
Portfolio, an investor should place a telephone purchase order and transfer
immediately available funds to the appropriate Portfolio. If the Portfolio
receives a telephone purchase order prior to 4:00 p.m. Eastern time on any
business day, the purchase of Portfolio shares is effective and is made at the
net asset value determined that day, and the purchaser will begin earning
dividends on the next business day. If the Portfolio receives a telephone
purchase order after 4:00 p.m. Eastern time, the purchase is effective and is
made at the net asset value determined on the next business day, and the
purchaser will begin earning dividends on the next following business day.
Purchases made by check will be invested on the next business day after the
check is received and begin earning income on the day following investment.

Other Purchase Information. Requests in "good order" must include the
following documentation: (a) A letter of instruction, if required, signed by all
registered owners of the shares in the exact names in which they are registered;
(b) Any required signature guarantees (see "Signature Guarantees" below); and
(c) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit sharing
plans and other organizations.

Signature Guarantees. To protect shareholder accounts, the Funds and its
transfer agent from fraud, signature guarantees are required to enable the Funds
to verify the identity of the person who has authorized a redemption from an
account. Signature guarantees are required for (1) redemptions where the
proceeds are to be sent to someone other than the registered shareowner(s) and
the registered address and (2) share transfer requests. Shareholders may contact
the Funds at 1-800-TSR-FUND/1-800-877-3863 for further details.

By Wire. To initially purchase shares by a Federal fund wire, an investor
should first telephone the Fund at 1-800-TSR-FUND/1-800-877-3863 to obtain a new
account number. The investor should instruct a Federal Reserve System member
bank to wire funds to:

State Street Bank and Trust Company
ABA #11-0000-28 REF DDA #99046187
Re: The Treasurer's Fund
A/C #
--------------------------------
Account of (Registered Owner)
--------------------------
225 Franklin Street, Boston, MA 02110

For initial purchased by wire, the investor should promptly complete and
mail the application to the address shown above for mail purchases. There may be
a charge by your bank for transmitting the money by bank wire but State Street
Bank and Trust Company does not charge investors in the Fund for the receipt of
wire transfers. If you are planning to wire funds, it is suggested that you
instruct your bank early in the day so the wire transfer can be accomplished the
same day.

By Mail. Purchases to open new accounts which are mailed should be sent to
The Treasurer's Fund, Inc., P.O. Box 3808, Boston, Massachusetts 02266-8308,
together with the completed account application.

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<PAGE>

REDEMPTION OF SHARES

To redeem shares in any of the Portfolios of the Fund, an investor may
submit a redemption request to the Fund or may telephone the Fund directly at
1-800-TSR-FUND/1-800-877-3863 and give the service representative the
shareholder's account number and the amount of the redemption. Each Portfolio
executes redemption requests at the next determined net asset value per share.
See "Net Asset Value." The Fund reserves the right to satisfy redemption
requests in cash or in securities of the Portfolio whose shares are being
redeemed. During a period of dramatic economic or market change, increased
volume may make the telephone redemption option difficult to implement.
Shareholders unable to reach the Fund by telephone may telecopy their redemption
requests to the Fund at 203-655-7719. The Fund will employ procedures to confirm
that telephone or telecopy redemption instructions are genuine, and will require
that shareholders electing such option provide a form of personal
identification. The failure of the Fund to employ such procedures may cause the
Fund to be liable for losses incurred by investors due to telephone or telecopy
redemptions based upon unauthorized or fraudulent instructions.

The U.S. Treasury Money Market Portfolio, the Domestic Prime Money Market
Portfolio, the Global Money Market Portfolio and the Tax Exempt Money Market
Portfolio. A redemption request received by the U.S. Treasury Money Market
Portfolio, the Domestic Prime Money Market Portfolio, the Global Money Market
Portfolio or the Tax Exempt Money Market Portfolio prior to 12:00 noon Eastern
time is effective on that day. A redemption request received after that time
becomes effective on the next day. Proceeds of an effective redemption are
generally wired the same day in immediately available funds to the shareholder's
designated bank account. If a redemption request becomes effective on a day when
the New York Stock Exchange is open but which is not a Fund business day, the
proceeds are transferred the next business day. See "Further Redemption
Information."

The Limited Term Portfolio and the Tax Exempt Limited Term Portfolio. A
redemption request received by the Limited Term Portfolio or the Tax Exempt
Limited Term Portfolio prior to 4:00 p.m. Eastern time is effective on that day.
A redemption request received after that time becomes effective on the next day.
Proceeds of an effective redemption are generally wired the next business day in
immediately available funds to the shareholder's designated bank account and,
subject to "Further Redemption Information" below, in any event are transferred
within seven days.

Redemption of Shares by Check Writing. Shareholders of any of the four
Money Market Portfolios who have elected check writing on their application will
receive checks which may be used to make payments to any person or business.
Dividends will continue to be paid until a check is presented to the Portfolio
for payment. It is not possible to use a check to close out your account.

Optional Redemption by the Fund. Shareholders should maintain a share
balance equal to at least $50,000 per Portfolio. The Fund reserves the right to
redeem, after 60 days' written notice, shares in subminimum accounts and return
the proceeds to shareholders. The shareholder may restore and maintain a minimum
balance during the notice period or reallocate his investment among the
Portfolios to avoid involuntary redemption.

Further Redemption Information. Investors should be aware that redemptions
from the Fund may not be processed if a completed account application with a
certified Taxpayer Identification Number has not been received. See "Taxes." In
addition, if a customer sends a check for the purchase of Fund shares, and those
shares are redeemed before the check has cleared, the transmittal of redemption
proceeds may be delayed until 15 days after the check used to purchase the
shares has been deposited by the Fund.

Each of the Portfolios of the Fund reserves the right to suspend the right
of redemption and to postpone the date of payment upon redemption for up to
seven days and for such other periods as the Investment Company Act of 1940 may
permit.

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<PAGE>

Requests in "good order" must include the following documentation: (a) A
letter of instruction, if required, signed by all registered owners of the
shares in the exact names in which they are registered; (b) Any required
signature guarantees (see "Signature Guarantees" above); and (c) Other
supporting legal documents, if required, in the case of estates, trusts,
guardianships, custodianships, corporations, pension and profit sharing plans
and other organizations.

EXCHANGE OF SHARES

Investors may, without cost, exchange shares from any of the Portfolios of
the Fund into any other Portfolio of the Fund or other mutual funds managed by
Gabelli Funds, Inc. or its affiliates, which are abailable for sale in their
state. Exchanges into other Portfolios of the Fund are subject to the $100,000
minimum initial investment requirement per Portfolio and the maintenance of the
suggested minimum balance of $50,000. See "Purchase of Shares." Investors who
wish to exchange shares of the Portfolios for shares of other Gabelli mutual
funds should obtain and review its prospectus. Shares are exchanged on the basis
of relative net asset value per share. Exchanges are in effect redemptions from
one Portfolio and purchases of another Portfolio; and the Portfolio's purchase
and redemption procedures and requirements are applicable to exchanges. An
exchange pursuant to this exchange privilege is treated for federal income tax
purposes as a sale on which a shareholder may realize a taxable gain or loss.
See "Purchase of Shares" and "Redemption of Shares." Telephone Redemption will
be suspended for a period of up to 30 days following a telephonic address
change.

DIVIDENDS AND DISTRIBUTIONS

Net investment income is declared as dividends daily and paid monthly;
however, if an investor's shares are redeemed during a month, accrued but unpaid
dividends are paid with the redemption proceeds. Substantially all the realized
net capital gains for the Portfolios, if any, are declared and paid on an annual
basis. Dividends are payable to shareholders of record at the time of
declaration.

Dividends of each Portfolio are automatically reinvested in additional
Portfolio shares unless the shareholder has elected to have them paid in cash.

The net investment income of the Fund for each business day is determined
immediately prior to the determination of net asset value. Net investment income
for other days is determined at the time net asset value is determined on the
prior business day. Shares of the Money Market Portfolios earn dividends on the
business day their purchase is effective but not on the business day their
redemption is effective. Shares of the Limited Term Portfolio and the Tax Exempt
Limited Term Portfolio earn dividends on the business day their redemption is
effective but not on the business day their purchase is effective. See "Purchase
of Shares" and "Redemption of Shares."

If you elect to receive distributions in cash and checks (1) are returned
and marked as "undeliverable" or (2) remain uncashed for six months, your cash
election will be changed automatically and your future dividend and capital
gains distributions will be reinvested in the Fund at the per share net asset
value determined as of the date of payment of the distribution. In addition, any
undeliverable checks or checks that remain uncashed for six months will be
canceled and will be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation.

NET ASSET VALUE

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<PAGE>

outstanding shares. The U.S. Treasury Money Market Portfolio, the Domestic Prime
Money Market Portfolio, the Global Money Market Portfolio and the Tax Exempt
Money Market Portfolio value all portfolio securities by the amortized cost
method in accordance with Rule 2a-7 under the Investment Company Act of 1940.
This method attempts to maintain a constant net asset value per share of $1.00.
No assurances can be given that this goal can be attained. See "Net Asset Value"
in the Statement of Additional Information.

In the case of the Limited Term Portfolio and the Tax Exempt Limited Term
Portfolio, the value of each security for which readily available market
quotations exist is based on a decision as to the broadest and most
representative market for the security; the value is based either on the last
sale price on a national securities exchange, or, in the absence of recorded
sales, at the readily available closing bid price on such exchanges, or at the
quoted bid price in the over-the-counter market. Assets for which market
quotations are not readily available are valued in accordance with procedures
established by the Fund's Board of Directors, including use of an independent
pricing service or services which use prices based on yields or prices of
comparable securities, indications as to values from dealers and general market
conditions. High quality securities with effective maturities of one year or
less generally will be valued by the amortized cost method.

Each of the Money Market Portfolios computes its net asset value twice
daily on Monday through Friday, except that the net asset value may not be
computed for a Portfolio on a day in which no orders to purchase, sell or redeem
Portfolio shares have been received or on the holidays listed under "Net Asset
Value" in the Statement of Additional Information. The Portfolios compute net
asset value as follows: the U.S. Treasury Money Market Portfolio, the Domestic
Prime Money Market Portfolio, the Global Money Market Portfolio and the Tax
Exempt Money Market Portfolio, 12:00 noon Eastern time; the Limited Term
Portfolio and the Tax Exempt Limited Term Portfolio, 4:00 p.m. Eastern time.

YIELD AND TOTAL RETURN INFORMATION

The Portfolios may from time to time include yield, effective yield and
total return information in advertisements or reports to shareholders or
prospective investors. The "yield" of the U.S. Treasury Money Market Portfolio,
the Domestic Prime Money Market Portfolio, Global Money Market Portfolio and Tax
Exempt Money Market Portfolio refers to the income generated by an investment in
the Portfolio over a seven-day period (which period will be stated in the
advertisement). The Limited Term Portfolio and Tax Exempt Limited Term Portfolio
yield refers to income generated by an investment in these Portfolios over a
thirty day period. This income is then "annualized". That is, the amount of
income generated by the investment during that month is assumed to be generated
each month over a 12-month period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Portfolio is assumed to be reinvested.
The "effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. The "total return" of the
Limited Term Portfolio and Tax Exempt Limited Term Portfolio is required to be
included in any advertisement containing the yield of any of these non-money
market funds. Total return is the average annual total return for the period
which began at the inception of the Portfolio and ended on the date of the most
recent balance sheet, and is computed by finding the average annual compound
rates of return over the period that would equate the initial amount invested to
the ending redeemable value. For a description of the methods used to calculate
the Portfolios' yield, effective yield and total return, see the Fund's
Statement of Additional Information. Yield, effective yield and total return may
fluctuate daily and do not provide a basis for determining future yields,
effective yields or total returns.

All or substantially all of the dividends paid by the U.S. Treasury Money
Market Portfolio represent a pass-through of income received on the Portfolio's
direct investment in U.S. Treasury obligations, and, as a result, will not be
subject to state and local income taxation in many states. The U.S. Treasury
Money Market Portfolio may, from time to time, advertise a tax equivalent yield.
The tax equivalent yield is a

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<PAGE>

comparison of the taxable yield necessary to produce an after-tax yield
equivalent to that of a fund which invests in obligations that are exempt from
state and local income taxes, based upon the applicable state's or
municipality's highest marginal rate. The Tax Exempt Money Market Portfolio and
the Tax Exempt Limited Term Portfolio may also advertise tax equivalent yield.
Tax equivalent yield for the Tax Exempt Money Market and Tax Exempt Limited Term
Portfolios is a comparison of the taxable yield necessary to produce an
after-tax yield equivalent to that of a fund which invests in obligations that
are exempt from federal income taxes. Tax equivalent yield for the Tax Exempt
Money Market and Tax Exempt Limited Term Portfolios is calculated by applying
the stated federal income tax rate to only the net investment income exempt from
federal income taxation. For a description of the methods used to calculate the
Portfolios' tax equivalent yield, see the Fund's Statement of Additional
Information.

DESCRIPTION OF COMMON STOCK

The Fund was incorporated in Maryland on August 17, 1987. The authorized
capital stock of the Fund consists of twenty billion shares of stock having a
par value of one tenth of one cent ($.001) per share. The Fund's Board of
Directors is authorized to divide the unissued shares into separate series of
stock, each series representing a separate, additional investment portfolio. The
Board currently has authorized the division of the unissued shares into six
series, one for each of the Portfolios. Shares of all series will have identical
voting rights, except where, by law, certain matters must be approved by a
majority of the shares of the affected series. Each share of any series of
shares when issued has equal dividend, distribution, liquidation and voting
rights within the series for which it was issued, and each fractional share has
those rights in proportion to the percentage that the fractional share
represents of a whole share. Shares will be voted in the aggregate. There are no
conversion or preemptive rights in connection with any shares of the Fund. All
shares, when issued in accordance with the terms of the offering, will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholder.

The shares of the Fund have non-cumulative voting rights, which means that
the holders of more than 50% of the shares outstanding voting for the election
of directors can elect 100% of the directors if the holders choose to do so,
and, in that event, the holders of the remaining shares will not be able to
elect any person or persons to the Board of Directors. The Fund does not issue
certificates evidencing Fund shares.

DISTRIBUTION PLAN

The Fund has adopted a distribution and service plan (the "Plan") pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Rule") for each
Portfolio of the Fund. The Rule provides that an investment company which bears
any direct or indirect expense of distributing its shares must do so only in
accordance with a plan permitted by the Rule. There are no fees or expenses
chargeable to the Fund under the Plans and the Fund's Board of Directors has
adopted the Plans in case certain expenses of the Fund might be considered to
constitute indirect payment by the Fund of distribution expenses. If a payment
of advisory fees by the Fund to the Advisor should be deemed to be indirect
financing by the Fund of the distribution of its shares, such payments are
authorized by the Plans.

The Plans provide that the Advisor may make payments from time to time
from its own resources, which may include the advisory fee and past profits, to
pay promotional and administrative expenses in connection with the offer and
sale of shares of the Portfolios, including payments to participating
organizations for performing shareholder servicing and related administrative
functions and for providing assistance in distributing the Fund's shares. The
Advisor, in its sole discretion, will determine the amount of such payments made
pursuant to the Plans, provided that such payments will not increase the amount
which the Fund is required to pay to the Advisor for any fiscal year under the
Advisory Agreement in effect for the year.

The Glass-Steagall Act limits the ability of a depository institution to
become an underwriter or distributor of securities. However, it is the Fund
management's position that banks are not prohibited from

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<PAGE>

acting in other capacities for investment companies, such as providing
administrative and shareholder account maintenance services and receiving
compensation from the Advisor for providing such services. However, this is an
unsettled area of the law and if a determination contrary to the Fund
management's position is made by a bank regulatory agency or court concerning
shareholder servicing and administration payments to banks from the Advisor, any
such payments will be terminated and any shares registered in the banks' names,
for their underlying customers, will be re-registered in the name of the
customers at no cost to the Fund or its shareholders. In addition, state
securities laws on this issue may differ from the interpretations of federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.

Although there are no fees or expenses chargeable to the Fund under the
Plans, for the fiscal year ended October 31, 1997, the Advisor made payments
under the Plans to or on behalf of Participating Organizations in the amount of
$541,876 with regard to the U.S. Treasury Money Market Portfolio, the Tax Exempt
Money Market Portfolio and the Domestic Prime Money Market Portfolio
(representing .10% of the average daily net assets of each of those Portfolios).
Although these payments were not made by the Fund, each may be deemed an
indirect payment by the Fund.

TAXES

The active Portfolios of the Fund have qualified and intend to continue to
qualify under the Internal Revenue Code of 1986, as amended (the "Code"), as a
regulated investment company. As a regulated investment company, each Portfolio
will not be subject to federal income taxes on the investment company taxable
income and long-term capital gains that it distributes to its shareholders,
provided that at least 90% of its investment company taxable income and at least
90% of its tax exempt net interest income for the taxable year is distributed.
The Fund's policy is to distribute as dividends each year 100% (and in no event
less than 90%) of its investment company taxable income and tax exempt net
interest income. Each Portfolio will be treated as a separate corporation and
generally will have to comply with the qualification and other requirements
applicable to regulated investment companies without regard to other Portfolios.
If for any taxable year a Portfolio does not qualify as a regulated investment
company, all of its taxable income will be taxed to it at corporate rates and no
distribution will qualify as tax exempt.

