<PAGE>
As filed with the Securities and Exchange Commission on February 28, 1997
1933 Act Registration No. 33-96132
1940 Act Registration No. 811-9086
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 3 [ X ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 5 [ X ]
------------------
WATERHOUSE INVESTORS CASH MANAGEMENT FUND, INC.
(Exact Name of Registrant as Specified in Charter)
100 Wall Street, New York, New York 10005
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code:
(212) 806-3500
John E. Pelletier, President
Waterhouse Investors Cash Management Fund, Inc.
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copies of communications to:
Margery K. Neale, Esq.
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York, 10022-9998
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ X ] On February 28, 1997 pursuant to paragraph (b)
[ ] On (date) pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a) (2)
[ ] On (date) pursuant to paragraph (a) (2) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has previously elected to register an indefinite number of shares
of its Money Market, U.S. Government and Municipal Portfolios under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Registrant filed the notice required by Rule 24f-2 for its most
recent fiscal year on December 27, 1996.
<PAGE>
WATERHOUSE INVESTORS CASH MANAGEMENT FUND, INC.
CROSS REFERENCE SHEET
Between Items Enumerated in Part A of Form N-1A and Prospectus and Between
Items Enumerated in Part B of Form N-1A and Statement of Additional
Information Pursuant to Rule 481(a) under the Securities Act of 1933
Item Number of
Form N-1A; Part A Location in Prospectus
1. Cover Page............................ Cover Page
2. Synopsis.............................. A Profile of the Fund
3. Condensed Financial Information....... Financial Highlights
4. General Description of Registrant..... A Profile of the Fund; The Fund in
Detail; Other Information --
General Information about the Fund
5. Management of the Fund................ Operating Expenses and Fees
5A. Management's Discussion of Fund
Performance........................... Inapplicable
6. Capital Stock and Other Securities.... Your Account -- Dividends; Other
Information
7. Purchase of Securities Being Offered.. A Profile of the Fund; The Fund in
Detail -- Pricing Your Shares; Your
Account; Operating Expenses and
Fees
8. Redemption or Repurchase............. Your Account
9. Pending Legal Proceedings............ Inapplicable
ii
<PAGE>
Item Number of Location in Statement
Form N-1A; Part B of Additional Information
10. Cover Page............................ Front Cover Page
11. Table of Contents..................... Table of Contents
12. General Information and History....... Inapplicable
13. Investment Objectives and Policies.... Investment Policies and
Restrictions; Annex -- Ratings
of Investments
14. Management of the Fund................ Directors and Executive Officers
15. Control Persons and Principal
Holders of Securities................. Directors and Executive Officers
16. Investment Advisory and Other
Services.............................. Directors and Executive Officers;
The Investment Manager; Investment
Management, Distribution and
Other Services
17. Brokerage Allocation and Other
Practices............................. Portfolio Transactions
18. Capital Stock and Other Securities.... Shareholder Rights
19. Purchase, Redemption and Pricing of
Securities Being Offered.............. Dividends and Taxes; Additional
Purchase and Redemption Information
20. Tax Status............................ Dividends and Taxes
21. Underwriters.......................... Investment Management, Distribution
and Other Services
22. Calculation of Performance Data....... Performance
23. Financial Statements.................. Financial Statements
Part C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
iii
<PAGE>
WATERHOUSE INVESTORS
CASH MANAGEMENT FUND, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
A PROFILE OF THE FUND................................................ 3
Who May Want to Invest............................................... 3
Investment Objectives of Each Portfolio.............................. 3
Benefits and Features to Waterhouse Securities Customers............. 3
Expenses............................................................. 4
FINANCIAL HIGHLIGHTS................................................. 5
THE FUND IN DETAIL................................................... 6
Matching Your Investment Needs to the Portfolios..................... 6
Investment Policies and Restrictions................................. 7
Pricing Your Shares.................................................. 12
Performance.......................................................... 13
OPERATING EXPENSES AND FEES.......................................... 14
Management and Related Expenses...................................... 14
Shareholder Servicing................................................ 15
Administration....................................................... 15
Distribution......................................................... 16
Transfer Agent and Custodian......................................... 16
Other Expenses....................................................... 16
YOUR ACCOUNT......................................................... 17
Opening a Waterhouse Securities Brokerage Account.................... 17
How to Buy Shares.................................................... 18
How to Sell Shares................................................... 18
How to Exchange Portfolios........................................... 19
Dividends............................................................ 19
Telephone Transactions............................................... 20
Small Accounts....................................................... 20
Shareholder Inquiries................................................ 20
OTHER INFORMATION.................................................... 21
General Information About the Fund................................... 21
Statements and Reports to Shareholders............................... 21
Taxes................................................................ 22
APPENDIX............................................................. 24
</TABLE>
WATERHOUSE SECURITIES, INC.
Member New York Stock Exchange o SIPC
National Headquarters
100 Wall Street o New York, New York 10005
CUSTOMER SERVICE
(800) 934-4410
Waterhouse
Investors Cash
Management
Fund, Inc.
-------------------
Three Portfolios to choose from
Money Market
U.S. Government
Municipal
February 28, 1987
<PAGE>
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WATERHOUSE INVESTORS
CASH MANAGEMENT FUND, INC.
February 28, 1997
Waterhouse Investors Cash Management Fund, Inc. (the "Fund") is an open-end,
diversified management investment company known as a money market mutual fund.
The Fund consists of three no-load money market portfolios designed for
investors who seek current income consistent with the preservation of capital,
liquidity and a stable price of $1.00 per share. The three Portfolios are the
Money Market Portfolio, the U.S. Government Portfolio and the Municipal
Portfolio. Each Portfolio invests in high quality money market instruments and
offers you the benefits of automatic daily sweep of free credit balances and,
when linked to a Waterhouse Investors Money Management Account, checkwriting and
an ATM/VISA Check Card for easy access to your money.
This Prospectus contains information about the Fund which a prospective investor
should know before investing and should be retained for future reference. A
Statement of Additional Information relating to the Fund dated February 28, 1997
(the "SAI") has been filed with the Securities and Exchange Commission ("SEC")
and is incorporated herein by reference. The SAI is available upon request and
without charge by writing the Fund or Waterhouse Securities, Inc., 100 Wall
Street, New York, New York 10005, or by calling 1-800-934-4410.
An investment in the Fund is neither insured nor guaranteed by the U.S.
government, the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other agency, and is not a deposit or obligation of, or guaranteed or
endorsed by, any bank. There can be no assurance that any Portfolio of the Fund
will be able to maintain a stable net asset value of $1.00 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the Fund's
official sales literature in connection with the offer of the Fund's shares,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Fund. This Prospectus does not
constitute an offer in any State in which, or to any person to whom, such
offering may not lawfully be made.
<PAGE>
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This page intentionally left blank.
2
<PAGE>
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WATERHOUSE INVESTORS
CASH MANAGEMENT FUND, INC.
A PROFILE OF THE FUND
- --------------------------------------------------------------------------------
Who May Want to Invest
Waterhouse Investors Cash Management Fund, Inc. (the "Fund") offers a choice of
three no-load money market portfolios: the Money Market Portfolio, the U.S.
Government Portfolio and the Municipal Portfolio (the "Portfolios"). Each
Portfolio is designed for investors who would like to earn income at current
money market rates in a liquid investment that preserves capital. Because of
their emphasis on liquidity and preservation of capital, each Portfolio may be
used as a high quality money market investment for an investor's short-term cash
requirements.
Investment Objectives of Each Portfolio
Each of the Portfolios seeks maximum current income to the extent consistent
with liquidity and preservation of capital and a stable price of $1.00 per
share. The Money Market Portfolio has the flexibility to invest in a broad range
of high quality money market securities in pursuit of its objective. The U.S.
Government Portfolio offers an added measure of safety by investing exclusively
in obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The Municipal Portfolio offers investors federally tax-exempt
income by investing primarily in municipal securities. The rates of income each
Portfolio earns will vary from day to day and generally reflect short-term
interest rates. See "The Fund in Detail - Investment Policies and Restrictions."
There can be no assurance that any Portfolio of the Fund will be able to
maintain a stable net asset value of $1.00 per share.
Benefits and Features to Waterhouse Securities Customers
If you are a customer of Waterhouse Securities, Inc. ("Waterhouse Securities"),
you will enjoy the benefits of having free credit balances in your Waterhouse
Securities brokerage account swept daily into the Portfolio that you choose as
your sweep portfolio. In addition, if you set up your account as a Waterhouse
Investors Money Management Account, you will have access to money in your sweep
account 24 hours-a-day, seven days-a-week simply by writing a check or by using
your ATM/VISA Check Card. All of your activity in the Fund will be consolidated
on your Waterhouse Securities brokerage account statement to make your
recordkeeping easy. See "Your Account."
An ATM/VISA Check Card cash withdrawal from a customer's Waterhouse Investors
Money Management Account may result in the automatic redemption of Fund shares.
The first five ATM/VISA Check Card cash withdrawals per month are free;
thereafter, a $1.00 fee will be imposed by Waterhouse Securities. For a
discussion of such fee, see "Your Account - How To Sell Shares - Automatic Sweep
Redemptions."
3
<PAGE>
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Expenses
<TABLE>
<CAPTION>
Money Market U.S. Government Municipal
Portfolio Portfolio Portfolio
------------ --------------- ---------
<S> <C> <C> <C>
Shareholder Transaction Expenses1 None None None
Annual Operating Expenses (as a percentage
of average daily net assets)
Management Fees (after fee waivers and/or
expense reimbursements)2 .35% .35% .25%
Shareholder Servicing Fees (after fee waivers and/or
expense reimbursements)3 .08% .04% .05%
12b-1 Fees None None None
Other Expenses (after fee waivers and/or
expense reimbursements)4 .36% .34% .32%
---- ---- ----
Total Portfolio Operating Expenses (after fee waivers
and/or expense reimbursements)5 .79% .73% .62%
</TABLE>
1 For a further description of the various expenses incurred in the operation
of the Portfolios, see "Operating Expenses and Fees." Expenses for each
Portfolio are based on amounts incurred during the Fund's most recent fiscal
year ended October 31, 1996.
2 The annual investment management fee for each Portfolio is payable to
Waterhouse Asset Management, Inc. (the "Investment Manager") on a graduated
basis of .35% of the first $1 billion of average daily net assets of each
Portfolio, .34% of the next $1 billion, and .33% of average daily net assets
over $2 billion. The Investment Manager has agreed to waive a portion of the
annual investment management fee for the Municipal Portfolio through October
15, 1998. Absent this fee waiver, Management Fees for that Portfolio would
have been .35%.
3 The Shareholder Servicing Fee is payable pursuant to a Shareholder Servicing
Plan adopted by the Fund's Board of Directors. Absent fee waivers,
Shareholder Servicing Fees for the Money Market Portfolio, U.S. Government
Portfolio and Municipal Portfolio would have been .20%, .17% and .11%,
respectively, of each Fund's average daily net assets (the "Current Servicing
Rates"), which were the rates established by the Board of Directors under the
Shareholder Servicing Plan through October 15, 1998. The maximum fee payable
under the Shareholder Servicing Plan is .25% of average daily net assets.
Pursuant to a Shareholder Servicing Agreement, Waterhouse Securities has
agreed to provide shareholder services for the Fund on a continuing basis in
exchange for such fees. In addition, the Fund may enter into similar
agreements with other service providers.
4 Other Expenses include, among other items, (a) administration fees (.10% of
average daily net assets), which are paid to the Investment Manager; and (b)
a transfer agent fee (.20% of average daily net assets), which is paid to
Waterhouse National Bank, the parent of the Investment Manager. Absent fee
waivers or expense reimbursements, Other Expenses for the Money Market
Portfolio, U.S. Government Portfolio and Municipal Portfolio would have been
.37%, .39% and .39%, respectively.
5 Absent fee waivers or expense reimbursements by the Investment Manager
and its affiliates (and based on the Current Servicing Rates), Total
Portfolio Operating Expenses for the Money Market Portfolio,
U.S. Government Portfolio and Municipal Portfolio would have been
.92%, .91% and .85%, respectively.
Example
You would pay the following expenses on a $1,000 investment, assuming (1)
a 5% annual return and (2) redemption at the end of each time period:
Portfolio 1 year 3 years 5 years 10 years
-------- ------ ------- ------- --------
Money Market $8 $25 $44 $98
U.S. Government $7 $23 $41 $91
Municipal $6 $20 $35 $77
The purpose of the preceding table is to assist you in understanding the various
costs and expenses that an investor in a Portfolio will bear directly or
indirectly. The example should not be considered to be a representation of past
or future expenses. Actual expenses may be greater or less than those shown. The
example assumes a 5% annual rate of return pursuant to the requirements of the
SEC. This hypothetical rate of return is not intended to be representative of
past or future performance of any Portfolio. Securities dealers and other
financial service firms, other than Waterhouse Securities, may independently
charge shareholders additional fees. See "Operating Expenses and Fees."
4
<PAGE>
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FINANCIAL HIGHLIGHTS Period Ended October 31, 1996*
- --------------------------------------------------------------------------------
The table that follows is included in the Fund's Annual Report, which can be
obtained by calling Customer Service at 800-934-4410.
Presented below is per share operating performance data, ratios to average net
assets, total investment return and other supplemental data for the period
indicated. This information has been derived from each Portfolio's financial
statements and was audited by Ernst & Young LLP, independent auditors. The
financial statements and independent auditors' report thereon are incorporated
by reference into the SAI.
<TABLE>
<CAPTION>
Money Market U.S. Government Municipal
Portfolio Portfolio Portfolio
------------ --------------- ---------
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $1.000 $1.000 $1.000
------ ------ ------
Net investment income 0.041 0.041 0.026
------ ------ ------
Distributions from net investment income (0.041) (0.041) (0.026)
------ ------ ------
Net asset value, end of period $1.000 $1.000 $1.000
====== ====== ======
Ratios
Ratio of net expenses to average net assets ** 0.79%(A) 0.73%(A) 0.62%(A)
Ratio of net investment income to average net assets ** 4.64%(A) 4.64%(A) 2.90%(A)
Decrease reflected in above net expense ratio due to
waivers / reimbursements by the Investment
Manager and its affiliates 0.13%(A) 0.18%(A) 0.23%(A)
Supplemental Data
Total investment return (B) 4.82%(A) 4.82%(A) 3.05%(A)
Net assets, end of period $1,342,610,086 $371,046,770 $226,253,394
============== ============ ============
</TABLE>
* The Fund commenced operations on December 20, 1995.
** The average net assets for the period were $1,104,558,438,
$293,708,330 and $196,592,413 for the Money Market Portfolio, U.S.
Government Portfolio and Municipal Portfolio, respectively.
(A) Annualized.
(B) Total investment return is calculated assuming a purchase of shares on
the first day and a sale on the last day of the period reported and
includes reinvestment of dividends.
5
<PAGE>
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THE FUND IN DETAIL
- --------------------------------------------------------------------------------
Matching Your Investment Needs to the Portfolios
The Money Market Portfolio, the U.S. Government Portfolio and the Municipal
Portfolio are each no-load money market mutual funds. Each Portfolio seeks
maximum current income to the extent consistent with liquidity and preservation
of capital. The Portfolios are managed by investment professionals who purchase
only high quality, short-term money market securities that they believe present
minimal credit risk. Each Portfolio invests only in U.S. dollar denominated
instruments that have a remaining maturity of 397 calendar days or less (as
calculated under Rule 2a-7 under the Investment Company Act of 1940, as amended
(the "Investment Company Act")) and maintains a dollar-weighted average
portfolio maturity of 90 days or less.
Each Portfolio invests in money market securities of different types. The Money
Market Portfolio has the flexibility to invest broadly in U.S.
dollar-denominated securities of domestic and foreign issuers. The U.S.
Government Portfolio offers an added measure of safety and invests exclusively
in obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The Municipal Portfolio offers investors federally tax-exempt
income by investing primarily in municipal securities. Each Portfolio may invest
in the types of securities described below under "Investment Policies and
Restrictions." The rates of income will vary from day to day and generally
reflect current short-term interest rates.
While no one Portfolio is a substitute for building a balanced investment plan
tailored to your investment needs, each Portfolio can be a high quality liquid
money market investment for your brokerage account cash when it is not invested
in other securities. You can set up your account so that free credit balances in
your Waterhouse Securities brokerage account will be automatically swept daily
into the Portfolio you have chosen as your sweep vehicle. If you set up your
Waterhouse Securities brokerage account as a Waterhouse Investors Money
Management Account, you will have access to your money 24 hours-a-day, seven
days-a-week through checkwriting or by using your ATM/VISA Check Card.
Although the Portfolios are managed to avoid fluctuations of principal and
maintain a stable share price of $1.00 per share, there is no guarantee that a
Portfolio will achieve its investment objective or maintain a price of $1.00 per
share.
None of the Portfolios, including the U.S. Government Portfolio, is guaranteed
by the U.S. government. In addition, the Municipal Portfolio would not be an
appropriate investment for retirement plans such as IRA or Keogh accounts, as
income earned by such plans is tax-deferred until withdrawal, and amounts
withdrawn are taxable as ordinary income. Therefore, such plans would receive no
incremental tax benefit by investing in the Municipal Portfolio.
6
<PAGE>
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Investment Policies and Restrictions
The following is an abbreviated discussion of the investment policies and
restrictions of each Portfolio. A more detailed listing of each Portfolio's
policies and restrictions and more detailed information about a Portfolio's
investments are contained in the appendix to this Prospectus which discusses
certain types of investments (the "Appendix") and in the SAI.
Money Market Portfolio. The Money Market Portfolio pursues its objective by
investing in high quality U.S. dollar-denominated money market instruments with
remaining maturities of 397 calendar days or less, consisting of the securities
described below and in the section of this Prospectus entitled "All Portfolios":
1. Certificates of deposit and time deposits of domestic banks (including
their foreign branches), domestic savings and loan associations, United
States branches and foreign branches of foreign banks, and bankers'
acceptances of each of such entities other than domestic savings and loan
associations.
2. Commercial paper rated in one of the two highest rating categories by a
nationally recognized statistical rating organization ("NRSRO"), or
commercial paper or notes of issuers with a debt issue (which is comparable
in priority and security with the commercial paper or notes) rated in one
of the two highest rating categories for short-term debt obligations by an
NRSRO, or unrated commercial paper or notes of comparable quality as
determined by the Investment Manager, or commercial paper secured by a
letter of credit issued by a domestic or foreign bank rated in the highest
rating category by an NRSRO. For a description of ratings issued by Moody's
Investors Service ("Moody's") and Standard & Poor's ("S&P"), two NRSROs,
see "Annex - Ratings of Investments" in the SAI.
3. Obligations of, or guaranteed by, the United States or Canadian
governments, their agencies or instrumentalities.
4. Repurchase agreements involving obligations that are suitable for
investment under the categories set forth above. Repurchase agreements
are discussed in the Appendix and in the SAI.
In addition, the Money Market Portfolio limits its investments to securities
that meet the quality and diversification requirements of Rule 2a-7 under the
Investment Company Act ("Rule 2a-7"). These diversification requirements
prohibit the Money Market Portfolio from investing more than 5% of its total
assets in the securities of any one issuer, except in limited circumstances
permitted by such Rule. In addition, the Portfolio may not invest more than 5%
of its total assets in securities which have not been rated (or deemed
comparable to securities rated) in the highest rating category by an NRSRO, with
investment in such "second tier securities" of any one issuer being limited to
the greater of 1% of the Portfolio's total assets or $1 million. These issuer
diversification restrictions do not apply to securities issued by the U.S.
government and its agencies. The applicable quality requirements are described
below under "All Portfolios."
7
<PAGE>
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To the extent the Money Market Portfolio purchases Eurodollar certificates of
deposit issued by foreign branches of U.S. banks or by foreign banks, commercial
paper issued by foreign branches of U.S. banks or by foreign banks, or
commercial paper issued by foreign entities, consideration will be given to
their marketability and possible restrictions on international currency
transactions and to regulations imposed by the domicile country of the foreign
issuer. Eurodollar certificates of deposit may not be subject to the same
regulatory requirements as certificates of deposit issued by U.S. banks and
associated income may be subject to the imposition of foreign taxes which would
reduce the yield on such investments to the Portfolio.
The Money Market Portfolio may invest in commercial paper issued by major
corporations under the Securities Act of 1933 in reliance on the exemption from
registration afforded by Section 3(a)(3) thereof. Such commercial paper may be
issued only to finance current transactions and must mature in nine months or
less. Trading of such commercial paper is conducted primarily by institutional
investors through investment dealers and individual investor participation in
the commercial paper market is very limited. The Portfolio also may invest in
commercial paper issued in reliance on the so-called "private placement"
exemption from registration which is afforded by Section 4(2) of the Securities
Act of 1933 ("Section 4(2) paper"). Section 4(2) paper is restricted as to
disposition under the federal securities laws. In addition, the Money Market
Portfolio may invest in other securities that are not registered under the
Securities Act of 1933 but that may be resold to "qualified institutional
buyers" under Rule 144A under the Securities Act of 1933 ("Rule 144A
Securities"). See "All Portfolios" for additional information about Rule 144A
Securities. For more information about Section 4(2) paper and Rule 144A
Securities, see the Appendix.
U.S. Government Portfolio. The U.S. Government Portfolio pursues its objective
by investing exclusively in U.S. Treasury bills, notes, bonds and other
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, and repurchase agreements with respect to such obligations
("Government Securities"). A U.S. government guarantee of the securities owned
by the U.S. Government Portfolio, however, does not guarantee the net asset
value of the Portfolio's shares. See "The Fund in Detail - Pricing Your Shares."
All securities purchased must have a remaining maturity of 397 calendar days or
less. The Portfolio limits its investments to securities that meet the quality
requirements of Rule 2a-7, which are described below under "All Portfolios." For
more information about Government Securities and investments made by the U.S.
Government Portfolio, see "All Portfolios" and the Appendix.
Some securities issued by U.S. government agencies or instrumentalities are
supported only by the credit of the agency or instrumentality, such as those
issued by the Federal Home Loan Banks, and others have an additional line of
credit with the U.S. Treasury, such as those issued by the Federal National
Mortgage Association, Farm Credit System and Student Loan Marketing Association.
With respect to securities supported only by the credit of the issuing agency or
instrumentality or by an additional line of credit with the U.S. Treasury, there
is no guarantee that the U.S. government will provide support to such agencies
or instrumentalities and such securities may involve risk of loss of principal
and interest.
8
<PAGE>
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Municipal Portfolio. The Municipal Portfolio seeks maximum current income that
is exempt from federal income taxes to the extent consistent with preservation
of capital and liquidity. The Portfolio pursues its objective primarily by
investing in a diversified portfolio of short-term, high quality, tax-exempt
municipal obligations. It is a fundamental policy of the Municipal Portfolio
that normally no less than 80% of its total assets will be invested in
obligations issued or guaranteed by states, territories and possessions of the
United States and the District of Columbia and their political subdivisions,
agencies and instrumentalities ("Municipal Securities"), the income from which
is exempt from federal income tax, but may be subject to federal alternative
minimum tax liability.
Dividends representing net interest income received by the Municipal Portfolio
on Municipal Securities will be exempt from federal income tax when distributed
to the Portfolio's shareholders, except to the extent that they are subject to
alternative minimum tax. Such dividend income may be subject to state and local
taxes. See "Other Information - Taxes Municipal Portfolio." The Portfolio's
assets will consist of Municipal Securities, temporary investments as described
below, and cash.
The Municipal Portfolio will invest only in Municipal Securities which at the
time of purchase: (a) are rated within the two highest ratings by an NRSRO for
Municipal Securities, short-term Municipal Securities or municipal commercial
paper; (b) are guaranteed or insured by the U.S. government as to the payment of
principal and interest; (c) are fully collateralized by an escrow of Government
Securities acceptable to the Investment Manager; or (d) are unrated, if
determined by the Investment Manager to be at least equal in quality to one or
more of the above ratings in accordance with the requirements of Rule 2a-7. In
addition, the Portfolio limits its investments to securities that meet the
applicable quality and diversification requirements of Rule 2a-7, which are
described below under "All Portfolios." For a description of the ratings issued
by Moody's and S&P, see "Annex - Ratings of Investments" in the SAI.
Municipal Securities are generally classified as "general obligation" or
"revenue" issues. General obligation bonds are secured by the issuer's pledge of
its full credit and taxing power for the payment of principal and interest.
Revenue bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. For more information about Municipal Securities, see
the Appendix and the SAI.
The Municipal Portfolio may purchase high quality Certificates of Participation
in trusts that hold Municipal Securities. A Certificate of Participation gives
the Portfolio an undivided pro rata interest in each Municipal Security equal to
the Portfolio's percentage ownership interest in the Certificate of
Participation. For more information about Certificates of Participation, see the
Appendix.
The Municipal Portfolio may purchase Municipal Securities which provide for the
right to resell them to an issuer, bank or dealer at an agreed-upon price or
yield within a specified period prior to the maturity date of such securities
subject to the requirements of Rule 2a-7. Such a right to resell is referred to
as a "Standby Commitment." For more information about Standby Commitments, see
the Appendix.
9
<PAGE>
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In seeking to achieve its investment objective, the Municipal Portfolio may
invest all or any part of its assets in Municipal Securities that are Industrial
Development Bonds. Moreover, although the Portfolio does not currently intend to
do so on a regular basis, it may invest more than 25% of its assets in Municipal
Securities that are repayable out of revenue streams generated from economically
related projects or facilities, if such investment is deemed necessary or
appropriate by the Portfolio's Investment Manager. To the extent that the
Portfolio's assets are concentrated in Municipal Securities payable from
revenues on economically related projects and facilities, the Portfolio will be
subject to the risks presented by such projects to a greater extent than it
would be if the Portfolio's assets were not so concentrated. For a description
of Industrial Development Bonds, see the Appendix.
The Municipal Portfolio may invest in Municipal Lease Obligations and
participation interests therein. The Portfolio may also purchase Tender Option
Bonds. To the extent such securities may be considered "conduit securities," as
defined in Rule 2a-7, such securities will also be subject to the limitations of
Rule 2a-7 applied to conduit securities, as discussed more fully below. For a
description of each of these types of investments, see the Appendix.
The Municipal Portfolio may deviate from its investment policies and may adopt
temporary defensive measures when significant adverse market, economic,
political or other circumstances require immediate action in order to avoid
losses. During such periods, the Portfolio may temporarily invest its assets,
without limitation, in taxable temporary investments which include the types of
money market instruments listed under "Money Market Portfolio" above. Interest
income from temporary investments is taxable to shareholders as ordinary income.
Although the Portfolio is permitted to invest in taxable securities, it is the
Portfolio's primary intention to generate income dividends that are not subject
to federal income taxes. See "Your Account-Dividends" and "Other
Information-Taxes."
All Portfolios. Each Portfolio must comply with the requirements of Rule 2a-7.
Under the applicable quality requirements of Rule 2a-7, the Portfolios may
purchase only U.S. dollar-denominated instruments that are determined to present
minimal credit risks and that are at the time of acquisition "Eligible
Securities" as defined in Rule 2a-7. Generally, "Eligible Securities" under Rule
2a-7 include only securities that are rated in the top two rating categories by
the required number of NRSROs (two or, if only one such NRSRO has rated the
security, that one organization) or if unrated, are deemed to be of comparable
quality. For a description of the ratings for Eligible Securities issued by
Moody's and S&P, see "Annex - Ratings of Investments" in the SAI.
Each Portfolio will maintain a dollar-weighted average maturity of 90 days or
less and will limit its investments to securities that have remaining maturities
of 397 calendar days or less or other features that shorten maturities in a
manner consistent with the requirements of Rule 2a-7, such as interest rate
reset and demand features.