The Fund has adopted a policy of declaring dividends daily in an amount
based on its net investment income. The amount of each daily dividend may differ
from actual net investment income calculated in accordance with federal income
tax principles. Dividend distributions generally will be made on the twentieth
day of each month. Dividends paid from taxable income and distributions of any
realized short term capital gains (whether from tax exempt or taxable
obligations) are taxable to shareholders as ordinary income for federal income
tax purposes, whether received in cash or reinvested in additional shares of the
Fund. Dividends paid from taxable income by a Portfolio on December 31 will be
treated as received by shareholders on such date (and subject to tax in the
shareholder's tax year in which such date occurs) for federal income tax
purposes, notwithstanding actual receipt of the dividend after December 31.
Distributions of net realized capital gains after utilization of capital loss
carryforwards, if any, are made in October and, if necessary to meet applicable
distribution requirements, shortly after October 31, the Portfolios' fiscal year
end. Investors in each Portfolio can receive distributions in cash or have them
reinvested in additional shares of the Portfolio. Distributions paid by the
Portfolios (including distributions of tax exempt interest) may result in a
liability (or increased liability) under the alternative minimum tax.

Distributions of tax exempt income are not subject to regular federal
income taxes, but may be subject to the alternative minimum tax. While shares of
the Fund are sold primarily to corporations and other institutional investors,
the Advisor has reserved the right to accept subscriptions for Fund shares from
individuals. Distributions derived from interest on certain private activity
bonds that are exempt from regular federal income tax are specifically treated
as tax preference items and may subject individual or corporate shareholders to
liability (or increased liability) under the alternative minimum tax. However,
at

33
<PAGE>

least 80% of the net assets of the Tax Exempt Money Market Portfolio and Tax
Exempt Limited Term Portfolio will be invested in municipal obligations, the
interest income on which is not treated as a tax preference item under the
alternative minimum tax. Because 75% of the difference between adjusted current
earnings (including, generally, tax exempt income), and alternative minimum
taxable income (determined without regard to this item) is an addition to the
corporate alternative minimum tax base, all distributions derived from interest
that is exempt from regular federal income tax are included in adjusted current
earnings and may subject corporate shareholders to, or increase their liability
under, the alternative minimum tax. In certain cases, Subchapter S corporations
with accumulated earnings and profits from Subchapter C years will be subject to
a tax on "passive investment income," including tax exempt interest. For social
security recipients, interest on tax exempt bonds, including tax exempt interest
dividends paid by the Fund, is to be added to adjusted gross income for purposes
of computing the amount of social security benefits includible in gross income.
With respect to variable rate demand instruments and participation certificates,
the Fund is relying on the opinion of Battle Fowler LLP, counsel to the Fund,
that it will be treated for federal income tax purposes as the owner thereof and
the interest on the underlying tax exempt obligations will be tax exempt to the
Fund. Counsel has pointed out that the IRS has announced that it will not
ordinarily issue advance rulings on the question of ownership of securities or
participation interests therein subject to a put and could reach a conclusion
different from that reached by counsel.

If the Fund acquires debt instruments that were originally issued at a
discount, e.g., zero coupon bonds, it will be required to include annually in
gross income or, in the case of tax exempt instruments issued at a discount, in
tax exempt income, a portion of the "original issue discount" that accrues over
the term of the obligation regardless of whether the income is received by the
Fund, and to make distributions accordingly. To insure that the Fund has
sufficient cash to meet this distribution requirement, the Fund may borrow funds
on a short-term basis or sell certain investments. Since a substantial
percentage of the Fund's dividends are expected to be reinvested and dividends
that are declared and automatically reinvested satisfy the distribution
requirement, the Fund expects to satisfy the distribution requirement even if it
owns obligations with original issue discount. Shareholders will realize taxable
income on the automatic reinvestment of dividends that are attributable to
original issue discount on taxable obligations.

The Fund is required, subject to certain exemptions, to withhold at a rate
of 31% from dividends paid or credited to shareholders in addition to the
proceeds from the redemption of Portfolio shares, if a correct taxpayer
identification number, certified when required, is not on file with the Fund.
Corporate investors are not subject to this requirement.

The Fund may be subject to state or local tax in jurisdictions in which
the Fund is organized or may be deemed to be doing business. However,
Connecticut and Maryland tax regulated investment companies in a manner that is
generally similar to the federal income tax rules described herein.

Distributions may be subject to state and local income taxes. In addition,
the treatment of the Fund and its shareholders in those states that have income
tax laws might differ from their treatment under the federal income tax laws.
Shareholders should review with their tax advisors the state and local income
tax consequences of the Fund's investing in certain investments issued by
agencies and instrumentalities of the U.S. Government and in repurchase and
reverse repurchase agreements and of the Fund's engaging in securities loans.

With respect to the U.S. Treasury Money Market Portfolio, states generally
provide for a pass-through of the state and local income tax exemption afforded
under federal law to direct owners of U.S. Government obligations, subject to
such Portfolio's compliance with certain state notice and investment threshold
requirements. It is expected that dividends from the U.S. Treasury Money Market
Portfolio that are derived from interest earned on U.S. Government obligations
generally will be treated for state and local income tax purposes as if the
investor directly owned a proportionate share of the U.S. Government obligations
held by that Portfolio. Therefore, since the income on U.S. Government
obligations in which the U.S. Treasury Money Market Portfolio invests is exempt
from state and local income taxes under federal law, dividends paid by that
Portfolio that are derived from such interest will also be free from state

34
<PAGE>

income taxes. To the extent required by applicable state laws and within any
applicable time period following the end of the Fund's taxable year, the Fund
intends to send each shareholder a tax information notice describing the federal
and state income tax status of dividends paid to investors for the prior tax
year.

The exemption from state and local income taxation, if available, does not
preclude states from assessing other taxes, such as personal property taxes and
estate and inheritance taxes, on the value of an investor's shares in the U.S.
Treasury Money Market Portfolio. In addition, states may impose taxes on capital
gains distributed by such Portfolio and may include the value of Portfolio
shares and the income attributable thereto in the measure of state or municipal
franchise taxes imposed on a corporate investor's privilege of doing business in
the state or municipality.

The Code imposes a nondeductible 4% excise tax on a Portfolio unless it
meets certain requirements with respect to distributions of net ordinary income
and capital gain net income. It is anticipated that this provision will not have
any material impact on a Portfolio.

Dividends and interest paid by foreign issuers may be subject to
withholding and other foreign taxes, which may decrease the net return on
foreign investments as compared to dividends and interest paid by domestic
issuers. The Fund does not expect that any Portfolio will qualify to elect to
pass through to its shareholders the right to take a foreign tax credit for
foreign taxes withheld from dividends and interest payments.

For federal income tax purposes, distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital loss), if any,
are taxable as long-term capital gains regardless of the length of time
shareholders have owned their shares. Capital gain dividends will be designated
as such in a written notice to investors mailed not later than 60 days after a
Portfolio taxable year closes. A shareholder may also recognize a taxable gain
or loss if the shareholder sells or redeems shares. Any gain or loss arising
from (or treated as arising from ) the sale or redemption of shares will be a
capital gain or loss, except in the case of a dealer in securities. Capital
gains realized by corporations are generally taxed at the same rate as ordinary
income. However, capital gains are taxable at a maximum rate of 28% to
non-corporate shareholders who have a holding period of more than 12 months, and
20% for non-corporate shareholders who have a holding period of more than 18
months. Corresponding maximum rate and holding period rules apply with respect
to capital gains dividends distributed by the Fund, without regard to the length
of time the shares have been held by the shareholder. Shareholders will be
advised as to what portion of capital gains are to be treated as 28% rate
capital gain or 20% rate capital gain (for noncorporate shareholders) (or 10%
rate gain for noncorporate shareholders who are subject to the 15% marginal tax
bracket for ordinary income). The deduction of capital losses is subject to
limitations.

All taxable dividends from investment company taxable income are taxable
as ordinary income. It is not expected that any income distributions from the
Portfolios will qualify for the dividends received deduction for corporations.

The federal, state and local income tax rules that apply to the Fund and
its shareholders have changed extensively in recent years, and investors should
recognize that additional changes may be made in the future, some of which could
have an adverse effect on the Fund and its investors for federal and/or state
and local income tax purposes. Investors in the Fund should consult their tax
advisors about the federal,

35
<PAGE>

state and local tax consequences of an investment in the Fund in light of their
own individual circumstances.

CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT

Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey 08540
is custodian for the Fund's cash and securities. The Custodian does not assist
in, and is not responsible for, investment decisions involving assets of the
Fund. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, serves as the Fund's transfer agent and dividend agent
pursuant to a Transfer Agency Agreement with the Fund and receives a fee for
such services. Boston Financial Data Services, Inc., an affiliate of State
Street Bank and Trust Company, serves as the Fund's shareholder accounting
agent.

GENERAL INFORMATION

As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Adviser is in the process of working with the Fund's service
providers to prepare for the year 2000. Based on information currently
available, the Adviser does not expect that the Fund will incur significant
operating expenses or be required to incur materials costs to be year 2000
compliant. Although the Adviser does not anticipate that the year 2000 issue
will have a material impact on the Fund's ability to provide service at current
levels, there can be no assurance that steps taken in preparation for the year
2000 will be sufficient to avoid any adverse impact on the Fund.

36
<PAGE>

PART B

THE TREASURER'S FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION

February 27, 1998

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of The Treasurer's Fund, Inc. dated
February 27, 1998, as it may be amended from time to time, a copy of which may
be obtained without charge by writing to Gabelli Fixed Income Distributors,
Inc., 19 Old Kings Highway South, Darien, Connecticut 06820-4526. This Statement
of Additional Information is incorporated by reference into the Prospectus in
its entirety.
<PAGE>

TABLE OF CONTENTS

Page

THE PORTFOLIOS AND THEIR POLICIES ......................................... 1

Investments and Investment Techniques Common to Two or More Portfolios .... 7
Change in Ratings................................................... 7
Management Strategies............................................... 7
Municipal Obligations............................................... 8
Amortized Cost Valuation of Portfolio Securities.................... 9
Variable Rate Demand Instruments.................................... 10
When-Issued Securities.............................................. 11
Stand-by Commitments................................................ 12
Repurchase Agreements............................................... 13
Reverse Repurchase Agreements....................................... 14
Participation Interests............................................. 14
Bank Obligations, Certificates of Deposit and Bankers' Acceptances.. 14
Mortgage-Backed Securities.......................................... 15
Foreign Securities.................................................. 16
Privately Placed Securities......................................... 16
Hedging Instruments................................................. 17
Loan of Portfolio Securities........................................ 18
Puts for the Tax Exempt Portfolios.................................. 19

INVESTMENT RESTRICTIONS ................................................... 19

MANAGEMENT OF THE FUND .................................................... 22
Directors and Officers ................................................ 22
Investment Advisor .................................................... 26
Fees .................................................................. 27
Expense Limitation .................................................... 27
Administrator.......................................................... 28

CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT............................... 29

TAXES ..................................................................... 29

PURCHASE, REDEMPTION AND EXCHANGE ......................................... 34

DIVIDENDS AND DISTRIBUTIONS ............................................... 34

NET ASSET VALUE ........................................................... 34

COMPUTATION OF YIELD ...................................................... 35
Tax Equivalent Yield .................................................. 36
Computation of Total Return ........................................... 37

DESCRIPTION OF COMMON STOCK ............................................... 37

DISTRIBUTION PLANS ........................................................ 39
<PAGE>

BROKERAGE AND PORTFOLIO TURNOVER .......................................... 40
Brokerage ............................................................. 40
Portfolio Turnover .................................................... 40

COUNSEL AND INDEPENDENT AUDITORS .......................................... 41

RATINGS OF MUNICIPAL AND CORPORATE OBLIGATIONS ............................ 42
Unrated Bonds ......................................................... 43
Commercial Paper Ratings .............................................. 43
Description of Standard & Poor's Corporation's
two highest commercial paper ratings................................ 43
Description of Moody's Investors Service, Inc.'s
two highest commercial paper ratings................................ 44
Money Market Fund Ratings.............................................. 44
Description of Standard & Poor's Corporation's
two highest money market fund ratings............................... 44
Description of Moody's Investors Service, Inc.'s
two highest money market fund ratings............................... 44

FINANCIAL STATEMENTS....................................................... 44
<PAGE>

The Treasurer's Fund, Inc.

THE PORTFOLIOS AND THEIR OBJECTIVES

(See the Fund's Prospectus dated February 27, 1998)

The Treasurer's Fund, Inc. (the "Fund") is a diversified, no-load, fixed
income mutual fund consisting of six portfolios (the "Portfolios") which are
designed to meet the short and intermediate term investment needs of
corporations and institutional cash managers including individuals. There are no
sales loads or exchange or redemption fees associated with the Fund. The
investment objectives stated in the Prospectus for each Portfolio are
fundamental and may be changed only with the approval of a majority of
outstanding shares of that Portfolio.

The investment objectives and policies of the U.S. Treasury Money Market
Portfolio are sought through the following additional strategies employed in the
management of the Portfolio which are described under "Investments and
Investment Techniques Common to Two or More Portfolios":

1. Change in Ratings
2. Amortized Cost Valuation of Portfolio Securities
3. When-Issued Securities
4. Repurchase Agreements
5. Reverse Repurchase Agreements
6. Loan of Portfolio Securities

The investment objectives and policies of the Domestic Prime Money Market
Portfolio are sought through the following additional strategies employed in the
management of the Portfolio which are described under "Investments and
Investment Techniques Common to Two or More Portfolios":

1. Change in Ratings
2. Amortized Cost Valuation of Portfolio Securities
3. Variable Rate Demand Instruments
4. When-Issued Securities
5. Repurchase Agreements
6. Reverse Repurchase Agreements
7. Private Placements
8. Participation Interests
9. Mortgage-Backed Securities
10. Bank Obligations, Certificates of Deposit and Bankers' Acceptances
11. Loan of Portfolio Securities

The investment objectives and policies of the Global Money Market
Portfolio are sought through the following additional strategies employed in the
management of the Portfolio which are described under "Investments and
Investment Techniques Common to Two or More Portfolios":

1
<PAGE>

10. Bank Obligations, Certificates of Deposit and Bankers' Acceptances
11. Loan of Portfolio Securities
12. Foreign Securities

The investment objectives and policies of the Tax Exempt Money Market
Portfolio are sought through the following additional strategies employed in the
management of the Portfolio which are described under "Investments and
Investment Techniques Common to Two or More Portfolios":

1. Change in Ratings
2. Municipal Obligations
3. Amortized Cost Valuation of Portfolio Securities
4. Variable Rate Demand Instruments
5. When-Issued Securities
6. Stand-By Commitments
7. Repurchase Agreements
8. Reverse Repurchase Agreements
9. Private Placements
10. Participation Interests
11. Mortgage-Backed Securities
12. Bank Obligations, Certificates of Deposit and Bankers' Acceptances
13. Loan of Portfolio Securities

The investment objectives and policies of the Limited Term Portfolio are
sought through the following additional strategies employed in the management of
the Portfolio which are described under "Investments and Investment Techniques
Common to Two or More Portfolios":

1. Change in Ratings
2. Management Strategies
3. Amortized Cost Valuation of Portfolio Securities
4. Variable Rate Demand Instruments
5. When-Issued Securities
6. Repurchase Agreements
7. Reverse Repurchase Agreements
8. Participation Interests
9. Hedging Instruments
10. Private Placements
11. Mortgage-Backed Securities
12. Bank Obligations, Certificates of Deposit and Bankers' Acceptances
13. Loan of Portfolio Securities
14. Foreign Securities

The investment objectives and policies of the Tax Exempt Limited Term
Portfolio are sought through the following additional strategies employed in the
management of the Portfolio which are described under "Investments and
Investment Techniques Common to Two or More Portfolios":

1. Change in Ratings
2. Management Strategies
3. Municipal Obligations
4. Amortized Cost Valuation of Portfolio Securities
5. Variable Rate Demand Instruments
6. When-Issued Securities
7. Stand-By Commitments
8. Repurchase Agreements
9. Reverse Repurchase Agreements
10. Participations
11. Hedging Instruments
12. Private Placements
13. Mortgage-Backed Securities

2
<PAGE>
14. Bank Obligations Certificates of Deposit and Bankers' Acceptances
15. Loan of Portfolio Securities

Investments and Investment Techniques
Common to Two or More Portfolios

Change in Ratings. Subsequent to its purchase by a Portfolio, an issue of
securities may cease to be rated or its rating may be reduced below the minimum
required for purchases by that Portfolio. With regard to the Limited Term
Portfolio and the Tax Exempt Limited Term Portfolio, neither event requires the
elimination of such securities from these Portfolios, but the Advisor will
consider such an event to be relevant in its determination of whether these
Portfolios should continue to hold such securities. To the extent that the
ratings accorded by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Corporation ("S&P") for securities may change as a result of changes in
these ratings systems, the Advisor will attempt to use comparable ratings as
standards for its investment in debt securities in accordance with the
investment policies contained therein. However, if these Portfolios hold any
variable rate demand instruments with stated maturities in excess of one year,
such instruments must maintain their high quality rating or must be sold from
these Portfolios. See "Variable Rate Demand Instruments" herein. With regard to
the U.S. Treasury Money Market Portfolio, the Domestic Prime Money Market
Portfolio, the Global Money Market Portfolio and the Tax Exempt Money Market
Portfolio, the Board of Directors of the Fund shall reassess promptly whether
the security presents minimal credit risks and shall cause these Portfolios to
take such action as the Board of Directors determines is in the best interest of
these Portfolios and their shareholders. However, reassessment is not required
if the security is disposed of or matures within five business days of the
Advisor becoming aware of the new rating and provided further that the Board of
Directors is subsequently notified of the Advisor's actions.