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It is a fundamental policy of all Portfolios that, with respect to 75% of its
assets, a Portfolio may not invest in the securities of any one issuer, other
than Government Securities, if as a result, more than 5% of its total assets
would be invested in securities of that issuer or the Portfolio would hold more
than 10% of the outstanding voting securities of that issuer. Rule 2a-7 imposes
additional diversification requirements on the Portfolios. As a matter of
operating policy, as to 100% of their assets, none of the Money Market
Portfolio, the U.S. Government Portfolio or the Municipal Portfolio will invest
more than 5% of its total assets in the securities of any one issuer, other than
Government Securities and certain demand features permitted by Rule 2a-7,
provided that a Portfolio may invest up to 25% of its total assets in "first
tier securities" of a single issuer for up to three business days. See the SAI.
In addition, the diversification requirements of Rule 2a-7 limit the ability of
the Municipal Portfolio to invest in certain "conduit securities," as defined in
Rule 2a-7 which are "second tier securities." Generally, conduit securities are
securities issued to finance non-governmental private projects, such as
retirement homes, private hospitals, local housing projects, and industrial
development projects, with respect to which the ultimate obligor is not a
government entity. The Municipal Portfolio's investment in "second tier" conduit
securities, which may include certain Industrial Development Bonds, is limited
to 5% of the Portfolio's total assets and, with respect to second tier conduit
securities issued by a single issuer, the greater of $1 million or 1% of the
Portfolio's total assets.
A Portfolio may borrow from banks and engage in reverse repurchase agreements.
However, as a matter of fundamental policy, a Portfolio may not borrow money
except as a temporary measure for defensive or emergency purposes, and then
(together with any reverse repurchase agreements) only in an amount up to 331/3%
of the value of its total assets less liabilities (other than borrowings), in
order to meet redemption requests without immediately selling any portfolio
securities. No Portfolio will borrow from banks for leverage purposes. As a
matter of fundamental policy, a Portfolio will not purchase any security, other
than a security with a maturity of one day, while reverse repurchase agreements
or borrowings representing more than 5% of its total assets are outstanding. In
addition, as a matter of fundamental policy, no Portfolio will lend any security
or make any other loan if, as a result, more than 331/3% of its total assets
would be loaned to other parties, but this limit does not apply to purchases of
debt securities or to repurchase agreements. For more information on reverse
repurchase agreements and loans of portfolio securities, see the Appendix and
the SAI.
A Portfolio will not purchase or hold illiquid securities, including time
deposits and repurchase agreements not entitling the holder to payment of
principal and interest within seven days if, as a result thereof, more than 10%
of such Portfolio's net assets would be invested in such securities. If
otherwise consistent with its investment objective and policies, each Portfolio
may purchase securities that are not registered under the Securities Act of 1933
but which can be sold to qualified institutional buyers in accordance with Rule
144A thereunder. Rule 144A Securities and Section 4(2) paper will not be
considered to be illiquid so long as the Investment Manager, acting under
guidelines adopted by the Board of Directors, determines that an adequate
trading market exists for the security. For more information on illiquid
securities, see the SAI.
Each Portfolio may purchase securities issued by other investment companies,
consistent with the Portfolio's investment objectives and policies. It is
currently anticipated that such investments will be made solely in other no-load
money market funds. For more information, see the Appendix and the SAI.
Each Portfolio may invest in instruments having rates of interest that are
adjusted periodically ("Variable Rate Obligations") or which "float"
continuously ("Floating Rate Obligations") according to formulae intended to
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minimize fluctuation in values of the instruments. For information on Variable
and Floating Rate Obligations see the Appendix and the SAI. Rule 2a-7 sets forth
certain requirements for determining the maturity of Variable and Floating Rate
Obligations, with which each Portfolio will comply.
Each Portfolio may purchase and sell securities on a when-issued or delayed
delivery basis. A when-issued or delayed delivery transaction arises when
securities are bought or sold for future payment and delivery to secure what is
considered to be an advantageous price and yield to the Portfolio at the time it
enters into the transaction. For more information about when-issued or delayed
delivery basis securities, see the Appendix.
Each Portfolio, other than the Municipal Portfolio, may purchase certain
Stripped Government Securities. For a discussion of Stripped Government
Securities, see the Appendix.
Each Portfolio may also invest in Zero Coupon Bonds, a description of which
appears in the Appendix.
Each Portfolio, other than the Municipal Portfolio, may trade in certain
Asset-Backed Securities, which include pools of mortgages, loans, receivables or
other assets. Payment of principal and interest may be largely dependent upon
the cash flows generated by the assets backing the securities. The U.S.
Government Portfolio will not invest in any Asset-Backed Securities which are
not Government Securities. For a discussion of Asset-Backed Securities, see the
Appendix.
Each Portfolio may invest in securities subject to letters of credit or other
credit enhancement features. Such letters of credit or other credit enhancement
features are not subject to federal deposit insurance, and changes in the credit
quality of the issuers of such letters of credit or other credit enhancement
features could cause losses to a Portfolio and affect its share price.
Fundamental Investment Objectives, Policies and Restrictions. The investment
objective of each Portfolio is fundamental. The Fund has also adopted for each
Portfolio certain fundamental investment restrictions and policies which are
identified above and others which are set forth in the SAI. Such fundamental
investment objectives, restrictions and policies cannot be changed without
approval by holders of a "majority of the outstanding voting securities" of such
Portfolio, as defined in the SAI.
Pricing Your Shares
The price of each Portfolio's shares on any given day is its net asset value
("NAV"). The Fund normally calculates the NAV of each Portfolio as of 12:00 noon
and 4:00 p.m. (Eastern time) each day that the New York Stock Exchange ("NYSE")
and the bank which serves as the custodian of each Portfolio's assets (the
"Custodian") are open. The NAV per share for a Portfolio is calculated by
subtracting the Portfolio's liabilities from its total assets and then dividing
the remainder by the total number of its shares outstanding. The Fund's shares
are sold at the NAV next determined after an order and payment are received in
the manner described under "Your Account." Each Portfolio seeks to maintain its
NAV at $1.00 per share.
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Like most money market funds, the Fund values the securities owned by each
Portfolio at amortized cost, which means that they are valued at their
acquisition cost (as adjusted for amortization of premium or discount) rather
than at current market value. This method of valuation minimizes the effect of
changes in a security's market value and helps each Portfolio to maintain a
stable $1.00 share price. The Fund's Board of Directors has adopted procedures
pursuant to which the NAV of each Portfolio, as determined under the amortized
cost method, is monitored in relation to the market value of the Portfolios.
Additional information regarding such procedures is contained in the SAI.
Performance
From time to time, the Fund may advertise several types of performance
information for a Portfolio. These are "yield," "effective yield" and, for the
Municipal Portfolio only, "tax equivalent yield" and "tax equivalent effective
yield." Each of these figures will be based upon historical earnings and is not
representative of the future performance of a Portfolio. The yield of a
Portfolio refers to the net investment income generated by a hypothetical
investment in the Portfolio over a specific seven-day period (which period will
be stated in any such advertisement). This net investment income is then
annualized, which means that the net investment income generated during the
seven-day period is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The effective yield is calculated
similarly, but the net investment income earned by the investment is assumed to
be reinvested weekly when annualized. The effective yield will be slightly
higher than the yield due to the compounding effect of this assumed
reinvestment. Tax equivalent yield is the yield that a taxable investment must
generate in order to equal the Municipal Portfolio's yield for an investor in a
stated federal income tax bracket (normally assumed to be the maximum tax rate).
Tax equivalent yield is based upon, and will be higher than, the yield on the
portion of the Municipal Portfolio that is tax-exempt. Tax equivalent effective
yield is computed in the same manner as tax equivalent yield, except that
effective yield is substituted for yield in the calculation.
The performance of the Portfolios may be compared to that of other money market
mutual funds tracked by Lipper Analytical Services, Inc., a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives and assets. A Portfolio's performance also may be compared
to other money market funds rated by IBC/Donoghue's Money Fund Report(R), a
reporting service on money market funds. Investors may want to compare a
Portfolio's performance to that of various bank products as reported by BANK
RATE MONITOR(TM), a financial reporting service that publishes each week average
rates of bank and thrift institution money market deposit accounts and interest
bearing checking accounts. Certain of these alternative investments may offer
fixed rates of return and guaranteed principal and may be insured. The
performance of a Portfolio also may be compared to that of United States
Treasury Bills and Notes, the consumer price index, the S&P 500 Index(TM), and
various other investment indices.
Each Portfolio's yield will fluctuate. Shares of the Portfolio are not insured
against reduction in NAV. Additional information concerning the calculation of a
Portfolio's performance appears in the SAI.
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OPERATING EXPENSES AND FEES
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Management and Related Expenses
Responsibility for overall management of the Fund rests with its Board of
Directors in accordance with Maryland law. Professional investment supervision
is provided by the Investment Manager, Waterhouse Asset Management, Inc., 50
Main Street, White Plains, NY 10606. The Investment Management Agreement
provides that the Investment Manager will act as the investment manager for each
Portfolio and will manage its investments. Subject to the general supervision of
the Fund's Board of Directors and in accordance with each Portfolio's investment
policies, the Investment Manager formulates guidelines and lists of approved
investments for each Portfolio, makes decisions with respect to and places
orders for that Portfolio's purchases and sales of portfolio securities and
maintains records relating to such purchases and sales. For the investment
management services furnished to each Portfolio, such Portfolio pays the
Investment Manager an annual investment management fee, accrued daily and
payable monthly, on a graduated basis equal to .35 of 1% of the first $1 billion
of average daily net assets of each Portfolio, .34 of 1% of the next $1 billion,
and .33 of 1% of average daily net assets of each Portfolio over $2 billion. The
Investment Manager has agreed to waive a portion of its fee payable by the
Municipal Portfolio through October 15, 1998, so that the actual fee payable
annually by such Portfolio during such period will be equal to .25 of 1% of its
average daily net assets.
In order to increase the yield to investors, the Investment Manager and its
affiliates may voluntarily, from time to time, waive or reduce its (or their)
fees on assets held by each of the Portfolios, which would have the effect of
lowering that Portfolio's overall expense ratio and increasing yield to
investors during the time such fees are waived or reduced, as the case may be.
Fee waivers or reductions, other than those set forth in the Investment
Management Agreement or otherwise described in this Prospectus, may be rescinded
at any time without further notice to investors.
The Investment Manager is a wholly owned subsidiary of Waterhouse National Bank
(the "Bank"), which is a wholly owned subsidiary of Waterhouse Investor
Services, Inc. ("Waterhouse"), which is in turn a wholly owned subsidiary of The
Toronto-Dominion Bank ("TD Bank"). The Bank offers various banking products and
services primarily to the customers of Waterhouse Securities, the principal
subsidiary of Waterhouse. In addition to the Fund, the Investment Manager also
currently serves as investment manager to the Bank and as of January 31, 1997
had total assets under management in excess of $3.0 billion. TD Bank, a Canadian
chartered bank subject to the provisions of the Bank Act of Canada, acquired
Waterhouse in a merger that became effective on October 15, 1996.
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Shareholder Servicing
The Fund's Shareholder Servicing Plan ("Servicing Plan") permits each Portfolio
to pay banks, broker-dealers or other financial institutions that have entered
into a shareholder services agreement with the Fund ("Servicing Agents") for
shareholder support services that they provide. Payments under the Servicing
Plan are calculated daily and paid monthly at a rate set from time to time by
the Board of Directors, provided that the annual rate may not exceed .25 of 1%
of the average daily net assets of each Portfolio. The Fund's Board has
determined to limit the annual fee payable through October 15, 1998 under the
Servicing Plan so as not to exceed .20 of 1% of average daily net assets in the
case of the Money Market Portfolio, .17 of 1% of average daily net assets in the
case of the U.S. Government Portfolio and .11 of 1% of average daily net assets
in the case of the Municipal Portfolio. The shareholder services provided by the
Servicing Agents pursuant to the Servicing Plan may include, among other
services, providing general shareholder liaison services (including responding
to shareholder inquiries), providing information on shareholder investments,
establishing and maintaining shareholder accounts and records, and providing
such other similar services as may be reasonably requested.
Pursuant to a Shareholder Services Agreement between the Fund and Waterhouse
Securities, Waterhouse Securities has agreed to become a Servicing Agent with
respect to each Portfolio and to be compensated in accordance with the fees set
forth above. The Fund may enter into similar agreements with other service
organizations, including broker-dealers and banks whose clients are shareholders
of the Fund, to act as Servicing Agents and to perform support services with
respect to such clients.
The Fund may suspend or reduce payments under the Servicing Plan at any time,
and payments are subject to the continuation of the Servicing Plan described
above and the terms of the various shareholder services agreements. See the SAI
for more details on the Servicing Plan and the Shareholder Services Agreement
between the Fund and Waterhouse Securities.
Administration
The Fund and the Investment Manager have entered into an Administration
Agreement pursuant to which the Investment Manager, as Administrator, provides
administrative services to each of the Portfolios. Administrative services
furnished by the Investment Manager include, among others, maintaining and
preserving the records of the Fund, including financial and corporate records,
computing NAV, dividends, performance data and financial information regarding
the Fund, preparing reports, overseeing the preparation and filing with the SEC
and state securities regulators of registration statements, notices, reports and
other material required to be filed under applicable laws, developing and
implementing procedures for monitoring compliance with regulatory requirements,
providing routine accounting services, providing office facilities and clerical
support as well as providing general oversight of other service providers. For
its services as administrator, the Investment Manager receives from each
Portfolio an annual fee, payable monthly, of .10 of 1% of average daily net
assets of such Portfolio. The fee is accrued daily as an expense of each
Portfolio.
The Investment Manager has entered into a Subadministration Agreement with Funds
Distributor, Inc., ("FDI"), 60 State Street, Suite 1300, Boston, Massachusetts
02109, pursuant to which FDI performs certain of the foregoing administrative
services for the Fund. Under this Agreement, the Investment Manager pays FDI's
fees for providing such services. In addition, the Investment Manager may enter
into subadministration agreements with other persons to perform such services
from time to time.
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Distribution
The distributor of the Fund is FDI, which has the exclusive right to distribute
shares of the Fund pursuant to a Distribution Agreement between the Fund and
FDI. FDI may enter into dealer or selling agency agreements with affiliates of
the Investment Manager and other firms for the sale of Fund shares. FDI has
entered into such a selling agency agreement with Waterhouse Securities. FDI
receives no fee from the Fund under the Distribution Agreement for acting as
distributor to the Fund.
Transfer Agent and Custodian
The Bank (also referred to as the "Transfer Agent") serves as transfer agent and
dividend disbursing agent for each Portfolio. For the services provided under
the Transfer Agency and Dividend Disbursing Agency Agreement, which include
furnishing periodic and year-end shareholder statements and confirmations of
purchases and sales, reporting share ownership, aggregating, processing and
recording purchases and redemptions of shares, processing dividend and
distribution payments, forwarding shareholder communications such as proxies,
shareholder reports, dividend notices and prospectuses to beneficial owners,
receiving, tabulating and transmitting proxies executed by beneficial owners and
sending year-end tax reporting to shareholders and the Internal Revenue Service,
the Transfer Agent receives an annual fee, payable monthly, of .20 of 1% of the
Portfolio's average daily net assets.
The Transfer Agent has entered into a Sub-Transfer Agency and Dividend
Disbursing Agency Agreement with National Investor Services Corp. ("NISC"), an
affiliate of the Investment Manager, pursuant to which it performs certain of
the foregoing transfer agency and dividend disbursing agency services. Under
this agreement, the Transfer Agent will compensate the Sub-Transfer and Dividend
Disbursing Agent for providing such services. In addition, the Transfer Agent
may enter into sub-transfer agency and dividend disbursing agency agreements
with other persons to perform such services from time to time.
The Bank of New York serves as the custodian of the assets of each of the
Portfolios.
Other Expenses
The Fund also pays other expenses that are not assumed by third parties, such as
expenses relating to preparing, printing and mailing prospectuses, proxy
materials and other information to existing shareholders, blue sky servicing
fees, pricing services, legal, audit and custodian fees.
The Fund's expenses generally are allocated among the Portfolios on the basis of
relative net assets at the time of allocation, except that expenses directly
attributable to a particular Portfolio are charged to that Portfolio.
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YOUR ACCOUNT
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You may invest in the Fund through your Waterhouse Securities brokerage account.
Opening a Waterhouse Securities Brokerage Account
You may open a Waterhouse Securities brokerage account by calling or visiting
the Waterhouse Securities office nearest you and requesting a New Account
Application. There is no fee to open a Waterhouse Securities brokerage account.
Setting up your account for Automatic Sweep. By setting up your Waterhouse
Securities brokerage account for automatic sweep, free credit balances in your
brokerage account will be invested or "swept" automatically each business day
into the Portfolio you have selected ("Sweep Portfolio"). This feature keeps
your money working for you while it is not invested in other securities. "Free
credit balances" refers to any settled or cleared funds in your Waterhouse
Securities brokerage account that are available for payment or investment.
To set up your Waterhouse Securities brokerage account for automatic sweep, you
should select one of the money market sweep portfolios in the appropriate
section of the Waterhouse Securities New Account Application. If you already
have a Waterhouse Securities brokerage account but it is not set up to
automatically sweep free credit balances, simply call the Waterhouse Securities
office handling your account. In most cases, an Account Officer will set up your
account for automatic sweep while you are on the phone.
While you may purchase shares of any of the three Portfolios at any time, only
one Portfolio may be designated as your Sweep Portfolio. The sweep feature is
subject to the terms and conditions of your Waterhouse Securities brokerage
account agreement.
Setting up your Waterhouse Investors Money Management Account. For those
Waterhouse Securities customers that qualify, a Waterhouse Investors Money
Management Account provides additional services over that of a brokerage
account. In addition to having free credit balances in your brokerage account
swept automatically each business day into your Sweep Portfolio, you can access
your investment in the Portfolio by writing checks or using an ATM/VISA Check
Card. You should contact your Waterhouse Securities Account Officer for more
details.
To set up your Waterhouse Investors Money Management Account, you should
complete the appropriate section of the Waterhouse Securities New Account
Application.
SIPC Coverage. Within your Waterhouse Securities brokerage account, you have
access to other investments available at Waterhouse Securities such as stocks,
bonds, and other mutual funds. The securities in your Waterhouse Securities
brokerage account, including shares of the portfolios, are protected up to $25
million. $500,000 is provided by Securities Investor Protection Corporation
(known as "SIPC") of which $100,000 covers cash. The remaining $24.5 million is
provided by National Union Fire Insurance Company ("NUFIC"), a subsidiary of
American International Group, one of the world's largest insurance companies.
However, SIPC and NUFIC account protection does not protect you from any loss of
principal due to market or economic conditions.
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How To Buy Shares
You may purchase shares of a Portfolio either through the automatic sweep
feature or by way of a direct purchase as set forth below.
Automatic Sweep Purchases. Free credit balances in your Waterhouse Securities
brokerage account will be automatically invested each business day in the Sweep
Portfolio you have selected. Checks deposited to your Waterhouse Securities
brokerage account will be automatically invested in the Sweep Portfolio after
allowing three business days for clearance. Net proceeds from securities
transactions in your brokerage account will be automatically invested on the
business day following settlement. Dividends and interest payments from
investments in your brokerage account will be automatically invested in the
Sweep Portfolio on the day they are credited to your account.
Direct Purchases. A Waterhouse Securities brokerage customer may purchase shares
of any of the Portfolios by placing an order directly with a Waterhouse
Securities Account Officer. You may buy shares by mailing or bringing your check
to any Waterhouse Securities office. Checks should be made payable to
"Waterhouse Securities, Inc." and you should write your Waterhouse Securities
account number on the check. The check will be deposited to your Waterhouse
Securities brokerage account. Waterhouse Securities allows three business days
for clearance and shares of a Portfolio will be purchased on the third business
day.
Price. Shares are purchased at the NAV next determined after an order is
received by the Fund. There is no sales charge to buy shares in the Fund.
Each Portfolio reserves the right to suspend the offering of shares for a period
of time and to reject any specific purchase order, including certain purchases
by exchange.
How To Sell Shares
To sell shares of a Portfolio, simply call a Waterhouse Securities Account
Officer. A redemption of your shares will be made at the NAV next determined
after your redemption request is received in proper form by the Fund. The
proceeds of the sale of your Fund shares ordinarily will be credited to your
brokerage account the same business day, but not later than seven calendar days
after an order to sell shares is received. If Waterhouse Securities issues you a
redemption check, it may be mailed to you, or you may pick it up in person at a
Waterhouse Securities office.
Automatic Sweep Redemptions. Shares of your Sweep Portfolio may automatically be
sold to satisfy a debit balance in your Waterhouse Securities brokerage account.
To the extent that there are not a sufficient number of shares of your Sweep
Portfolio to satisfy any such debit, shares that you own of any other Portfolio
of the Fund may be sold. In addition, shares will be sold to settle securities
transactions in your Waterhouse Securities brokerage account if on the day
before settlement there is insufficient cash in the account to settle the net
transactions. Your brokerage account, as of the close of business each business
day, will be scanned for debits and pending securities settlements, and after
application of any free credit balance in the account to the debits, a
sufficient number of shares will be sold the following business day to satisfy
any remaining debits. Shares may also be sold automatically to provide the cash
collateral necessary to meet your margin obligations to Waterhouse Securities.
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If you have a Waterhouse Investors Money Management Account and you withdraw
cash from your Waterhouse Securities brokerage account by way of a check or
ATM/VISA Check Card, shares of your Sweep Portfolio will automatically be sold
to satisfy any resulting debit balance. Each month, the first five ATM cash
withdrawals, including withdrawals that result in the redemption of Fund shares,
are free; thereafter, Waterhouse Securities charges its customers a $1.00
service fee for each ATM/VISA Check Card cash withdrawal. Holders of the
ATM/VISA Check Card will not be liable for unauthorized withdrawals resulting in
redemptions of Fund shares that occur after Waterhouse Securities is notified of
the loss, theft or unauthorized use of the Card. Further information regarding
the rights of holders of the ATM/VISA Check Card is set forth in the Waterhouse
Investors Money Management Agreement provided to each customer who opens a
Waterhouse Investors Money Management Account.
Your Retirement Account. To sell shares and receive payment in a Retirement
Account, you should complete a Waterhouse Securities Distribution Form. These
forms can be obtained by calling or visiting a Waterhouse Securities office.
Price. Shares are redeemed at the NAV next determined after a redemption
request is received by the Fund. There are no withdrawal penalties or
redemption fees.
Clearance. If you are selling shares you bought within the last 10 calendar
days, payment will be credited to your brokerage account upon clearance of the
funds used to purchase shares, which may take up to 10 calendar days.
How To Exchange Portfolios
You may change your designated Sweep Portfolio to any other Portfolio at any
time without charge. You may also exchange shares of one Portfolio for another
Portfolio. To effect an exchange, call your Waterhouse Securities Account
Officer with instructions to move your money from one Portfolio to another, or
you may mail written instructions to your local Waterhouse Securities office.
Your letter should reference your Waterhouse Securities brokerage account
number, the Portfolio from which you are exchanging and the Portfolio into which
you are exchanging. This letter should be signed by at least one registered
account holder.
An exchange involves the redemption of Portfolio shares and the purchase of
shares of another Portfolio at their respective NAVs after receipt of an
exchange request in proper form. Each Portfolio reserves the right to reject
specific exchange orders and, on 60 days' prior written notice, to suspend,
modify or terminate exchange privileges.
Dividends
On each day that the NAV of a Portfolio is determined, such Portfolio's net
investment income will be declared at 4:00 p.m. (Eastern time) as a daily
dividend to shareholders of record as of such day's last calculation of NAV. All
expenses are accrued daily and are deducted before declaration of dividends to
investors. Shareholders who buy shares of a Portfolio by 4:00 p.m. (Eastern
time) will begin to earn dividends that business day. Shareholders who buy
shares of a Portfolio after 4:00 p.m. (Eastern time) will begin earning
dividends the following business day. Shareholders will not earn dividends on
the date of redemption for shares redeemed prior to 4:00 p.m. (Eastern time),
but will earn dividends on such day for shares redeemed after 4:00 p.m. (Eastern
time). Each Portfolio's earnings for Saturdays, Sundays and holidays are
declared as dividends on the previous business day.
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Dividends and distributions from a Portfolio will be reinvested in additional
full and fractional shares of the same Portfolio at the NAV next determined
after their payable date. Dividends are declared daily and are reinvested
monthly. A shareholder may elect to receive any monthly dividend in cash by
submitting a written election to Waterhouse Securities by the tenth day of the
specific month to which the election to receive cash relates.
Telephone Transactions
As a customer of Waterhouse Securities, you will automatically have the
privilege of purchasing, redeeming or exchanging your Portfolio shares by
telephone. Waterhouse Securities will employ reasonable procedures to verify the
genuineness of telephone redemption or exchange requests. These procedures
involve requiring certain personal identification information. If such
procedures are not followed, Waterhouse Securities may be liable for any losses
due to unauthorized or fraudulent instructions. Neither Waterhouse Securities
nor the Fund will be liable for following instructions communicated by telephone
that are reasonably believed to be genuine. You should verify the accuracy of
your account statements immediately after you receive them and contact a
Waterhouse Securities Account Officer if you question any activity in the
account.
The Fund reserves the right to refuse to honor requests made by telephone if the
Fund believes them not to be genuine. The Fund also may limit the amount
involved or the number of such requests. During periods of drastic economic or
market change, telephone redemption and exchange privileges may be difficult to
implement. The Fund reserves the right to terminate or modify this privilege at
any time.
Small Accounts
There is currently no minimum requirement for initial and subsequent purchases
of Fund shares. However, because currently only customers of Waterhouse
Securities are eligible to purchase shares of the Fund, Fund shares are subject
to automatic redemption should the Waterhouse Securities brokerage account in
which they are held be closed or if Waterhouse Securities imposes certain
requirements with respect to its brokerage accounts and eligibility for sweep
arrangements, including requirements relating to minimum account balances. Any
minimum balance requirement will not apply to Waterhouse Securities IRA
accounts.
Shareholder Inquiries
Shareholder inquiries may be made by writing to the Fund or Waterhouse
Securities at 100 Wall Street, New York, New York 10005, or by calling your
Waterhouse Securities Account Officer.
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OTHER INFORMATION
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General Information About the Fund
The Fund was organized under Maryland law on August 16, 1995 and is registered
under the Investment Company Act as an open-end diversified management
investment company. The Fund is authorized to issue 100 billion shares. Because
the Fund offers multiple Portfolios, it is known as a "series company." Shares
are fully paid and nonassessable when issued, are transferable without
restriction, and have no preemptive or conversion rights (other than the
exchange privileges described in this Prospectus and the SAI). The Board of
Directors may increase the number of authorized shares or create additional
series or classes of Fund or Portfolio shares without shareholder approval.
Unless otherwise required by the Investment Company Act, ordinarily it will not
be necessary for the Fund to hold annual meetings of shareholders. As a result,
Fund shareholders may not consider each year the election of directors or the
appointment of auditors. However, pursuant to the Fund's By-Laws, the holders of
at least 10% of the shares outstanding and entitled to vote may require the Fund
to hold a special meeting of shareholders for any purpose, including the removal
of directors from office. Fund shareholders may remove a director by the
affirmative vote of a majority of the outstanding shares of stock entitled to be
cast for the election of directors. In addition, the Board of Directors will
call meetings of shareholders for the purpose of electing directors if, at any
time, less than a majority of the directors then holding office has been elected
by shareholders. In addition, the Fund will hold special meetings as required by
or deemed desirable by the Board of Directors for other purposes, such as
changing fundamental investment policies or approving an investment advisory
agreement. Shareholders will vote by Portfolio and not in the aggregate except
when voting in the aggregate is required under the Investment Company Act, such
as for the election of directors, or as required by Maryland law.
Statements and Reports to Shareholders
The Fund will not issue share certificates but will record your holdings in
noncertificated form. Your Fund activity will be reflected in your Waterhouse
Securities brokerage account statement. The Fund will also provide you with
annual audited and semi-annual unaudited financial statements. To reduce
expenses, only one copy of most financial reports will be mailed to your
household, even if you have more than one account in the Fund. If you would like
to receive copies of financial reports or historical account information, you
may call your Waterhouse Securities Account Officer.
The Fund may charge a fee for special services, such as providing historical
account documents that are beyond the normal scope of its services.
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Taxes
Money Market and U.S. Government Portfolios. Each of the Money Market Portfolio
and the U.S. Government Portfolio intends to qualify under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") as a
regulated investment company and, as such, will not be subject to federal income
taxes to the extent its earnings are distributed in accordance with applicable
provisions of the Internal Revenue Code.
Dividends derived from interest and short-term capital gains are taxable to a
shareholder as ordinary income even though they are reinvested in additional
Portfolio shares. Dividends paid to foreign investors generally will be subject
to a 30% (or lower treaty rate) withholding tax. Dividends from these Portfolios
do not qualify for the dividends received deduction allowable to certain U.S.
corporate shareholders. All or some of the dividends received from the U.S.
Government Portfolio may be exempt from individual state and/or local income
taxes. You should consult with your tax adviser in this regard.
Municipal Portfolio. The Municipal Portfolio intends to qualify under Subchapter
M of the Internal Revenue Code as a regulated investment company and, as such,
will not be liable for federal income taxes to the extent its earnings are
distributed in accordance with applicable provisions of the Internal Revenue
Code. The Portfolio intends to declare and distribute tax-exempt interest
dividends. Shareholders of the Municipal Portfolio will not be required to
include the "exempt-interest" portion of dividends paid by the Portfolio in
their gross income for federal income tax purposes. However, shareholders will
be required to report the receipt of exempt-interest dividends and other
tax-exempt interest on their federal income tax returns. Moreover, as described
below and in the SAI, exempt-interest dividends may be subject to state income
taxes, may give rise to a federal alternative minimum tax liability, may affect
the amount of social security benefits subject to federal income tax, may affect
the deductibility of interest on certain indebtedness of the shareholder and may
have other collateral federal income tax consequences. The Municipal Portfolio
may purchase without limitation Municipal Securities, the interest on which
constitutes an item of tax preference and which may therefore give rise to a
federal alternative minimum tax liability for individual shareholders.
Dividends representing taxable net investment income (such as net interest
income from temporary investments in obligations of the U.S. government) and net
short-term capital gains, if any, are taxable to shareholders as ordinary
income. Market discount recognized on taxable and tax-exempt securities is also
taxable as ordinary income and is not treated as excludable income. Dividends
representing taxable net investment income which are paid to foreign investors
generally will be subject to a 30% (or lower treaty rate) withholding tax.
To the extent that exempt-interest dividends are derived from certain "private
activity bonds" (some of which were formerly referred to as "industrial
development bonds") issued on or after August 7, 1986, they will be treated as
an item of tax preference and may, therefore, be subject to both the individual
and corporate alternative minimum tax. All exempt-interest dividends will be
included in determining a corporate shareholder's "adjusted current earnings."
Seventy-five percent of the excess, if any, of "adjusted current earnings" over
the corporate shareholder's alternative minimum taxable income, with certain
adjustments, will be an upward adjustment for purposes of the corporate
alternative minimum tax. The percentage of dividends which constitutes
exempt-interest dividends, and the percentage thereof (if any) which constitutes
an item of tax preference, will be determined annually and will be applied
uniformly to all dividends of the Municipal Portfolio declared during that year.
These percentages
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may differ from the actual percentages for any particular day. Shareholders are
advised to consult their tax advisers with respect to alternative minimum tax
consequences of an investment in the Municipal Portfolio. For additional
information concerning the alternative minimum tax and certain collateral tax
consequences of the receipt of exempt-interest dividends, see the SAI.
Individuals whose modified income exceeds a base amount will be subject to
federal income tax on up to one-half (85% if modified income exceeds a modified
base amount) of their Social Security benefits. Modified income includes
tax-exempt interest, including exempt-interest dividends from the Municipal
Portfolio.
The tax exemption of dividends from the Municipal Portfolio for federal income
tax purposes does not necessarily result in exemption under the income or other
tax laws of any state or local taxing authority. The laws of the several states
and local taxing authorities vary with respect to the taxation of such income
and you are advised to consult your own tax adviser as to the status of your
dividends under state and local tax laws.
All Portfolios. Dividends declared in December to shareholders of record and
paid during the following January are treated as paid on December 31 for federal
income and excise tax purposes. The Fund may adjust its schedule for dividend
reinvestment for the month of December to assist in complying with reporting and
minimum distribution requirements contained in the Internal Revenue Code.
Each Portfolio will be subject to a non-deductible 4% excise tax if it does not
distribute sufficient amounts of taxable investment income and capital gains
annually. Each Portfolio intends to distribute sufficient income to avoid the
application of this excise tax. It is not anticipated that the Portfolios will
realize long-term capital gains and therefore the Fund does not contemplate
making distributions taxable to shareholders as long-term capital gain.
Each Portfolio is required by law to withhold 31% ("back-up withholding") of
certain dividends, distributions of capital gains and redemption proceeds paid
to certain shareholders who do not furnish a correct taxpayer identification
number (in the case of individuals, a social security number and in the case of
entities, an employer identification number) and in certain other circumstances.
Any tax withheld as a result of backup withholding does not constitute an
additional tax imposed on the shareholder of the account, and may be claimed as
a credit on such shareholder's federal income tax return. You should consult
your own tax adviser regarding the withholding requirement.
Required tax information will be provided annually. You are encouraged to retain
copies of your account statements or year-end statements for tax reporting
purposes. However, if you have incomplete records, you may obtain historical
account transaction information at a reasonable fee.
You should consult your tax adviser regarding specific questions as to federal,
state and local taxes.
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APPENDIX
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The following describes in greater detail the types of investments discussed
elsewhere in the Prospectus:
Asset-Backed Securities. Each Portfolio, other than the Municipal Portfolio, may
invest in securities backed by pools of mortgages, loans, receivables or other
assets. Payment of principal and interest may be largely dependent upon the cash
flows generated by the assets backing the securities, and, in certain cases,
supported by letters of credit, surety bonds, or other credit enhancements. The
value of asset-backed securities may also be affected by the creditworthiness of
the servicing agent for the pool, the originator of the loans or receivables, or
the financial institution(s) providing the credit support. The U.S. Government
Portfolio will invest in asset-backed securities only to the extent that such
securities are considered "Government Securities."
Certificates of Participation. The Municipal Portfolio may invest in
Certificates of Participation. Certificates of Participation may be variable
rate or fixed rate with remaining maturities of one year or less. A Certificate
of Participation may be backed by an irrevocable letter of credit or guarantee
of a financial institution that satisfies rating agencies as to the credit
quality of the Municipal Security supporting the payment of principal and
interest on the Certificate of Participation. Payments of principal and interest
would be dependent upon the underlying Municipal Security and may be guaranteed
under a letter of credit to the extent of such credit. The quality rating by a
rating service of an issuer of Certificates of Participation is based primarily
upon the rating of the Municipal Security held by the trust and the credit
rating of the issuer of any letter of credit and of any other guarantor
providing credit support to the issue. The Investment Manager considers these
factors as well as others, such as any quality ratings issued by the rating
services identified above, in reviewing the credit risk presented by a
Certificate of Participation and in determining whether the Certificate of
Participation is appropriate for investment by the Portfolio. It is anticipated
by the Investment Manager that for most publicly offered Certificates of
Participation, there will be a liquid secondary market or there may be demand
features enabling the Portfolio to readily sell its Certificates of
Participation prior to maturity to the issuer or third party. As to those
instruments with demand features, the Portfolio intends to exercise its right to
demand payment from the issuer of the demand feature only upon a default under
the terms of the Municipal Security, as needed to provide liquidity to meet
redemptions, or to maintain a high quality investment portfolio.
Government Securities. Each Portfolio may invest in Government Securities.
Government Securities consist of marketable securities and instruments issued or
guaranteed by the U.S. government or by its agencies or instrumentalities, and
repurchase agreements with respect to such obligations. Direct obligations are
issued by the U.S. Treasury and include bills, certificates of indebtedness,
notes and bonds. Obligations of U.S. government agencies and instrumentalities
("Agencies") are issued by government-sponsored agencies and enterprises acting
under authority of Congress. Although obligations of federal agencies and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. government,
including, but not limited to, obligations of the Federal Housing
Administration, the Export-Import Bank of the United States, the Small Business
Administration, the Government National Mortgage Association, the General
Services Administration and the Maritime Administration. In other cases, payment
of interest and principal is not guaranteed, e.g., obligations of the Student
Loan Marketing Association, Federal National Mortgage Association, Federal Home
Loan Mortgage Corporation, Tennessee Valley Authority, Federal Home Loan Bank,
and the Federal Farm Credit Bank.
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Investments in Other Investment Companies. A Portfolio may invest in securities
issued by other investment companies to the extent that such investments are
consistent with the Portfolio's investment objectives and policies and are
permissible under the Investment Company Act. Under the Investment Company Act,
the Portfolios may not acquire collectively more than 3% of the outstanding
securities of any one investment company. In addition, each Portfolio will limit
its investments in other investment companies in accordance with the
diversification and quality requirements of such Portfolio. As a shareholder of
another investment company, a Portfolio would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Portfolio bears directly in connection with its own
operations. It is currently anticipated that such investments will be made
solely in other no-load money market funds.
Loans of Portfolio Securities. Each Portfolio may lend portfolio securities in
amounts up to 331/3% of its respective total assets to brokers, dealers and
other financial institutions, provided such loans are callable at any time by
the Portfolio and are at all times secured by cash or by equivalent collateral.
By lending its portfolio securities, a Portfolio will receive income while
retaining the securities' potential for capital appreciation. As with any
extensions of credit, there are risks of delay in recovery and, in some cases,
even loss of rights in the collateral should the borrower of the securities fail
financially. However, such loans of securities will only be made to firms deemed
to be creditworthy by the Investment Manager.
Municipal Lease Obligations. The Municipal Portfolio may invest a portion of its
assets in municipal leases and participation interests therein. These
obligations, which may take the form of a lease, an installment purchase, or a
conditional sale contract, are issued by state and local governments and
authorities to acquire land and a wide variety of equipment and facilities.
Generally, the Portfolio will not hold such obligations directly as a lessor of
the property, but will purchase a participation interest in a municipal
obligation from a bank or other third party. A participation interest gives the
Portfolio a specified, undivided interest in the obligation in proportion to its
purchased interest in the total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set forth
requirements that states or municipalities must meet to incur debt. These may
include voter referenda, interest rate limits, or public sale requirements.
Leases, installment purchases, or conditional sale contracts (which normally
provide for title to the leased asset to pass to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting their constitutional and statutory requirements for the issuance
of debt. Many leases and contracts include "non-appropriation clauses" providing
that the governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purposes by the
appropriate legislative body on a yearly or other periodic basis.
Non-appropriation clauses free the issuer from debt issuance limitations. The
Portfolio's ability to recover under such a lease in the event of
non-appropriation or default will be limited solely to the repossession of the
leased property in the event foreclosure proves difficult. In addition to the
"non-appropriation" risk, these securities represent a relatively new type of
financing that has not yet developed the depth of marketability associated with
more conventional bonds.
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Municipal Securities. The Municipal Portfolio will invest in municipal
securities. Municipal securities are issued to raise money for a variety of
public purposes, including general financing for state and local governments, or
financing for specific projects or public facilities. Municipal securities may
be issued in anticipation of future revenues and may be backed by the full
taxing power of a municipality, the revenues from a specific project, or the
credit of a private organization. A security credit may be enhanced by a bank,
insurance company, or other financial institution. The securities may carry
fixed, variable, or floating interest rates. A Portfolio may own a Municipal
security directly or through a participation interest. Industrial Development
Bonds are a type of municipal security that may be held by the Municipal
Portfolio. These are in most cases revenue bonds and are not payable from the
unrestricted revenues of the issuer. Among other types of instruments, the
Portfolio may purchase tax-exempt commercial paper and short-term municipal
notes such as tax anticipation notes, bond anticipation notes, revenue
anticipation notes, construction loan notes and other forms of short-term loans.
Such notes are issued with a short-term maturity in anticipation of the receipt
of tax payments, the proceeds of bond placements, or other revenues.
Put Features. Put features entitle the holder to sell a security (including a
repurchase agreement) back to the issuer or a third party at any time or at
specific intervals. They are subject to the risk that the put provider is unable
to honor the put feature (purchase the security). Put providers often support
their ability to buy securities on demand by obtaining letters of credit or
other guarantees from domestic or foreign banks. The Investment Manager may rely
on its evaluation of a bank's credit in determining whether to purchase a
security supported by a letter of credit. In evaluating a foreign bank's credit,
the Investment Manager will consider whether adequate public information about
the bank is available and whether the bank may be subject to unfavorable
political or economic developments, currency controls, or other government
restrictions that might affect the bank's ability to honor its credit
commitment. Demand features, standby commitments, and tender options are types
of put features.
Repurchase Agreements. Each Portfolio may enter into repurchase agreements,
which are instruments under which a Portfolio acquires ownership of a security
from a broker-dealer or bank that agrees to repurchase the security at a
mutually agreed upon time and price (which price is higher than the purchase
price), thereby determining the yield during the Portfolio's holding period.
Repurchase agreements are, in effect, loans collateralized by the underlying
securities. Maturity of the securities subject to repurchase may exceed one
year. In the event of a bankruptcy or other default of a seller of a repurchase
agreement, a Portfolio might have expenses in enforcing its rights, and could
experience losses, including a decline in the value of the underlying security
and loss of income.
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Reverse Repurchase Agreements. Each Portfolio may enter into reverse repurchase
agreements, which are instruments under which a Portfolio sells a portfolio
instrument to another party, such as a bank or broker-dealer, in return for cash
and agrees to repurchase the instrument at a particular price and time. While a
reverse repurchase agreement is outstanding, a Portfolio will maintain
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. Each Portfolio will enter into reverse
repurchase agreements only with parties whose creditworthiness has been found
satisfactory by the Investment Manager. Such transactions may increase
fluctuations in the market value of a Portfolio's assets and may be viewed as a
form of leverage.
Rule 144A Securities. If otherwise consistent with its investment objectives and
policies, each Portfolio, other than the Government Portfolio, may invest in
Rule 144A Securities. Rule 144A Securities are securities which are not
registered under the Securities Act of 1933 but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the Securities Act of
1933. Any such security will not be considered illiquid so long as it is
determined by the Fund's Board of Directors or the Investment Manager, acting
under guidelines approved and monitored by the Fund's Board, that an adequate
trading market exists for that security. This investment practice could have the
effect of increasing the level of illiquidity in a Portfolio during any period
that qualified institutional buyers become uninterested in purchasing these
restricted securities.
Section 4(2) Paper. The Money Market Portfolio may invest in Section 4(2) paper.
Section 4(2) paper is restricted as to disposition under the federal securities
laws, and generally is sold to institutional investors such as the Money Market
Portfolio who agree that they are purchasing the paper for investment and not
with a view to public distribution. Any resale by the purchaser must be in an
exempt transaction. Section 4(2) paper normally is resold to other institutional
investors like the Portfolio through or with the assistance of the issuer or
investment dealers who make a market in the Section 4(2) paper, thus providing
liquidity. The Portfolio's Investment Manager considers the legally restricted
but readily saleable Section 4(2) paper to be liquid. However, pursuant to
procedures adopted by the Fund's Board of Directors, if an investment in Section
4(2) paper is not determined by the Investment Manager to be liquid, that
investment will be included within the 10% limitation on illiquid securities
discussed under "All Portfolios" in this Prospectus. The Fund's Investment
Manager will monitor the liquidity of the Portfolio's investments in Section
4(2) paper on a continuous basis.
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Standby Commitments. The Municipal Portfolio may acquire Standby Commitments.
Standby Commitments are put options that entitle holders to same day settlement
at an exercise price equal to the amortized cost of the underlying security plus
accrued interest, if any, at the time of exercise. The Municipal Portfolio may
acquire Standby Commitments to enhance the liquidity of portfolio securities,
but only when the issuers of the commitments present minimal risk of default.
Ordinarily, the Municipal Portfolio may not transfer a Standby Commitment to a
third party, although it could sell the underlying Municipal Security to a third
party at any time. The Portfolio may purchase Standby Commitments separate from
or in conjunction with the purchase of securities subject to such commitments.
In the latter case, the Portfolio would pay a higher price for the securities
acquired, thus reducing their yield to maturity. Standby Commitments will not
affect the dollar-weighted average maturity of the Portfolio, or the valuation
of the securities underlying the commitments. Issuers or financial
intermediaries may obtain letters of credit or other guarantees to support their
ability to buy securities on demand. The Investment Manager may rely upon its
evaluation of a bank's credit in determining whether to support an instrument
supported by a letter of credit. Standby Commitments are subject to certain
risks, including the ability of issuers of standby commitments to pay for
securities at the time the commitments are exercised; the fact that Standby
Commitments are not marketable by the Portfolios; and the possibility that the
maturities of the underlying securities may be different from those of the
commitments.
Stripped Government Securities. Each of the Portfolios, except the Municipal
Portfolio, may purchase U.S. Treasury STRIPS (Separate Trading of Registered
Interest and Principal of Securities), which are created when the coupon
payments and the principal payment are stripped from an outstanding Treasury
bond by the Federal Reserve Bank. These instruments are issued at a discount to
their "face value" and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors. Bonds issued by the Resolution Funding Corporation
(REFCORP) can also be stripped in this fashion. REFCORP Strips are eligible
investments for the Money Market Portfolio and the U.S. Government Portfolio.
The Money Market Portfolio can purchase privately stripped government
securities, which are created when a dealer deposits a Treasury security or
federal agency security with a custodian for safekeeping and then sells the
coupon payments and principal payment that will be generated by this security.
Proprietary receipts, such as Certificates of Accrual on Treasury Securities
(CATS), Treasury Investment Growth Receipts (TIGRS), and generic Treasury
Receipts (TRs), are stripped U.S. Treasury securities that are separated into
their component parts through trusts created by their broker sponsors. Bonds
issued by the Financing Corporation (FICO) can also be stripped in this fashion.
Because of the view of the SEC on privately stripped government securities, the
Money Market Portfolio must evaluate them as it would non-government securities
pursuant to regulatory guidelines applicable to all money market funds.
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Tender Option Bonds. The Municipal Portfolio may purchase Tender Option Bonds.
Tender Option Bonds are created by coupling an intermediate- or long-term,
fixed-rate, tax-exempt bond (generally held pursuant to a custodial arrangement)
with a tender agreement that gives the holder the option to tender the bond at
its face value. As consideration for providing the tender option, the sponsor
(usually a bank, broker-dealer, or other financial institution) receives
periodic fees equal to the difference between the bond's fixed coupon rate and
the rate (determined by a remarketing or similar agent) that would cause the
bond, coupled with the tender option, to trade at par on the date of such
determination. After payment of the tender option fee, the Portfolio effectively
holds a demand obligation that bears interest at the prevailing short-term
tax-exempt rate. Subject to applicable regulatory requirements, the Municipal
Portfolio may buy Tender Option Bonds if the agreement gives the Portfolio the
right to tender the bond to its sponsor no less frequently than once every 13
months. In selecting Tender Option Bonds for the Portfolio, the Investment
Manager will consider the creditworthiness of the issuer of the underlying bond,
the custodian, and the third party provider of the tender option. In certain
instances, a sponsor may terminate a tender option if, for example, the issuer
of the underlying bond defaults on an interest payment.
Variable or Floating Rate Obligations. Each Portfolio may invest in Variable
Rate or Floating Rate Obligations. Floating rate instruments have interest rates
that change whenever there is a change in a designated base rate while variable
rate instruments provide for a specified periodic adjustment in the interest
rate. The interest rate of Variable Rate Obligations ordinarily is determined by
reference to or is a percentage of an objective standard such as a bank's prime
rate, the 90-day U.S. Treasury Bill rate, or the rate of return on commercial
paper or bank certificates of deposit. Generally, the changes in the interest
rate on Variable Rate Obligations reduce the fluctuation in the market value of
such securities. Accordingly, as interest rates decrease or increase, the
potential for capital appreciation or depreciation is less than for fixed-rate
obligations. Some Variable Rate Obligations ("Variable Rate Demand Securities")
have a demand feature entitling the purchaser to resell the securities at an
amount approximately equal to amortized cost or the principal amount thereof
plus accrued interest. As is the case for other Variable Rate Obligations, the
interest rate on Variable Rate Demand Securities varies according to some
objective standard intended to minimize fluctuation in the values of the
instruments. Each Portfolio determines the maturity of Variable Rate Obligations
and Floating Rate Obligations in accordance with Rule 2a-7, which allows the
Portfolio to consider certain of such instruments as having maturities shorter
than the maturity date on the face of the instrument.
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When-Issued and Delayed Delivery Basis Securities. Each Portfolio may invest in
when-issued and delayed delivery basis securities. A security purchased on a
when-issued basis is subject to changes in market value based upon changes in
the level of interest rates and investors' perceptions of the creditworthiness
of the issuer. Generally such securities will appreciate in value when interest
rates decline and decrease in value when interest rates rise. In determining the
maturity of portfolio securities purchased on a when-issued or delayed delivery
basis, the Portfolio will consider them to have been purchased on the date when
it committed itself to the purchase. The Portfolio's Custodian will maintain, in
a segregated account of the Portfolio, cash, U.S. government securities or other
liquid high-grade debt obligations having a value equal to or greater than the
Portfolio's purchase commitments; the Custodian will likewise segregate
securities sold on a delayed delivery basis. The securities so purchased are
subject to market fluctuation and no interest accrues to the purchaser during
the period between purchase and settlement. At the time of delivery of the
securities, the value may be more or less than the purchase price and an
increase in the percentage of the Portfolio's assets committed to the purchase
of securities on a when-issued or delayed delivery basis may increase the
volatility of the Portfolio's net asset value. A Portfolio will only make
commitments to purchase securities on a when-issued or delayed delivery basis
with the intention of actually acquiring or disposing of the securities, but the
Portfolio reserves the right to sell these securities before the settlement date
if deemed advisable. The sale of such securities by the Municipal Portfolio may
result in the realization of gains that are not exempt from federal income tax.
Zero Coupon Bonds. Each Portfolio may invest in Zero Coupon Bonds. Zero Coupon
Bonds do not make regular interest payments. Instead, they are sold at a
discount from their face value and are redeemed at face value when they mature.
Because Zero Coupon Bonds do not pay current income, their prices can be very
volatile when interest rates change. In calculating its daily dividend, a
Portfolio takes into account as income a portion of the difference between a
Zero Coupon Bond's purchase price and its face value.
--------------------------------
Future Developments. Each Portfolio may invest in securities and in other
instruments which do not presently exist but may be developed in the future,
provided that each such investment is consistent with such Portfolio's
investment objectives, policies and restrictions and is otherwise legally
permissible under federal and state laws. The Prospectus will be amended or
supplemented as appropriate to discuss any such new investments.
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WATERHOUSE INVESTORS CASH MANAGEMENT FUND, INC.
100 Wall Street, New York, New York 10005
Waterhouse Securities, Customer Service - 1-800-934-4410
STATEMENT OF ADDITIONAL INFORMATION
February 28, 1997
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the prospectus dated February 28, 1997 (the
"Prospectus") for Waterhouse Investors Cash Management Fund, Inc. To obtain a
copy of the Prospectus please write to the Fund or Waterhouse Securities,
Inc., Customer Service, at 100 Wall Street, New York, New York 10005, or
call 1-800-934-4410.
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
INVESTMENT POLICIES AND RESTRICTIONS...................................... 3
PORTFOLIO TRANSACTIONS.................................................... 10
DIRECTORS AND EXECUTIVE OFFICERS.......................................... 11
THE INVESTMENT MANAGER.................................................... 13
INVESTMENT MANAGEMENT, DISTRIBUTION AND OTHER SERVICES.................... 15
DIVIDENDS AND TAXES....................................................... 19
SHARE PRICE CALCULATION................................................... 21
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................ 22
PERFORMANCE............................................................... 23
SHAREHOLDER RIGHTS........................................................ 25
FINANCIAL STATEMENTS...................................................... 25
ANNEX -- RATINGS OF INVESTMENTS........................................... 26
</TABLE>
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WATERHOUSE INVESTORS CASH MANAGEMENT FUND, INC.
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INVESTMENT POLICIES AND RESTRICTIONS
Waterhouse Investors Cash Management Fund, Inc. (the "Fund") has
adopted for each of its three investment portfolios (the Money Market
Portfolio, the U.S. Government Portfolio and the Municipal Portfolio) (the
"Portfolios") certain fundamental investment limitations which cannot be
changed for a Portfolio without approval by holders of a majority of the
outstanding voting securities of that Portfolio. However, except for each
Portfolio's investment objectives and the fundamental investment limitations
set forth below, the investment policies and restrictions described in the
Prospectus and this Statement of Additional Information are not fundamental
and may be changed without shareholder approval. As defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and as used
herein and in the Prospectus, the term "majority of the outstanding voting
securities" of the Fund, or of a particular Portfolio means, respectively,
the vote of the holders of the lesser of (i) 67% of the shares of the Fund or
such Portfolio present or represented by proxy at a meeting where more than
50% of the outstanding shares of the Fund or such Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Fund or such Portfolio.
The following policies and restrictions supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a Portfolio's assets that may be
invested in any security or other assets, or sets forth a policy
regarding quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the Portfolio's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when
determining whether the investment complies with the Portfolio's investment
policies and restrictions.
Investment Restrictions. The following are the fundamental investment
restrictions of each Portfolio of the Fund. Each Portfolio may not (unless noted
otherwise):
(1) with respect to 75% of its total assets, purchase the securities of
any issuer (other than securities issued or guaranteed by the U.S.
government, or any of its agencies or instrumentalities) if, as a result
thereof, (a) more than 5% of the Portfolio's total assets would be invested
in the securities of that issuer, or (b) the Portfolio would hold more than
10% of the outstanding voting securities of that issuer;
(2) with respect to the Municipal Portfolio, normally invest less than 80%
of its total assets in obligations issued or guaranteed by states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities
("Municipal Securities"), the income from which is exempt from federal income
tax, but may be subject to federal alternative minimum tax liability;
(3) issue senior securities, except as permitted under the Investment Company
Act;
(4) make short sales of securities or purchase securities on margin (but a
Portfolio may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities);
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(5) borrow money, except that each Portfolio may: (i) borrow money for
temporary defensive or emergency purposes (not for leveraging or
investment), (ii) engage in reverse repurchase agreements for any purpose,
and (iii) pledge its assets in connection with such borrowing to the
extent necessary; provided that (i) and (ii) in combination do not exceed
331/3% of the Portfolio's total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that exceed this amount
will be reduced within three days (not including Sundays and holidays) to
the extent necessary to comply with the 331/3% limitation. A Portfolio will
not purchase any security, other than a security with a maturity of one day,
while reverse repurchase agreements or borrowings representing more than 5%
of its total assets are outstanding;
(6) act as an underwriter (except as it may be deemed such in a sale of
restricted securities);
(7) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities; or, in the case of the Municipal Portfolio, tax-exempt
obligations issued or guaranteed by a U.S. territory or possession or a
state or local government, or a political subdivision, agency or
instrumentality of any of the foregoing) if, as a result, more than 25% of the
Portfolio's total assets would be invested in the securities of companies whose
principal business activities are in the same industry, except that the Money
Market Portfolio may invest more than 25% of its total assets in the
financial services industry and the Municipal Portfolio may invest more
than 25% of its total assets in industrial development bonds related to a
single industry. The Money Market Portfolio specifically reserves the right
to invest up to 100% of its assets in certificates of deposit or bankers'
acceptances issued by U.S. banks including their foreign branches, and U.S.
branches of foreign banks, in accordance with its investment objectives and
policies;
(8) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent a Portfolio
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(9) buy or sell commodities or commodity (futures) contracts, except for
financial futures and options thereon. This limitation does not apply to
options attached to, or acquired or traded together with, their underlying
securities, and does not apply to securities that incorporate features
similar to options or futures contracts;
(10) lend any security or make any other loan if, as a result, more than
331/3% of its total assets would be loaned to other parties, but this limit
does not apply to purchases of debt securities or to repurchase agreements; or
(11) purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets or to the extent otherwise permitted by the Investment Company Act;
however, a Portfolio may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company with substantially the same
fundamental investment objectives, policies, and restrictions as the
Portfolio.