In addition, in the event that a security (1) is in default, (2) ceases to
be an Eligible Security under Rule 2a-7, or (3) is determined to no longer
present minimal credit risks or an event of insolvency occurs with respect to
the issuer of a Portfolio security or the provider of any demand feature or
guarantee, these Portfolios will dispose of the security absent a determination
by the Fund's Board of Directors that disposal of the security would not be in
the best interests of these Portfolios. In the event that the security is
disposed of, it shall be disposed of as soon as practicable consistent with
achieving an orderly disposition by sale, exercise of any demand feature, or
otherwise. In the event of a default with respect to a security which
immediately before default accounted for 1/2 of 1% or more of a Portfolio's
total assets, that Portfolio shall promptly notify the Securities and Exchange
Commission of such fact and of the actions that such Portfolio intends to take
in response to the situation.

Management Strategies. In pursuit of their investment objectives the
Limited Term Portfolio and the Tax Exempt Limited Term Portfolio seek to
increase returns by actively managing securities in the short term and
intermediate term ranges. However, the Portfolios seek to minimize market risk
by employing a "laddered" portfolio approach as opposed to a market timing
approach. In addition, the Portfolios seek investments in securities which the
Advisor believes to be undervalued and, therefore, have capital appreciation
potential. The laddered approach to portfolio management involves the
maintenance of securities positions of varying amounts staggered at appropriate
points along the fixed income yield curve in an effort to maximize income and to
minimize interest rate risk. Assuming a positively sloping yield curve, a
portfolio designed with a series of periodic maturities can produce higher
yields at the horizon of its maturity restriction, balanced by the interest rate
protection provided by shorter, more quickly maturing securities.

Municipal Obligations. (1) Municipal Bonds are debt obligations of states,
cities, counties, municipalities and municipal agencies (all of which are
generally referred to as "municipalities") which generally have a maturity at
the time of issue of one year or more and which are issued to raise funds for
various public purposes such as construction of a wide range of public
facilities, to refund outstanding obligations and to obtain funds for
institutions and facilities.

The two principal classifications of Municipal Bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Issuers of general obligation bonds include states,
counties, cities, towns and other governmental units. The principal of, and
interest on, revenue bonds are payable from the

3
<PAGE>
income of specific projects or authorizations and generally are not supported by
the issuer's general power to levy taxes. In some cases, revenues derived from
specific taxes are pledged to support payments on a revenue bond.

In addition, certain kinds of "private activity bonds" are issued by or on
behalf of public authorities to provide funding for various privately operated
industrial facilities (hereinafter referred to as "industrial revenue bonds" or
"IRBs"). Interest on the IRBs is generally exempt, with certain exceptions, from
federal income tax pursuant to Section 103(a) of the Internal Revenue Code,
provided the issuer and corporate obligor thereof continue to meet certain
conditions. (See "Taxes".) IRBs are, in most cases, revenue bonds and do not
generally constitute the pledge of the credit of the issuer of such bonds. The
payment of the principal and interest on IRBs usually depends solely on the
ability of the user of the facilities financed by the bonds or other guarantor
to meet its financial obligations and, in certain instances, the pledge of real
and personal property as security for payment. If there is not an established
secondary market for the IRBs, the IRBs will be supported by letters of credit,
guarantees, insurance or other credit facilities that meet the high quality
criteria of the Portfolios stated in the Prospectus and provide a demand feature
which may be exercised by the Portfolios to provide liquidity. In accordance
with investment restriction 12 (see "Investment Restrictions" section), the
Portfolios are permitted to invest up to 10% of the net assets in high quality,
short-term Municipal Obligations (including IRBs) that may not be readily
marketable or have a liquidity feature.

(2) The principal kinds of Municipal Notes include tax anticipation notes,
bond anticipation notes, revenue anticipation notes and grant anticipation
notes. Notes sold in anticipation of collection of taxes, a bond sale or receipt
of other revenues are usually general obligations of the issuing municipality or
agency.

(3) Issues of Municipal Commercial Paper typically represent very short
term, unsecured, negotiable promissory notes. These obligations are often issued
to meet seasonal working capital needs of municipalities or to provide interim
construction financing and are paid from general revenues of municipalities or
are refinanced with long term debt. In most cases Municipal Commercial Paper is
backed by letters of credit, lending agreements, note repurchase agreements or
other credit facility agreements offered by banks or other institutions which
may be called upon in the event of default by the issuer of the commercial
paper.

(4) Municipal Leases, which may take the form of a lease or an installment
purchase or conditional sale contract, are issued by state and local governments
and authorities to acquire a wide variety of equipment and facilities such as
fire and sanitation vehicles, telecommunications equipment and other capital
assets. Municipal Leases frequently have special risks not normally associated
with general obligation or revenue bonds. Leases and installment purchases or
conditional sale contracts (which normally provide for title to the leased asset
to pass eventually to the government issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations of many state constitutions and statutes are deemed to
be inapplicable because of the inclusion in many leases or contracts of
"appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. These types of municipal leases may be considered illiquid
and subject to the 10% limitation of investment in illiquid securities set forth
under "Investment Restrictions" contained herein. The Board of Directors may
adopt guidelines and delegate to the Advisor the daily function of determining
and monitoring the liquidity of municipal leases. In making such determination,
the Board and the Advisor may consider such factors as the frequency of trades
for the obligation, the number of dealers willing to purchase or sell the
obligations and the number of other potential buyers and the nature of the
marketplace for the obligations, including the time needed to dispose of the
obligations and the method of soliciting offers. If the Board determines that
any municipal leases are illiquid, such leases will be subject to the 10%
limitation on investments in illiquid securities. The Board of Directors is also
responsible for determining the credit quality of municipal leases, on an
ongoing basis, including an assessment of the likelihood that the lease will not
be canceled.

The Fund expects that, on behalf of the Tax Exempt Money Market Portfolio
and the Tax Exempt Limited Term Portfolio, it will not invest more than 25% of
each Portfolio's total assets in municipal obligations whose issuers are located
in the same state or more than 25% of each Portfolio's total assets in

4
<PAGE>

municipal obligations the security of which is derived from any one category.
There could be economic, business or political developments which might affect
all municipal obligations of a similar type. However, the Fund believes that the
most important consideration affecting risk is the quality of particular issues
of municipal obligations rather than factors affecting all, or broad classes of,
municipal obligations.

Amortized Cost Valuation of Portfolio Securities. Pursuant to Rule 2a-7
under the Investment Company Act of 1940 (the "Rule"), each of the U.S. Treasury
Money Market Portfolio, the Domestic Prime Money Market Portfolio, the Global
Money Market Portfolio and the Tax Exempt Money Market Portfolio (the "Money
Market Portfolios") uses the amortized cost method of valuing its investments,
which facilitates the maintenance of the Money Market Portfolios' per share net
asset value at $1.00. The amortized cost method involves initially valuing a
security at its cost and thereafter amortizing to maturity any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument.

Consistent with the provisions of the Rule, the Money Market Portfolios
maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having effective maturities of 397 days or less, and
invest only in securities determined by or under the direction of the Board of
Directors to be of high quality with minimal credit risks.

The Board of Directors has also established procedures designed to
stabilize, to the extent reasonably possible, the Money Market Portfolios' price
per share as computed for the purpose of sales and redemptions at $1.00. Such
procedures include review of the Money Market Portfolios' investments by the
Board of Directors at such intervals as they deem appropriate to determine
whether each Portfolio's net asset value calculated by using available market
quotations or market equivalents (i.e., determination of value by reference to
interest rate levels, quotations of comparable securities and other factors)
deviates from $1.00 per share based on amortized cost. Market quotations and
market equivalents used in such review may be obtained from an independent
pricing service approved by the Board of Directors.

The extent of deviation between any Money Market Portfolio's net asset
value based upon available market quotations or market equivalents and $1.00 per
share based on amortized cost, will be periodically examined by the Board of
Directors. If such deviation exceeds 1/2 of 1%, the Board of Directors will
promptly consider what action, if any, will be initiated. In the event the Board
of Directors determines that a deviation exists which may result in material
dilution or other unfair results to investors or existing shareholders, they
will take such corrective action as they regard to be necessary and appropriate,
including the sale of portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding part or
all of dividends or payment of distributions from capital or capital gains;
redemptions of shares in kind; or establishing a net asset value per share by
using available market quotations or equivalents. Each Money Market Portfolio
may hold cash for the purpose of stabilizing its net asset value per share.
Holdings of cash, on which no return is earned, would tend to lower the yield on
the Money Market Portfolios' shares.

Variable Rate Demand Instruments. The Domestic Prime Money Market
Portfolio, Global Money Market Portfolio, Tax Exempt Money Market Portfolio,
Limited Term Portfolio and Tax Exempt Limited Term Portfolio may purchase
variable rate demand instruments.

Variable rate demand instruments that the Portfolios will purchase are tax
exempt Municipal Obligations or taxable (variable amount master demand notes)
debt obligations that provide for a periodic adjustment in the interest rate
paid on the instrument and permit the holder to demand payment of the unpaid
principal balance plus accrued interest at specified intervals upon a specified
number of days' notice either from the issuer or by drawing on a bank letter of
credit, a guarantee, insurance or other credit facility issued with respect to
such instrument.

The variable rate demand instruments in which the Portfolios may invest
are payable on not more than thirty calendar days' notice either on demand or at
specified intervals not exceeding one year depending upon the terms of the
instrument. The terms of the instruments provide that interest rates are
adjustable at intervals ranging from daily to up to one year and their
adjustments are based upon the prime rate of a bank or other appropriate
interest rate adjustment index as provided in the respective instruments. The
Fund will decide which variable rate demand instruments it will purchase in
accordance with procedures prescribed

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by its Board of Directors to minimize credit risks. A Portfolio utilizing the
amortized cost method of valuation may only purchase variable rate demand
instruments if (i) the instrument is subject to an unconditional demand feature,
exercisable by the Portfolio in the event of default in the payment of principal
or interest on the underlying securities, and such unconditional demand feature
qualifies as an Eligible Security. If an instrument is ever deemed to be of less
than high quality, the Portfolio either will sell it in the market or exercise
the demand feature.

The variable rate demand instruments that the Portfolios may invest in
include participation certificates purchased by the Portfolios from banks,
insurance companies or other financial institutions in fixed or variable rate,
tax-exempt Municipal Obligations (expected to be concentrated in IRBs) or
taxable debt obligations (variable amount master demand notes) owned by such
institutions or affiliated organizations. A participation certificate gives the
Portfolios an undivided interest in the obligation in the proportion that the
Portfolio's participation interest bears to the total principal amount of the
obligation and provides the demand repurchase feature described below. Where the
institution issuing the participation does not meet the Portfolio's high quality
standards, the participation is backed by an irrevocable letter of credit or
guaranty of a bank (which may be a bank issuing a confirming letter of credit,
or a bank serving as agent of the issuing bank with respect to the possible
repurchase of the certificate of participation or a bank serving as agent of the
issuer with respect to the possible repurchase of the issue) or insurance policy
of an insurance company that the Board of Directors of the Fund has determined
meets the prescribed quality standards for the Portfolio. However, immediately
after the acquisition of any securiites subject to a demand feature of guarantee
(as such terms are defined in the Rule), with respect to 75% of the total assets
of each of the Money Market Portfolios, not more than 10% of such assets may be
invested in securities that are subject to a guarantee or demand feature from
the same institution. Each of the Money Market Portfolios, however, may only
invest more than 10% of its assets in securities subject to a guarantee or
demand feature issued by a non-controlled person (as such term is defined in the
Rule). The Portfolios have the right to sell the participation certificate back
to the institution and, where applicable, draw on the letter of credit,
guarantee or insurance after no more than 30 days' notice either on demand or at
specified intervals not exceeding 397 days (depending on the terms of the
participation), for all or any part of the full principal amount of the
Portfolio's participation interest in the security, plus accrued interest. The
Portfolios intend to exercise the demand only (1) upon a default under the terms
of the bond documents, (2) as needed to provide liquidity to the Portfolio in
order to make redemptions of the Portfolio shares, or (3) to maintain a high
quality investment portfolio. The institutions issuing the participation
certificates will retain a service and letter of credit fee (where applicable)
and a fee for providing the demand repurchase feature, in an amount equal to the
excess of the interest paid on the instruments over the negotiated yield at
which the participations were purchased by the Portfolio. The total fees
generally range from 5% to 15% of the applicable prime rate* or other interest
rate index. With respect to insurance, the Portfolios will attempt to have the
issuer of the participation certificate bear the cost of the insurance, although
the Portfolios retain the option to purchase insurance if necessary, in which
case the cost of insurance will be an expense of the Portfolio subject to the
expense limitation on investment company expenses prescribed by any state in
which the Portfolio's shares are qualified for sale. The Advisor has been
instructed by the Fund's Board of Directors to continually monitor the pricing,
quality and liquidity of the variable rate demand instruments held by the
Portfolio, including the participation certificates, on the basis of published
financial information and reports of the rating agencies and other bank
analytical services to which the Portfolio may subscribe. Although these
instruments may be sold by the Portfolio, the Portfolio intends to hold them
until maturity, except under the circumstances stated above (see "Taxes").

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<PAGE>

exceeded the fixed rate on the obligations, the obligations could no longer be
valued at par and this may cause the Portfolios to take corrective action,
including the elimination of the instruments. Because the adjustment of interest
rates on the variable rate demand instruments is made in relation to movements
of the applicable banks' "prime rate", or other interest rate adjustment index,
the variable rate demand instruments are not comparable to long-term fixed rate
securities.1 Accordingly, interest rates on the variable rate demand instruments
may be higher or lower than current market rates for fixed rate obligations or
obligations of comparable quality with similar maturities.

For purposes of determining whether a variable rate demand instrument held
by a Portfolio matures within 397 days from the date of its acquisition, the
maturity of the instrument will be deemed to be the longer of (1) the period
required before the Portfolio is entitled to receive payment of the principal
amount of the instrument or (2) the period remaining until the instrument's next
interest rate adjustment. The maturity of a variable rate demand instrument will
be determined in the same manner for purposes of computing the Portfolios'
dollar-weighted average portfolio maturity. If a variable rate demand instrument
ceases to meet the investment criteria of the Portfolio, it will be sold in the
market or through exercise of the repurchase demand.

When-Issued Securities. All Portfolios may purchase debt obligations
offered on a "when-issued" or "delayed delivery" basis. When so offered, the
price, which is generally expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment for the when-issued
securities take place at a later date. Normally, the settlement date occurs
within one month of the purchase of debt obligations; during the period between
purchase and settlement, no payment is made by the purchaser to the issuer and
no interest accrues to the purchaser. To the extent that assets of a Portfolio
are not invested prior to the settlement of a purchase of securities, that
Portfolio will earn no income; however, it is intended that each Portfolio will
be fully invested to the extent practicable and subject to the policies stated
above. While when-issued securities may be sold prior to the settlement date, it
is intended that each Portfolio will purchase such securities with the purpose
of actually acquiring them unless a sale appears desirable for investment
reasons. At the time the Portfolio makes the commitment to purchase a debt
obligation on a when-issued basis, it will record the transaction and reflect
the value of the security in determining its net asset value. The Fund does not
believe that the net asset value or income of the Portfolios' securities
portfolios will be adversely affected by their purchase of debt obligations on a
when-issued basis. Each Portfolio will establish a segregated account in which
it will maintain cash and liquid high grade debt securities equal in value to
commitments for when-issued securities. Such segregated securities either will
mature or, if necessary, be sold on or before the settlement date.

Stand-by Commitments. When the Portfolios purchase Municipal Obligations
they may also acquire stand-by commitments from banks and other financial
institutions with respect to such Municipal Obligations. Under a stand-by
commitment, a bank or broker-dealer agrees to purchase at the Portfolio's option
a specified Municipal Obligation at a specified price with same day settlement.
A stand-by commitment is the equivalent of a "put" option acquired by the
Portfolio with respect to a particular Municipal Obligation held in its
portfolio.

The amount payable to the Portfolio upon its exercise of a stand-by
commitment normally would be (1) the acquisition cost of the Municipal
Obligation (excluding any accrued interest that the Portfolio paid on the
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Portfolio owned the security plus
(2) all interest accrued on the security since the last interest payment date
during the period the security was owned by the Portfolio. Absent unusual
circumstances relating to a change in market value, the Portfolio would value
the underlying Municipal Obligation at amortized cost. Accordingly, the amount
payable by a bank or dealer during the time a stand-by commitment is exercisable
would be substantially the same as the market value of the underlying Municipal
Obligation.

- ----------
(1) The "prime rate" is generally the rate charged by a bank to its most
creditworthy customers for short term loans. The prime rate of a particular bank
may differ from other banks and will be the rate announced by each bank on a
particular day. Changes in the prime rate may occur with great frequency and
generally become effective on the date announced.

7
<PAGE>

The Portfolio's right to exercise a stand-by commitment would be
unconditional and unqualified. A stand-by commitment would not be transferable
by the Portfolio, although it could sell the underlying Municipal Obligation to
a third party at any time.

The Advisor expects that stand-by commitments generally will be available
without the payment of any direct or indirect consideration. However, if
necessary and advisable, the Portfolio may pay for stand-by commitments either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to such a commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held in the Portfolio would not
exceed 1/2 of 1% of the value of the Portfolio's total assets calculated
immediately after each stand-by commitment was acquired.

The Portfolio would enter into stand-by commitments only with banks and
other financial institutions that, in the Advisor's opinion, present minimal
credit risks and where the issuer of the Municipal Obligation meets the
investment criteria of the Portfolio. The Portfolio's reliance upon the credit
of these banks and broker-dealers would be supported by the value of the
underlying Municipal Obligations held by the Portfolio that were subject to the
commitment.

The Portfolio intends to acquire stand-by commitments solely to facilitate
Portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The purpose of this practice is to permit the Portfolio to be
fully invested in securities the interest on which is exempt from federal income
taxes while preserving the necessary liquidity to purchase securities on a
when-issued basis, to meet unusually large redemptions and to purchase at a
later date securities other than those subject to the stand-by commitment.

The acquisition of a stand-by commitment would not affect the valuation or
assumed maturity of the underlying Municipal Obligations which will continue to
be valued in accordance with the amortized cost method. Stand-by commitments
acquired by the Portfolios would be valued at zero in determining net asset
value. In those cases in which the Portfolio paid directly or indirectly for a
stand-by commitment, its cost would be reflected as unrealized depreciation for
the period during which the commitment is held by the Portfolio. Stand-by
commitments would not affect the dollar weighted average maturity of the
Portfolio. The maturity of a security subject to a stand-by commitment is longer
than the stand-by repurchase date.

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

In addition, the Portfolio may apply to the Internal Revenue Service for a
ruling, or seek from its counsel an opinion, that interest on Municipal
Obligations subject to stand-by commitments will be exempt from federal income
taxation (see "Taxes"). In the absence of a favorable tax ruling or opinion of
counsel, the Portfolios will not engage in the purchase of securities subject to
stand-by commitments.

8
<PAGE>

Portfolio may engage in a repurchase agreement with respect to any security in
which that Portfolio is authorized to invest, even though the underlying
security may mature in more than one year. The collateral securing the seller's
obligation must be of a credit quality at least equal to the Portfolio's
investment criteria for Portfolio securities and will be held by the Portfolio's
Custodian or in the Federal Reserve Book Entry System.

For purposes of the Investment Company Act of 1940, a repurchase agreement
is deemed to be a loan from a Portfolio to the seller subject to the repurchase
agreement and is therefore subject to that Portfolio's investment restriction
applicable to loans. It is not clear whether a court would consider the
securities purchased by a Portfolio subject to a repurchase agreement as being
owned by that Portfolio or as being collateral for a loan by that Portfolio to
the seller. In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the securities before repurchase of
the security under a repurchase agreement, a Portfolio may encounter delay and
incur costs before being able to sell the security. Delays may involve loss of
interest or decline in price of the security. If the court characterized the
transaction as a loan and a Portfolio has not perfected a security interest in
the security, that Portfolio may be required to return the security to the
seller's estate and be treated as an unsecured creditor of the seller. As an
unsecured creditor, a Portfolio would be at the risk of losing some or all of
the principal and income involved in the transaction. As with any unsecured debt
obligation purchased for a Portfolio, the Advisor seeks to minimize the risk of
loss through repurchase agreements by analyzing the creditworthiness of the
obligor, in this case the seller. Apart from the risk of bankruptcy or
insolvency proceedings, there is also the risk that the seller may fail to
repurchase the security, in which case a Portfolio may incur a loss if the
proceeds to that Portfolio of the sale to a third party are less than the
repurchase price. However, if the market value of the securities subject to the
repurchase agreement becomes less than the repurchase price (including
interest), the Portfolio involved will direct the seller of the security to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement will equal or exceed the repurchase price. It is
possible that a Portfolio will be unsuccessful in seeking to impose on the
seller a contractual obligation to deliver additional securities.

The Portfolio could experience delays in recovering securities in the
event of the bankruptcy of the other party to a reverse repurchase agreement and
could experience a loss to the extent that the value of the securities may have
decreased in the meantime.

Participation Interests. The Domestic Prime Money Market Portfolio, Global
Money Market Portfolio, Tax Exempt Money Market Portfolio, Limited Term
Portfolio and the Tax Exempt Limited Term Portfolio may purchase from banks
participation interests in all or part of specific holdings of Municipal or
other debt obligations (including corporate loans). Where the institution
issuing the participation does not meet the Portfolio's quality standards, the
participation may be backed by an irrevocable letter of credit or guarantee that
the Board of Directors has determined meets the prescribed quality standards of
each Portfolio. Thus, even if the credit of the selling bank does not meet the
quality standards of a Portfolio, the credit of the entity issuing the credit
enhancement will. Each Portfolio will have the right to sell the participation
interest back to the bank for the full principal amount of the Portfolio's
interest in the Municipal or debt obligation plus accrued interest, but only (1)
as required to provide liquidity to that Portfolio, (2) to maintain the quality
standards of each Portfolio's investment portfolio or (3) upon a default under
the terms of the debt obligation. The selling bank may receive a fee from a
Portfolio in connection with the arrangement. When purchasing bank participation
interests, the Portfolio will treat

9
<PAGE>

both the bank and the underlying borrower as the issuer of the instrument for
the purpose of complying with the diversification requirement of investment
restriction number 3 discussed below.

Bank Obligations, Certificates of Deposit and Bankers' Acceptances. All
the Portfolios, except the U.S. Treasury Money Market Portfolio, may purchase
certificates of deposit, bankers' acceptances and other obligations issued or
guaranteed by the 50 largest banks in the United States. For this purpose banks
are ranked by total deposits as shown by their most recent annual financial
statements. The "other obligations" in which the Portfolio may invest include
instruments (such as bankers' acceptances, commercial paper and certificates of
deposit) issued by U.S. subsidiaries of the 50 largest banks in the U.S. where
the instruments are guaranteed as to principal and interest by such banks. In
addition, the Global Money Market Portfolio and the Limited Term Portfolio may
also purchase certificates of deposit, bankers' acceptances and other
obligations (or instruments secured by such obligations) of (i) domestic banks
subject to regulation by the U.S. Government or its agencies (such as the
Federal Reserve Board, the Comptroller of the Currency, or the FDIC) and having
total assets of over $1 billion unless their obligations are guaranteed by their
parent bank, which has assets of over $5 billion; (ii) foreign branches of these
banks ("Euros"); (iii) United States branches of foreign banks of equivalent
size ("Yankees"); and (iv) foreign banks. The Portfolio limits investments in
foreign bank obligations to U.S. dollar denominated obligations of foreign banks
which have more than $10 billion of assets, are among the 75 largest in the
world, and have branches or agencies in the U.S. See "Foreign Securities" herein
for further discussion of the risks inherent in such investments. At the time
the Portfolio invests in any certificate of deposit, bankers' acceptance or
other bank obligation, the issuer or its parent must have its debt rated within
the quality standards of the Portfolio or if unrated be of comparable quality as
determined by the Fund's Board of Directors.

Mortgage-Backed Securities. Certain of the Portfolios may purchase
securities issued or guaranteed by federal agencies or U.S. Government sponsored
corporations. Such securities include those issued and guaranteed by the
Government National Mortgage Association (GNMA, or "Ginnie Mae"), the Federal
National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC").

10
<PAGE>

savings and loan associations, mutual savings banks, commercial banks, credit
unions, and mortgage banks. Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA but are not
backed by the full faith and credit of the U.S. Government.

FHLMC is a corporate instrumentality of the U.S. Government, created by
Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. FHLMC issues Federal Home Loan Mortgage
Corporation Participation Certificates ("Pcs") which represent interests in
mortgages from FHLMC's mortgage portfolio. FHLMC guarantees the timely payment
of interest and ultimate collection of principal, but Pcs are not backed by the
full faith and credit of the U.S. Government.

FHLMC Pcs differ from FNMA pass-throughs in that the mortgages underlying
Pcs are mostly conventional mortgages rather than FHA insured or VA guaranteed
mortgages, although FHLMC has occasionally purchased FHA or VA loans. However,
in several other respects (such as the monthly pass-through of interest and
principal and the unpredictability of future prepayment experience) Pcs are
similar to FNMAs.

The Portfolios, except the U.S. Treasury Money Market Portfolio, may also
invest in Collateralized Mortgage Obligations ("CMOs"), a type of
mortgage-backed security. CMOs are debt securities collateralized by
mortgage-backed certificates issued by federal agencies or U.S. Government
sponsored corporations such as GNMA, FNMA and FHLMC. The payment of CMOs depends
upon the cash flow from the pool of mortgages represented by the mortgage-backed
certificates.

Any guarantee or insurance on a mortgage-backed certificate does not
extend to a Portfolio's investments in CMOs. There is a possibility of limited
liquidity as there is no assurance that a secondary market will develop for CMOs
or, if such market does develop, that it will provide a Portfolio with liquidity
or remain for the term of the investment. If an event of default occurs with
respect to the CMOs purchased by a Portfolio, there can be no assurance that the
collateral pledged as security therefor will be sufficient to pay the principal
and interest due on such bonds. The payment of principal of the underlying
mortgages may exceed the minimum required by the schedule of payments for the
mortgages. Such prepayments are made at the option of the mortgagors for a wide
variety of reasons reflecting their individual circumstances and may involve
capital losses if the mortgages were purchased at a premium. For example,
mortgagors may speed up the rate at which they prepay their mortgages when
interest rates decline sufficiently to encourage refinancing. The Advisor, in
determining the attractiveness of CMO's relative to alternative fixed income
securities, and in choosing specific CMO issues, will have made assumptions as
to the likely speed of prepayment. Actual experience may vary from these
assumptions, resulting in a higher or lower investment return than anticipated.

Foreign Securities. The Global Money Market Portfolio and the Limited Term
Portfolio may invest in certain foreign securities. Investment in obligations of
foreign issuers and in foreign branches of domestic banks involves somewhat
different investment risks from those affecting obligations of United States
domestic issuers. There may be limited publicly available information with
respect to foreign issuers and foreign issuers are not generally subject to
uniform accounting, auditing and financial standards and requirements comparable
to those applicable to domestic companies. There may also be less government
supervision and regulation of foreign securities exchanges, brokers and listed
companies than in the United States. Foreign securities markets have
substantially less volume than national securities exchanges and securities of
some foreign companies are less liquid and more volatile than securities of
comparable domestic companies. Brokerage commissions and other transaction costs
on foreign securities exchanges

11
<PAGE>

are generally higher than in the United States. Dividends and interest paid by
foreign issuers may be subject to withholding and other foreign taxes, which may
decrease the net return on foreign investments as compared to dividends and
interest paid to the Portfolio by domestic companies. Additional risks include
future political and economic developments, the possibility that a foreign
jurisdiction might impose or change withholding taxes on income payable with
respect to foreign securities, the possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits and the possible
adoption of foreign governmental restrictions such as exchange controls.

Privately Placed Securities. All the Portfolios, except the U.S. Treasury
Money Market Portfolio, may invest in securities issued as part of privately
negotiated transactions between an issuer and one or more purchasers. Except
with respect to securities subject to Rule 144A of the Securities Act of 1933
which are discussed below, these securities are typically not readily
marketable, and therefore are considered illiquid securities. The price these
Portfolios pay for illiquid securities, and any price received upon resale, may
be lower than the price paid or received for similar securities with a more
liquid market. Accordingly, the valuation of privately placed securities by
these Portfolios will reflect any limitations on their liquidity. As a matter of
policy, none of the Portfolios will invest more than 10% of the market value of
the total assets of the Portfolio in repurchase agreements maturing in over
seven days and other illiquid investments. The Portfolios may purchase
securities that are not registered ("restricted securities") under the
Securities Act of 1933 (the "Securities Act"), but can be offered and sold to
"qualified institutional buyers" under Rule 144A under the Securities Act. These
Portfolios may also purchase certain commercial paper issued in reliance on the
exemption from regulations in Section 4(2) of the Securities Act ("4(2) Paper").
However, each Portfolio will not invest more than 10% of its net assets in
illiquid investments, which include securities for which there is no ready
market, securities subject to contractual restriction on resale, certain
investments in asset-backed and receivable-backed securities and restricted
securities (unless, with respect to these securities and 4(2) Paper, the Fund's
Directors continuously determine, based on the trading markets for the specific
restricted security, that it is liquid). The Directors may adopt guidelines and
delegate to the Investment Advisor the daily function of determining and
monitoring liquidity of restricted securities and 4(2) Paper. The Directors,
however, will retain sufficient oversight and be ultimately responsible for the
determinations.

Since it is not possible to predict with assurance exactly how this market
for restricted securities sold and offered under Rule 144A will develop, the
Directors will carefully monitor the Portfolios investments in these securities,
focusing on such factors, among others, as valuation, liquidity and availability
of information. This investment practice could have the effect of increasing the
level of illiquidity in the Portfolios to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.

Hedging Instruments. Hedging is a means of transferring risk which an
investor does not desire to assume during an uncertain market environment. The
Limited Term Portfolio and the Tax Exempt Limited Term Portfolio are permitted
to enter into transactions solely (a) to hedge against changes in the market
value of portfolio securities or (b) to close out or offset existing positions.
The transactions must be appropriate for the reduction of risk; they cannot be
for speculation. The Limited Term Portfolio and the Tax Exempt Limited Term
Portfolio may (a) sell futures contracts on non-municipal and municipal debt
securities and indexes of non-municipal and municipal debt securities,
respectively, and (b) purchase or write (sell) options on these futures, on
non-municipal and municipal debt securities and on indexes of non-municipal and
municipal debt securities traded on registered securities exchanges and contract
markets, respectively.

Financial futures contracts obligate the seller to deliver a specific type
of security, at a specified time for a specified price. The contracts may be
satisfied by actual delivery of the securities or by an offsetting transaction.
There are risks associated with the use of futures contracts for hedging
purposes. In certain market conditions, as with rising interest rates, futures
contracts may not completely offset a decline in value of portfolio securities.
It may not always be possible to execute a buy or sell order at the desired
price or to close out an open position due to market conditions, limits on open
positions, and/or daily price fluctuation limits. Changes in market interest
rates may differ substantially from those anticipated when hedge positions were
established. If a Portfolio has hedged against rising interest rates and they
decline, the value of the Portfolio will increase, but at least part of the
benefit of the increase will be lost because of losses in the Portfolio's
futures positions. The Portfolio may have to sell securities to meet daily

12
<PAGE>

maintenance margin requirements. The risk of loss to the Portfolio is
theoretically unlimited when the Portfolio sells a futures contract because the
Portfolio is obligated to make delivery unless the contract is closed out,
regardless of fluctuations in the price of the underlying security.

The Portfolios may also purchase put options or write (sell) call options
on non-municipal debt securities. In the event that options on municipal debt
securities became available, the Tax Exempt Limited Term Portfolio would
consider purchasing or selling these options. The Portfolios may purchase call
options and write (sell) put options on debt securities to close out open
positions, purchase put options to protect its holding from a decline in market
value, and write call options. The Portfolios may also purchase put options and
write call options on futures contracts which are traded on a United States
exchange or board of trade and enter into closing transactions with respect to
these options. The Portfolios may use options on futures contracts under the
same conditions it uses put and call options on debt securities. The effect of a
futures contract may also be created by simultaneous purchase of a put and sale
of a call option on the same security. When the Portfolio purchases a put option
or call option, the maximum risk of loss to the Portfolio is the price of the
option purchased. The use of options as a hedge rather than financial futures
contracts may result in partial hedges because of the limits inherent in the
exercise prices. The Portfolio will not invest more than 5% of its net assets in
premiums on put options.

The Tax Exempt Limited Term Portfolio may also utilize futures contracts
on municipal bond indexes or related put and call options on these index
contracts. The Portfolio's strategies in employing these contracts would be
similar to the strategies applicable to futures and options contracts generally.
The Portfolio may also buy put options and sell call options on municipal bond
index futures or on municipal bond indexes.

The hedging activities of the Portfolios are subject to several additional
restrictions. A Portfolio may not enter into futures contracts or related
options if immediately thereafter the sum of the amount of initial and variation
margin deposits on outstanding futures contracts and premiums paid for related
options would exceed 20% of the market value of its total assets. In addition,
it may not enter into futures contracts or purchase or sell related options
(other than offsetting existing positions) if immediately thereafter the sum of
the amount of initial margin deposits on outstanding futures contracts and
premiums paid for related options would exceed 5% of the market value of its
total assets. A Portfolio's ability to engage in hedging activities is also
restricted by the requirements to "cover" any sale of a futures contract with
securities held in the Portfolio and to establish and maintain segregated
accounts (which may be invested only in liquid assets such as cash, U.S.
government securities and other high grade debt obligations) equal to the amount
of any futures contract purchased by the Portfolio. A segregated account freezes
those assets of the Portfolio and renders them unavailable for sale or other
disposition. These requirements may thus reduce the Portfolio's flexibility in
making investment decisions with respect to such assets. The Portfolios' ability
to engage in hedging activities may be further limited by certain income tax
considerations. See "Taxes".