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The following investment restrictions are not fundamental, and may be
changed without shareholder approval. Each Portfolio does not currently
intend:
(i) To purchase a security (other than a security issued or guaranteed by the
U.S. government or any of its agencies or instrumentalities, or a security
subject to an "unconditional demand feature issued by a non-controlled
person," as defined in Rule 2a-7 under the Investment Company Act ("Rule
2a-7")) if, as a result, more than 5% of its total assets would be invested
in the securities of a single issuer, provided that a Portfolio may
invest up to 25% of its total assets in the first tier securities of a
single issuer for up to three business days;
(ii) to purchase or hold any security if, as a result, more than 10% of
its net assets would be invested in securities that are deemed to be
illiquid because they are subject to legal or contractual restrictions on
resale or because they cannot be sold or disposed of in the ordinary
course of business at approximately the prices at which they are valued,
including repurchase agreements not entitling the holder to payment of
principal and interest within seven days and securities restricted as to
disposition under federal securities laws, except for commercial paper issued
in reliance on the "private placement" exemption from registration afforded by
Section 4(2) of the Securities Act of 1933 ("Section 4(2) paper") and
securities eligible for resale pursuant to Rule 144A under the Securities Act
of 1933 ("144A securities"), which are determined to be liquid pursuant to
procedures adopted by the Fund's Board of Directors; or
(iii) to invest in financial futures and options thereon.
For the Fund's policies on quality and maturity, see the subsection
entitled "Quality and Maturity" below.
Each Portfolio's investments must be consistent with its investment
objective and policies. Accordingly, not all of the security types and
investment techniques discussed below are eligible investments for each of
the Portfolios.
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Investment Policies of All Portfolios:
Quality and Maturity. Pursuant to procedures adopted by the Board of
Directors, a Portfolio may purchase only high quality securities that the
Investment Manager believes present minimal credit risks. To be considered
high quality, a security must be rated in accordance with applicable rules in
one of the two highest categories for short-term securities by at least
two nationally recognized statistical rating organizations (or by one, if
only one such rating organization has rated the security); or, if unrated,
judged to be of equivalent quality by the Investment Manager.
High quality securities are divided into "first tier" and "second tier"
securities. First tier securities are generally those deemed to be in the
highest rating category (e.g., A-1 by Standard & Poor's ("S&P")), Government
Securities and securities issued by other money market funds. Second tier
securities are generally those deemed to be in the second highest rating
category (e.g., A-2 by S&P). See "Annex Ratings of Investments."
The Money Market Portfolio may not invest more than 5% of its total assets in
second tier securities. In addition, the Money Market Portfolio may not
invest more than 1% of its total assets or $1 million (whichever is greater) in
the second tier securities of a single issuer. The Municipal Portfolio may
not invest more than 5% of its total assets in second tier securities that are
"conduit securities," as that term is defined in Rule 2a-7. In addition, the
Municipal Portfolio may not invest more than 1% of its assets or $1 million
(whichever is greater) in second tier conduit securities of a single issue.
Each Portfolio will limit its investments to securities with remaining
maturities of 397 calendar days or less, and maintain a dollar-weighted
average maturity of 90 days or less. When determining the maturity of a
security, a Portfolio may rely upon an interest rate reset or demand feature.
When-Issued and Delayed Delivery Transactions. Each Portfolio may buy and
sell securities on a when-issued or delayed delivery basis. These
transactions involve a commitment by a Portfolio to purchase or sell
specific securities at a predetermined price or yield, with payment and
delivery taking place after the customary settlement period for that type of
security (and more than seven days in the future). Typically, no interest
accrues to the purchaser until the security is delivered.
When purchasing securities on a when-issued or delayed delivery basis, a
Portfolio assumes the rights and risks of ownership, including the risk of
price and yield fluctuations. Because a Portfolio is not required to pay for
securities until the delivery date, these risks are in addition to the
risks associated with each Portfolio's other investments. If a Portfolio
remains substantially fully invested at a time when when-issued or delayed
delivery purchases are outstanding, the purchases may result in a form of
leverage. When when-issued or delayed delivery purchases are outstanding,
a Portfolio will set aside appropriate liquid assets in a segregated
custodial account to cover its purchase obligations. When a Portfolio has
sold a security on a delayed delivery basis, the Portfolio does not
participate in further gains or losses with respect to the security. If the
other party to a delayed delivery transaction fails to deliver or pay for the
securities, a Portfolio could miss a favorable price or yield opportunity, or
could suffer a loss.
Each Portfolio may renegotiate when-issued or delayed delivery transactions
after they are entered into, and may sell underlying securities before they
are delivered, which may result in capital gains or losses.
Variable or Floating Rate Obligations. Variable or Floating Rate Obligations
bear variable or floating interest rates and carry rights that permit holders to
demand payment of the unpaid principal balance plus accrued interest from the
issuers or certain financial intermediaries. Floating rate instruments have
interest rates that change whenever there is a change in a designated base
rate while variable rate instruments provide for a specified periodic
adjustment in the interest rate. These formulas are designed
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to result in a market value for the instrument that approximates its
amortized cost. A demand instrument with a conditional demand feature must
have received both a short-term and a long-term high quality rating or, if
unrated, have been determined to be of comparable quality pursuant to
procedures adopted by the Board of Directors. In addition, the Board must
make certain findings to insure, pursuant to Rule 2a-7, the
appropriateness of the conditional demand feature for money fund
investment. A demand instrument with an unconditional demand feature may
be acquired solely in reliance upon a short-term high quality rating or, if
unrated, upon a finding of comparable short-term quality pursuant to
procedures adopted by the Board of Directors.
Repurchase Agreements. In a repurchase agreement, a Portfolio purchases a
security and simultaneously commits to sell that security back to the original
seller at an agreed-upon price. The resale price reflects the purchase
price plus an agreed-upon incremental amount which is unrelated to the coupon
rate or maturity of the purchased security. It is each Portfolio's
current policy to engage in repurchase agreement transactions with
parties whose creditworthiness has been reviewed and found satisfactory by
the Investment Manager pursuant to procedures approved by the Board of
Directors, however, it does not presently appear possible to eliminate
all risks from these transactions (particularly the possibility that the
value of the underlying security will be less than the resale price, as well
as delays and costs to a Portfolio in connection with a seller's
bankruptcy proceedings).
Reverse Repurchase Agreements. In a reverse repurchase agreement, a
Portfolio sells a portfolio instrument to another party, such as a bank
or broker-dealer, in return for cash and agrees to repurchase the
instrument at a particular price and time. While a reverse repurchase
agreement is outstanding, a Portfolio will maintain appropriate liquid assets
in a segregated custodial account to cover its obligation under the agreement.
Each Portfolio will enter into reverse repurchase agreements only with parties
whose creditworthiness has been found satisfactory by the Investment Manager.
Illiquid Investments. Illiquid investments are investments that cannot be
sold or disposed of in the ordinary course of business within seven days at
approximately the prices at which they are valued. Under the supervision of the
Board of Directors, the Investment Manager determines the liquidity of a
Portfolio's investments and, through reports from the Investment
Manager, the Board monitors investments in illiquid instruments. In
determining the liquidity of a Portfolio's investments, the Investment
Manager may consider various factors, including (i) the frequency of trades and
quotations, (ii) the number of dealers and prospective purchasers in the
marketplace, (iii) dealer undertakings to make a market, (iv) the nature of
the security (including any demand or tender features), and (v) the nature of
the marketplace for trades (including the ability to assign or offset the
Portfolio's rights and obligations relating to the investment).
Investments currently considered by the Portfolios to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days. Also, with regard to the Money Market Portfolio,
the Investment Manager may determine some time deposits to be illiquid. In the
absence of market quotations, illiquid investments are valued for purposes
of monitoring amortized cost valuation at fair value as determined in good
faith by or under the direction of the Board of Directors. If through a
change in values, net assets, or other circumstances, a Portfolio were in a
position where more than 10% of its net assets was invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
For purposes of the 10% limit on illiquid securities, 144A securities will
not be considered to be illiquid so long as the Investment Manager
determines, in accordance with procedures adopted by the Board of Directors,
that such securities have a readily available market. The Investment Manager
will monitor the liquidity of such securities subject to the supervision of the
Board of Directors.
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Municipal lease obligations will not be considered illiquid for purposes of
the Municipal Portfolio's 10% limitation on illiquid securities, provided
the Investment Manager determines that there is a readily available market
for such securities. With respect to municipal lease obligations, the
Investment Manager will consider, pursuant to procedures adopted by the
Board of Directors, the following: (1) the willingness of the municipality to
continue, annually or biannually, to appropriate funds for payment of the
lease; (2) the general credit quality of the municipality and the
essentiality to the municipality of the property covered by the lease;
(3) in the case of unrated municipal lease obligations, an analysis of factors
similar to that performed by nationally recognized statistical rating
organizations in evaluating the credit quality of a municipal lease
obligation, including (i) whether the lease can be cancelled; (ii) if
applicable, what assurance there is that the assets represented by the lease
can be sold; (iii) the strength of the lessee's general credit (e.g., its
debt, administrative, economic and financial characteristics); (iv) the
likelihood that the municipality will discontinue appropriating funding for
the leased property because the property is no longer deemed essential to the
operations of the municipality (e.g., the potential for an event of
nonappropriation); (v) the legal recourse in the event of failure to
appropriate; and (4) any other factors unique to municipal lease obligations as
determined by the Investment Manager.
Investment Policies of Money Market Portfolio Only:
Domestic and Foreign Issuers. Investments may be made in U.S.
dollar-denominated time deposits, certificates of deposit, and bankers'
acceptances of U.S. banks and their branches located outside of the United
States, U.S. savings and loan institutions, U.S. branches of foreign banks,
and foreign branches of foreign banks. The Fund may also invest in U.S.
dollar-denominated securities issued or guaranteed by other U.S. or foreign
issuers, including U.S. and foreign corporations or other business
organizations, foreign governments, foreign government agencies or
instrumentalities, and U.S. and foreign financial institutions, including
savings and loan institutions, insurance companies, mortgage bankers, and real
estate investment trusts, as well as banks.
The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or may
be limited by the terms of a specific obligation and by governmental
regulation. Payment of interest and principal on these obligations may also
be affected by governmental action in the country of domicile of the branch
(generally referred to as sovereign risk). In addition, evidence of
ownership of portfolio securities may be held outside of the United States
and the Fund may be subject to the risks associated with the holding of such
property overseas. Various provisions of federal law governing the
establishment and operation of U.S. branches do not apply to foreign branches
of U.S. banks.
Obligations of U.S. branches and agencies of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation, as well as by governmental action in the country in which the
foreign bank has its head office.
Obligations of foreign issuers involve certain additional risks. These
risks may include future unfavorable political and economic developments,
withholding taxes, seizures of foreign deposits, currency controls, interest
limitations, or other governmental restrictions that might affect payment of
principal or interest. Additionally, there may be less public information
available about foreign banks and their branches. Foreign issuers may be
subject to less governmental regulation and supervision than U.S.
issuers. Foreign issuers also generally are not bound by uniform accounting,
auditing, and financial reporting requirements comparable to those applicable to
U.S. issuers.
Credit Enhancement Features. Each portfolio may invest in securities subject
to letters of credit or other credit enhancement features. Such letters of
credit or other credit enhancement features are not subject to federal deposit
insurance, and changes in the credit quality of the issuers of such letters of
credit or other credit enhancement features could cause losses to a Portfolio
and affect its share price.
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Put Features. Put features entitle the holder to sell a security (including
a repurchase agreement) back to the issuer or a third party at any time or
at specified intervals. They are subject to the risk that the put provider
is unable to honor the put feature (purchase the security). Put providers
often support their ability to buy securities on demand by obtaining
letters of credit or other guarantees from domestic or foreign banks. The
Investment Manager may rely on its evaluation of a bank's credit in
determining whether to purchase a security supported by a letter of
credit. In evaluating a foreign bank's credit, the Investment Manager will
consider whether adequate public information about the bank is available
and whether the bank may be subject to unfavorable political or economic
developments, currency controls, or other government restrictions that might
affect the bank's ability to honor its credit commitment. Demand
features, standby commitments, and tender options are types of put features.
Investment Policies of the Municipal Portfolio Only:
Municipal Securities. Municipal Securities which the Municipal Portfolio may
purchase include, without limitation, debt obligations issued to obtain
funds for various public purposes, including the construction of a wide
range of public facilities such as airports, bridges, highways, housing,
hospitals, mass transportation, public utilities, schools, streets, and
water and sewer works. Other public purposes for which Municipal
Securities may be issued include refunding outstanding obligations,
obtaining funds for general operating expenses and obtaining funds to
loan to other public institutions and facilities.
Municipal Securities, such as private activity bonds ("industrial development
bonds" under prior law), are issued by or on behalf of public authorities to
obtain funds for purposes including privately operated airports, housing,
conventions, trade shows, ports, sports, parking or pollution control
facilities or for facilities for water, gas, electricity, or sewage and
solid waste disposal. Such obligations, which may include lease
arrangements, are included within the term Municipal Securities if the
interest paid thereon qualifies as exempt from federal income tax. Other
types of industrial development bonds, the proceeds of which are used
for the construction, equipment, repair or improvement of privately
operated industrial or commercial facilities, may constitute Municipal
Securities, although current federal tax laws place substantial limitations on
the size of such issues.
Municipal Securities generally are classified as "general obligation" or
"revenue." General obligation notes are secured by the issuer's pledge of
its full credit and taxing power for the payment of principal and
interest. Revenue notes are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source. Industrial
development bonds which are Municipal Securities are in most cases revenue bonds
and generally do not constitute the pledge of the credit of the issuer of such
bonds.
Examples of Municipal Securities that are issued with original maturities of
397 calendar days or less are short-term tax anticipation notes, bond
anticipation notes, revenue anticipation notes, construction loan notes,
pre-refunded municipal bonds and tax-free commercial paper. Tax anticipation
notes typically are sold to finance working capital needs of
municipalities in anticipation of receiving property taxes on a future
date. Bond anticipation notes are sold on an interim basis in anticipation
of a municipality issuing a longer term bond in the future. Revenue
anticipation notes are issued in expectation of receipt of other types of
revenue such as those available under the Federal Revenue Sharing
Program. Construction loan notes are instruments insured by the Federal
Housing Administration with permanent financing by "Fannie Mae" (the
Federal National Mortgage Association) or "Ginnie Mae" (the Government
National Mortgage Association) at the end of the project construction period.
Pre-refunded municipal bonds are bonds which are not yet refundable, but
for which securities have been placed in escrow to refund an original
municipal bond issue when it becomes refundable. Tax-free commercial paper is
an unsecured promissory obligation issued or guaranteed by a municipal
issuer. The Municipal Portfolio may purchase other Municipal Securities
similar to the foregoing, which are or may become available, including
securities issued to pre-refund other outstanding obligations of municipal
issuers.
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The federal bankruptcy statutes relating to the adjustments of debts of
political subdivisions and authorities of states of the United States provide
that, in certain circumstances, such subdivisions or authorities may be
authorized to initiate bankruptcy proceedings without prior notice to or
consent of creditors, which proceedings could result in material adverse
changes in the rights of holders of obligations issued by such subdivisions or
authorities.
Litigation challenging the validity under the state constitutions of
present systems of financing public education has been initiated or
adjudicated in a number of states, and legislation has been introduced to
effect changes in public school finances in some states. In other instances
there has been litigation challenging the issuance of pollution control
revenue bonds or the validity of their issuance under state or federal law
which ultimately could affect the validity of those Municipal Securities or
the tax-free nature of the interest thereon.
Federally Taxable Obligations. From time to time, the Municipal Portfolio may
invest a portion of its assets on a temporary basis in fixed-income
obligations whose interest is subject to federal income tax. For example, the
Portfolio may invest in obligations whose interest is federally taxable
pending the investment or reinvestment in Municipal Securities of proceeds
from the sale of its shares or sales of portfolio securities. Should the
Portfolio invest in federally taxable obligations, it would purchase securities
that in the Investment Manager's judgment are of high quality. These would
include obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities; obligations of domestic banks; and repurchase
agreements. In addition, the Municipal Portfolio may deviate from its
investment policies and may adopt temporary defensive measures when
significant adverse market, economic, political or other circumstances
require immediate action in order to avoid losses. During such periods, the
Portfolio may temporarily invest its assets, without limitation, in taxable
temporary investments. The Municipal Portfolio will purchase taxable
obligations only if they meet its quality requirements.
Proposals to restrict or eliminate the federal income tax exemption for
interest on municipal obligations are introduced before Congress from time to
time. Proposals also may be introduced before state legislatures that would
affect the state tax treatment of the Portfolio's distributions. If such
proposals were enacted, the availability of municipal obligations and the
value of the Portfolio's holdings would be affected and the directors would
reevaluate the Portfolio's investment objective and policies.
The Municipal Portfolio anticipates being as fully invested as practicable
in Municipal Securities; however, there may be occasions when, as a result
of maturities of portfolio securities, sales of Portfolio shares, or in
order to meet redemption requests, the Portfolio may hold cash that is not
earning income. In addition, there may be occasions when, in order to raise
cash to meet redemptions, the Portfolio may be required to sell securities at a
loss.
PORTFOLIO TRANSACTIONS
Portfolio transactions are undertaken principally to pursue the
objective of each Portfolio in relation to movements in the general level of
interest rates, to invest money obtained from the sale of Fund shares, to
reinvest proceeds from maturing portfolio securities and to meet
redemptions of Fund shares. This may increase or decrease the yield of a
Portfolio depending upon the Investment Manager's ability to correctly time
and execute such transactions. Each Portfolio normally intends to hold its
portfolio securities to maturity. The Portfolios do not intend to trade
portfolio securities although they may do so to take advantage of short-term
market movements.
In effecting purchases and sales of portfolio securities for the account
of each Portfolio, the Investment Manager will implement the Fund's policy
of seeking the best execution of orders, which includes best net prices.
Consistent with this policy, orders for portfolio transactions are placed
with broker-dealer firms giving consideration to the quality, quantity
and nature of the firms' professional services which include execution,
clearance procedures, reliability and other factors. In selecting among the
firms
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believed to meet the criteria for handling a particular transaction, the
Investment Manager may give consideration to those firms that provide
market, statistical and other research information to the Fund and the
Investment Manager, although the Investment Manager is not authorized to
pay higher prices to firms that provide such services. Any research
benefits derived are available for all clients. Because statistical and
other research information is only supplementary to the Investment Manager's
research efforts and still must be analyzed and reviewed by its staff,
the receipt of research information is not expected to significantly
reduce its expenses. The Fund expects that purchases and sales of
portfolio securities usually will be principal transactions. Portfolio
securities will normally be purchased directly from the issuer or from an
underwriter or market maker for the securities. Purchases from underwriters
may include a commission or concession paid by the issuer to the underwriter,
and purchases from dealers serving as market makers will include the spread
between the bid and asked prices.
The investment decisions for each Portfolio will be reached independently
from those for each other and for other accounts, if any, managed by the
Investment Manager. On occasions when the Investment Manager deems the
purchase or sale of securities to be in the best interest of one or more
Portfolios as well as other clients of the Investment Manager, the Investment
Manager, to the extent permitted by applicable laws and regulations, may, but
shall be under no obligation to, aggregate the securities to be so sold or
purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Investment Manager in accordance with its
policy for aggregation of orders, as in effect from time to time. In some
cases this procedure may affect the size or price of the position obtainable
for a Portfolio.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Fund, their principal occupations
over the past five years and their affiliations, if any, with the Investment
Manager and Funds Distributor, Inc. ("FDI"), the Fund's distributor, are as
follows:
RICHARD W. DALRYMPLE, Director. Mr. Dalrymple has served as a Director of
Waterhouse Investors Cash Management Fund, Inc. since December 12, 1995.
Mr. Dalrymple has been the President of Teamwork Management, Inc. since
January 1997. Mr. Dalrymple has been a Trustee of The Shannon McCormack
Foundation since 1988, the Kevin Scott Dalrymple Foundation since 1993
and a Director of National Center for Disability Services since 1983. From
1990 through 1995, Mr. Dalrymple served as President and Chief Operating
Officer of Anchor Bank. From 1985 through 1990, Mr. Dalrymple worked for the
Bank of Boston. During this time, Mr. Dalrymple served as the President of
Massachusetts Banking and the Southern New England Region, and as Department
Executive of Banking Services. He is 53 years old. Mr. Dalrymple's address is
45 Rockefeller Plaza, New York, NY 10111.
THEODORE ROSEN, Director. Mr. Rosen has served as a Director of Waterhouse
Investors Cash Management Fund, Inc. since December 12, 1995. Since 1993,
Mr. Rosen has been a Managing Director of Burnham Securities Inc. and Chairman
of the Board of Directors of U.S. Energy Systems, Inc. Mr. Rosen has held
senior management positions in retail sales, investment management, and
corporate finance. From 1991 to 1993, Mr. Rosen was a Senior Vice President
at Oppenheimer & Co., and from 1989 to 1991 was a Vice President-Sales at
Smith Barney. Prior to 1989, Mr. Rosen held senior management positions at
D.H. Blair & Co., Morgan Stanley & Co., Ladenburg Thalman, and Burnham & Co.
Mr. Rosen was the founder and President of Summit Capital Group, a money
management and investment banking firm. He is 72 years old. Mr. Rosen's address
is 1325 Avenue of the Americas, New York, NY 10019
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GEORGE F. STAUDTER*, Director. Mr. Staudter has served as Chairman of the
Board of Directors of Waterhouse Investors Cash Management Fund, Inc. since
December 12, 1995. Mr. Staudter is a Director of Koger Equity, Inc. Mr.
Staudter served as a Director of Waterhouse Investor Services from 1987 to
1996. Since 1989, Mr. Staudter has served as a Managerial and Financial
Consultant, rendering investment management, tax and estate planning services
to individual clients, and strategic planning advice to corporate clients.
From 1993 through 1994, Mr. Staudter was the Chief Executive Officer and served
on the Board of Directors for Family Steak Houses of Florida, Inc. From 1986
through 1988, Mr. Staudter was a principal and a principal shareholder of
Douglas Capital Management, Inc. In this capacity, Mr. Staudter served as
a member of the Investment Committee and provided investment counseling
and tax and financial planning services. He is 65 years old. Mr. Staudter's
address is 9637 Preston Trail West, Ponte Verde, FL 32082.
LAWRENCE J. TOAL, Director. Mr. Toal has served as a Director of Waterhouse
Investors Cash Management Fund, Inc. since December 12, 1995. Mr. Toal was
appointed Chairman, President and Chief Executive Officer of The Dime
Savings Bank of New York, FSB in January, 1997. He was President and
Chief Operating Officer of The Dime since 1991. Prior to joining The Dime,
Mr. Toal had been President of PSFS, a $10 billion Philadelphia thrift
from 1988 to 1991. Mr. Toal spent 26 years at The Chase Manhattan Bank,
N.A., in various senior management positions in consumer, corporate and
international banking areas in the United States, Europe and Asia. He is 59
years old. Mr. Toal's address is 589 Fifth Avenue, 3rd Floor, New York, NY
10017.
JOHN E. PELLETIER**, President. Senior Vice President and General Counsel
of FDI and Premier Mutual Fund Services, Inc., an affiliate of FDI ("Premier
Mutual"), and an officer of certain investment companies advised or
administered by the Dreyfus Corporation ("Dreyfus"), J.P. Morgan ("Morgan"),
RCM Capital Management L.L.C. ("RCM") and Harris Trust and Savings Bank
("Harris") or their respective affiliates. From February 1992 to April 1994,
Mr. Pelletier served as Counsel for The Boston Company Advisors, Inc. From
August 1990 to February 1992, Mr. Pelletier was employed as an Associate at
Ropes & Gray. He is 32 years old.
CHRISTOPHER J. KELLEY**, Vice President and Secretary. Vice President and
Associate General Counsel of FDI and Premier Mutual, and an officer of
certain investment companies advised or administered by Harris and Morgan
or their respective affiliates. From April 1994 to July 1996, Mr. Kelley
was Assistant Counsel at Forum Financial Group. From October 1992 to March
1994, Mr. Kelley was employed by Putnam Investments in legal and compliance
capacities. Prior to 1992, Mr. Kelley attended Boston College Law School,
from which he graduated in May 1992. He is 32 years old.
RICHARD W. INGRAM**, Vice President, Treasurer and Chief Financial Officer.
Senior Vice President and Director of Client Services and Treasury
Administration of FDI. Senior Vice President of Premier Mutual and an
officer of certain investment companies advised or administered by
Dreyfus, Harris, Morgan and RCM or their respective affiliates. From March
1994 to November 1995, Mr. Ingram was Vice President and Division Manager of
First Data Investor Services Group, Inc. From 1989 to 1994, Mr. Ingram was
Vice President, Assistant Treasurer and Tax Director-Mutual Funds of The
Boston Company, Inc. He is 41 years old.
* This director is an "interested person" of the Fund.
** Address: 60 State Street, Suite 1300, Boston, MA 02109
12
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Officers and directors who are interested persons of the Investment
Manager or FDI will receive no compensation from the Fund. The Fund expects to
pay or accrue total directors' fees of approximately $60,000 per year to
those directors who are not designated above as "interested persons."
Directors who are interested persons of the Fund may be compensated by the
Investment Manager for their services to the Fund. On January 31, 1997, the
officers and directors of the Fund, as a group, owned less than 1% of the
outstanding shares of each Portfolio.
The Fund pays its directors an annual retainer and a per meeting fee and
reimburses them for their expenses. The amounts of compensation that the
Fund paid to each director for the fiscal year ended October 31, 1996, are as
follows:
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement Estimated from
Aggregate Benefits Accrued Annual Fund Complex
Name of Board Compensation from as Part of Fund's Benefits Upon Paid to Board Members
Member Fund Expenses Retirement (3)
- ---------------- ----------------- ----------------- ------------- ---------------------
<S> <C> <C> <C> <C>
Richard W. Dalrymple $20,000 (1) $0 $0 $20,000 (1)
Theodore Rosen $20,000 (1) $0 $0 $20,000 (1)
George F. Staudter(2) $0 $0 $0 $0
Lawrence J. Toal $20,000 (1) $0 $0 $20,000 (1)
</TABLE>
_________________________________
(1) Amounts do not include reimbursed expenses for attending Board meetings.
(2) Interested director of the Fund.
(3) As of the date of this Statement of Additional Information, neither the
Investment Manager nor any of its affiliates serves as an investment
adviser to any registered investment company other than the Fund.
THE INVESTMENT MANAGER
Waterhouse Asset Management, Inc., a Delaware corporation, is the Investment
Manager of the Fund. The Investment Manager is a wholly owned subsidiary of
Waterhouse National Bank (the "Bank"), which is a wholly owned subsidiary
of Waterhouse Investor Services, Inc. ("Waterhouse"), which is in turn a
wholly owned subsidiary of The Toronto-Dominion Bank ("TD Bank"). The Bank
offers various banking products and services primarily to the customers of
Waterhouse Securities, the principal subsidiary of Waterhouse. TD Bank, a
Canadian chartered bank subject to the provisions of the Bank Act of Canada,
acquired Waterhouse in a merger effective on October 15, 1996. In addition to
the Fund, the Investment Manager also currently serves as investment manager
to the Bank and as of January 31, 1997 had total assets under management in
excess of $3.0 billion.
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Personnel of the Investment Manager may invest in securities for their own
account pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the Fund, establishes procedures for
personal investing and restricts certain transactions. Restrictions on the
timing of personal investing relative to trades by the Fund have been adopted.