To the extent the Portfolios use hedging instruments which do not involve
specific portfolio securities, offsetting price changes between the hedging
instruments and the securities being hedged will not always be possible, and
market value fluctuations of the Portfolio may not be completely eliminated.
When using hedging instruments that do not specifically correlate with
securities in the Portfolio, the Advisor will attempt to create a very closely
correlated hedge. Hedging activities based on non-municipal debt securities or
indexes may not correlate as closely to the Portfolios as hedging activities
based on municipal debt securities or indexes. Less closely correlated hedges
are likely to occur if a Portfolio hedges municipal securities with a futures
contract on United States government obligations, other non-municipal securities
or an index that does not include municipal securities. This type of hedging
activity may be useful to a Portfolio, especially where closely correlated
hedging activities based on municipal securities or indexes are not available.

Brokerage commissions on financial futures and options transactions and
premium costs for purchasing options may tend to reduce a Portfolio's yield.

Loan of Portfolio Securities. Each Portfolio may from time to time lend
securities on a short term basis to banks, brokers and dealers and receive as
collateral cash, securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, or irrevocable bank letters of credit (or any

13
<PAGE>

combination thereof), which collateral will be marked to market daily and will
be required to be maintained at all times in an amount equal to at least 100% of
the current value of the loaned securities plus accrued interest. Such loans are
not made with respect to any Portfolio if as a result the aggregate of all
outstanding loans exceeds one-third of the value of the Portfolio's total
assets. Securities lending will afford a Portfolio the opportunity to earn
additional income because the Portfolio will continue to be entitled to the
interest payable on the loaned securities and also will either receive as income
all or a portion of the interest on the investment of any cash loan collateral
or, in the case of collateral other than cash, a fee negotiated with the
borrower. Such loans will be terminable at any time. Loans of securities involve
risks of delay in receiving additional collateral or in recovering the
securities lent or even loss of rights in the collateral in the event of the
insolvency of the borrower of the securities. A Portfolio will have the right to
retain record ownership of loaned securities in order to exercise beneficial
rights. A Portfolio may pay reasonable fees in connection with arranging such
loans. The Portfolio will not lend its securities to any officer, partner,
Director, employee, or affiliate of the Fund, or the Advisor.

Puts for the Tax Exempt Portfolios. The Tax Exempt Money Market Portfolio
and the Tax Exempt Limited Term Portfolio may purchase municipal bonds or notes
with the right to resell them at an agreed price or yield within a specified
period prior to maturity to facilitate portfolio liquidity. This right to resell
is known as a put. The aggregate price paid for securities with puts may be
higher than the price which otherwise would be paid. Consistent with the
investment objectives of these Portfolios and subject to the supervision of the
Directors, the purpose of this practice is to permit the Portfolios to be fully
invested in tax exempt securities while maintaining the necessary liquidity to
purchase securities on a when-issued basis, to meet unusually large redemptions,
to purchase at a later date securities other than those subject to the put and
in the case of the Tax Exempt Limited Term Portfolio, to facilitate the
Advisor's ability to manage the portfolio actively. The principal risk of puts
is that the put writer may default on its obligation to repurchase. The Advisor
will monitor each writer's ability to meet its obligations under puts. See
"Investment Restrictions" and "Taxes" herein.

INVESTMENT RESTRICTIONS

Unless specified to the contrary, the following restrictions may not be
changed as to a Portfolio without the approval of a majority of the outstanding
voting securities of that Portfolio which, under the Investment Company Act of
1940 and the rules thereunder and as used in this Statement of Additional
Information, means the lesser of (1) 67% of the shares of a Portfolio present at
a meeting if the holders of more than 50% of the outstanding shares of that
Portfolio are present in person or by proxy, or (2) more than 50% of the
outstanding shares of a Portfolio.2

The Fund may not, on behalf of a Portfolio:

(1) with regard to the Domestic Prime Money Market Portfolio and the
Global Money Market Portfolio, invest more than 5% of their total assets
in securities of any one issuer; however, the Portfolios may invest more
than 5% of their total assets in the First Tier Securities of a single
issuer for a period of up to three business days;

(2) purchase securities (including warrants) other than those
described in the Prospectus as fundamental;

- ----------
(2) Any investment restrictions herein which involve a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by, the Portfolio.

14
<PAGE>

(3) with respect to 75% of the Portfolio's total assets, invest more
than 5% of the value of the total assets in the securities of any one
issuer, except obligations issued or guaranteed by the U.S. Government or
its agencies and instrumentalities;

(4) purchase the securities of any issuer if such purchase would
cause more than 10% of the voting securities of such issuer to be held by
the Portfolio or if such securities were purchased for the purpose of
exercising control;

(5) borrow money, except (a) from banks for extraordinary or
emergency purposes (not for leveraging or investment) or (b) by engaging
in reverse repurchase agreements, provided that (a) and (b) in the
aggregate do not exceed an amount equal to one-third of the value of the
total assets of that Portfolio less its liabilities (not including the
amount borrowed) at the time of borrowing, and further provided that 300%
asset coverage is maintained at all times;

(6) purchase securities while borrowings (excluding reverse
repurchase agreements entered into for other than extraordinary or
emergency purposes) exceed 5% of the Portfolio's total assets;

(7) mortgage, pledge, or hypothecate any assets except that a
Portfolio may pledge not more than one-third of its total assets to secure
borrowings made in accordance with Investment Restriction (5) above.
However, although not a fundamental policy of the Fund, as a matter of
operating policy in order to comply with certain state statutes, no
Portfolio will pledge its assets in excess of an amount equal to 10% of
net assets;

(8) act as underwriter of securities issued by others, except to the
extent that the purchase of securities in accordance with the Portfolio's
investment objectives and policies directly from the issuer thereof and
the later disposition thereof may be deemed to be underwriting;

(9) make loans to other persons, except loans of portfolio
securities and except to the extent that the purchase of debt obligations
in accordance with the Portfolio's investment objectives and policies and
the entry into repurchase agreements may be deemed to be loans;

(10) issue senior securities, except as appropriate to evidence
indebtedness which a Portfolio is permitted to incur pursuant to
Investment Restriction (5) and except for shares of the various series
which may be established by the Board of Directors;

(11) purchase and sell real estate or invest in real estate limited
partnerships or in limited partnership interests in real estate investment
trusts which are not readily marketable (although a Portfolio may invest
in securities of companies which deal in real estate and in other
permitted investments secured by real estate), commodities, commodities
contracts or oil and gas interests;

(12) invest more than 10% of the market value of the Portfolio's net
assets in illiquid investments including repurchase agreements maturing in
more than seven days and foreign securities, privately placed securities
(including short term debt obligations issued pursuant to Section 4(2) of
the Securities Act of 1933) and bank participation interests for which a
readily available market does not exist;

(13) sell securities short or purchase securities on margin, or
engage in the purchase and sale of a put, call, straddle or spread option
or in writing such option except to the extent that securities subject to
a demand obligation and stand-by commitments may be purchased as set forth
herein and except that the Limited Term Portfolio and the Tax Exempt
Limited Term Portfolio may purchase hedging instruments as described
herein;

(14) acquire securities of other investment companies;

(15) lend portfolio securities in an amount exceeding in the
aggregate one-third of the market value of the Portfolio's total assets,
less liabilities other than obligations created by these transactions;

15
<PAGE>

(16) invest more than 5% of the value of a Portfolio's total assets
in the securities of issuers where the entity providing the revenues from
which the issue is to be paid has a record, including predecessors, of
fewer than three years of continuous operation, except obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.

The Fund may not, on behalf of the Portfolio or Portfolios specified:

(17) with respect to the Tax Exempt Money Market Portfolio and the
Tax Exempt Limited Term Portfolio, under normal market conditions,
purchase securities if such purchase would cause less than 80% of the
Portfolio's net assets to be invested in securities the income from which
is exempt from regular federal income tax;

(18) with respect to the U.S. Treasury Money Market Portfolio, the
Domestic Prime Money Market Portfolio, Global Money Market Portfolio and
Limited Term Portfolio, invest more than 25% of the value of the
Portfolio's total assets in securities of companies in the same industry
(excluding U.S. Government securities and, as to Domestic Prime Money
Market Portfolio and Global Money Market Portfolio only, certificates of
deposit and bankers' acceptances of domestic banks); and

(19) with respect to the Tax Exempt Money Market Portfolio and Tax
Exempt Limited Term Portfolio, purchase (i) pollution control and
industrial revenue bonds or (ii) securities which are not Municipal
Obligations, if in either case the purchase would cause more than 25% of
the value of the Portfolio's total assets to be invested in companies in
the same industry (for the purposes of this restriction wholly-owned
finance companies are considered to be in the industry of their parents if
their activities are primarily related to financing the activities of the
parents).

MANAGEMENT OF THE FUND

Directors and Officers

The Directors and Officers of the Fund and their principal occupations
during the last five years are set forth below.

Name, Age, Position(s) Principal Occupations During
with Fund and Address Past Five Years
- --------------------- ----------------------------

* Thomas E. O'Connor, 54.................... Consultant to the Adviser since
Director April 1997. President of Thomas
19 Old Kings Highway South E. O'Connor & Co., Inc., the
Darien, Connecticut 06820-4526 general partner of Thomas E.
O'Connor & Co. L.P., which was
the general partner of the former
Advisor and Gabelli O'Connor
Fixed Income Management Co.
(1985-1997)

+ Felix J. Christiana, 73................... Retired Senior Vice President,
Director Dollar Dry Dock Savings Bank.
35 Club Point Drive Director/Trustee of The Gabelli
White Plains, New York 10604 Gabelli Asset Fund, Equity Series Funds,
Inc., Gabelli Global Series
Funds, Inc., Gabelli Global
Multimedia Trust Inc., The
Gabelli Value Fund Inc., The
Gabelli Convertible Securities
Fund, Inc., The Gabelli Equity
Trust Inc. and The Gabelli Growth
Fund.

- ----------

* "Interested person" of the Fund, as defined in the Investment Company Act.
+ Director, trustee or officer of investment companies advised by Gabelli
Funds, Inc.

16
<PAGE>

Name, Age, Position(s) Principal Occupations During
with Fund and Address Past Five Years
- --------------------- ----------------------------

Robert C. Kolodny, M.D., 53............... Physician, author and lecturer
Director (self-employed) (1983-present).
885 Oenoke Ridge Road General Partner of KBS
New Canaan, Connecticut 06840 Partnership, KBS II Investment
Partnership, KBS III Investment
Partnership, KBS IV Limited
Partnership, KBS New Dimensions,
L.P., KBS Global Opportunities,
L.P. and KBS VII Limited
Partnership, private investment
partnerships (1981-present).
Medical Director and Chairman of
the Board of the Behavioral
Medicine Institute (1983-
present).

+ Anthony R. Pustorino, 72.................. Retired President of (1961- 1989)
Director and consultant to Pustorino,
515 Madison Avenue Puglisi & Co., P.C., certified
New York, New York 10022 public accountants; Professor,
Pace University (1965- present).
Director/Trustee of The Gabelli
Asset Fund, The Gabelli Growth
Fund, The Gabelli Value Fund Inc.
and The Gabelli Convertible
Securities Fund, The Gabelli
Equity Trust Inc., Gabelli
Capital Series Fund, Gabelli
Global Multimedia Trust Inc. and
Gabelli Equity Series Funds, Inc.

Mary E. Hauck, 55......................... Retired Senior Portfolio manager
Director of the Gabelli. O'Connor Fixed
21 Bishop Park Road Income Mutual Fund Management
P.O. Box 295 Company.
Pound Ridge, New York 10576

- ----------
* "Interested person" of the Fund, as defined in the Investment Company Act.
+ Director, trustee or officer of investment companies advised by Gabelli
Funds, Inc.

17
<PAGE>

Name, Age, Position(s) Principal Occupations During
with Fund and Address Past Five Years
- --------------------- ----------------------------

+* Karl Otto Pohl, 65....................... Partner of Sal Oppenheim Jr. &
Director Cie. (Private investment bank);
One Corporate Center Former President of the Deutsche
Rye, New York 10580 Bundesbank (Germany's Central
Bank) and Chairman of its Central
Bank Council (1980-1991);
Currently board member of IBM
World Trade Europe/Middle
East/Africa Corp.; Bertelsmann
AG; Zurich
Versicherungs-Gesellschaft
(insurance); the International
Advisory Board of General
Electric Company; the
International Council for JP
Morgan & Co.; the Board of
Supervisory Directors of ROBECo/o
Group; and the Supervisory Board
of Royal Dutch (petroleum
company); Advisory Director of
Unilever N.V. and Unilever
Deutschland; German Governor,
International Monetary Fund
(1980-1991); Board Member, Bank
for International Settlements
(1980-1991); Chairman, European
Economic Community Central Bank
Governors (1990-1991);
Director/Trustee of all the funds
in the Gabelli family of funds.

+ Anthony J. Colavita, 61................... President and Attorney at Law in
Director the law firm of Anthony J.
575 White Plains Road Colavita, P.C. since 1961;
Eastchester, New York 10709 Director/ Trustee of several of
the funds in the Gabelli family
of funds.

Richard N. Daniel, 61....................... Chairman and Chief Executive
Director Officer, Handy and Harman.
One Corporate Center
Rye, New York 10580-1434

+ Werner J. Roeder, M.D., 57................ Director of Surgery, Lawrence
Director Hospital and practicing private
77 Pondfield Road physician. Director/ Trustee of
Broncsville, New York 10708 several of the funds in the
Gabelli family of funds.

+ Anthonie C. Van Ekris, 62................. Managing Director, Balmac
Director International. Director of Stahal
One Corporate Center Hardmayer A.Z. Director/ Trustee
Rye, New York 10580 of several of the funds in the
Gabelli family of funds.

+ Bruce N. Alpert, 46....................... Vice President, Chief Operating
Vice President Officer of The Gabelli Funds,
One Corporate Center Inc. since 1988 and an officer of
Rye, New York 10580 all funds advised by Gabelli
Funds, Inc. and its affiliates.

Ronald S. Eaker, 37....................... Senior Portfolio manager of the
President and Chief Investment Officer Advisor and its predecessor,
19 Old Kings Highway Gabelli O'Connor Fixed Income
South Darien, Connecticut 06820-4526 Management Co.

- ----------
* "Interested person" of the Fund, as defined in the Investment Company Act.
+ Director, trustee or officer of investment companies advised by Gabelli
Funds, Inc.

18
<PAGE>

Name, Age, Position(s) Principal Occupations During
with Fund and Address Past Five Years
- --------------------- ----------------------------

Henley L. Smith, 41....................... Senior Portfolio Manager of the
Vice President and Advisor and its predecessor.
Investment Officer Prior to joining the Advisor in
19 Old Kings Highway South 1987, he was portfolio manager at
Darien, Connecticut 06820-4526 Manufacturers Hanover Investment
Corp. where he began in 1984.
From 1982-1984 he was a portfolio
manager for Manufacturers Hanover
Trust Company.

Judith Raneri, 30 ....................... Investment Officer of the Advisor
Secretary, Treasurer and and its predecessor since 1989.
Investment Officer Vice President and Portfolio
19 Old Kings Highway Manager of the Gabelli U.S.
South Darien, Connecticut 06820-4526 Treasury Money Market Fund. Vice
President of Gabelli Funds
Division of Gabelli Funds, Inc.
since April 1997.

Georgette L. Horton, 32................... Director of the Sub-Administrator
Vice President since October 1996. Prior to
125 West 55th Street joining the Sub-Administrator,
New York, New York 10019 she was Assistant Vice President
of Regional Sales at PaineWebber
from June 1993 to September 1996.
From June 1992 to May 1993, she
was a Marketing Representative
for Eaton Vance Distributors.

Frank Deutchki, 43........................ Registration and Compliance
Vice President Officer of the Sub-
3435 Stelzer Road Administrator, April 1996 to
Columbus, Ohio 43219 present; Vice President, Chase
Global Funds Service, September
1995 through April 1996; Vice
President, Mutual Funds Service
Company, 1989 through September
1995.

Compensation Table
Aggregate Compensation Aggregate Compensation
Name of Person, Position from Fund* from Fund Complex
- ------------------------ ----------------------
Felix J. Christiana, Director $6,500 $84,999
Mary E. Hauck, Director $6,500 $6,500
Robert C. Kolodny, M.D.,
Director $6,500 $6,500
Anthony R. Pustorino, Director $6,500 $95,499
Anthony Colavita, Director $3,691 $75,368
Richard Daniel, Director $3,691 $3,691
Werner Roeder, Director $3,691 $19,691
Anthony van Ekris, Director $3,691 $55,189
Karl Otto Pohl, Director $3,191 $95,619

There are no pension, retirement or other benefits payable by the Fund to
any director or officer of the Fund.