The following persons are senior officers and directors of the Investment
Manager, each of whom will have substantial responsibilities in connection with
the management of the Portfolios:
FRANK J. PETRILLI, Chairman, President and Chief Executive Officer of
Waterhouse Asset Management, Inc. since January 1997. Mr. Petrilli has
served as President and Chief Operating Officer of Waterhouse Investor
Services, Inc. since January 1995. Mr. Petrilli has served as a Director
of Waterhouse National Bank and National Investor Services Corp. since
March 1995 and September 1995, respectively. From May 1993 to January 1995,
Mr. Petrilli served as President and Chief Operating Officer of American
Express Centurion Bank. From January 1991 to May 1993, Mr. Petrilli served
as Chief Financial Officer of American Express Centurion Bank. Mr.
Petrilli is 46 years old. Mr. Petrilli's address is 100 Wall Street, New
York, NY 10005.
DAVID HARTMAN, Senior Vice President and Chief Investment Officer of Waterhouse
Asset Management, Inc. Mr. Hartman has been serving as Senior Vice President
and Chief Investment Officer of Waterhouse Asset Management, Inc. since
October 1995. From February 1995 through August 1995, Mr. Hartman served as
Senior Vice President and Senior Portfolio Manager in charge of Fixed
Income Separate Accounts at Mitchell Hutchins - Paine Webber. From 1983 to
1995, Mr. Hartman was a Senior Vice President of Kidder Peabody & Co. In this
capacity, Mr. Hartman served as the Chief Investment Officer for Fixed
Income accounts and both taxable and municipal money market funds. From 1976
to 1983, Mr. Hartman served as Vice President of Federated Investors Inc.
and was responsible for managing $5 billion in mutual funds. From 1967 to
1976, Mr. Hartman was a Senior Auditor at Arthur Anderson & Co. where he
was a small business consultant. Mr. Hartman is 50 years old. Mr. Hartman's
address is 50 Main Street, White Plains, NY 10606.
MICHELE R. TEICHNER, Senior Vice President of Waterhouse Asset Management,
Inc. Ms. Teichner has been serving as Senior Vice President of Waterhouse
Asset Management Inc. since August 1996, with responsibility for
operations and compliance. From August 1994 to July 1996, Ms. Teichner
served as President of Mutual Fund Training & Consulting, Inc. From July 1993
to July 1994, Ms. Teichner served as Assistant Vice President of Concord
Financial Group, Inc. From 1987 to 1992, Ms. Teichner served as Assistant Vice
President of Dillon, Read & Co. Inc. and was responsible for the
administration, operations and compliance for mutual funds and the investment
advisor. Ms. Teichner is 37 years old. Ms. Teichner's address is 100 Wall
Street, New York, NY 10005.
14
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INVESTMENT MANAGEMENT, DISTRIBUTION AND OTHER SERVICES
Investment Management
Pursuant to the Investment Management Agreement with the Fund on behalf
of each Portfolio, the Investment Manager manages each Portfolio's
investments in accordance with its stated policies and restrictions, subject
to oversight by the Fund's Board of Directors. Each Portfolio pays the
expenses of its operations, including the costs of shareholder and board
meetings, the fees and expenses of blue sky and pricing services, independent
auditors, counsel, the Custodian and the Transfer Agent, reports and notices
to shareholders, the costs of calculating net asset value, brokerage
commissions or transaction costs, taxes, interest, insurance premiums,
Investment Company Institute dues and the fees and expenses of qualifying the
Portfolio and its shares for distribution under federal and state securities
laws. In addition, each Portfolio pays for typesetting, printing and
mailing proxy material, prospectuses, statements of additional
information, notices and reports to existing shareholders, and the fees of
the directors who are not "interested persons" of the Fund within the
meaning of such term as defined under the Investment Company Act
("Disinterested Directors"). Each Portfolio is also liable for such
nonrecurring expenses as may arise, including costs of any litigation to
which the Fund may be a party, and any obligation it may have to indemnify
the Fund's officers and directors with respect to any litigation. The Fund's
expenses generally are allocated among the Portfolios on the basis of
relative net assets at the time of allocation, except that expenses
directly attributable to a particular Portfolio are charged to that Portfolio.
The Investment Management Agreement continues in effect until December 12,
1997 and thereafter from year to year so long as its continuation is approved
at least annually by (i) a majority vote of the directors who are not
parties to such agreement or interested persons of any such party except in
their capacity as directors of the Fund, cast in person at a meeting called for
such purpose, and (ii) by the vote of a majority (as defined in the
Investment Company Act) of the outstanding voting securities of each
Portfolio, or by the Fund's Board of Directors. The agreement may be
terminated as to any Portfolio at any time upon 60 days prior written notice,
without penalty, by either party, or by a majority vote of the outstanding
shares of a Portfolio with respect to that Portfolio, and will terminate
automatically upon assignment. The Investment Management Agreement was approved
by the Board of Directors of the Fund, including a majority of the
Disinterested Directors who have no direct or indirect financial interest in
the Agreement, and by the shareholders of each Portfolio.
The Investment Management Agreement provides that the Investment Manager
will not be liable for any error of judgment or of law, or for any loss suffered
by a Portfolio in connection with the matters to which such agreement
relates, except a loss resulting from willful misfeasance, bad faith or
gross negligence on the Investment Manager's part in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties under such agreement. The services of the Investment
Manager to the Portfolios under the Investment Management Agreement are not
exclusive and it is free to render similar services to others.
For the investment management services furnished to each Portfolio, such
Portfolio pays the Investment Manager an annual investment management fee,
accrued daily and payable monthly, on a graduated basis equal to .35 of 1% of
the first $1 billion of average daily net assets of each such Portfolio, .34
of 1% of the next $1 billion, and .33 of 1% of average daily net assets
of each Portfolio over $2 billion. The Investment Manager has agreed to
waive a portion of its fee payable by the Municipal Portfolio through
October 15, 1998, so that the actual fee payable annually by such Portfolio
during such period will be equal to .25 of 1% of its average daily net assets.
The Investment Manager and its affiliates may, from time to time,
voluntarily waive or reimburse all or a part of each Portfolio's operating
expenses. Expense reimbursements by the Investment Manager or its affiliates
will increase each Portfolio's total returns and yield.
15
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Total fees payable by the Fund to the Investment Manager for the fiscal
year ended October 31, 1996 were $3,339,325 for the Money Market
Portfolio, $890,354 for the U.S. Government Portfolio and $595,954 for
the Municipal Portfolio. For the fiscal year ended October 31, 1996, the
Investment Manager voluntarily waived $8,425, $828 and $171,894 of its
investment management fee for the Money Market Portfolio, the U.S. Government
Portfolio and the Municipal Portfolio, respectively.
Distribution
The distributor of the Fund is FDI, 60 State Street, Suite 1300, Boston,
Massachusetts 02109. Pursuant to a Distribution Agreement between the Fund
and FDI, FDI has the exclusive right to distribute shares of the Fund. FDI may
enter into dealer or agency agreements with affiliates of the Investment
Manager and other firms for the sale of Fund shares. FDI has entered into
such an agency agreement with Waterhouse Securities. FDI receives no fee
from the Fund under the Distribution Agreement for acting as distributor to
the Fund. FDI also acts as a subadministrator for the Fund.
The Distribution Agreement will continue in effect until December 12, 1997
and is renewable thereafter for periods of one year, so long as such
continuance is approved at least annually by a vote of the Board of Directors
of the Fund, including a majority of Disinterested Directors who have no
direct or indirect financial interest in the Agreement. The Agreement was
approved by the Board of Directors of the Fund, including a majority of
Disinterested Directors who have no direct or indirect financial interest in
the Agreement. Each Portfolio may terminate the Distribution Agreement on 60
days' prior written notice without penalty. Termination by a Portfolio may be
by vote of a majority of the Fund's Board of Directors, or a majority of the
Disinterested Directors, or by a "majority of the outstanding voting
securities" of such Portfolio as defined under the Investment Company Act.
The Agreement terminates automatically in the event of its "assignment" as
defined in the Investment Company Act.
16
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Shareholder Servicing
The Board of Directors of the Fund has approved a Shareholder Servicing Plan
("Servicing Plan") pursuant to which each Portfolio may pay banks,
broker-dealers or other financial institutions that have entered into a
shareholder services agreement with the Fund ("Servicing Agents") in
connection with shareholder support services that they provide. Payments
under the Servicing Plan will be calculated daily and paid monthly at a rate
set from time to time by the Board of Directors, provided that the annual rate
may not exceed .25 of 1% of the average daily net assets of each Portfolio.
The Fund's Board has determined to limit the annual fee payable through
October 15, 1998 under the Servicing Plan so as not to exceed .20 of 1% of
average daily net assets in the case of the Money Market Portfolio, .17 of
1% of average daily net assets in the case of the U.S. Government Portfolio
and .11 of 1% of average daily net assets in the case of the Municipal
Portfolio. The shareholder services provided by the Servicing Agents
pursuant to the Servicing Plan may include, among other services, providing
general shareholder liaison services (including responding to
shareholder inquiries), providing information on shareholder investments,
establishing and maintaining shareholder accounts and records, and providing
such other similar services as may be reasonably requested.
The Servicing Plan was approved by the Board of Directors, including a
majority of the Disinterested Directors who have no direct or indirect
financial interest in the Plan or the Shareholder Services Agreement. The
Servicing Plan continues in effect as long as such continuance is
specifically so approved at least annually. The Servicing Plan may be
terminated by the Fund with respect to any Portfolio by a vote of a
majority of the Disinterested Directors who have no direct or indirect
financial interest in the Plan or any agreements relating thereto.
Pursuant to a Shareholder Services Agreement between the Fund and
Waterhouse Securities, Waterhouse Securities has agreed to provide
shareholder services to each Portfolio pursuant to the Shareholder Servicing
Plan. The Fund may enter into similar agreements with other service
organizations, including broker-dealers and banks whose clients are
shareholders of the Fund, to act as Servicing Agents and to perform shareholder
support services with respect to such clients.
The Shareholder Services Agreement with Waterhouse Securities will continue in
effect until December 12, 1997, and is renewable thereafter for periods of one
year, so long as such continuance is approved at least annually by a vote of
the Board of Directors of the Fund, including a majority of the
Disinterested Directors who have no direct or indirect financial interest
in the Agreement. The Agreement was approved by the Board of Directors
of the Fund, including a majority of the Disinterested Directors who
have no direct or indirect financial interest in the Agreement. Each
Portfolio or Waterhouse Securities may terminate the Shareholder Services
Agreement on 60 days' prior written notice without penalty. Termination by
a Portfolio may be by vote of the Fund's Board of Directors, or a majority
of the Disinterested Directors who have no direct or indirect financial
interest in the Agreement. The Agreement terminates automatically in the
event of its "assignment" as defined in the Investment Company Act.
Total fees payable by the Fund to Waterhouse Securities for the fiscal year
ended October 31, 1996 were $1,913,360 for the Money Market Portfolio,
$432,457 for the U.S. Government Portfolio and $187,300 for the Municipal
Portfolio. For the fiscal year ended October 31, 1996, Waterhouse
Securities voluntarily waived $1,129,420, $320,311 and $105,266 of its
shareholder servicing fee for the Money Market Portfolio, the U.S. Government
Portfolio and the Municipal Portfolio, respectively.
Conflict of interest restrictions may apply to the receipt by Servicing
Agents of compensation from the Fund in connection with the investment of
fiduciary assets in Fund shares. Servicing Agents, including banks regulated
by the Comptroller of the Currency, the Federal Reserve Board or the Federal
Deposit Insurance Corporation, and investment advisers and other money
managers are urged to consult their legal advisers before investing such assets
in Fund shares.
17
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Administration
The Fund and the Investment Manager have also entered into an
Administration Agreement pursuant to which the Investment Manager, as
Administrator, provides administrative services to each of the Portfolios.
Administrative services furnished by the Investment Manager include,
among others, maintaining and preserving the records of the Fund,
including financial and corporate records, computing net asset value,
dividends, performance data and financial information regarding the Fund,
preparing reports, overseeing the preparation and filing with the Securities
and Exchange Commission ("SEC") and state securities regulators of registration
statements, notices, reports and other material required to be filed under
applicable laws, developing and implementing procedures for monitoring
compliance with regulatory requirements, providing routine accounting
services, providing office facilities and clerical support as well as
providing general oversight of other service providers. For its services as
administrator, the Investment Manager receives from each Portfolio an
annual fee, payable monthly, of .10 of 1% of average daily net assets of such
Portfolio. The fee is accrued daily as an expense of each Portfolio.
Total fees payable by the Fund to the Investment Manager, as Administrator,
for the fiscal year ended October 31, 1996 were $956,680 for the Money
Market Portfolio, $254,387 for the U.S. Government Portfolio and $170,273
for the Municipal Portfolio. For the fiscal year ended October 31, 1996,
the Investment Manager voluntarily waived or reimbursed $308, $1,730 and
$14,089 of its administration fee for the Money Market Portfolio, the
U.S. Government Portfolio and the Municipal Portfolio, respectively.
The Investment Manager has entered into a Subadministration Agreement with
FDI pursuant to which FDI performs certain of the foregoing administrative
services for the Fund. Under this Agreement, the Investment Manager pays
FDI's fees for providing such services. In addition, the Investment
Manager may enter into subadministration agreements with other persons to
perform such services from time to time.
The Administration Agreement will continue in effect until December 12,
1997, and is renewable thereafter for periods of one year, so long as such
continuance is approved at least annually by a vote of the Board of
Directors of the Fund, including a majority of Disinterested Directors of
the Fund who have no direct or indirect financial interest in the Agreement.
The Agreement was approved by the Board of Directors of the Fund, including a
majority of the Disinterested Directors of the Fund who have no direct or
indirect financial interest in the Agreement. Each Portfolio or the
Investment Manager may terminate the Administration Agreement on 60 days'
prior written notice without penalty. Termination by a Portfolio may be by
vote of the Fund's Board of Directors, or a majority of the Disinterested
Directors of the Fund who have no direct or indirect financial
interest in the Agreement, or by a "majority of the outstanding voting
securities" of such Portfolio as defined under the Investment Company Act. The
Agreement terminates automatically in the event of its "assignment" as defined
in the Investment Company Act.
The Administration Agreement provides that the Investment Manager will not be
liable for any error of judgment or of law, or for any loss suffered by a
Portfolio in connection with the matters to which such agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross
negligence on the Investment Manager's part in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties under such agreement.
The Glass-Steagall Act and other applicable laws generally prohibit federally
chartered or supervised banks from engaging in the business of underwriting,
selling or distributing securities. While the matter is not free from doubt,
the Investment Manager believes that such laws should not preclude the
Investment Manager from acting as administrator and investment manager to the
Fund. Accordingly, the Investment Manager under the Administration
Agreement and the Investment Management Agreement will only perform
administrative and investment management servicing functions. However,
judicial and administrative decisions or interpretations of such laws as well
as changes in either state statutes or regulations relating to the
permissible activities of banks or their subsidiaries or affiliates could
prevent
18
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the Investment Manager from continuing to perform all or a part of its
administration or investment management activities. If the Investment Manager
were prohibited from so acting, alternative means of continuing such services
would be sought by the Board of Directors of the Fund.
Transfer Agent and Custodian
The Bank (also referred to as the "Transfer Agent") serves as transfer and
dividend disbursing agent for each Portfolio. For the services provided under
the Transfer Agency and Dividend Disbursing Agency Agreement, which include
furnishing periodic and year-end shareholder statements and confirmations of
purchases and sales, reporting share ownership, aggregating, processing and
recording purchases and redemptions of shares, processing dividend and
distribution payments, forwarding shareholder communications such as
proxies, shareholder reports, dividend notices and prospectuses to beneficial
owners, receiving, tabulating and transmitting proxies executed by
beneficial owners and sending year-end tax reporting to shareholders and the
Internal Revenue Service, the Transfer Agent receives an annual fee, payable
monthly, of .20 of 1% of the Portfolio's average daily net assets.
Total fees payable by the Fund to the Bank for the fiscal year ended October
31, 1996 were $1,913,360 for the Money Market Portfolio, $508,773 for the
U.S. Government Portfolio and $340,545 for the Municipal Portfolio. For
the fiscal year ended October 31, 1996, the Bank voluntarily waived
$151,954, $125,862 and $94,522 of its transfer agent fee for the Money
Market Portfolio, the U.S. Government Portfolio and the Municipal Portfolio,
respectively.
The Transfer Agent has entered into a Sub-Transfer Agency and Dividend
Disbursing Agency Agreement with National Investor Services Corp. ("NISC"),
an affiliate of the Investment Manager, pursuant to which it performs certain
of the foregoing transfer and dividend disbursing agency services for the
Fund. Under this agreement, the Transfer Agent compensates the Sub-Transfer
and Dividend Disbursing Agent for providing such services. In addition, the
Transfer Agent may enter into sub-transfer agency and dividend disbursing
agency agreements with other persons to perform such services from time to
time.
Custodian. Pursuant to a Custodian Agreement, The Bank of New York acts as
the custodian of each of the Portfolio's assets.
DIVIDENDS AND TAXES
Dividends. On each day that the net asset value ("NAV") of a Portfolio is
determined, such Portfolio's net investment income will be declared at 4:00
p.m. (Eastern time) as a daily dividend to shareholders of record as of such
day's last calculation of NAV.
Each Portfolio calculates its dividends based on its daily net investment
income. For this purpose, the net investment income of a Portfolio consists
of accrued interest income plus or minus amortized discount or premium minus
accrued expenses. Expenses of each Portfolio are accrued each day.
Because each Portfolio's income is entirely derived from interest or
gains from the sale of debt instruments, dividends from a Portfolio will
not qualify for the dividends received deduction available to corporate
shareholders.
Distributions of income realized with respect to market discount will be made,
at least annually, as determined by the Board of Directors, to maintain each
Portfolio's net asset value at $1.00 per share.
Capital Gains Distribution. If a Portfolio realizes any net capital
gains, such gains will be distributed at least once during the year as
determined by the Board of Directors, to maintain its net asset value at $1.00
per share. Short-term capital gains distributed by a Portfolio are taxable
to shareholders as ordinary income, not as capital gains. Any realized
short-term capital losses to the extent not offset by realized capital gains
will be carried forward. It is not anticipated that a Portfolio will realize
any long-term capital gains, but if it does so, these gains will be
distributed annually.
19
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Tax Status of the Fund. Each Portfolio intends to meet the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its investment company taxable income and net realized
gains, if applicable, to shareholders. Therefore, it is not anticipated that
any of the Portfolios will be subject to the 4% excise tax applicable
to regulated investment companies that fail to satisfy certain distribution
requirements.
Each Portfolio is treated as a separate entity from the other Portfolios for tax
purposes.
State and Local Tax Issues. Shareholders are urged to consult with their tax
advisers as to whether any of the dividends paid by the U.S. Government
Portfolio are exempt from state and local taxation. The exemption from state
and local income taxation does not preclude states from assessing other taxes
on the ownership of U.S. government securities whether such securities are
held directly or through the Fund.
Federal Tax Issues -- Municipal Portfolio. Distributions from the Municipal
Portfolio will constitute exempt-interest dividends to the extent of the
Portfolio's tax-exempt interest income (net of expenses and amortized bond
premium). Exempt-interest dividends distributed to shareholders of the
Municipal Portfolio are excluded from gross income for federal income tax
purposes. However, shareholders required to file a federal income tax return
will be required to report the receipt of exempt-interest dividends on their
returns. Moreover, while exempt-interest dividends are excluded from gross
income for federal income tax purposes, they may be subject to alternative
minimum tax ("AMT") in certain circumstances and may have other collateral tax
consequences as discussed below. Distributions by the Municipal Portfolio of
any investment company taxable income or of any short-term capital gains or
market discount will be taxable to shareholders.
Dividend distributions resulting from a recharacterization of gain from the
sale of bonds purchased with market discount are not considered income for
purposes of the Municipal Portfolio's policy of investing so that at least
80% of its income is free from federal income tax.
AMT is imposed in addition to, but only to the extent it exceeds, the regular
tax and is computed at a maximum marginal rate of 28% for noncorporate
taxpayers and 20% for corporate taxpayers on the excess of the taxpayer's
alternative minimum taxable income ("AMTI") over an exemption
amount. Exempt-interest dividends derived from certain "private activity"
municipal obligations issued after August 7, 1986 will generally
constitute an item of tax preference includable in AMTI for both corporate
and noncorporate taxpayers. Corporate investors should note that 75% of the
amount by which adjusted current earnings (which includes all tax-exempt
interest) exceeds the AMTI of the corporation constitutes an upward adjustment
for purposes of the corporate AMT.
Exempt-interest dividends must be taken into account in computing the
portion, if any, of social security or railroad retirement benefits that
must be included in an individual shareholder's gross income and subject to
federal income tax. Receipt of exempt-interest dividends may result in
other collateral federal income tax consequences to certain taxpayers.
Prospective investors should consult their own tax advisers as to such
consequences.
Interest on indebtedness which is incurred to purchase or carry shares of
a mutual fund portfolio which distributes exempt-interest dividends during
the year is not deductible for federal income tax purposes. Further, the
Municipal Portfolio may not be an appropriate investment for (i) persons who
are "substantial users" of facilities financed by industrial development
bonds held by the Municipal Portfolio or are "related persons" to such
users; or (ii) persons who are investing through a tax-exempt retirement
plan, IRA or Keogh Account.
The "Superfund Amendments and Reauthorization Act of 1986" ("SARA")
imposes a separate tax on corporations at a rate of 0.12 percent of the
excess of such corporation's "modified" AMTI over $2,000,000. A portion of
tax-exempt interest, including exempt-interest dividends from the Municipal
20
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Portfolio, may be includable in modified AMTI. Corporate shareholders are
advised to consult with their tax advisers with respect to the consequences of
SARA.
The Municipal Portfolio purchases municipal obligations based on opinions
of bond counsel regarding the federal income tax status of the obligations.
These opinions generally will be based on covenants by the issuers regarding
continuing compliance with federal tax requirements. If the issuer of an
obligation fails to comply with its covenant at any time, interest on the
obligation could become federally taxable, either prospectively or
retroactively to the date the obligation was issued.
Each of the Portfolios may invest in obligations such as zero coupon bonds,
issued with original issue discount ("OID") for federal income tax
purposes. Accrued OID constitutes income subject to the distribution
requirements applicable to regulated investment companies, although such
income may not be represented by any cash payment. Accordingly, it may be
necessary for a Portfolio to dispose of other assets in order to satisfy such
distribution requirements.
Other Tax Information. The Transfer Agent will send each shareholder a
notice in January describing the tax status of dividend and capital gain
distributions (where applicable) for the prior year.
The information above, together with the information set forth in the
Prospectus, is only a summary of some of the federal income tax consequences
generally affecting each Portfolio and its shareholders, and no attempt has
been made to present a detailed explanation of the tax treatment of each
Portfolio or to discuss individual tax consequences. In addition to federal
income taxes, shareholders may be subject to state and local taxes on Fund
distributions, and shares may be subject to state and local personal property
taxes. Investors should consult their tax advisers to determine whether a
Portfolio is suitable to their particular tax situation.
Foreign shareholders should consult their tax advisers regarding foreign tax
consequences applicable to their purchase of Fund shares.
Independent Auditors and Reports to Shareholders. The Fund's independent
auditors, Ernst & Young LLP, whose address is 787 Seventh Avenue, New York,
New York 10019, audit and report on the Fund's annual financial statements,
review certain regulatory reports and the Fund's federal income tax returns, and
perform other professional accounting, auditing, tax and advisory services
when engaged to do so by the Fund. Shareholders will receive annual audited
financial statements and semi-annual unaudited financial statements.
SHARE PRICE CALCULATION
Each Portfolio values its portfolio instruments at amortized cost, which means
that they are valued at their acquisition cost, as adjusted for amortization
of premium or accretion of discount, rather than at current market value.
The amortized cost value of an instrument may be higher or lower than the
price each Portfolio would receive if it sold the instrument.
Valuing a Portfolio's instruments on the basis of amortized cost and use of
the term "money market fund" are permitted by Rule 2a-7. Each Portfolio must
adhere to certain conditions under Rule 2a-7.
The Board of Directors of the Fund oversees the Investment Manager's adherence
to SEC rules concerning money market funds, and has established procedures
designed to stabilize each Portfolio's NAV per share at $1.00. At such
intervals as they deem appropriate, the Board of Directors considers the
extent to which NAV calculated by using market valuations would deviate from
$1.00 per share. Market valuations are obtained by using actual quotations
provided by market makers, estimates of current market value, or values
obtained from yield data relating to classes of money market instruments
21
<PAGE>
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published by reputable sources at the mean between the bid and asked prices of
the instruments. If a deviation were to occur between the net asset value per
share calculated by reference to market values and a Portfolio's $1.00 per
share net asset value, which the Board of Directors of the Fund believed may
result in material dilution or other unfair results to shareholders, the
directors have agreed promptly to consider what corrective action they deem
appropriate to eliminate or reduce, to the extent reasonably practicable,
the dilution or unfair results. Such corrective action could include selling
portfolio securities prior to maturity; withholding dividends; redeeming
shares in kind; establishing NAV by using available market quotations; and
such other measures as the directors may deem appropriate.
During periods of declining interest rates, each Portfolio's yield based
on amortized cost may be higher than the yield based on market valuations.
Under these circumstances, a shareholder of any Portfolio would be able to
retain a somewhat higher yield than would result if each Portfolio utilized
market valuations to determine its NAV. The converse would apply in a period of
rising interest rates.
Net asset value is calculated by the Fund as to each Portfolio on each
day that the NYSE and the Custodian are open. Currently, the NYSE is closed
on weekends and New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. In
addition to these holidays, the Custodian generally is closed on Martin
Luther King, Jr. Day, Veteran's Day and Columbus Day.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each Portfolio does not currently impose a minimum for initial or
subsequent investments. However, minimum requirements may be imposed or
changed at any time. Each Portfolio may waive minimum investment
requirements for purchases by directors, officers or employees of the Fund,
Waterhouse or any of its subsidiaries.
The Fund normally calculates the net asset value of each Portfolio as of
12:00 noon and 4:00 p.m. (Eastern time) each day that the NYSE and the bank
which serves as the Custodian are open. To the extent that portfolio
securities are traded in other markets on days when the NYSE or the Custodian
are closed, a Portfolio's net asset value may be affected on days when
investors do not have access to the Fund to purchase or redeem shares. In
addition, trading in some of a Portfolio's portfolio securities may not
occur on days when the Fund is open for business.
If the Board of Directors determines that existing conditions make
cash payments undesirable, redemption payments may be made in whole or in
part in securities or other property, valued for this purpose as they are
valued in computing a Portfolio's NAV. Shareholders receiving securities or
other property on redemption may realize a gain or loss for tax purposes, and
will incur any costs of sale, as well as the associated inconveniences.
The Fund may suspend redemption rights and postpone payments at times when
trading on the NYSE is restricted, the NYSE is closed for any reason other
than its customary weekend or holiday closings, emergency circumstances as
determined by the SEC exist, or for such other circumstances as the SEC may
permit.
22
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PERFORMANCE
As reflected in the Prospectus, the historical performance calculation for a
Portfolio may be shown in the form of "yield," "effective yield" and, for the
Municipal Portfolio only, "tax equivalent yield" and "tax equivalent effective
yield." These various measures of performance are described below.
Each Portfolio's yield is computed in accordance with a standardized method
prescribed by rules of the SEC. Under that method, the yield quotation is
based on a seven-day period and is computed for each Portfolio as follows: the
first calculation is net investment income per share for the period, which is
accrued interest on portfolio securities, plus or minus amortized discount
or premium (excluding market discount for the Municipal Portfolio), less
accrued expenses. This number is then divided by the price per share
(expected to remain constant at $1.00) at the beginning of the period
("base period return"). The result is then divided by 7 and multiplied by 365
and the resulting yield figure is carried to the nearest one-hundredth of
one percent. Realized capital gains or losses and unrealized appreciation
or depreciation of investments are not included in the calculation.