- ----------
* The total compensation paid to such persons by the Fund during the fiscal
year ending October 31, 1997.

19
<PAGE>

Investment Advisor

The investment advisor for the Fund is Gabelli Fixed Income LLC, with
offices at 19 Old Kings Highway South, Darien, Connecticut 06820-4526, a
Delaware limited liability company organized in 1997. As of the date of this
Statement of Additional Information, the Advisor is an investment manager,
administrator or advisor only for the assets of the Fund and separate managed
accounts for corporations, institutions, pension trusts, profit sharing trusts
and high net worth individuals. Gabelli Fixed Income LLC is a registered
investment advisor under the Investment Advisers Act of 1940. Mario J. Gabelli
is the Chairman of the Board of Directors of Gabelli Funds, Inc., which is the
majority owner of the Adviser. As a result, Mr. Gabelli may be deemed to be a
"controlling person" of the Advisor. As of December 31, 19967 the Advisor served
as investment advisor for assets aggregating in excess of $1.5 billion. The
Advisor is an affiliate of Darien Associates which, as of December 31, 1997,
served as investment advisor for assets aggregating in excess of $200 million.
The Advisor is also an affiliate of Gabelli Funds, Inc. which, through its
affiliates, acts as an investment manager, administrator or advisor for assets
aggregating in excess of $12 billion as of December 31, 1997. Prior to April 14,
1997, Gabelli O'Connor Fixed Income Mutual Funds Management Company served as
the Fund's Advisor ("Former Advisor").

Pursuant to the Advisory Agreements for each of the Portfolios, the
Advisor manages the Fund's portfolio of securities and makes decisions with
respect to the purchase and sale of investments, subject to the general
supervision of the Board of Directors of the Fund.

The Advisor provides persons satisfactory to the Board of Directors of the
Fund to serve as officers of the Fund. Such officers, as well as certain other
employees and directors of the Fund, may be directors, officers or employees of
the Advisor or its affiliates.

The Advisor also provides the Fund with supervisory personnel who will be
responsible for supervising the performance of administrative services,
accounting and related services, net asset value and yield calculation, reports
to and filings with regulatory authorities, and services relating to such
functions. However, the Administrator will provide personnel who will be
responsible for performing the operational components of such services. The
personnel rendering such supervisory services may be employees of the Advisor,
of its affiliates or of other organizations. The Advisory Agreement was approved
on October 16, 1996 by the Board of Directors, including a majority of the
directors who are not interested persons (as defined in the Investment Company
Act of 1940) of the Fund or the Advisor. The Advisory Agreement was also
presented to and approved by a majority of the shareholders of each of the
Portfolios of the Fund at a meeting of the shareholders on April 14, 1997.

The Advisory Agreement has a term which extends to March 31, 1999 and may
be continued in force thereafter for successive twelve-month periods, provided
that such continuance is specifically approved annually by majority vote of the
respective Portfolio's outstanding voting securities or by the Fund's Board of
Directors, and in either case by a majority of the directors who are not parties
to the Advisory Agreement or interested persons of any such party, by votes cast
in person at a meeting called for the purpose of voting on such matter.

The Advisory Agreements are terminable without penalty by the Portfolio on
sixty days' written notice when authorized either by majority vote of the
outstanding voting shares of the Portfolio or by a vote of a majority of the
Fund's Board of Directors, or by the Advisor on sixty days' written notice, and
will automatically terminate in the event of an assignment. The Advisory
Agreements provide that in the absence of willful misfeasance, bad faith or
gross negligence on the part of the Advisor, or of reckless disregard of its
obligations thereunder, the Advisor shall not be liable for any action or
failure to act in accordance with its duties thereunder.

Fees. Set forth below as a percentage of average daily net assets are the
advisory fees paid to the Advisor for each Portfolio pursuant to the Advisory
Agreements: the U.S. Treasury Money Market Portfolio, .30%; the Domestic Prime
Money Market Portfolio, .30%; the Global Money Market Portfolio, .30%; the Tax
Exempt Money Market Portfolio, .30%; the Limited Term Portfolio, .45%; and the
Tax

20
<PAGE>

Exempt Limited Term Portfolio, .45%. Any portion of the total fees received by
the Advisor may be used by the Advisor to provide shareholder and administrative
services and for distribution of Fund shares. See "Financial Statements" herein.

Advisory Fees Paid by the Fund
For the Year Ended October 31
1997 1996 1995
Domestic Prime Money Market Portfolio $827,784 $657,103 $458,599
Tax Exempt Money Market Portfolio 541,424 455,634 403,955
U.S. Treasury Money Market Portfolio 311,763 263,957 307,543

None of these amounts, for the fiscal years ended October 31, 1995, 1996
and 1997 were voluntarily and irrevocably waived by the Advisor for any of these
Portfolios. As of the date hereof, the other three Portfolios have not been
activated by the Advisor. The Advisor may continue to irrevocably waive its
rights to any portion of the advisory fees and may use any portion of the
advisory fees for purposes of shareholder and administrative services and
distribution of the Fund's shares pursuant to the Fund's Distribution and
Service Plans.

Expense Limitation

The Advisor has agreed to reimburse a Portfolio for its expenses (exclusive
of interest, taxes, brokerage, and extraordinary expenses) which in any year
exceed the limits on investment company expenses prescribed by any state in
which the Portfolio's shares are qualified for sale. As a result of the passage
of the National Markets Improvement Act of 1996, all state expense limitations
have been eliminated at this time. For the purpose of this obligation to
reimburse expenses, the Portfolio's annual expenses are estimated and accrued
daily, and any appropriate estimated payments are made to it on a monthly basis.
From time to time, the Advisor may voluntarily assume certain expenses of any
Portfolio of the Fund. This would have the effect of lowering the overall
expense ratio of that Portfolio and of increasing yield to investors in that
Portfolio. Subject to the obligations of the Advisor to reimburse a Portfolio
for its excess expenses as described above, the Portfolios have, under the
respective Advisory Agreements, confirmed their obligation for payment of all
their other expenses, including without limitation: fees payable to the Advisor,
Administrator, Custodian, Transfer Agent and Dividend Agent; brokerage and
commission expenses; federal, state or local taxes, including issuance and
transfer taxes incurred by or levied on them; commitment fees, certain insurance
premiums and membership fees and dues in investment company organizations;
interest charges on borrowings; telecommunications expenses; recurring legal and
accounting expenses; costs of organizing and maintaining the Fund's existence as
a corporation; compensation, including directors' fees, of any directors,
officers or employees who are not also officers of the Advisor or its affiliates
and costs of other personnel providing administrative and clerical services;
costs of stockholders' services and costs of stockholders' reports, proxy
solicitations, and corporate meetings; fees and expenses of registering their
shares under the appropriate Federal securities laws and of qualifying their
shares under applicable state securities laws, including expenses attendant upon
the initial registration and qualification of these shares and attendant upon
renewals of, or amendments to, those registrations and qualifications; and
expenses of preparing, printing and delivering the Prospectus to existing
shareholders and of printing shareholder application forms for shareholder
accounts.

The Fund may from time to time hire its own employees or contract to have
management services performed by third parties, and the management of the Fund
intends to do so whenever it appears advantageous to the Fund. The Fund's
expenses for employees and for such services are among the expenses subject to
the expense limitation described above.

21
<PAGE>

Administrator and Sub-Administrator

Administrator. The Administrator for the Fund is Gabelli Funds, Inc. (the
"Administrator"). Pursuant to the Administration Agreement for each of the
Portfolios, the Administrator provides all management and administrative
services reasonably necessary for the Fund, other than those provided by the
Advisor, subject to the supervision of the Fund's Board of Directors. Because of
the services rendered the Fund by the Administrator and the Fund's Advisor, the
Fund itself may not require any employees other than its officers, none of whom
receive compensation from the Fund.

For the services rendered to the Fund by the Administrator, each Portfolio
pays the Administrator a fee, computed daily and payable monthly, in accordance
with the following schedule: (i) .10% of the first $500 million of aggregate
average daily net assets of the Fund, (ii) .065% of the next $250 million of
aggregate average daily net assets of the Fund, (iii) .055% of the next $250
million of aggregate average daily net assets of the Fund, and (iv) .050% of all
aggregate average daily net assets of the Fund over $1 billion.

Under the Administration Agreement for each Portfolio, the Administrator
provides all administrative services, including, without limitation: (i)
provides services of persons competent to perform such administrative and
clerical functions as are necessary to provide effective administration of the
Fund, including maintaining certain books and records described in Rule 31a-1
under the 1940 Act, and reconciling account information and balances among the
Fund's Custodian and Advisor; (ii) oversees the performance of administrative
and professional services to the Fund by others, including the Fund's Custodian;
(iii) prepares, but does not pay for, the periodic updating of the Fund's
Registration Statement, Prospectus and Statement of Additional Information in
conjunction with Fund counsel, including the printing of such documents for the
purpose of filings with the Securities and Exchange Commission and state
securities administrators, prepares the Fund's tax returns, and prepares reports
to the Fund's shareholders and the Securities and Exchange Commission; (iv)
prepares in conjunction with Fund counsel, but does not pay for, all filings
under the securities or "Blue Sky" laws of such states or countries as are
designated by the Distributor, which may be required to register or qualify, or
continue the registration or qualification, of the Fund and/or its shares under
such laws; (v) prepares notices and agendas for meetings of the Fund's Board of
Directors and minutes of such meetings in all matters required by the 1940 Act
to be acted upon by the Board; (vi) monitors daily and periodic compliance with
respect to all requirements and restrictions of the Investment Company Act, the
Internal Revenue Code and the Prospectus; and (vii) monitors and evaluates daily
income and expense accruals, and sales and redemptions of shares of the
Portfolios.

Sub-Administrator. Gabelli Funds, Inc. (the "Administrator") has entered
into a Sub-Administration Agreement with BISYS Fund Services, Inc. ("BISYS" or
the "Sub-Administrator"), pursuant to which the Sub-Administrator provides
certain administrative services necessary for the Fund's operations. These
services include the preparation and distribution of materials for meetings of
the Fund's Board of Directors, compliance testing of Fund activities and
assistance in the preparation of proxy statements, reports to shareholders and
other documentation. The Sub-Administrator's services do not include the
investment advisory and portfolio management services provided by the Adviser.
For the services rendered and related expenses borne by BISYS, the Administrator
pays BISYS a prorated monthly fee based upon a prorated portion (as described
below) of the assets of all registered management investment companies for which
BISYS serves as Sub-Administrator that are advised by Gabelli Fixed Income
L.L.C., Gabelli Funds, Inc., Westwood Management Corp. (formerly known as Teton
Advisers, LLC) or their affiliates ("BISYS-administered Investment Companies").
The fee is computed daily at the annual rate of .0625% of the BISYS-administered
Investment Companies' average daily net assets (with a minimum annual fee of
$20,000 per portfolio) up to $350 million and .0425% of any net assets above
$350 million, and .0225% of any assets above $700 million, which, together with
the services to be rendered, are subject to negotiation between the parties and
both parties retain the right unilaterally to terminate the arrangement on not
less than 60 days' notice. BISYS, headquartered in Little Falls, New Jersey, is
a publicly owned company engaged in information processing, loan servicing and
401(K) administration and recordkeeping

22
<PAGE>

services to and through banking and other financial organizations. BISYS and its
affiliates, BISYS Fund Services and BISYS Fund Services, Inc., have their
principal place of business at 3435 Stelzer Road, Columbus, Ohio 43219.

Prior to April 14, 1997, BISYS Fund Services, Inc. served as Administrator
pursuant to an Administration Agreement with the Fund. BISYS also provides the
Fund with all accounting services, including (i) daily computation of net asset
value for each Portfolio; (ii) maintenance of security ledgers and books and
records as required by the Investment Company Act; (iii) production of the
Portfolio and general ledger reports; (iv) reconciliation of accounting records;
and (v) calculation of yield and average maturity for each Portfolio.

Accounting services are provided by BISYS Fund Services, Inc., which is
paid a fee of $1,667 per Portfolio per month.

The actual fees paid to Furman Selz LL C, the administrator of the Fund
through December 31, 1996, for administrative services provided for the period
November 1, 1996 through December 31, 1996 were $41,275 for the Domestic Prime
Money Market Portfolio, $26,636 for the Tax Exempt Money Market Portfolio and
$16,324 for the U.S. Treasury Money Market Portfolio. The fees paid to BISYS
Fund Services, the administrator of the Fund from January 1, 1997 through April
13, 1997, for all administrative and accounting services rendered for the year
ended October 31, 1997 were $73,942 for the Domestic Prime Money Market
Portfolio, $49,099 for the Tax Exempt Money Market Portfolio and $32,694 for the
U.S. Treasury Money Market Portfolio. BISYS Fund Services waived its fees for
acting as transfer and dividend agent for the Portfolios. The fees paid to
Gabelli Funds, Inc. (the "Administrator") for the period April 14, 1997 through
October 31, 1997 were $150,417 for the Domestic Prime Money Market Portfolio,
$97,370 for the Tax Exempt Money Market Portfolio and $52,908 for the U.S.
Treasury Money Market Portfolio.

The Sub-Administration Agreement is terminable, without the payment of any
penalty, by a vote of the majority of relevant Portfolio shareholders, by the
Board of Directors of the Fund or the Administrator, respectively, on sixty
days' written notice. The Administration Agreement shall remain in effect for
one periods, subject to annual approval of the Fund's Board of Directors. The
Administration Agreement provides that in the absence of willful misfeasance,
bad faith or negligence on the part of the Administrator, or reckless disregard
of its obligations thereunder, the Administrator shall not be liable for any
action or failure to act in accordance with its duties thereunder.

CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT

Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey 08540
is the Fund's Custodian. Pursuant to a Custodian Agreement with the Fund, it is
responsible for maintaining the books and records of the Fund's portfolio
securities and cash. Subject to the supervision of the Advisor and
Administrator, the Custodian maintains the Fund's portfolio transaction records.
State Street Bank and Trust Company serves as transfer agent and dividend agent
for the Fund and Boston Financial Data Services, Inc., an affiliate of State
Street Bank and Trust Company, serves as the Fund's shareholder accounting agent
pursuant to a Transfer Agency Agreement. Pursuant to such Agreement, the
Transfer Agent, among other things, performs the following services in
connection with the Fund's Shareholders of record: maintenance of shareholder
records for each of the Fund's Shareholders of record; processing shareholder
purchase and redemption orders; processing transfers and exchanges of shares of
the Fund on the shareholder files and records; processing dividend payments and
reinvestments; and assistance in the mailing of shareholder reports and proxy
solicitation materials.

23
<PAGE>

TAXES

The active Portfolios of the Fund have qualified and intend to continue to
qualify under the Internal Revenue Code of 1986, as amended ("Code"), as a
regulated investment company. As a regulated investment company, each Portfolio
will not be subject to federal income taxes on its investment company taxable
income and its long-term capital gains that it distributes to its shareholders,
provided that at least 90% of its investment company taxable income and at least
90% of its tax exempt net interest income for the taxable year is distributed
and numerous other requirements concerning regulated investment companies are
satisfied. The Fund's policy is to distribute as dividends each year 100% (and
in no event less than 90%) of its investment company taxable income and tax
exempt net interest income. Each Portfolio will be treated as a separate
corporation and generally will have to comply with the qualifications and other
requirements applicable to regulated investment companies without regard to
other Portfolios. If for any taxable year a Portfolio does not qualify as a
regulated investment company, all of its taxable income would be taxable at
corporate rates and no distributions would qualify as tax exempt.

The Fund has adopted a policy of declaring dividends daily in an amount
based on its net investment income. The amount of each daily dividend may differ
from actual net investment income calculated in accordance with federal income
tax principles. Dividend distributions will be made on the twentieth day of each
month. Dividends paid from taxable income, if any, and distributions of any
realized short term capital gains (whether from tax exempt or taxable
obligations) are taxable to shareholders as ordinary income, whether received in
cash or reinvested in additional shares of the Fund. Dividends paid by the Fund
from taxable income on December 31 will be treated as received by shareholders
on such date (and subject to tax in the shareholder's tax year in which such
date occurs) for federal income tax purposes, notwithstanding actual receipt of
the dividend in the following calendar year. Distributions of net realized
capital gains after utilization of capital loss carryforwards, if any, are made
in October and, if necessary, to meet applicable distribution requirements,
shortly after October 31, the Portfolios' fiscal year-end, except that the U.S.
Treasury Money Market Portfolio, the Domestic Prime Money Market Portfolio, the
Global Money Market Portfolio and the Tax Exempt Money Market Portfolio include
net short-term capital gain in their daily declarations of income. Distributions
paid by the Portfolios (including distributions of tax exempt interest) may
result in a liability (or increased liability) under the alternative minimum
tax.

Distributions of tax exempt income are not subject to regular federal
income taxes, but may be subject to the alternative minimum tax. Distributions
derived from interest on certain private activity bonds that are exempt from
regular federal income tax are specifically treated as tax preference items and
may subject individual or corporate shareholders to liability (or increased
liability) under the alternative minimum tax. At least 80 percent of the net
assets of the Tax Exempt Money Market Portfolio and Tax Exempt Limited Term
Portfolio will be invested in municipal obligations, the interest income on
which is not treated as a tax preference item under the alternative minimum tax.
However, because 75% of the difference between adjusted current earnings
(including, generally, tax exempt income) and alternative minimum taxable income
(determined without regard to this item) is an addition to the corporate
alternative minimum tax base, all distributions derived from interest that is
exempt from regular federal income tax are included in adjusted current earnings
and may subject corporate shareholders to, or increase their liability under,
the alternative minimum tax. In certain cases, Subchapter S corporations with
accumulated earnings and profits from Subchapter C years will be subject to a
tax on "passive investment income," including tax exempt interest. For social
security recipients, interest on tax exempt bonds, including tax exempt interest
dividends paid by the Fund, is to be added to adjusted gross income, for
purposes of computing the amount of social security benefits includible in gross
income.

With respect to the variable rate demand instruments and participation
certificates, the Fund is relying on the opinion of Battle Fowler LLP, counsel
to the Fund, that it will be treated for Federal income tax purposes as the
owner thereof and that the interest on the underlying tax exempt obligations
will be tax exempt to the Fund. Counsel has pointed out that the IRS has
announced that it will not ordinarily issue

24
<PAGE>

advance rulings on the question of ownership of securities or participation
interests therein subject to a put and, as a result, the IRS could reach a
conclusion different from that reached by counsel.

Distributions may be subject to state and local income taxes. In addition,
the treatment of the Fund and its shareholders in those states that have income
tax laws might differ from their treatment under the federal income tax laws.
Some states exempt from state personal income tax distributions received from
the Fund only to the extent such distributions are derived from interest on
obligations issued by such state or its municipalities or political
subdivisions. Shareholders should review with their tax advisors the state and
local income tax consequences of the Fund's investing in certain investments
issued by agencies and instrumentalities of the U.S. Government and in
repurchase and reverse repurchase agreements and of the Fund's engaging in
securities loans.

If the Fund acquires debt instruments that were originally issued at a
discount, e.g., zero coupon bonds, it will be required to include annually in
gross income or, in the case of tax-exempt instruments issued at a discount, in
tax-exempt income, a portion of the "original issue discount" that accrues over
the term of the obligation regardless of whether the income is received by the
Fund, and to make distributions accordingly. To insure that the Fund has
sufficient cash to meet this distribution requirement, the Fund may borrow funds
on a short-term basis or sell certain investments. Since a substantial
percentage of the Fund's dividends are expected to be reinvested and dividends
that are declared and automatically reinvested satisfy the distribution
requirement, the Fund expects to satisfy the distribution requirement even if it
owns obligations with original issue discount. Shareholders will realize taxable
income on the automatic reinvestment of dividends that are attributable to
original issue discount on taxable obligations.

The Code imposes a nondeductible 4% excise tax on a Portfolio unless it
meets certain requirements with respect to distributions of ordinary income and
capital gain net income. The formula requires payment to shareholders during a
calendar year of distributions representing at least 98% of each Portfolio's
ordinary income for the calendar year, plus at least 98% of the excess of its
capital gains over its capital losses realized during the one-year period ending
October 31 during such year, which shall be

25
<PAGE>

reduced (but not below net capital gain) by the amount of the Portfolio's net
ordinary loss for the year. It is anticipated that this provision will not have
any material impact on any Portfolio.

For federal income tax purposes, distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital loss), if any,
are taxable as net capital gains regardless of the length of time shareholders
have owned their shares. Capital gain dividends will be designated as such in a
written notice to investors mailed not later than 60 days after a Portfolio
taxable year closes. A shareholder may also recognize a taxable gain or loss if
the shareholder sells or redeems shares. Any gain or loss arising from (or
treated as arising from) the sale or redemption of shares will be a capital gain
or loss, except in the case of a dealer in securities. Capital gains realized by
corporations are generally taxed at the same rate as ordinary income. However,
capital gains are taxable at a maximum rate of 28% to non-corporate shareholders
who have a holding period of more than 12 months, and 20% for non-corporate
shareholders who have a holding period of more than 18 months. Corresponding
maximum rate and holding period rules apply with respect to capital gains
dividends distributed by the Fund, without regard to the length of time the
shares have been held by the shareholder. Shareholders will be advised as to
what portion of capital gains are to be treated as "mid-term" or "long-term"
gains and 20% for long term gains (10% for non-corporate shareholders who are
subject to the 15% marginal tax bracket for ordinary income)). The deduction of
capital losses is subject to limitations. Distributions attributable to
short-term capital gains (whether from tax exempt or taxable obligations) are
taxable as ordinary income for federal income tax purposes.

Generally, on the sale or exchange of obligations held for more than one
year, gain realized by a Portfolio that is not attributable to original issue
discount or accrued market discount will be long-term capital gain. However,
gain on the disposition of a bond purchased at a market discount generally will
be treated as ordinary income, rather than capital gain, to the extent of
accrued market discount. If a shareholder receives a capital gain dividend and
sells shares after holding them for six months or less (not including as part of
the period held, periods during which the shareholder holds an offsetting
position), then any loss realized on the sale will be treated as long-term
capital loss to the extent of such capital gain dividend. If any net capital
gains are retained by a Portfolio for reinvestment, requiring federal income
taxes to be paid thereon by such Portfolio, the Portfolio will elect to treat
such capital gains as having been distributed to shareholders. As a result,
shareholders will report such capital gains as net capital gains, will be able
to claim their share of federal income taxes paid by the Portfolio on such gains
as a credit against their own federal income tax liability, and will be entitled
to increase the adjusted tax basis of their Portfolio shares by 65% of their
share of the undistributed gain. Distributions of net capital gains are not
eligible for the dividends received deduction.

The Code permits the character of tax exempt interest distributed by a
regulated investment company to flow through as tax exempt interest to its
shareholders, provided that at least 50% of the value of its assets at the end
of each quarter of its taxable year is invested in state, municipal and other
obligations the

26
<PAGE>

interest on which is exempt under Section 103(a) of the Code. The Tax Exempt
Money Market Portfolio and Tax Exempt Limited Term Portfolio intend to satisfy
this 50% requirement in order to permit their distributions attributable to tax
exempt interest to be treated as such for federal income tax purposes in the
hands of their shareholders. Distributions to shareholders of tax exempt
interest earned by these Portfolios for the taxable year are therefore not
subject to regular federal income tax, although, as described above, they may be
subject to the individual and corporate alternative minimum taxes.

Any short-term capital loss realized upon the redemption of shares of the
Tax Exempt Money Market Portfolio or the Tax Exempt Limited Term Portfolio
within six months from the date of their purchase will be disallowed to the
extent of any tax exempt dividends received during such six-month period,
although the period may be reduced under Treasury Regulations to be prescribed.

Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the value of a share on the reinvestment date.

Shareholders are required to report tax exempt interest on their federal
income tax returns. Redemptions of shares, including exchanges for shares of
another Portfolio, may result in tax consequences (gain or loss) to shareholders
and are also subject to reporting requirements.

Interest on indebtedness incurred by shareholders to purchase or carry
shares of the Tax Exempt Money Market Portfolio and the Tax Exempt Limited Term
Portfolio will not be deductible for federal income tax purposes. In addition,
interest incurred or continued to purchase shares of the other Portfolios is
generally treated as investment interest, and in the case of corporate taxpayers
is deductible only to the extent of net investment income. Under rules used by
the Internal Revenue Service to determine when borrowed funds are used for the
purpose of purchasing or carrying particular assets, the purchase of shares may
be considered to have been made with borrowed funds even though the borrowed
funds are not directly traceable to the purchase of shares.

Section 147(a) of the Code prohibits exemption from taxation of interest
on certain governmental obligations to persons who are "substantial users" (or
persons related thereto) of facilities financed by such obligations. The Tax
Exempt Money Market Portfolio and the Tax Exempt Limited Term Portfolio have not
undertaken any investigation as to the users of the facilities financed by tax
exempt bonds in their portfolios.

In South Carolina v. Baker, the U.S. Supreme Court held that the federal
government may constitutionally require states to register bonds they issue and
may subject the interest on such bonds to federal tax if not registered, and the
Court further held that there is no constitutional prohibition against the
federal government's taxing the interest earned on municipal bonds. The Supreme
Court decision affirms the authority of the federal government to regulate and
control municipal bonds and to tax such bonds in the future. The decision does
not, however, affect the current exemption from taxation of the interest earned
on municipal bonds in accordance with Section 103 of the Code.

Under the federal income tax law, the Portfolios will be required to
report to the Internal Revenue Service all distributions of taxable income and
capital gains as well as gross proceeds from the redemption or exchange of
Portfolio shares, except in the case of exempt shareholders, which include most
corporations. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and their required certifications regarding
their status under the federal income tax law. A special exception is available
for proceeds from the redemption or exchange of Portfolio shares if a

27
<PAGE>

Portfolio maintains a constant net asset value per share. If the withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in additional shares, will be reduced by the amounts required
to be withheld. Corporate shareholders should provide the Portfolios with their
taxpayer identification numbers and certify their exempt status in order to
avoid possible unnecessary application of backup withholding.

In January of each year (or earlier, if necessary to satisfy state and
local income tax notice requirements), the Portfolios will issue to each
shareholder a statement of the federal income tax status of all distributions,
including: in the case of the Tax Exempt Money Market Portfolio and the Tax
Exempt Limited Term Portfolio, a statement of the percentage of the prior
calendar year's distributions which the respective Portfolio has designated as
tax exempt, the percentage of such tax exempt distributions treated as a tax
preference item for purposes of the alternative minimum tax, and the source on a
state-by-state basis of all distributions; and, in the case of the U.S. Treasury
Money Market Portfolio, all applicable state and local income tax information.

The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. persons, i.e., U.S. citizens and residents
and U.S. domestic corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of a Portfolio, including the possibility
that such a shareholder may be subject to a U.S. withholding tax at a rate of
30% (or at a lower rate under an applicable income tax treaty) on amounts
constituting ordinary income received by such person, where such amounts are
treated as income from U.S. sources under the Code.

The federal, state and local income tax rules that apply to the Fund and
its shareholders have changed extensively in recent years, and investors should
recognize that additional changes may be made in the future, some of which could
have an adverse affect on the Fund and its investors for federal and/or state
and local tax purposes. Shareholders should consult their tax advisors about the
application of the provisions of Federal, state and local tax law described in
this statement of additional information in light of their particular federal
and state tax situations.

PURCHASE, REDEMPTION AND EXCHANGE

Gabelli Fixed Income Distributors, Inc. (the "Distributor"), a registered
broker-dealer and member of the National Association of Securities Dealers,
Inc., serves as the exclusive Distributor of the shares of each Portfolio
pursuant to its Distribution Agreement with the Fund. Investors may open
accounts in the Portfolios in the Fund only through the exclusive Distributor
for the Fund. Under the Distribution Agreement, the Distributor, for nominal
consideration and as agent for the Fund, will solicit orders for the purchase of
Fund shares, provided that any subscriptions and orders will not be binding on
the Fund until accepted by the Fund as principal. The material relating to the
purchase, redemption and exchange of Portfolio shares in the Prospectus is
incorporated herein by reference and investors should refer to the Prospectus
for information relating to these areas.

DIVIDENDS AND DISTRIBUTIONS

Net investment income is declared as dividends daily and paid monthly; if
an investor's shares are redeemed during a month, accrued but unpaid dividends
are paid with the redemption proceeds. Substantially all the realized net
capital gains for the Portfolios, if any, are declared and paid on an annual
basis (except for net short-term capital gains for the Money Market Portfolios).
Dividends are payable to shareholders of record at the time of declaration.

Dividends of each Portfolio are automatically reinvested in additional
Portfolio shares unless the shareholder has elected to have them paid in cash.

28
<PAGE>

The net investment income of the Fund for each business day is determined
immediately prior to the determination of net asset value at 12:00 noon. Net
investment income for other days is determined at the time net asset value is
determined on the prior business day. Shares of the Limited Term Portfolio and
the Tax Exempt Limited Term Portfolio earn dividends on the business day their
redemption is effective but not on the business day their purchase is effective.
See "Purchase of Shares" and "Redemption of Shares" in the Prospectus.

NET ASSET VALUE

Net asset value per share for each of the Portfolios is determined by
subtracting from the value of the Portfolio's total assets the amount of its
liabilities and dividing the remainder by the number of its outstanding shares.
The U.S. Treasury Money Market Portfolio, the Domestic Prime Money Market
Portfolio, the Global Money Market Portfolio and the Tax Exempt Money Market
Portfolio value all portfolio securities by the amortized cost method in
accordance with Rule 2a-7 under the Investment Company Act of 1940. This method
attempts to maintain a constant net asset value per share of $1.00. No
assurances can be given that this goal can be attained.

In the case of the Limited Term Portfolio and the Tax Exempt Limited Term
Portfolio, the value of each security for which readily available market
quotations exist is based on a decision as to the broadest and most
representative market for the security; the value is based either on the last
sale price on a national securities exchange, or, in the absence of recorded
sales, at the readily available closing bid price on such exchanges, or at the
quoted bid price in the over-the-counter market. Assets for which market
quotations are not readily available are valued in accordance with procedures
established by the Fund's Board of Directors, including use of an independent
pricing service or services which use prices based on yields or prices of
comparable municipal securities, indications as to values from dealers and
general market conditions. High quality securities with effective maturities of
397 calendar days or less generally will be valued by the amortized cost method.

Each of the Portfolios computes its net asset value once daily on Monday
through Friday, except that the net asset value is not computed for a Portfolio
on a day in which no orders to purchase, sell or redeem Portfolio shares have
been received or on the holidays listed herein. The Fund does not determine net
asset value per share on the following holidays: New Year's Day, Martin Luther
King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas.

The Portfolios compute net asset value as follows: the U.S. Treasury Money
Market Portfolio, the Domestic Prime Money Market Portfolio, the Global Money
Market Portfolio and the Tax Exempt Money Market Portfolio (the "Money Market
Portfolios"), 12:00 noon Eastern Time; the Limited Term Portfolio and the Tax
Exempt Limited Term Portfolio, 4:00 p.m. Eastern Time. The days on which a
Fund's net asset value is determined are its business days.

The Money Market Portfolios utilize the amortized cost method of
valuation. Amortized cost valuation involves valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium, except that if fluctuating interest rates cause the market value of the
Portfolios to deviate more than l/2 of l% from the value determined on the basis
of amortized cost, the Board of Directors will consider whether any action
should be initiated, as described in the following paragraph. Although the
amortized cost method provides certainty in valuation, it may result in periods
during which the value of an instrument is higher or lower than the price an
investment company would receive if the instrument were sold.

The Fund's Board of Directors has established procedures to stabilize, to
the extent reasonably possible, these Portfolios' net asset value at $l.00 per
share. These procedures include a review of the extent of any deviation of net
asset amortized cost per share. Should that deviation exceed 1/2 of 1%, the
Board will consider whether any action should be initiated to eliminate or
reduce material dilution or other

29
<PAGE>

unfair results to shareholders. Such action may include redemption of shares in
kind, selling portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. The Money Market Portfolios will maintain a dollar-
weighted average portfolio maturity of 90 days or less, will not purchase any
instrument with an effective maturity greater than 397 days, will limit
portfolio investments, including repurchase agreements, to those United States
dollar-denominated instruments that the Fund's Board of Directors determines
present minimal credit risks, and will comply with certain reporting and
recordkeeping procedures. The Fund has also established procedures to ensure
compliance with the requirement that portfolio securities meet the high quality
criteria. See "Investments and Investment Techniques Common to Two or More
Portfolios", herein.

COMPUTATION OF YIELD

The current and effective yields of the Money Market Portfolios may be
quoted in reports, sales literature, and advertisements published by the Fund.
Current yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of a seven-day calendar period, dividing the net
change in account value of the account at the beginning of the period, and
multiplying the return over the seven-day period by 365/7. For purposes of the
calculation, net change in account value reflects the value of additional shares
purchased with dividends from the original share and dividends declared on both
the original share and any such additional shares, but does not reflect realized
gains or losses or unrealized appreciation or depreciation. Effective yield is
computed by annualizing the seven-day return with all dividends reinvested in
additional Portfolio shares.

The yields of the Domestic Prime Money Market Portfolio, the Tax Exempt
Money Market Portfolio and the U.S. Treasury Money Market Portfolio for the
seven-day period ended October 31, 1997 were 5.09%, 3.20% and 5.07%,
respectively.

The Limited Term Portfolio and Tax Exempt Limited Term Portfolio are not
money market funds and must compute their yield in a different fashion. These
Portfolios compute yield based on a 30-day (or one month) period ended on the
date of the most recent balance sheet included in the registration statement,
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:

a - b
-----
YIELD = 2[(cd + 1)^6 - 1]

Where: a = dividends and interest earned during the period.

b = expenses accrued for the period (net of
reimbursements).

c = the average daily number of shares outstanding during
the period that were entitled to dividends.

d = the maximum offering price per share on the last day
of the period.

Actual future yields will depend on the type, quality, and maturities of
the investments held by the Portfolios, changes in interest rates on
investments, and the Portfolios' expenses during the period.