The yield for each Portfolio for the seven day period ended October 31, 1996
was 4.64% for the Money Market Portfolio, 4.58% for the U.S. Government
Portfolio and 2.92% for the Municipal Portfolio.
Each Portfolio's effective yield is determined by taking the base period
return (computed as described above) and calculating the effect of assumed
compounding. The formula for effective yield is:
[(base period return + 1) 365/7] -1.
The effective yield for each Portfolio for the seven day period ended
October 31, 1996 was 4.75% for the Money Market Portfolio, 4.68% for the
U.S. Government Portfolio and 2.96% for the Municipal Portfolio.
The tax equivalent yield of the shares of the Municipal Portfolio is computed
by dividing that portion of the yield of the Portfolio (computed as described
above) that is tax-exempt by an amount equal to one minus the stated federal
income tax rate (normally assumed to be the maximum applicable marginal tax
bracket rate) and adding the result to that portion, if any, of the yield of
the Portfolio that is not tax-exempt.
The tax equivalent yield for the Municipal Portfolio for the seven day
period ended October 31, 1996 was 4.56%. The assumed federal income tax rate is
36%.
Tax equivalent effective yield is computed in the same manner as tax
equivalent yield, except that effective yield is substituted for yield in the
calculation.
The tax equivalent effective yield for the Municipal Portfolio for the seven
day period ended October 31, 1996 was 4.63%. The assumed federal income tax
rate is 36%.
Each Portfolio's yield fluctuates, and the publication of an annualized
yield quotation is not a representation as to what an investment in that
Portfolio will actually yield for any given future period. Actual yields
will depend not only on changes in interest rates on money market instruments
during the period in which the investment in the Portfolio is held, but
also on such matters as expenses of that Portfolio.
As indicated in the Prospectus (see "Performance"), the performance of the
Fund's Portfolios may be compared to that of other money market mutual
funds tracked by Lipper Analytical Services, Inc. ("Lipper"), a widely used
independent research firm that ranks mutual funds by overall performance,
investment objectives and assets. Lipper performance calculations include
the reinvestment of all capital gain and income dividends for the
periods covered by the calculations. A Portfolio's performance also may be
compared to other money market funds as reported by IBC/Donoghue's Money Fund
Report(R), a reporting service on money market funds. As reported by Money Fund
Report, all investment results
23
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represent total return (annualized results for the period net of management
fees and expenses) and one year investment results are effective annual yields
assuming reinvestment of dividends.
BANK RATE MONITOR(TM), N. Palm Beach, Florida 33408, a financial
reporting service which each week publishes average rates of bank and thrift
institution money market deposit accounts and interest bearing checking
accounts, reports results for the BANK RATE MONITOR National Index. The
rates published by the BANK RATE MONITOR National Index are averages of the
personal account rates offered on the Wednesday prior to the date of
publication by 100 of the leading bank and thrift institutions in the ten
largest Consolidated Metropolitan Statistical Areas. Account minimums
range upward from $2,000 in each institution and compounding methods vary.
Interest bearing checking accounts generally offer unlimited checking while
money market deposit accounts generally restrict the number of checks that
may be written. If more than one rate is offered, the lowest rate is used.
Rates are determined by the financial institution and are subject to change at
any time specified by the institution. Bank products represent a taxable
alternative income producing product. Bank and thrift institution account
deposits may be insured. Shareholder accounts in the Fund are not insured.
Bank savings accounts compete with money market mutual fund products with
respect to certain liquidity features but may not offer all of the features
available from a money market mutual fund, such as check writing. Bank
checking accounts normally do not pay interest but compete with money market
mutual fund products with respect to certain liquidity features (e.g., the
ability to write checks against the account). Bank certificates of deposit
may offer fixed or variable rates for a set term. (Normally, a variety of
terms are available.) Withdrawal of these deposits prior to maturity will
normally be subject to a penalty. In contrast, shares of a Portfolio are
redeemable at the net asset value next determined (normally, $1.00 per share)
after a request is received without charge.
Investors may also want to compare a Portfolio's performance to that of United
States Treasury Bills or Notes because such instruments represent
alternative income producing products. Treasury obligations are issued in
selected denominations. Rates of Treasury obligations are fixed at the time
of issuance and payment of principal and interest is backed by the full faith
and credit of the United States Treasury. The market value of such instruments
will generally fluctuate inversely with interest rates prior to maturity and
will equal par value at maturity. Generally, the values of obligations with
shorter maturities will fluctuate less than those with longer maturities. A
Portfolio's yield will fluctuate.
Tax-Exempt versus Taxable Yield. Investors may want to determine which
investment--tax-exempt or taxable--will provide a higher after-tax return. To
determine the tax equivalent yield, simply divide the yield from the
tax-exempt investment by an amount equal to 1 minus the investor's marginal
federal income tax rate. The table below is provided for investors' convenience
in making this calculation for selected tax-exempt yields and taxable income
levels. These yields are presented for purposes of illustration only and
are not representative of any yield that the Municipal Portfolio may
generate. This table is based upon current law as to the 1997 tax rate
schedules.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Investor's A Tax-Exempt
Married Filing Marginal Yield of:
Single Tax Payer Joint Return Federal 2% 3% 4% 5% 6% 7%
Taxable Income Taxable Income Tax Rate Is Equivalent to a Taxable Yield of:
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 24,651 - $ 59,750 $ 41,201 - $ 99,600 28.0% 2.8 4.2 5.6 6.9 8.3 9.7
$ 59,751 - $124,650 $ 99,601 - $151,750 31.0% 2.9 4.3 5.8 7.2 8.7 10.1
$124,651 - $271,050 $151,751 - $271,050 36.0% 3.1 4.7 6.3 7.8 9.4 10.9
$271,051 or greater $271,051 or greater 39.6% 3.3 5.0 6.6 8.3 9.9 11.6
</TABLE>
24
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SHAREHOLDER RIGHTS
The shares of the Fund are divided into three Portfolios (or series)
constituting separate portfolios of investments, with various investment
objectives and policies.
Each Portfolio issues shares of common stock in the Fund. Shares of the
Fund have equal rights with respect to voting, except that the holders of
shares of a particular Portfolio will have the exclusive right to vote on
matters affecting only the rights of the holders of such Portfolio. For
example, holders of a particular Portfolio will have the exclusive right to
vote on any investment management agreement or investment restriction that
relates only to such Portfolio. Shareholders of the Portfolios do not
have cumulative voting rights, and therefore the holders of more than 50%
of the outstanding shares of the Fund voting together for the election of
directors may elect all of the members of the Board of Directors. In such
event, the remaining holders cannot elect any members of the Board of
Directors.
The Board of Directors may authorize the issuance of additional shares, and
may, from time to time, classify or reclassify issued or any unissued
shares to create one or more new classes or series in addition to those
already authorized by setting or changing in any one or more respects
the designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption, of such shares; provided, however, that any such
classification or reclassification shall not substantially adversely affect
the rights of holders of issued shares. Any such classification or
reclassification will comply with the provisions of the Investment Company
Act.
The Articles of Incorporation permit the directors to issue the
following number of full and fractional shares, par value $.0001, of the
Portfolios: 60 billion shares of the Money Market Portfolio; 20 billion
shares of the U.S. Government Portfolio; and 20 billion shares of the
Municipal Portfolio. Each Portfolio share is entitled to participate pro rata
in the dividends and distributions from that Portfolio.
As described in each Prospectus, the Fund will not normally hold annual
shareholders' meetings. Under Maryland law and the Fund's By-Laws, an annual
meeting is not required to be held in any year in which the election of
directors is not required to be acted upon under the Investment Company
Act. The Fund's By-Laws provide that special meetings of shareholders, unless
otherwise provided by law or by the Articles of Incorporation, may be called
for any purpose or purposes by a majority of the Board of Directors, the
Chairman of the Board, the President, or the written request of the holders of
at least 10% of the outstanding shares of capital stock of the corporation
entitled to be voted at such meeting to the extent permitted by Maryland law.
Each director serves until the next election of directors and until the
election and qualification of his successor or until such director sooner
dies, resigns, retires or is removed by the affirmative vote of a majority of
the outstanding voting securities of the Fund. In accordance with the
Investment Company Act (i) the Fund will hold a shareholder meeting for the
election of directors at such time as less than a majority of the directors have
been elected by shareholders, and (ii) if, as a result of a vacancy in the
Board of Directors, less than two-thirds of the directors have been
elected by the shareholders, that vacancy will be filled only by a vote of the
shareholders.
FINANCIAL STATEMENTS
The Fund's financial statements and financial highlights for the period from
the Fund's commencement of operations, December 20, 1995, through October
31, 1996, are included in the Fund's Annual Report, which is a separate
report supplied with this Statement of Additional Information. The
Fund's financial statements and financial highlights for the fiscal year
ended October 31, 1996, including the independent auditors' report thereon, are
incorporated herein by reference.
25
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ANNEX -- RATINGS OF INVESTMENTS
STANDARD AND POOR'S AND MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATINGS
Commercial paper rated by Standard & Poor's has the following
characteristics: Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better. The issuer has access to at
least two additional channels of borrowing. Basic earnings and cash flow
have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has a
strong position within the industry. The reliability and quality of
management are unquestioned. Relative strength or weakness of the above
factors determine whether the issuer's commercial paper is rated A-1, A-2 or
A-3.
The ratings Prime-1 and Prime-2 are the two highest commercial paper
ratings assigned by Moody's Investors Service. Among the factors considered
by them in assigning ratings are the following: (1) evaluation of the
management of the issuer; (2) economic evaluation of the issuer's
industry or industries and an appraisal of speculative-type risks which may
be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount
and quality of long-term debt; (6) trend of earnings over a period of ten
years; (7) financial strength of a parent company and the relationships
which exist with the issuer; and (8) recognition by the management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Relative strength or
weakness of the above factors determines whether the issuer's commercial paper
is rated Prime-1, -2 or -3.
MIG-1 AND MIG-2 Municipal Notes
Moody's Investors Service's ratings for state and municipal notes and other
short-term loans will be designated Moody's Investment Grade ("MIG"). This
distinction is in recognition of the differences between short-term credit
risk and long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while various factors of the
first importance in bond risk are of lesser importance in the short run.
Loans designated MIG-1 are of the best quality, enjoying strong protection
from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
Loans designated MIG-2 are of high quality, with margins of protection ample
although not so large as in the preceding group.
STANDARD & POOR'S BOND RATINGS, CORPORATE BONDS
AAA. This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA. Bonds rated AA also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority
of instances they differ from AAA issues only in small degree.
A. Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to adverse effects of changes in
circumstances and economic conditions.
MOODY'S INVESTORS SERVICE 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.
26
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Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long term risks appear somewhat larger
than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
27
<PAGE>
PART C
OTHER INFORMATION
WATERHOUSE INVESTORS CASH MANAGEMENT FUND, INC.
Item 24. Financial Statements and Exhibits.
(a) Financial Statements included in the Prospectus:
Financial Highlights from December 20, 1995
(commencement of operations)
through October 31, 1996
Financial Statements included in the Statement of Additional
Information*:
Statements of Assets and Liabilities, October 31, 1996
Statements of Operations, for the period ended
October 31, 1996
Statements of Changes in Net Assets, for the period
ended October 31, 1996
Financial Highlights, for the period ended October 31,
1996
Notes to Financial Statements -- October 31, 1996
Schedules of Investments, October 31, 1996
Notes to Schedules of Investments, October 31, 1996
Report of Independent Auditors
* Audited financial statements for each Portfolio of the Fund and the auditors'
report thereon for the fiscal period ended October 31, 1996 (with respect to
each Portfolio, part of the Fund's Annual Report filed with the Securities and
Exchange Commission on December 19, 1996 pursuant to Rule 30b2-1 under the
Investment Company Act of 1940, as amended, accession number
0000889812-96-001947) have been incorporated by reference thereto in the
Statement of Additional Information.
(b) Exhibits
(1) Articles of Incorporation, as amended to date**
(2) By-Laws, as amended to date*
(3) Inapplicable
(4) Instruments Defining Shareholder Rights
(Incorporated by Reference to Exhibits 1 and 2 to
Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A, File Nos. 33-96132; 811-
9086, filed on June 20, 1996)
(5) Investment Management Agreement between Registrant
and Waterhouse Asset Management, Inc. dated October
15, 1996, filed herewith
(6) (a) Distribution Agreement between Registrant and
Funds Distributor, Inc. dated December 15, 1995**
(b)(i) Form of Agency Selling Agreement*
(b)(ii) Agency Selling Agreement for Waterhouse
Securities, Inc. dated February 15, 1996**
C - 1
<PAGE>
(7) Inapplicable
(8) Custody Agreement between Registrant and The Bank of
New York dated December 19, 1995**
(9) (a) Transfer Agency and Dividend Disbursing Agency
Agreement between Registrant and Waterhouse
National Bank dated October 15, 1996, filed
herewith
(b) Sub-Transfer Agency and Dividend Disbursing
Agency Agreement between Waterhouse National Bank,
National Investor Services Corp. and Waterhouse
Securities, Inc. on behalf of Registrant dated
October 15, 1996, filed herewith
(c) Form of Shareholder Servicing Plan*
(d)(i) Form of Shareholder Services Agreement*
(d)(ii) Shareholder Services Agreement for Waterhouse
Securities Inc. dated October 15, 1996, filed
herewith
(e) Administration Agreement between Registrant
and Waterhouse Asset Management, dated October
15, 1996, filed herewith
(f) Subadministration Agreement between Waterhouse
Asset Management, Inc., and Funds Distributor,
Inc. on behalf of Registrant dated October 15,
1996, filed herewith
(g) Accounting Services Agreement between Waterhouse
Asset Management, Inc. and MGF Service Corp. on
behalf of Registrant dated October 15, 1996,
filed herewith
(h) State Registration Services Agreement between
Registrant and Clear Sky Corporation dated
November 27, 1995**
(10) Opinion and Consent of Shereff, Friedman, Hoffman and
Goodman, LLP as to legality of the securities being
registered*
(11) Consent of Independent Auditors, filed herewith
(12) Inapplicable
(13) Subscription Agreement between Registrant and FDI
Distribution Services, Inc. dated December 12, 1995**
(14) Model Waterhouse Securities, Inc. Individual
Retirement Plan, filed herewith
(15) Inapplicable
(16)(a) Schedule for computation of each performance
quotation for Money Market Portfolio**
(b) Schedule for computation of each performance
quotation for the U.S.Government Portfolio**
C - 2
<PAGE>
(c) Schedule for computation of each performance
quotation for Municipal Portfolio**
(17)(a) Financial Data Schedule for Money Market Portfolio,
filed herewith
(b) Financial Data Schedule for U.S. Government
Portfolio, filed herewith
(c) Financial Data Schedule for Municipal Portfolio,
filed herewith
(18) Inapplicable
Other Exhibit:
Power of Attorney for George F. Staudter, Richard Dalrymple,
Anthony J. Pace, Lawrence Toal and Theodore Rosen dated June
12, 1996, filed herewith
- -------------
* Previously filed and incorporated by reference to Pre-Effective Amendment
No. 2 to Registration Statement on Form N-1A, File Nos. 33-96132; 811-9086,
filed on December 12, 1995.
** Previously filed and incorporated by reference to identically numbered
Exhibit to Post-Effective Amendment No. 1 to Registration Statement on Form
N-1A, File Nos. 33-96132; 811-9086, filed on June 20, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
As of January 31, 1997, the number of record holders of each class of
securities of the Registrant were as follows:
Title of Series Number of Record Holders
Money Market Portfolio 179,093
U.S. Government Portfolio 32,247
Municipal Portfolio 16,693
Item 27. Indemnification.
Section 2-418 of the General Corporation Law of the State of Maryland,
Article IX of the Registrant's Articles of Incorporation, filed as
Exhibit (b)(1) hereto, Article V of the Registrant's By-Laws, filed as
Exhibit (b)(2) hereto, and the Investment Management Agreement, filed
as Exhibit 5 hereto, provide for indemnification.
The Articles of Incorporation and By-Laws provide that to the fullest
extent that limitations on the liability of directors and officers are
permitted by the Maryland General Corporation Law, no director or
officer of the Registrant shall have any liability to the Registrant or
to its shareholders for damages.
C - 3
<PAGE>
The Articles of Incorporation and By-Laws further provide that the
Registrant shall indemnify and advance expenses to its currently acting
and its former directors to the fullest extent that indemnification of
directors is permitted by the Maryland General Corporation Law and the
Investment Company Act; that the Registrant shall indemnify and advance
expenses to its officers to the same extent as its directors and to
such further extent as is consistent with applicable law. The Board of
Directors may, through by-law, resolution or agreement, make further
provisions for indemnification of directors, officers, employees and
agents to the fullest extent permitted by the Maryland General
Corporation Law. However, nothing in the Articles of Incorporation or
By- Laws protects any director or officer of the Registrant against any
liability to the Registrant or to its shareholders to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
Section 2-418 of the General Corporation Law of the State of Maryland
provides that a corporation may indemnify any director made a party to
any proceeding by reason of service in that capacity unless it is
established that (i) the act or omission of the director was material
to the matter giving rise to the proceeding; and (a) was committed in
bad faith; or (b) was the result of active and deliberate dishonesty;
or (ii) the director actually received an improper personal benefit in
money, property, or services; or (iii) in the case of any criminal
proceeding, the director had reasonable cause to believe that the act
or omission was unlawful. Section 2-418 permits indemnification to be
made against judgments, penalties, fines, settlements, and reasonable
expenses actually incurred by the director in connection with the
proceeding; however, if the proceeding was one by or in the right of
the corporation, indemnification may not be made in respect of any
proceeding in which the director shall have been adjudged to be liable
to the corporation. A director may not be indemnified under Section
2-418 in respect of any proceeding charging improper personal
benefit to the director, whether or not involving action in the
director's official capacity, in which the director was adjudged to be
liable on the basis that personal benefit was improperly received.
Unless limited by the Registrant's charter, a director who has been
successful, on the merits or otherwise, in the defense of any
proceeding referred to above shall be indemnified against any
reasonable expenses incurred by the director in connection with the
proceeding. Reasonable expenses incurred by a director who is a party
to a proceeding may be paid or reimbursed by the corporation in advance
of the final disposition of the proceeding upon receipt by the
corporation of (i) a written affirmation by the director of the
director's good faith belief that the standard of conduct necessary for
indemnification by the corporation has been met; and (ii) a written
undertaking by or on behalf of the director to repay the amount if it
shall ultimately be determined that the standard of conduct has not
been met.
The indemnification and advancement of expenses provided or authorized
by Section 2-418 may not be deemed exclusive of any other rights, by
indemnification or otherwise, to which a director may be entitled under
the charter, the bylaws, a resolution of stockholders or directors, an
agreement or otherwise, both as to action in an official capacity and
as to action in another capacity while holding such office.
Under Section 2-418, a corporation may indemnify and advance expenses
to an officer, employee, or agent of the corporation to the same extent
that it may indemnify directors and a corporation, in addition, may
indemnify and advance expenses to an officer, employee, or agent who is
not a director to such further extent, consistent with law, as may be
provided by its charter, bylaws, general or specific action of its
board of directors or contract.
C - 4
<PAGE>
Under Section 2-418, a corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or
agent of the corporation, or who, while a director, officer, employee,
or agent of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation, partnership, joint
venture, trust, other enterprise, or employee benefit plan against any
liability asserted against and incurred by such person in any such
capacity or arising out of such person's position, whether or not the
corporation would have the power to indemnify against liability under
the provisions of such Section. A corporation also may provide similar
protection, including a trust fund, letter of credit, or surety bond,
not inconsistent with the foregoing. The insurance or similar
protection may be provided by a subsidiary or an affiliate of the
corporation.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that, in the opinion of the
SEC, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser.
The following persons are the directors and officers of the Investment
Manager:
DAVID HARTMAN**, Senior Vice President and Chief Investment Officer.
From February 1995 through August 1995, Mr. Hartman served as
Senior Vice President and Senior Portfolio Manager of Fixed Income
Separate Accounts at Mitchell Hutchins - Paine Webber. Mr. Hartman
also served in similar capacities for Kidder Peabody & Co. from 1983
to 1995.
RICHARD H. NEIMAN*, Director and Secretary. Mr. Neiman has served as
Executive Vice President, General Counsel, Director and Secretary of
Waterhouse Investor Services, Inc. since July 1994. Mr. Neiman also
serves in similar capacities for Waterhouse Securities, Inc. Mr.
Neiman has served as General Counsel, Director and Secretary of
Waterhouse National Bank and National Investor Services Corp. since
July 1994 and September 1995, respectively.
FRANK J. PETRILLI*, Director. Mr. Petrilli has served as President
and Chief Operating Officer of Waterhouse Investor Services, Inc.
since January 1995. Mr. Petrilli has served as a Director of
Waterhouse National Bank and National Investor Services Corp. since
March 1995 and September 1995, respectively. Prior to that, Mr.
Petrilli served as President and Chief Operating Officer of American
Express Centurion Bank from May 1993 to January 1995 and Chief
Financial Officer from January 1991 to May 1993.
M. BERNARD SIEGEL***, Senior Vice President, Chief Financial Officer
and Treasurer. Mr. Siegel has served as Executive Vice President of
Finance and Administration of Waterhouse Investor Services, Inc.,
since January 1997. Mr. Siegel served as Chief Financial Officer of
Waterhouse Investor Services, Inc., from November 1993 to January
1997. Mr. Siegel has served as Director of National Investor Services
Corp. since September 1995. Prior to that, Mr. Siegel served as Chief
Financial Officer and Chief Operating Officer of Fleet Brokerage
Securities, Inc. from March 1986 to November 1993.
C - 5
<PAGE>
MICHELE R. TEICHNER*, Senior Vice President Operations and Compliance.
Ms. Teichner has been serving as Senior Vice President of Waterhouse
Asset Management, Inc. since August 1996, with responsibility for
operations and compliance. From August 1994 to July 1996, Ms. Teichner
served as President of Mutual Fund Training & Consulting, Inc.
LAWRENCE M. WATERHOUSE, Jr*., Director. Mr. Waterhouse has served as
Chief Executive Officer and Chairman of Waterhouse Investor Services,
Inc. since its inception in 1987. Mr. Waterhouse is the founder of
Waterhouse Securities, Inc. and has served as Chief Executive Officer
since its inception in March 1979. Mr. Waterhouse also serves as
Chairman of Waterhouse National Bank and Director of National Investor
Services Corp. since July 1994 and September 1995, respectively.
* Address: 100 Wall Street, New York, NY 10005
** Address: 50 Main Street, White Plains, NY 10606
*** Address: 55 Water Street, New York, NY 10041
Item 29. Principal Underwriters.
(a) Funds Distributor, Inc. (the "Distributor") acts as principal
underwriter for the following investment companies.
BJB Investment Funds
Burridge Funds
Foreign Fund, Inc.
Fremont Mutual Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
The JPM Advisor Funds
The JPM Institutional Funds
The JPM Pierpont Funds
The JPM Series Trust
LKCM Fund Monetta Fund, Inc.
Monetta Trust
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
The PanAgora Institutional Funds
RCM Capital Funds, Inc.
RCM Equity Funds, Inc.
St. Clair Money Market Fund
The Skyline Funds
Waterhouse Investors Cash Management Fund, Inc.
Funds Distributor is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. Funds Distributor is an indirect
wholly-owned subsidiary of Boston Institutional Group, Inc., a holding
company all of whose outstanding shares are owned by key employees.
(b) The information required by this Item 29(b) with respect to each
director, officer, or partner of Funds Distributor is incorporated by
reference to Schedule A of Form BD filed by Funds Distributor with the
Securities and Exchange Commission pursuant to the Securities Act of
1934 (File No. 8-20518).
C - 6
<PAGE>
(c) Not applicable.
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained
pursuant to Section 31(a) of the Investment Company Act and the Rules
thereunder are maintained at the offices of the Registrant, the offices
of the Registrant's Investment Adviser and Administrator, Waterhouse
Asset Management, Inc., 100 Wall Street, New York, New York 10005 and
50 Main Street, White Plains, NY 10606, or (i) in the case of records
concerning custodial functions, at the offices of the Registrant's
Custodian, The Bank of New York, 48 Wall Street, New York, New York
10286; (ii) in the case of records concerning transfer agency
functions, at the offices of the Registrant's transfer agent,
Waterhouse National Bank, 50 Main Street, White Plains, New York 10606,
or Sub-Transfer and Dividend Disbursing Agent, National Investor
Services Corp., 55 Water Street, New York, New York 10041; (iii) in the
case of records concerning distribution, administration and certain
other functions, at the offices of the Fund's Distributor and
Sub-Administrator, Funds Distributor, Inc., 60 State Street, Suite
1300, Boston, Massachusetts 02109; and (iv) in the case of records
concerning fund accounting functions, at the offices of the Fund's fund
accountant, Countrywide Fund Services, Inc., 312 Walnut Street,
Cincinnati, Ohio 45202.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Registrant hereby undertakes to call a meeting of shareholders for
the purpose of voting upon the question of removal of a director or
directors and to assist in communications with other shareholders,
if requested to do so by the holders of at least 10% of
Registrant's then-outstanding shares.
C - 7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Boston and
Commonwealth of Massachusetts on the 24th day of February, 1997.
WATERHOUSE INVESTORS CASH MANAGEMENT FUND, INC.
By /s/ Christopher .J. Kelley
Christopher J. Kelley
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below on behalf of the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ John E. Pelletier President (Principal February 24, 1997
John E. Pelletier Executive Officer)
/s/ Richard W. Ingram Vice President, Treasurer February 24, 1997
Richard W. Ingram and Chief Financial Officer
George F. Staudter* Chairman of the Board February , 1997
and Director
Richard W. Dalrymple* Director February , 1997
Theodore Rosen* Director February , 1997
Lawrence J. Toal* Director February , 1997
</TABLE>
*By /s/ Richard H. Neiman
---------------------
Richard H. Neiman
Attorney-in-Fact pursuant to a power of attorney dated June 12, 1996,
filed herewith.
<PAGE>
INDEX TO EXHIBITS
(5) Investment Management Agreement
(9)(a) Transfer Agency and Dividend Disbursing Agency Agreement
(9)(b) Sub-Transfer Agency and Dividend Disbursing Agency Agreement
(9)(d)(ii) Shareholder Services Agreement
(9)(e) Administration Agreement
(9)(f) Subadministration Agreement
(9)(g) Accounting Services Agreement
(11) Consent of Independent Auditors
(14) Model Waterhouse Securities, Inc. Individual Retirement Plan
(17)(a) Financial Data Schedule for Money Market Portfolio
(17)(b) Financial Data Schedule for U.S. Government Portfolio
(17)(c) Financial Data Schedule for Municipal Portfolio
Other Exhibit: Power of Attorney
<PAGE>
EXHIBIT (5)
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 15th day of October, 1996, by and between
WATERHOUSE INVESTORS CASH MANAGEMENT FUND, INC., a Maryland corporation, whose
address is 100 Wall Street, New York, New York 10005 (the "Fund") and WATERHOUSE
ASSET MANAGEMENT, INC., a Delaware corporation, whose address is 50 Main Street,
White Plains, New York 10606 (the "Investment Manager").
W I T N E S S E T H:
WHEREAS, the Fund is an open-end, diversified management
investment company, registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), with distinct series of shares each having its own
investment objectives, policies and restrictions, including the Fund's Money
Market Portfolio, U.S. Government Portfolio and Municipal Portfolio (each, a
"Portfolio"), and including such other Portfolios as may hereafter be offered by
the Fund, all as more fully described in the Fund's Registration Statement on
Form N-1A under the 1940 Act and the Securities Act of 1933, as amended (the
"Registration Statement"), as filed with the Securities and Exchange Commission
(the "Commission") relating to the Fund and shares of the Fund's capital stock,
and all amendments thereto;
WHEREAS, the Investment Manager is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Fund and the Investment Manager desire to enter
into an agreement to provide for comprehensive management and investment
advisory services to each Portfolio upon the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is hereby agreed by and between the parties
hereto as follows:
1. Duties of Investment Manager. (a) The Fund hereby employs
the Investment Manager to act as the investment adviser for each of the
Portfolios and to manage the investment and reinvestment of the assets of each
Portfolio in accordance with the investment objectives, policies and
restrictions of each such Portfolio as the same are set forth in the
Registration Statement, and in accordance with the requirements of the 1940 Act
and all other applicable state and federal laws, rules and regulations, subject
to the supervision of the Board of Directors of the Fund for the period and upon
the terms herein set forth. The investment of funds shall also be subject to all
applicable restrictions of the Articles of Incorporation and By-laws of the Fund
as may from time to time be in force. Without limiting the generality of the
foregoing, the Investment Manager shall:
1
<PAGE>
(i) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or a Portfolio
specifically, and whether concerning the individual issuers whose securities are
included in a Portfolio or the activities in which such issuers engage, or with
respect to securities which the Investment Manager considers desirable for
inclusion in a Portfolio;
(ii) determine which issuers and securities shall be
represented in a Portfolio and regularly report thereon to the Fund's Board of
Directors;
(iii) formulate and implement continuing programs for the
purchases and sales of securities of such issuers and lists of approved
investments for each Portfolio and regularly report thereon to the Fund's Board
of Directors;
(iv) make decisions with respect to and take, on behalf of
each Portfolio, all actions which appear necessary to carry into effect such
purchase and sale programs and supervisory functions aforesaid, including the
placing of orders for the purchase and sale of securities for such Portfolio.
(b) The Investment Manager accepts such employment and agrees
during such period to render such services and to assume the obligations herein
set forth for the compensation herein provided. The Investment Manager shall
give each Portfolio the benefit of its best judgment, efforts and facilities in
rendering its services as an investment manager. The Investment Manager shall
for all purposes herein provided be deemed to be an independent contractor and,
unless otherwise expressly provided or authorized, shall have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund. It is understood and agreed that the Investment Manager, by separate
agreements with the Fund, may also serve the Fund in other capacities. It is
further agreed that the Investment Manager and its officers and directors are
not prohibited from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, officers or directors
of any other firm or corporation, including other investment companies, so long
as its or their services hereunder are not impaired thereby. It is further
agreed that personnel of the Investment Manager may invest in securities for
their own account pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the Fund, establishes procedures for
personal investing and restricts certain transactions.
(c) The Investment Manager shall keep any books and records
relevant to the provision of its investment advisory services to each Portfolio
and shall specifically maintain all books and records with respect to each
Portfolio's securities and portfolio transactions and shall render to the Fund's
Board of Directors such periodic and special reports as the Board may reasonably
request. The Investment Manager agrees that all records which it maintains for
the Fund are the property of the Fund and it will surrender promptly to the Fund
any such records upon the Fund's request, provided however that the Investment
Manager may retain a copy of such records. The Investment Manager further agrees
to preserve for the periods prescribed by
2
<PAGE>
Rule 31a-2 under the 1940 Act any such records kept by the Investment Manager in
connection with investment advisory services provided pursuant hereto.
(d) The Fund has delivered to the Investment Manager copies of
each of the following documents and will deliver to it all future amendments and
supplements thereto, if any:
(i) The Registration Statement; and
(ii) The Prospectus of the Fund (such Prospectus and the
related Statement of Additional Information of the
Fund, as currently in effect and as amended or
supplemented from time to time, being herein
collectively called the "Prospectus").
(e) The Fund shall at all times keep the Investment Manager
fully informed with regard to the securities owned by each Portfolio, its funds
available or to become available for investment, and generally as to the
condition of its affairs. The Fund shall furnish the Investment Manager with a
copy of all financial statements and each report prepared by certified public
accountants with respect to it, and with such other information with regard to
its affairs as the Investment Manager may from time to time reasonably request.
(f) Any investment program undertaken by the Investment
Manager pursuant to this Agreement, as well as any other activities undertaken
by the Investment Manager on behalf of any Portfolio pursuant thereto, shall at
all times be subject to any directives of the Board of Directors.
2. Expenses. The Investment Manager shall pay all
of its expenses arising from the performance of its obligations under
Section 1 of this Agreement and shall pay any salaries, fees and expenses of
Fund directors or officers who are employees, officers or directors of the
Investment Manager.
The Investment Manager shall not be required to pay any other
expenses of the Fund or the Portfolios, including (a) the fees and expenses of
directors who are not "interested persons" of the Fund, as defined by the 1940
Act, and travel and related expenses of the directors for attendance at
meetings; (b) the fees and expenses of the custodian and transfer agent of the
Fund or any pricing service, including but not limited to fees and expenses
relating to Fund accounting, pricing of portfolio shares, and computation of net
asset value; (c) the fees and expenses of calculating yield and/or performance
of the Portfolios; (d) the charges and expenses of legal counsel and independent
accountants; (e) taxes and corporate fees payable to governmental agencies; (f)
the costs of share certificates and of membership dues of any trade association
of which the Fund is a member; (g) reimbursement of each Portfolio's share of
the organization expenses of the Fund; (h) the fees and expenses involved in
registering and maintaining registration of the Fund and the Portfolios' shares
with the Commission, blue sky service providers, registering the Fund as a
broker or dealer and qualifying the shares of the
3
<PAGE>
Portfolios (or applying for applicable exemptions, as the case may be) under
state securities laws, including the preparation and printing of the
registration statements and prospectuses for such purposes; (i) allocable
communications expenses with respect to investor services, expenses of
shareholders' and Board of Directors' meetings and preparing, printing and
mailing proxies, prospectuses and reports to shareholders; (j) costs of
acquiring and disposing of portfolio securities, including but not limited to
brokers' commissions, dealers' mark-ups and any issue or transfer taxes
chargeable in connection with the Portfolios' transactions; (k) the cost of
stock certificates representing shares of the Portfolios, if any; (l) insurance
expenses, including, but not limited to, the cost of a fidelity bond, directors
and officers insurance and errors and omissions insurance; and (m) litigation
and indemnification expenses, expenses incurred in connection with mergers, and
other extraordinary expenses not incurred in the ordinary course of the
Portfolios' business.
3. Compensation. (a) For the services described in Section 1
hereof, the Fund, on behalf of each Portfolio, will pay to the Investment
Manager promptly after the end of each calendar month, an investment management
fee computed at the annual rate applicable to such Portfolio set forth on
Schedule A hereto. The fee as computed in accordance with Schedule A shall be
based upon the net assets of each Portfolio as to which this Agreement is then
effective. The value of the net assets for each Portfolio shall be calculated in
accordance with the provisions of the Fund's Prospectus. For purposes of this
Agreement, on each day when net asset value is not calculated, the net assets of
any Portfolio shall be deemed to be the net assets of such Portfolio as of the
close of business on the last day on which net asset value was determined.
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly in arrears (i.e., the applicable annual fee rate divided by 365 as
applied to each prior day's net assets in order to calculate the daily accrual).
If this Agreement becomes effective subsequent to the first day of a month or
shall terminate before the last day of a month, compensation for that part of
the month this Agreement is in effect shall be prorated in a manner consistent
with the calculation of the fees as set forth above.
(b) In the event the operating expenses of a Portfolio
including all management fees, for any fiscal year ending on a date on which
this Agreement is in effect exceed the expense limitation applicable to such
Portfolio imposed by the securities laws or regulations thereunder of any state
or jurisdiction in which the Portfolio's shares are qualified for sale, as such
limitations may be raised or lowered from time to time, the Investment Manager
shall reduce its management fee to the extent of such excess and, if required,
pursuant to any such laws or regulations, will reimburse the Portfolio for any
annual operating expenses (after reductions of all management fees) in excess of
any expense limitation that may be applicable; provided, however, there shall be
excluded from such expenses the amount of any interest, taxes, brokerage
commission and extraordinary expenses (including but not limited to legal claims
and liabilities and litigation costs and any indemnification related thereto)
paid or payable by the Fund and attributable to the Portfolio. Such reduction,
if any, shall be computed and accrued daily, shall be settled on a monthly basis
and shall be based upon the expense limitation applicable to the Portfolio as at
the end of the last business day of the month. Should two or more such expense
limitations be applicable as at the
4
<PAGE>
end of the last business day of the month, that expense limitation which results
in the largest reduction in the Investment Manager's fee shall be applicable.
4. Brokerage. In managing the assets of each Portfolio, the
Investment Manager shall purchase securities from or through and sell securities
to or through such persons, brokers or dealers as the Investment Manager shall
deem appropriate in conformity with applicable law and with the terms of the
Registration Statement, and as the Fund's Board of Directors may direct from
time to time. Without limiting the generality of the foregoing, the Investment
Manager will implement the Fund's policy of seeking the best execution of
orders, which includes best net prices, in effecting purchases and sales of
portfolio securities for the account of each Portfolio.
On occasions when the Investment Manager deems the purchase or
sale of securities to be in the best interest of one or more Portfolios as well
as other clients of the Investment Manager, the Investment Manager, to the
extent permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be so sold or purchased in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the Investment
Manager in accordance with its policy for aggregation of orders, as in effect
from time to time, which has been approved by the Fund's Board of Directors.
5. Interested Persons. No director, officer or employee of the
Fund shall receive from the Fund any salary or other compensation as such
director, officer or employee while he or she is at the same time a director,
officer or employee of the Investment Manager or any affiliated person (as
defined in the 1940 Act) thereof. The Investment Manager shall authorize and
permit any of its directors, officers and employees who may be elected as
directors or officers of the Fund to serve in the capacities in which they are
elected, subject to their individual consent and to any limitations imposed by
law. All services to be furnished by the Investment Manager under this Agreement
may be furnished through the medium of any such directors, officers or employees
of the Investment Manager.
6. Limitation of Liability. Subject to Section 36 of the 1940
Act, the Investment Manager shall not be liable for any error of judgment or
mistake of law or for any loss suffered by any Portfolio in connection with the
matters to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment Manager
in the performance of its obligations and duties or by reason of its reckless
disregard of its obligations and duties under this Agreement.
7. Non-Exclusive Use of the Name "Waterhouse". The Fund
acknowledges that it adopted its name through the permission of the
Investment Manager, and that the Fund is subject to the provisions of that
certain Sublicense Agreement between the Investment Manager and the Fund
dated December 12, 1995. The Investment Manager hereby consents to the non-
5
<PAGE>
exclusive use by the Fund of the marks "Waterhouse", "Waterhouse Investors Cash
Management Fund" and the Waterhouse logo only so long as the Investment Manager
(or its affiliate or successor) serves as the investment manager to one or more
Portfolios. The Fund covenants and agrees to protect, exonerate, defend,
indemnify and hold harmless the Investment Manager, its officers, agents and
employees from and against any and all costs, losses, claims, damages or
liabilities, joint or several, including all legal expenses which may arise or
have arisen out of the Fund's use or misuse of the name "Waterhouse",
"Waterhouse Investors Cash Management Fund" or the Waterhouse logo or out of any
breach of or failure to comply with this paragraph.
Neither the Fund nor any Portfolio shall distribute or
circulate any prospectus, proxy statement, sales literature, promotional
material or other printed matter required to be filed with the Securities and
Exchange Commission under Section 24(b) of the 1940 Act which contains any
reference to the Investment Manager or using the name "Waterhouse", "Waterhouse
Investors Cash Management Fund" or the Waterhouse logo without the approval of
the Investment Manager and shall submit all such materials requiring approval of
the Investment Manager in draft form, allowing sufficient time for review by the
Investment Manager and its counsel prior to any deadline for printing. If the
Investment Manager or any successor to its business shall cease to furnish
services to all Portfolios under this Agreement or similar contractual
arrangement, the Fund:
(a) as promptly as practicable, will take all
necessary action to cause its Articles of Incorporation to be amended
to accomplish a change of name; and
(b) within 90 days after the termination of this Agreement or
such similar contractual arrangement, shall cease to use in any other manner,
including but not limited to use in any prospectus, sales literature or
promotional material, the name "Waterhouse", "Waterhouse Investors Cash
Management Fund" and the Waterhouse logo or any name, mark or logotype derived
from or similar to such marks or indicating that the Fund or any Portfolio is
managed by or otherwise associated with the Investment Manager.
8. Term of Agreement. This Agreement shall become effective
upon its execution by an authorized officer of the respective parties hereto.
This Agreement shall continue in effect with respect to each Portfolio until
December 12, 1997, and thereafter from year to year so long as such continuation
is specifically approved at least annually in conformity with the requirements
of the 1940 Act with regard to investment advisory contracts; provided, however,
that this Agreement may be terminated at any time without the payment of any
penalty, on behalf of any or all of the Portfolios, by the Fund, by the Board
or, with respect to any Portfolio, by "vote of a majority of the outstanding
voting securities" (as defined in the 1940 Act) of that Portfolio, or by the
Investment Manager on not less than 60 days' written notice to the other party.
This Agreement shall terminate automatically in the event of its "assignment"
(as defined in the 1940 Act).
6
<PAGE>
Termination of this Agreement shall not affect the right of
the Investment Manager to receive payments on any unpaid balance of the
compensation described in Section 3 hereof earned prior to such termination.
9. Amendments; Partial Invalidity. This Agreement may be
amended by mutual consent, but the consent of the Fund must be obtained in
conformity with the requirements of the 1940 Act. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder shall not be thereby affected.
10. Notices. All notices or other communications hereunder to
either party shall be in writing and shall be deemed to be received on the
earlier of the date actually received or on the fourth day after postmark if
such notice is mailed first class postage prepaid. Notice shall be addressed:
(a) if to the Fund, to: President, Waterhouse Investors Cash Management Fund,
Inc., 100 Wall Street, New York, New York 10005; or (b) if to the Investment
Manager, to: President, Waterhouse Asset Management, Inc., 100 Wall Street, New
York, New York 10005, or at such other address as either party may designate by
written notice to the other. Notice shall also be deemed sufficient if given by
telex, telecopier, telegram or similar means of same day delivery (with a
confirming copy by mail as provided herein).
11. Separate Portfolios. This Agreement shall be construed to
be made by the Fund as a separate agreement with respect to each Portfolio, and
under no circumstances shall the rights, obligations or remedies with respect to
a particular Portfolio be deemed to constitute a right, obligation or remedy
applicable to any other Portfolio.
12. Entire Agreement; Governing Law. This Agreement contains
the entire agreement between the parties hereto and supersedes all prior
agreements, understandings and arrangements with respect to the subject matter
hereof. This Agreement shall be construed in accordance with applicable federal
law and the laws of the State of New York. Anything herein to the contrary
notwithstanding, this Agreement shall not be construed to require, or to impose
any duty upon, either of the parties to do anything in violation of any
applicable laws or regulations.
7
<PAGE>
IN WITNESS WHEREOF, the Fund and the Investment Manager have
caused this Agreement to be executed as of the day and year first above written.
WATERHOUSE INVESTORS CASH
MANAGEMENT FUND, INC.
By: /s/ Arnold J. Feist
Vice President and Assistant Secretary
WITNESS:
/s/ Richard H. Neiman
WATERHOUSE ASSET MANAGEMENT, INC.
By: /s/ Michele R. Teichner
Senior Vice President
WITNESS:
/s/ Richard H. Neiman
8
<PAGE>
SCHEDULE A
Fees
For the services provided by the Investment Manager under the foregoing
agreement to each of the following Portfolios, the Investment Manager will
receive the following fees:
In the case of each of the Money Market Portfolio, the U.S. Government Portfolio
and the Municipal Portfolio an annual investment management fee, payable
monthly, on a graduated basis equal to .35 of 1% of the first $1 billion of
average daily net assets of each Portfolio, .34 of 1% of the next $1 billion,
and .33 of 1% of average daily net assets of each Portfolio over $2 billion.
9
EXHIBIT (9)(a)
TRANSFER AGENCY AND DIVIDEND
DISBURSING AGENCY AGREEMENT
AGREEMENT made as of the 15th day of October, 1996 by and
between WATERHOUSE INVESTORS CASH MANAGEMENT FUND, INC., a Maryland corporation
(the "Fund"), on its own behalf and on behalf of its Money Market Portfolio,
U.S. Government Portfolio and Municipal Portfolio (each, a "Portfolio"), and
WATERHOUSE NATIONAL BANK, a national banking association (the "Bank").
WITNESSETH:
WHEREAS, the Fund is an open-end, diversified management
investment company registered as such under the Investment Company Act of 1940,
as amended, currently comprised of three separate investment Portfolios; and
WHEREAS, the Fund desires to appoint the Bank to be the
Transfer Agent and Dividend Disbursing Agent for each Portfolio of the Fund
upon, and subject to, the terms and provisions of this Agreement; and
WHEREAS, the Bank desires to accept such appointment upon, and
subject to, such terms and provisions.
NOW, THEREFORE, in consideration of the premises and mutual
convenants hereinafter contained, the Fund and the Bank agree as follows:
1. Appointment of the Bank as Transfer Agent and Dividend
Disbursing Agent.
(a) The Fund hereby appoints the Bank to act as Transfer Agent
and Dividend Disbursing Agent for each Portfolio of the Fund upon, and subject
to, the terms and provisions of this Agreement.
(b) The Bank hereby accepts the appointment as Transfer Agent
and Dividend Disbursing Agent for each Portfolio of the Fund, and agrees to act
as such upon, and subject to, the terms and provisions of this Agreement.
2. Definitions. In this Agreement:
(1) The term "Act" means the Investment Company Act of 1940,
as amended, and any rule or regulation thereunder;
1
<PAGE>
(2) The term "Account" means any account of a Shareholder, or,
if the shares are held in an account in the name of Waterhouse
Securities, Inc. or other broker-dealer for benefit of an
identified customer, such account, and includes any Plan
Account;
(3) The term "application" means an application made
by a Shareholder or prospective Shareholder respecting the
opening of an Account;
(4) The term "Instruction" means an instruction in writing
given on behalf of the Fund to the Bank, and signed on behalf
of the Fund by the President, any Vice President, the
Secretary or the Treasurer of the Fund or other uthorized
person;
(5) The term "Plan Account" means an account opened by a
Shareholder or prospective Shareholder in respect of a "sweep
account" (in each case by whatever name referred to in the
Prospectus), and may also include an account relating to any
other plan if and when provision is made for such plan in the
Prospectus;
(6) The term "Prospectus" includes the Prospectus and the
Statement of Additional Information of the Fund as from time
to time in effect;
(7) The term "Shareholder" means a holder of record of Shares;
(8) The term "Shares" means shares of stock of the Fund,
irrespective of Portfolio.
3. Duties of the Bank as Transfer Agent and Dividend Disbursing
Agent.
(a) Subject to the other provisions of the Agreement, the Bank
hereby agrees to perform the following functions as Transfer Agent and Dividend
Disbursing Agent for each Portfolio: (i) processing the issuance, transfer and
redemption of Shares, and recording the same in the appropriate Accounts; (ii)
opening, maintaining, servicing and closing Accounts; (iii) acting as agent for
the Shareholders and/or customers of Waterhouse Securities, Inc. or other
broker-dealer in connection with Plan Accounts, upon the terms and subject to
the conditions contained in the Prospectus and application relating to the
specific Plan Account; (iv) exchanging the investment of an investor into or
from the Shares of one or more Portfolios of the Fund if and to the extent
permitted by the
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Prospectus at the direction of such investor; (v) examining and approving legal
transfers; (vi) replacing lost, stolen or destroyed certificates, if any,
representing Shares, in accordance with, and subject to, procedures and
conditions adopted by the Fund; (vii) furnishing confirmations of purchases and
sales relating to Shares as required by applicable law; (viii) furnishing
appropriate periodic and year end statements relating to Accounts, together with
additional enclosures, including appropriate income tax information and income
tax forms duly completed, as required by applicable law; (ix) mailing annual,
semi-annual and quarterly reports and dividend notices prepared by or on behalf
of the Fund, and mailing new Prospectuses upon their issue to Shareholders as
required by applicable law; (x) furnishing such periodic statements of
transactions effected by the Bank, reconciliations, balances and summaries as
the Fund may reasonably request; (xi) withholding taxes on non-resident alien
Accounts, and preparing and filing U.S. Treasury Department Form 1099 and other
appropriate forms as required by applicable law with respect to dividends and
distributions; and (xii) processing dividend and distribution payments,
including reinvesting dividends for full and fractional shares and disbursing
cash dividends, as applicable.
(b) The Bank agrees to act as proxy agent in connection with
the holding of annual, if any, and special meetings of Shareholders, mailing
such notices, proxies and proxy statements in connection with the holding of
such meetings as may be required by applicable law, receiving and tabulating
votes cast by proxy and communicating to the Funds the results of such
tabulation accompanied by appropriate certificates, and preparing and furnishing
to the Fund certified lists of Shareholders (of the Fund or one or more of its
Portfolios, as appropriate) as of such date, in such form and containing such
information as may be required by the Fund.
(c) The Bank agrees to deal with, and answer in a timely
manner, all correspondence and inquires relating to the functions of the Bank
under this Agreement with respect to Accounts.
(d) The Bank agrees to furnish to the Fund or its designated
agent such information at such intervals as is necessary for the Fund to comply
with the registration and/or the reporting requirements (including applicable
escheat laws) of the Securities and
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Exchange Commission, state securities or Blue Sky authorities or other
governmental authorities.
(e) The Bank agrees to provide to the Fund such information as
may reasonably be required to enable the Fund to reconcile the number of
outstanding Shares of each Portfolio between the Bank's records and the account
books of the Fund.
(f) Notwithstanding anything in the foregoing provisions of
this section 3, the Bank agrees to perform its functions thereunder subject to
such modification (whether in respect of particular cases or in any particular
class of cases) as may from time to time be contained in an Instruction.
(g) In providing for any or all of the services indicated in
this section 3, and in satisfaction of its obligations to provide such services,
the Bank may enter into agreements with one or more other persons to provide
such services to the Fund, provided that any such agreement shall have been
approved by the Board of Directors of the Fund, provided further that the Bank
shall be as fully responsible to the Fund for the acts and omissions of such
persons as it would be for its own acts or omissions hereunder.
4. Compensation. For the services provided to the Fund by the Bank
pursuant to this Agreement, each Portfolio shall pay the Bank on the first
business day of each calendar month a fee for the previous month at an annual
rate equal to .20 of 1% of such Portfolio's average daily net assets. The value
of each Portfolio's net assets shall be computed at the times and in the manner
specified in the Fund's registration statement on Form N-1A, as amended from
time to time (the "Registration Statement"). Compensation by each Portfolio of
the Bank shall commence on the date of the first receipt by such Portfolio of
the proceeds of the sale of its Shares as described in the Registration
Statement, and the fee for the period from the date such Portfolio shall first
receive the proceeds of the sale of its Shares as aforesaid to the end of the
month during which such proceeds are so received, shall be pro-rated according
to the proportion that such period bears to the full monthly period. Upon
termination of this Agreement before the end of a month, the fee for such part
of that month shall be pro-rated according to the proportion that such period
bears to the full monthly period and shall be payable within seven (7) days
after the date of termination of this Agreement.
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5. Maintenance of Records, Right of Inspection. In connection with the
performance of its duties hereunder, the Bank shall maintain such books and
records relating to transactions effected by the Bank as are required by the
Act, or by any other applicable provision of law, rule or regulation, to be
maintained by the Fund or its transfer agent with respect to transactions. The
Bank shall preserve, or cause to be preserved, any such books and records for
such periods as may be required by any such law, rule or regulation and as may
be agreed upon from time to time between the Bank and the Fund. In addition, the
Bank agrees to maintain and preserve master files and historical computer tapes
on a daily basis in multiple separate locations a sufficient distance apart to
insure preservation of at least one copy of such information. The Bank agrees
that it will, in a timely manner, make available to and permit, any officer,
accountant, attorney or authorized agent of the Fund to examine and make
transcripts and copies (including photocopies and computer or other electronic
information storage media and print-outs) of, any and all of the books and
records which are maintained pursuant to this Agreement.
6. Confidential Relationship. The Bank agrees that it will, on behalf
of itself and its officers and employees, treat all transactions contemplated by
this Agreement, and all information germane thereto, as confidential and not to
be disclosed to any person (other than the Shareholder concerned, or the Fund,
or as may be disclosed in the examination of any books or records by any person
lawfully entitled to examine the same) except as may be authorized by the Fund
by way of an Instruction.
7. Indemnification.
(a) The Bank shall not be liable to the Fund or any Portfolio
for any error of judgment or mistake of law or for any loss arising out of any
act or omission by the Bank in the performance of its duties hereunder. Nothing
herein contained shall be construed to protect the Bank against any liability to
the Fund, a Portfolio, Shareholders or any investment adviser to the Fund to
which the Bank shall otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by reckless
disregard of its obligations and duties hereunder.
(b) The Fund, on behalf of each Portfolio, agrees to indemnify
and hold harmless the Bank and each Sub-Agent from and against all charges,
claims, expenses
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(including legal fees) and liabilities reasonably incurred by the Bank and each
Sub-Agent in connection with the performance of its duties hereunder, except
such as may arise from the Bank's or Sub-Agent's willful misfeasance, bad faith,
gross negligence in the performance of its duties or by reckless disregard of
its obligations and duties hereunder. Subject to the requirements of the Act,
such expenses shall be paid by the Fund in advance of the final disposition of
any matter upon invoice by the Bank or a Sub-Agent and receipt by the Fund of an
undertaking from the Bank or such Sub-Agent to repay such amounts if it shall
ultimately be established that the Bank is not entitled to payment of such
expenses hereunder.
(c) As used in this section 7, the term "Bank" and "Sub-Agent"
shall include any affiliates of the Bank and each Sub-Agent performing services
for the Fund contemplated hereby and directors, officers, agents and employees
of the Bank, each such Sub-Agent and such affiliates.
8. Regarding the Bank.
(a) The Bank warrants and represents that its officers and
supervisory personnel or agents (including any sub-transfer agents or
sub-dividend disbursing agents) charged with carrying out its functions as
Transfer Agent and Dividend Disbursing Agent for the Fund possess the special
skill and technical knowledge appropriate for that purpose. The Bank shall at
all times exercise due care and diligence in the performance of its functions as
Transfer Agent and Dividend Disbursing Agent for the Fund. The Bank agrees that,
in determining whether it has exercised due care and diligence, its conduct
shall be measured by the standard applicable to persons possessing such special
skill and technical knowledge.
(b) The Bank warrants and represents that it is duly
authorized and permitted to act as Transfer Agent and Dividend Disbursing Agent
under all applicable laws and that it will immediately notify the Fund of any
revocation of such authority or permission or of the commencement of any
proceeding or other action which may lead to such revocation.
9. Termination.
(a) This Agreement shall become effective as of the date first
above written and shall thereafter continue from year to year. This Agreement
may be terminated by the Fund or the Bank (without penalty to the Fund or the
Bank) provided that the
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terminating party gives the other party written notice of such termination at
least sixty (60) days in advance, except that the Fund may terminate this
Agreement immediately upon written notice to the Bank if the authority or
permission of the Bank to act as Transfer Agent and Dividend Disbursing Agent
has been revoked of if any proceeding or other action which the Fund reasonably
believes will lead to such revocation has been commenced.
(b) Upon termination of this Agreement, the Bank shall deliver
all unissued and canceled stock certificates representing Shares, if any,
remaining in its possession, and all Shareholder records, books, stock ledgers,
instruments and other documents (including computer or other electronically
stored information) made or accumulated in the performance of its duties as
Transfer Agent and Dividend Disbursing Agent for the Fund along with a certified
locator document clearly indicating the complete contents therein, to such
successor as may be specified in a notice to termination or Instruction. The
Fund assumes all responsibility for failure thereafter to produce any paper,
record or document so delivered and identified in the locator document, if and
when required to be produced.