Tax Equivalent Yield

The Tax Exempt Money Market Portfolio and Tax Exempt Limited Term
Portfolio may from time to time advertise their tax equivalent yield.

30
<PAGE>

Tax equivalent yield is computed based upon a 30-day (or one month) period
ended on the date of the most recent balance sheet included in the Statement of
Additional Information, computed by dividing that portion of the yield of the
Portfolio (as computed pursuant to the formulae previously discussed) which is
tax exempt by one minus a stated income tax rate and adding the product to that
portion, if any, of the yield of the Portfolio that is not tax exempt. The tax
equivalent yields for these Portfolios also may fluctuate daily and do not
provide a basis for determining future yields.

The U.S. Treasury Money Market Portfolio may also advertise a tax
equivalent yield for one or more of the states and municipalities wherein all or
substantially all of that Portfolio's dividends represent a pass-through of
income received on direct obligations of the U.S. Government and, as a result,
are not subject to such state's income tax. The U.S. Treasury Money Market
Portfolio's advertisement of a tax equivalent yield reflects the taxable yield
that an investor subject to that state's or municipality's highest marginal tax
rate would have had to receive in order to realize the same level of after-tax
yield as an investment in the U.S. Treasury Money Market Portfolio would have
produced. Tax equivalent yield is calculated by dividing the portion of the U.S.
Treasury Money Market Portfolio's yield that is not subject to state or
municipal taxes (calculated as described above) by the result of subtracting the
state's or municipality's highest marginal tax rate from 1, and adding the
resulting figure to that portion, if any, of the U.S. Treasury Money Market
Portfolio's yield that is subject to state or municipal income tax. All
dividends paid by the U.S. Treasury Money Market Portfolio are subject to
federal income taxation at applicable rates.

Computation of Total Return

The total return of the Limited Term and the Tax Exempt Limited Term
Portfolios must be displayed in any advertisement containing the yield of any of
these Portfolios. Total return is the average annual total return for the 1-, 5-
and 10-year period ended on the date of the most recent balance sheet included
in the Statement of Additional Information, computed by finding the average
annual compounded rates of return over 1-, 5- and 10-year periods that would
equate the initial amount invested to the ending redeemable value according to
the following formula:

n
P(1+T) = ERV

Where:
P = a hypothetical initial investment of $1000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1000
payment made at the beginning of the 1-, 5- or
10- year periods at the end of the 1-, 5- or
10-year periods (or fractions thereof).

Because the Limited Term and the Tax Exempt Limited Term Portfolios have
not had a registration in effect for 1, 5 or 10 years, the period during which
the registration has been effective shall be substituted.

Yield information may be useful for reviewing the performance of the
Portfolio and for providing a basis for comparison with other investment
alternatives. However, unlike bank deposits or other investments which pay a
fixed yield for a stated period of time, the Portfolios' yield does fluctuate,
and this should be considered when reviewing performance or making comparisons.

From time to time evaluations of performance of the Portfolios made by
independent sources may be used in advertisements concerning the Portfolios.
These sources may include Lipper Analytical Services, Wiesenberger Investment
Company Service, IBC's Money Fund Report, Barron's, Business Week,

31
<PAGE>

Changing Times, Financial World, Forbes, Fortune, Money, Personal Investor, Bank
Rate Monitor, and The Wall Street Journal.

DESCRIPTION OF COMMON STOCK

The Fund was incorporated in Maryland on August 17, 1987. The Fund was
formerly named the Gabelli-O'Connor Treasurer's Fund, Inc. At a meeting of the
shareholders held on March 6, 1989, the shareholders of the Fund voted to amend
the Amended Articles of Incorporation to change the name of the Fund to The
Treasurer's Fund, Inc. The authorized capital stock of the Fund consists of
twenty billion shares of common stock having a par value of one tenth of one
cent ($.001) per share ("Common Stock"). The Fund's net assets at the close of
business on January 31, 1998 were valued at $200,152,368.74 for the Tax Exempt
Money Market Portfolio, $267,360,118.42 for the Domestic Prime Money Market
Portfolio and $95,338,058.66 for the U.S. Treasury Money Market Portfolio. The
Fund's Board of Directors is authorized to divide the unissued shares into
separate series of stock, each series representing a separate, additional
investment portfolio. The Board currently has authorized the division of the
unissued shares into six series of Common Stock, one for each of the Portfolios.
Shares of all series will have identical voting rights, except where, by law,
certain matters must be approved by a majority of the shares of the affected
series. Each share of any series of shares when issued has equal dividend,
distribution, liquidation and voting rights within the series for which it was
issued, and each fractional share has those rights in proportion to the
percentage that the fractional share represents of a whole share. Shares will be
voted in the aggregate. There are no conversion or preemptive rights in
connection with any shares of the Fund. All shares, when issued in accordance
with the terms of the offering, will be fully paid and nonassessable. Shares are
redeemable at net asset value, at the option of the shareholder.

As of January 29, 1998, the officers and directors of the Fund,
collectively, beneficially owned, directly or indirectly (including the power to
vote or to dispose of any shares), less than 1% of the total outstanding shares
of each of the Fund's Portfolios.

As of January 29, 1998 the following persons or entities owned as much as
5% of the indicated Portfolio's outstanding shares:

Name and Address Portfolio in Percentage of
of record or Number of which shares Ownership of
beneficial owner shares owned are owned Portfolio
- ------------- ------------ ------------ ------------
Bear Stearns Securities Corp. 12,916,146 Tax Exempt 6.45%
1 Metrotech Center North
Brooklyn, NY 11201-3870

Bear Stearns Security Corp. 6,883,989 U.S. Treasury 7.17%
1 Metrotech Center North
Brooklyn, NY 11201-3870

The shares held by Bear Stearns & Co. Inc. are held on behalf of
individual client accounts.

As a general matter, the Fund will not hold annual or other meetings of
the Funds' shareholders. This is because the By-laws of the Fund provide for
annual meetings only (a) for the election of directors, (b) for approval of the
Fund's revised investment advisory agreement with respect to a particular class
or series of stock, (c) for approval of revisions to the Fund's distribution
agreement with respect to a particular class or series of stock, and (d) upon
the written request of holders of shares entitled to cast not less than
twenty-five percent of all the votes entitled to be cast at such meeting. Annual
and other meetings may be required

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with respect to such additional matters relating to the Fund as may be required
by the Investment Company Act of 1940 (the "Act") including the removal of Fund
directors and communication among shareholders, any registration of the Fund
with the Securities and Exchange Commission or any state, or as the Directors
may consider necessary or desirable. Each Director serves until the next meeting
of shareholders called for the purpose of considering the election or reelection
of such Director or of a successor to such Director, and until the election and
qualification of his or her successor, elected at such meeting, or until such
Director sooner dies, resigns, retires or is removed by the vote of the
shareholders.

Rule 18f-2 under the Act provides that any matter required to be submitted
by the provisions of the Act or applicable state law, or otherwise, to the
holders of the outstanding voting securities of an investment company such as
the Fund shall not be deemed to have been effectively acted upon unless approved
by the holders of a majority of the outstanding shares of each class or series
affected by such matter, i.e., by a majority of the outstanding shares of each
Portfolio. Rule 18f-2 further provides that a class or series shall be deemed to
be affected by a matter unless it is clear that the interests of each class or
series in the matter are substantially identical or that the matter does not
affect any interest of such class or series. However, the Rule exempts the
selection of independent public accountants, the approval of principal
distribution contracts and the election of directors from the separate voting
requirements of the Rule.

DISTRIBUTION PLANS

The Fund has adopted a shareholder servicing and administration plan (the
"Plan"), pursuant to Rule 12b-1 under the Act (the "Rule") for each Portfolio of
the Fund. The Rule provides that an investment company which bears any direct or
indirect expense of distributing its shares must do so only in accordance with a
plan permitted by the Rule. Although there are no fees or expenses chargeable to
the Fund under the Plans, the Fund's Board of Directors has adopted the Plans in
case certain expenses of the Fund might be considered to constitute indirect
payments by the Fund of distribution expenses. If a payment by the Fund to the
Advisor of advisory fees should be deemed to be indirect financing by the Fund
of the distribution of its shares, such payments would be authorized under the
Plans.

The Plans provide that the Advisor may make payments from time to time
from its own resources, which may include the advisory fee and past profits for
the following purposes: to pay promotional and administrative expenses in
connection with the offer and sale of the shares of the Portfolios, including
payments to participating organizations for performing shareholder servicing and
related administrative functions and for providing assistance in distributing
the Fund's shares. The Advisor, in its sole discretion, will determine the
amount of such payments made pursuant to the Plans, provided that such payments
will not increase the amount which the Fund is required to pay to the Advisor
for any fiscal year under the Advisory Agreement in effect for that year.

The Glass-Steagell Act limits the ability of a depository institution to
become an underwriter or distributor of securities. However, it is the Fund
management's position that banks are not prohibited from acting in other
capacities for investment companies, such as providing administrative and
shareholder account maintenance services and receiving compensation from the
Advisor for providing such services. However, this is an unsettled area of the
law and if a determination contrary to the Fund management's position is made by
a bank regulatory agency or court concerning shareholder servicing and
administration payments to banks from the Advisor, any such payments will be
terminated and any shares registered in the banks' names, for their underlying
customers, will be reregistered in the name of the customers at no cost to the
Fund or its shareholders. In addition, state securities laws on this issue may
differ from the interpretation of federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law.

The Plans provide that they may continue in effect for successive annual
periods provided they are approved by the shareholders or by the Board of
Directors, including a majority of directors who are not interested persons of
the Fund and who have no direct or indirect interest in the operation of the
Plans, or in the agreements related to the Plans. On February 18, 1998, the
Board of Directors approved the continuance of all of the Plans until February
28, 1999. The Plans for the Domestic Prime Money Market Portfolio and the Tax
Exempt Money Market Portfolio were approved by a majority of the affected
Portfolio's shareholders at the annual meeting on March 6, 1989. The Plan for
the U.S. Treasury Money

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Market Portfolio was approved by a majority of that Portfolio's shareholders on
March 14, 1991. The Plans further provide that they may not be amended to
increase materially the costs which may be spent by the Fund for distribution
pursuant to the Plans without shareholder approval, and the other material
amendments must be approved by the directors in the manner described in the
preceding sentence. The Plans may be terminated at any time by a vote of a
majority of the disinterested directors of the Fund or the Fund's shareholders.
Although there are no fees or expenses chargeable to the Fund under the Plans,
for the fiscal year ended October 31, 1997, the Advisor made payments under the
Plans to or on behalf of participating organizations in the amount of $541,876
with regard to the U.S. Treasury Money Market Portfolio, the Tax Exempt Money
Market Portfolio and the Domestic Prime Money Market Portfolio (representing
.10% of the average daily net assets of certain accounts within each of those
Portfolios). Although these payments were not made by the Fund, each may be
deemed an indirect payment by the Fund.

BROKERAGE AND PORTFOLIO TURNOVER

Brokerage

The Fund's purchases and sales of portfolio securities usually are
principal transactions. Portfolio securities are normally purchased directly
from the issuer, from banks and financial institutions or from an underwriter or
market maker for the securities. There usually are not brokerage commissions
paid for such purchases. Any transactions for which the Fund pays a brokerage
commission will be effected at the best price and execution available. Purchases
from underwriters of portfolio securities include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers serving as
market makers include the spread between the bid and asked price. The Fund may
purchase participation certificates in variable rate Municipal Obligations with
a demand feature from banks or other financial institutions at a negotiated
yield to the Fund based on the applicable interest rate adjustment index for the
security. The interest received by the Fund is net of a fee charged by the
issuing institution for servicing the underlying obligation and issuing the
participation certificate, letter of credit, guarantee or insurance and
providing the demand repurchase feature.

Allocation of transactions, including their frequency, to various dealers
is determined by the Advisor in its best judgment and in a manner deemed in the
best interest of shareholders of the Fund rather than by a formula. The primary
consideration is prompt execution of orders in an effective manner at the most
favorable price. No preference in purchasing portfolio securities will be given
to banks or dealers that are Participating Organizations.

Investment decisions for the Fund will be made independently from those
for any other investment companies or accounts that may be or become managed by
the Advisor or its affiliates. If, however, the Fund and other investment
companies or accounts managed by the Advisor are simultaneously engaged in the
purchase or sale of the same security, the transactions may be averaged as to
price and allocated equitably to each account. In some cases, this policy might
adversely affect the price paid or received by the Fund or the size of the
position obtainable for the Fund. In addition, when purchases or sales of the
same security for the Fund and for other investment companies managed by the
Advisor occur contemporaneously, the purchase or sale orders may be aggregated
in order to obtain any price advantage available to large denomination
purchasers or sellers.

No portfolio transactions are executed with the Advisor or its affiliates
acting as principal. In addition, the Fund will not buy bankers' acceptances,
certificates of deposit or commercial paper from the Advisor or its affiliates.

Portfolio Turnover

Each Portfolio's average annual portfolio turnover rate, i.e., the ratio
of the lesser of sales or purchases to the monthly average value of the
portfolio (excluding from both the numerator and the denominator all securities
with maturities at the time of acquisition of one year or less) is expected to
be high. Purchases and sales are made for each Portfolio whenever necessary in
the Advisor's opinion, to meet the Portfolio's objective.

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COUNSEL AND INDEPENDENT AUDITORS

Legal Matters for the Fund are passed upon by Battle Fowler LLP, 75 East
55th Street, New York, New York 10022.

Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019 have been
selected as independent auditors for the Fund.

GENERAL INFORMATION

The Fund is registered with the Securities and Exchange Commission as an
open-end, management investment company. The Fund prepares semi-annual unaudited
and annual audited reports which include a list of investment securities held by
the Fund and which are sent to shareholders. For further information with
respect to the Fund and the shares offered hereby, reference is made to the
Fund's Registration Statement filed with the Securities and Exchange Commission,
including the exhibits thereto. The Registration Statement and the exhibits
thereto may be examined at the Securities and Exchange Commission and copies
thereof may be obtained upon payment of certain duplicating fees.

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RATINGS OF MUNICIPAL AND CORPORATE OBLIGATIONS

Description of Moody's Investors Service, Inc.'s municipal and corporate
bond ratings:

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

Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with 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 fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.

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

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

Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B -- Bonds which rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

Moody's ratings for municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). This distinction is in recognition of
the differences between short-term and long-term credit risk. Loans bearing the
designation MIG 1 are of the best quality, enjoying strong protection by
establishing cash flow of funds for their servicing or by established and
broad-based access to the market for refinancing, or both. Loans bearing the
designation MIG 2 are of high quality, with margins of protection ample although
not so large as in the preceding group. A short-term issue having a demand
feature (i.e., payment relying on external liquidity and usually payable on
demand rather than fixed maturity dates) is differentiated by Moody's with the
use of the Symbol VMIG, instead of MIG.

Moody's also provides credit ratings for tax exempt commercial paper.
These are promissory obligations (1) not having an original maturity in excess
of nine months, and (2) backed by commercial banks. Notes bearing the
designation P-1 have a superior capacity for repayment. Notes bearing the
designation P-2 have a strong capacity for repayment.

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Description of Standard & Poor's Corporation's municipal and corporate
bond ratings:

AAA -- Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.

AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.

A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in the highest rated
categories.

BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic condition or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay principal for bonds in
this category than for bonds in higher rated categories.

BB, B, CC, CCC -- Bonds rated BB, B, CC, CCC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lower degree of speculation and CCC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

C -- Bonds rated C are income bonds on which no interest is being paid.

D -- Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.

S&P's top ratings for municipal notes issued after July 29, 1984 are SP-1
and SP-2. The designation SP-1 indicates a very strong capacity to pay principal
and interest. A "+" is added for those issues determined to possess overwhelming
safety characteristics. An "SP-2" designation indicates a satisfactory capacity
to pay principal and interest.

Unrated Bonds. Bonds which are unrated expose the investor to risks with
respect to the issuer's capacity to pay interest and principal which are similar
to the risks of rated- rated obligations. The safety of an investment in an
unrated obligation, therefore, is more reliant as a general proposition on an
investment advisor's judgment, analysis and experience than an investment in a
higher rated obligation.

Commercial Paper Ratings

Description of Standard & Poor's Corporation's two highest commercial
paper ratings:

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

A-1 -- This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.

A-2 -- Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.

Description of Moody's Investors Service, Inc.'s two highest commercial
paper ratings:

Moody's employs the following designations, both judged to be investment
grade, to indicate the relative repayment capacity of rated issues: Prime-1,
highest quality; Prime-2, higher quality.

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Money Market Fund Ratings

Description of Standard & Poor's Corporation's two highest money market
fund ratings:

AAAm -- Safety is excellent. Superior capacity to maintain principal value
and limit exposure to loss.

AAm -- Safety is very good. Strong capacity to maintain principal value
and limit exposure to loss.

Description of Moody's Investors Service, Inc.'s two highest money market
fund ratings:

Aaa -- Money Market Funds rated Aaa have superior quality assets and
management.

Aa -- Money Market Funds rated Aa have strong quality assets and
management.

FINANCIAL STATEMENTS

The audited financial statements for the Fund dated October 31, 1997 and
the Reprt of Ernst & Young LLP thereon, are incorporated herein by reference to
the Trust's Annual Report. The Annual Report is available upon request and
without charge.