10. Amendment. Except to the extent that the performance by the Bank of
its functions under this Agreement may from time to time be modified by an
Instruction, this Agreement may be amended or modified by the parties hereto
only if such amendment is specifically approved by the Board of Directors of the
Fund, including a majority of the Fund who are not " interested persons" of the
Fund within the meaning of the Act and who have no direct or indirect interest
in this Agreement, and such amendment is set forth in a written instrument
executed by each of the parties hereto.
11. Governing Law. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of New York as at the
time in effect and the applicable provisions of the Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Act, the latter shall control.
12. Counterparts. This Agreement may be executed by the parties
hereto in counterparts and if executed in more than one counterpart the
separate instruments shall constitute one agreement.
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<PAGE>
13. Notices. All notices or other communications hereunder to either
party shall be in writing and shall be deemed to be received on the earlier of
the date actually received or on the fourth day after the postmark if such
notice is mailed first class postage prepaid. Notice shall be addressed: (a) if
to the Bank, to: President, Waterhouse National Bank, 1 North Lexington Avenue,
White Plains, New York 10601; or (b) if to the Fund, to: President, Waterhouse
Investors Cash Management Fund, Inc., 100 Wall Street, New York 10005 or at such
other address as either party may designate by written notice to the other.
Notice also shall be deemed sufficient if given by telex, telecopier, telegram
or similar means of same day delivery (with a confirming copy by mail as
provided herein).
14. Separate Portfolios. This Agreement shall be construed to be made
by the Fund as a separate agreement with respect to each Portfolio, and under no
circumstances shall the rights, obligations or remedies with respect to a
particular Portfolio be deemed to constitute a right, obligation or remedy
applicable to any other Portfolio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers as of the day and year above
written.
WATERHOUSE INVESTORS CASH
MANAGEMENT FUND, INC.
By: /s/ Arnold J. Feist
Vice President and Assistant Secretary
WATERHOUSE NATIONAL BANK
By: /s/ Richard Powers
President
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<PAGE>
EXHIBIT 9(b)
SUB-TRANSFER AGENCY AND DIVIDEND
DISBURSING AGENCY AGREEMENT
AGREEMENT made as of the 15th day of October, 1996 by and
among WATERHOUSE NATIONAL BANK, a national banking association (the "Bank"),
NATIONAL INVESTOR SERVICES CORP., a Delaware corporation ("NISC"), and
WATERHOUSE SECURITIES, INC., a Delaware corporation ("Waterhouse Securities")
(NISC and Waterhouse Securities each may be referred to separately herein as a
"Sub-Agent" and together as the "Sub-Agents").
WITNESSETH:
WHEREAS, the Bank serves as Transfer Agent and Dividend
Disbursing Agent for each of the three separate investment portfolios (each, a
"Portfolio") of Waterhouse Investors Cash Management Fund, Inc., a Maryland
corporation and an open-end diversified management investment company registered
as such under the Investment Company Act of 1940, as amended (the "Fund"),
pursuant to a Transfer Agency and Dividend Disbursing Agency Agreement dated as
of October 15, 1996 (the "Transfer Agency Agreement"); and
WHEREAS, the Bank is authorized pursuant to the Transfer
Agency Agreement to delegate any or all of the services thereunder; and
WHEREAS, the Bank and the Sub-Agents contemplate that,
pursuant to the terms and provisions of this Agreement, following its
organization and qualification to perform the duties prescribed in this
Agreement, NISC may perform certain services as Sub-Transfer and Sub-Dividend
Disbursing Agent for the Fund on an ongoing basis, and that during the period
prior to the organization and qualification of NISC to act in such capacity,
Waterhouse Securities shall act as Sub-Transfer and Sub-Dividend Disbursing
Agent for the Fund; and
WHEREAS, the Bank desires to appoint each Sub-Agent to act as
Sub-Transfer Agent and Sub-Dividend Disbursing Agent for each Portfolio of the
Fund upon, and subject to, the terms and provisions of this Agreement; and
WHEREAS, each Sub-Agent desires to accept such appointment
upon, and subject to, such terms and provisions.
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<PAGE>
NOW, THEREFORE, in consideration of the premises and mutual
covenants hereinafter contained, the Bank and the Sub-Agents agree as follows:
1. Appointment of each Sub-Agent as Sub-Transfer Agent and
Sub-Dividend Disbursing Agent.
(a) The Bank hereby appoints NISC to act as Sub-Transfer
Agent and Sub-Dividend Disbursing Agent for each Portfolio of the Fund upon,
and subject to, the terms and provisions of this Agreement, provided that
during the period prior to the organization and qualification of NISC to perform
its services hereunder, Waterhouse Securities shall act as Sub-Transfer and
Sub-Dividend Disbursing Agent for each Portfolio upon, and subject to, the terms
and provisions of this Agreement.
(b) Each Sub-Agent hereby accepts the appointment as
Sub-Transfer Agent and Sub-Dividend Disbursing Agent for each Portfolio of the
Fund, and agrees to act as such upon, and subject to, the terms and provisions
of this Agreement.
2. Definitions. In this Agreement:
(1) The term "Act" means the Investment Company Act of 1940,
as amended, and any rule or regulation thereunder;
(2) The term "Account" means any account of a Shareholder, or,
if the shares are held in an account in the name of Waterhouse
Securities, Inc. or other broker/dealer for benefit of an
identified customer, such account, and includes any Plan
Account;
(3) The term "application" means an application made by a
Shareholder or prospective Shareholder respecting the opening
of an Account;
(4) The term "Instruction" means an instruction in writing
given on behalf of the Fund to the Bank, and signed on behalf
of the Fund by the President, any Vice President, the
Secretary or the Treasurer of the Fund or other authorized
person, and transmitted by the Bank to a Sub-Agent;
(5) The term "Plan Account" means an account opened by a
Shareholder or prospective Shareholder in respect of a "sweep
account" (in each case by whatever name referred to in the
Prospectus), and may also include an account relating to any
other plan if and when provision is made for such plan in the
Prospectus;
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<PAGE>
(6) The term "Prospectus" includes the Prospectus and the
Statement of Additional Information of the Fund as from time
to time in effect;
(7) The term "Shareholder" means a holder of record of Shares;
(8) The term "Shares" means shares of stock of the Fund,
irrespective of Portfolio.
3. Duties of each Sub-Agent as Sub-Transfer Agent and
Sub-Dividend Disbursing Agent.
(a) Subject to the other provisions of the Agreement,
each Sub-Agent hereby agrees to perform any or all of the following functions
as Sub-Transfer Agent and Sub-Dividend Disbursing Agent for each Portfolio as
requested by the Bank: (i) processing the issuance, transfer and redemption of
Shares, and recording the same in the appropriate Accounts; (ii) opening,
maintaining, servicing and closing Accounts; (iii) acting as agent for the
Shareholders and/or customers of Waterhouse Securities or other broker-dealer
in connection with Plan Accounts, upon the terms and subject to the conditions
contained in the Prospectus and application relating to the specific Plan
Account; (iv) exchanging the investment of an investor into or from the Shares
of one or more Portfolios of the Fund if and to the extent permitted by the
Prospectus at the direction of such investor; (v) examining and approving
legal transfers; (vi) replacing lost, stolen or destroyed certificates, if any,
representing Shares, in accordance with, and subject to, procedures and
conditions adopted by the Fund; (vii) furnishing confirmations of purchases
and sales relating to Shares as required by applicable law; (viii) furnishing
appropriate periodic and year end statements relating to Accounts, together
with additional enclosures, including appropriate income tax information and
income tax forms duly completed, as required by applicable law; (ix) mailing
annual, semi-annual and quarterly reports and dividend notices prepared by or
on behalf of the Fund, and mailing new Prospectuses upon their issue to
Shareholders as required by applicable law; (x) furnishing such periodic
statements of transactions effected by the Bank or a Sub-Agent on behalf of
the Bank, reconciliations, balances and summaries as the Fund may reasonably
request; (xi) withholding taxes on non-resident alien Accounts, and preparing
and filing U.S. Treasury Department Form 1099 and other appropriate forms as
required by applicable law with respect to
3
<PAGE>
dividends and distributions; and (xii) processing dividend and distribution
payments, including reinvesting dividends for full and fractional shares and
disbursing cash dividends, as applicable.
(b) At the request of the Bank, each Sub-Agent shall act as
proxy agent in connection with the holding of annual, if any, and special
meetings of Shareholders, mailing such notices, proxies and proxy statements in
connection with the holding of such meetings as may be required by applicable
law, receiving and tabulating votes cast by proxy and communicating to the Fund
the results of such tabulation accompanied by appropriate certificates, and
preparing and furnishing to the Fund certified lists of Shareholders (of the
Fund or one or more of its Portfolios, as appropriate) as of such date, in such
form and containing such information as may be required by the Fund.
(c) Each Sub-Agent agrees to deal with, and answer in a timely
manner, all correspondence and inquiries relating to the functions of the
Sub-Agent under this Agreement with respect to Accounts.
(d) Each Sub-Agent agrees to furnish to the Fund or the Bank
such information at such intervals as is necessary for the Fund to comply with
the registration and/or the reporting requirements (including applicable escheat
laws) of the Securities and Exchange Commission, state securities or Blue Sky
authorities or other governmental authorities.
(e) Each Sub-Agent agrees to provide to the Fund and the Bank
such information as may reasonably be required to enable the Fund to reconcile
the number of outstanding Shares of each Portfolio among the Sub-Agent's
records, the records of the Bank and the account books of the Fund.
(f) Notwithstanding anything in the foregoing provisions of
this section 3, each Sub-Agent agrees to perform its functions thereunder
subject to such modification (whether in respect of particular cases or in any
particular class of cases) as may from time to time be contained in an
Instruction.
4. Compensation. For the services provided by the Sub-Agents
pursuant to this Agreement, the Bank, and not the Fund or any Portfolio, shall
pay the Sub-Agents such compensation as shall be mutually agreed upon from
time to time.
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<PAGE>
5. Maintenance of Records, Right of Inspection. In connection with the
performance of its duties hereunder, each Sub-Agent shall maintain such books
and records relating to transactions effected by such Sub-Agent as are required
by the Act, or by any other applicable provision of law, rule or regulation, to
be maintained by the Fund or its transfer agent with respect to transactions.
Each Sub-Agent shall preserve, or cause to be preserved, any such books and
records for such periods as may be required by any such law, rule or regulation
and as may be agreed upon from time to time between such Sub-Agent and the Bank.
In addition, each Sub-Agent agrees to maintain and preserve master files and
historical computer tapes on a daily basis in multiple separate locations a
sufficient distance apart to insure preservation of at least one copy of such
information. Each Sub-Agent agrees that it will, in a timely manner, make
available to, and permit, any officer, accountant, attorney or authorized agent
of the Fund or the Bank to examine and make transcripts and copies (including
photocopies and computer or other electronic information storage media and
print-outs) of, any and all of the books and records which are maintained
pursuant to this Agreement.
6. Confidential Relationship. Each Sub-Agent agrees that it will, on
behalf of itself and its officers and employees, treat all transactions
contemplated by this Agreement, and all information germane thereto, as
confidential and not to be disclosed to any person (other than the Shareholder
concerned, or the Fund or the Bank, or as may be disclosed in the examination of
any books or records by any person lawfully entitled to examine the same) except
as may be authorized by the Fund by way of an Instruction.
7. Indemnification.
(a) Neither Sub-Agent shall be liable to the Fund or any
Portfolio for any error of judgment or mistake of law or for any loss arising
out of any act or omission by such Sub-Agent in the performance of its duties
hereunder. Nothing herein contained shall be construed to protect the Sub-Agents
against any liability to the Fund, a Portfolio, Shareholders or any investment
adviser to the Fund to which the respective Sub-Agent shall otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reckless disregard of its obligations and
duties hereunder.
(b) To the extent provided in the Transfer Agency Agreement,
the Fund has agreed to indemnify and hold harmless the Bank, each Sub-Agent and
each person, if any, who
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<PAGE>
controls a Sub-Agent within the meaning of the Act against all charges, claims,
expenses (including legal fees) and liabilities reasonably incurred by the Bank
and each Sub-Agent in connection with the performance of its duties hereunder,
except such as may arise from the Bank's or such Sub-Agent's willful
misfeasance, bad faith, gross negligence in the performance of its duties or by
reckless disregard of its obligations and duties hereunder; and the Bank agrees
to indemnify and hold harmless each Sub-Agent and each person, if any, who
controls such Sub-Agent within the meaning of the Act against any and all such
charges, claims, expenses and liabilities to the extent indemnification by the
Fund is not provided by reason of the foregoing exception. Notwithstanding the
above, however, a Sub-Agent shall not be indemnified for any charges, claims,
expenses and liabilities arising from or out of such Sub-Agent's willful
misfeasance, bad faith, gross negligence in the performance of its duties or by
reckless disregard of its obligations and duties hereunder. Subject to the
requirements of the Act, such expenses shall be paid by the Fund or the Bank, as
applicable, in advance of the final disposition of any matter upon invoice by
the Sub-Agent and receipt by the Fund or the Bank, as applicable, of an
undertaking from the Sub-Agent to repay such amounts if it shall ultimately be
established that the Sub-Agent is not entitled to payment of such expenses
hereunder.
(c) As used in this section 7, the term "Sub-Agent" shall
include directors, officers, agents and employees of each Sub-Agent.
8. Regarding the Sub-Agents.
(a) Each Sub-Agent warrants and represents that its officers
and supervisory personnel charged with carrying out its functions as
Sub-Transfer Agent and Dividend Disbursing Agent for the Fund possess the
special skill and technical knowledge appropriate for that purpose. Each
Sub-Agent shall at all times exercise due care and diligence in the performance
of its functions as Sub-Transfer Agent and Dividend Disbursing Agent for the
Fund. Each Sub-Agent agrees that, in determining whether it has exercised due
care and diligence, its conduct shall be measured by the standard applicable to
persons possessing such special skill and technical knowledge.
(b) Each Sub-Agent warrants and represents that it is duly
authorized and permitted to act as Sub-Transfer Agent and Sub-Dividend
Disbursing Agent under all applicable
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<PAGE>
laws and that it will immediately notify the Bank of any revocation of such
authority or permission or of the commencement of any proceeding or other action
which may lead to such revocation.
9. Termination.
(a) This Agreement shall become effective as of the date first
above written and shall thereafter continue from year to year. This Agreement
may be terminated by the Bank with respect to a Sub-Agent or by a Sub-Agent
(without penalty to the Bank or such Sub-Agent) provided that the terminating
party gives the other party written notice of such termination at least sixty
(60) days in advance, except that the Bank may terminate this Agreement
immediately upon written notice to a Sub-Agent if the authority or permission of
the Sub-Agent to act as Sub-Transfer Agent and Sub-Dividend Disbursing Agent has
been revoked or if any proceeding or other action which the Bank reasonably
believes will lead to such revocation has been commenced.
(b) Upon termination of this Agreement with respect to either
Sub-Agent, such Sub-Agent shall deliver all unissued and canceled stock
certificates representing Shares, if any, remaining in its possession, and all
Shareholder records, books, stock ledgers, instruments and other documents
(including computer or other electronically stored information) made or
accumulated in the performance of its duties as Sub-Transfer Agent and
Sub-Dividend Disbursing Agent for the Fund along with a certified locator
document clearly indicating the complete contents therein, to such successor as
may be specified in a notice of termination or Instruction. Thereafter, the
Sub-Agent shall bear no responsibility for failure thereafter to produce any
paper, record or document so delivered and identified in the locator document,
if and when required to be produced.
10. Amendment. Except to the extent that the performance by a Sub-Agent
of its functions under this Agreement may from time to time be modified by an
Instruction, this Agreement may be amended or modified by the parties hereto
only if such amendment is specifically approved by the Board of Directors of the
Fund, including a majority of the directors of the Fund who are not "interested
persons" of the Fund within the meaning of the Act, and such amendment is set
forth in a written instrument executed by each of the parties hereto.
11. Governing Law. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of New York as at the
time in effect and the applicable
7
<PAGE>
provisions of the Act. To the extent that the applicable law of the State of New
York, or any of the provisions herein, conflict with the applicable provisions
of the Act, the latter shall control.
12. Counterparts. This Agreement may be executed by the parties
hereto in counterparts and if executed in more than one counterpart the
separate instruments shall constitute one agreement.
13. Notices. All notices or other communications hereunder to any
party, shall be in writing and shall be deemed to be received on the earlier of
the date actually received or on the fourth day after the postmark if such
notice is mailed first class postage prepaid. Notice shall be addressed: (a) if
to the Bank, to: President, Waterhouse National Bank, 1 North Lexington Avenue,
White Plains, New York 10601; (b) if to Waterhouse Securities, to: President,
Waterhouse Securities, Inc., 100 Wall Street, New York, New York 10005; or (c)
if to NISC, to President, National Investor Services Corp., 55 Water Street, New
York, New York 10041; or to such other address as such party may designate by
written notice to the other. Notice also may be given by telex, telecopier,
telegram or similar means of same day delivery (with a confirming copy by mail
as provided herein).
14. Separate Portfolios. This Agreement shall be construed to be made
with respect to the Fund as a separate agreement with respect to each Portfolio,
and under no circumstances shall the rights, obligations or remedies with
respect to a particular Portfolio be deemed to constitute a right, obligation or
remedy applicable to any other Portfolio.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers as of the day and year above
written.
WATERHOUSE NATIONAL BANK
By: /s/ Richard Powers
WATERHOUSE SECURITIES, INC.
By: /s/ John H. Chapel
NATIONAL INVESTOR SERVICES CORP.
By: /s/ Peter Wigger
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<PAGE>
EXHIBIT (9)(d)(ii)
SHAREHOLDER SERVICES AGREEMENT
FOR WATERHOUSE AFFILIATED BROKER/DEALERS
Dear Sirs:
You wish to enter into an Agreement with Waterhouse Investors Cash Management
Fund, Inc., a registered investment company, as defined in the Investment
Company Act of 1940, as amended (the "Act"), (hereinafter referred to as the
"Fund") with certain portfolios (each a "Portfolio", collectively the
"Portfolios"), for servicing shareholders of, and administering shareholder
accounts in the Fund.
The terms and conditions of this Agreement are as follows:
1. You agree to provide shareholder and administrative services for your clients
who own shares of the Fund ("clients"), which services may include, without
limitation: providing general shareholder liaison services, including responding
to shareholder inquiries; assisting to the extent necessary with the
transmission of semi-annual and annual reports and annual tax reporting
information to shareholders; assisting clients in changing dividend options,
account designations and addresses; performing sub-accounting; establishing and
maintaining shareholder accounts and records; providing periodic statements
and/or reports showing a client's account balance and integrating such
statements with those of other transactions and balances in the client's other
accounts serviced by you; arranging for bank wires; and providing such other
information and services as the Fund reasonably may request, to the extent you
are permitted by applicable statute, rule or regulation. You represent and
warrant to, and agree with the Fund, that the compensation payable to you
hereunder, together with any other compensation payable to you by clients in
connection with the investment of their assets in shares of the Fund, will be
properly disclosed by you to your clients, will be authorized by your clients
and will not result in an excessive or unauthorized fee to you. You will act
solely as agent for, upon the order of, and for the account of, your clients.
2. You shall provide such office space and equipment, telephone facilities and
personnel (which may be all or any part of the space, equipment and facilities
currently used in your business, or all or any personnel employed by you) as is
necessary or beneficial for providing information and services to the Fund's
shareholders, and to assist the Fund in servicing accounts of clients. You shall
transmit promptly to clients all communications sent to you for transmittal to
clients by or on behalf of the Fund, or the Fund's investment adviser,
distributor, custodian or transfer or dividend disbursing agent.
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3. You agree that neither you nor any of your employees or agents are authorized
to make any representation concerning the Fund, the Portfolios or the shares of
the Fund, except those contained in the then current Prospectus or Statement of
Additional Information ("SAI") for such Fund, copies of which will be supplied
by the Fund to you in reasonable quantities upon request. You shall have no
authority to act as agent for the Fund.
4. The Fund reserves the right, at its discretion and without notice, to suspend
the sale of shares or withdraw the sale of shares of any or all of the
Portfolios. This agreement may be amended only by written instruments signed by
both parties.
5. You acknowledge that this Agreement shall become effective for a Fund only
following approval when approved by a vote of a majority of (i) the Fund's Board
of Directors or Trustees or Managing General Partners, as the case may be
(collectively "Directors," individually "Director"), and (ii) Directors who are
not "interested persons" (as defined in the 1940 Act) of the Fund and have no
direct or indirect financial interest in this Agreement.
6. This Agreement shall continue until December 12, 1997, and thereafter shall
continue automatically for successive annual periods ending on the last day of
each calendar year. Such continuance must be approved specifically at least
annually by a vote of a majority of (i) the Fund's Board of Directors and (ii)
Directors who are not "interested persons" (as defined in the Act) of the Fund
and have no direct or indirect financial interest in this Agreement. This
Agreement is terminable without penalty, at any time, by a majority of the
Fund's Directors who are not "interested persons" (as defined in the Act) and
have no direct or indirect financial interest in this Agreement. This Agreement
is terminable without penalty upon 15 days notice by either party. In addition,
the Fund may terminate this Agreement as to any or all Portfolios immediately,
without penalty, if the present investment adviser of such Portfolio(s) ceases
to serve the Portfolio(s) in such capacity. Notwithstanding anything contained
herein, if you fail to perform the shareholder servicing and administrative
functions contemplated herein by the Fund, this Agreement shall be terminable
effective upon receipt of notice thereof by you. This Agreement also shall
terminate automatically in the event of its assignment (as defined in the Act).
7. In consideration of the services and facilities described herein, you shall
be entitled to receive from the Fund, and the Fund agrees to pay to you, the
fees described as payable to you in the Fund's Shareholder Servicing Plan and
Prospectus and related Statement of Additional Information. You understand that
any payments pursuant to this Agreement shall be paid only so long as this
Agreement and such Plan are in effect. You agree that no Director, officer or
shareholder of the Fund shall be liable individually for the performance of the
obligations hereunder or for any such payments.
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8. You agree to comply with and to provide to the Fund such information relating
to your services hereunder as may be required to be maintained by the Fund
under, applicable federal or state laws, and the rules, regulations,
requirements or conditions of applicable regulatory and self-regulatory agencies
or authorities.
9. This Agreement shall not constitute either party the legal representative of
the other, nor shall either party have the right or authority to assume, create
or incur any liability or any obligation of any kind, express or implied,
against or in the name of or in the name of or on behalf of the other party.
10. All notices or other communications hereunder to either party shall be in
writing and shall be deemed sufficient if mailed to such party at the address of
such party set forth on page four of this Agreement or at such other address as
such party may be designated by written notice to the other or by telex,
telecopier, telegram or similar means of same day delivery (with a confirming
copy by mail as provided herein).
11. This Agreement shall be construed in accordance with the internal laws of
the State of New York, without giving effect to principles of conflict of laws.
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For: Waterhouse Investors Cash Management Fund, Inc.
Fifty Main Street
White Plains, NY 10606
/s/ Arnold J. Feist October 15, 1996
- ----------------------------- -------------------------------------
By: Date
For: Waterhouse Securities, Inc.
100 Wall Street
Address of Principal Office
New York NY 10005
- ---------------------------------------------------------------------------
City State Zip Code
By:
/s/ John H. Chapel Its: President October 15, 1996
Authorized Signature Title Date
/s/ John H. Chapel
Print Name
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EXHIBIT (9)(e)
ADMINISTRATION AGREEMENT
AGREEMENT made as of the 15th day of October, 1996 by and
between WATERHOUSE INVESTORS CASH MANAGEMENT FUND, INC., a Maryland corporation
(the "Fund"), on its own behalf and on behalf of its Money Market Portfolio,
U.S. Government Portfolio and Municipal Portfolio (each, a "Portfolio"), and
WATERHOUSE ASSET MANAGEMENT, INC., a Delaware corporation (the "Administrator").
WITNESSETH:
WHEREAS, the Fund is an open-end diversified management
investment company registered as such under the Investment Company Act of 1940,
as amended (the "1940 Act"), currently comprised of three separate investment
Portfolios; and
WHEREAS, the Fund, on behalf of each of its Portfolios, and
Waterhouse Asset Management, Inc. are also parties to an Investment Management
Agreement (the "Investment Management Agreement") pursuant to which Waterhouse
Asset Management, Inc. will serve as investment manager (the "Investment
Manager") to each Portfolio; and
WHEREAS, the Fund desires to retain the Administrator to
render or otherwise provide for administrative services in the manner and on the
terms and conditions hereafter set forth; and
WHEREAS, the Administrator desires to be so retained on said
terms and conditions.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, the Fund and the Administrator agree
as follows:
1. Duties of the Administrator.
(a) The Fund hereby retains the Administrator to act as
administrator of the Fund and its Portfolios (each reference herein to the Fund
shall also be understood to refer to the separate Portfolios, as appropriate),
subject to the supervision and direction of the Board of Directors of the Fund,
as hereinafter set forth. The Administrator shall
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perform or arrange for the performance of the following administrative and
clerical services: (i) maintain and preserve the books and records, including
financial and corporate records, of the Fund as required by law or otherwise for
the proper operation of the Fund; (ii) prepare and, subject to approval by the
Fund, file registration statements, notices, reports and other documents
required by U.S. Federal, state and other applicable laws and regulations (other
than state "blue sky" laws), including proxy materials and periodic reports to
Fund shareholders, oversee the preparation and filing of registration
statements, notices, reports and other documents required by state "blue sky"
laws, and oversee the monitoring of sales of shares of the Fund for compliance
with state securities laws; (iii) calculate and publish, or arrange for the
calculation and publication of, the net asset value of the Fund's shares; (iv)
calculate, or arrange for the calculation of, dividends and distributions and
performance data, and prepare other financial information regarding the Fund;
(v) oversee and assist in the coordination of, and, as the Board may reasonably
request or deem appropriate, make reports and recommendations to the Board on,
the performance of administrative and professional services rendered to the Fund
by others, including the custodian, registrar, transfer agent and dividend
disbursing agent, shareholder servicing agents, accountants, attorneys,
underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and
such other persons in any such other capacity deemed to be necessary or
desirable; (vi) furnish secretarial services to the Fund, including, without
limitation, preparation of materials necessary in connection with meetings of
the Fund's Board of Directors, including minutes, notices of meetings, agendas
and other Board materials; (vii) provide the Fund with the services of an
adequate number of persons competent to perform the administrative and clerical
functions described herein; (viii) provide the Fund with administrative office
and data processing facilities; (ix) arrange for payment of the Fund's expenses;
(x) provide routine accounting services to the Fund, and consult with the Fund's
officers, independent accountants, legal counsel, custodian, accounting agent
and transfer and dividend disbursing agent in establishing the accounting
policies of the Fund; (xi) prepare such financial information and reports as may
be required by any banks from which the Fund borrows funds; (xii) develop and
implement procedures to monitor the Fund's compliance
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with regulatory requirements and with the Fund's investment policies and
restrictions as set forth in the Fund's currently effective Prospectus and
Statement of Additional Information filed under the Securities Act of 1933, as
amended; (xiii) arrange for the services of persons who may be appointed as
officers of the Fund, including the President, Vice Presidents, Treasurer,
Secretary and one or more assistant officers; and (xiv) provide such assistance
to the Investment Manager, the custodian, other Fund service providers and the
Fund's counsel and auditors as generally may be required to carry on properly
the business and operations of the Fund. The Fund agrees to cause the Investment
Manager to deliver to the Administrator, on a timely basis, such information as
may be necessary or appropriate for the Administrator's performance of its
duties and responsibilities hereunder, including but not limited to, shareholder
reports, records of transactions, valuations of investments (which may be based
on information provided by a pricing service) and records of expenses borne by
the Fund, and the Administrator shall be entitled to rely on the accuracy and
completeness of such information in performing its duties hereunder.
Notwithstanding anything to the contrary herein contained, the Fund, and not the
Administrator, shall be responsible for and bear the cost of any third party
pricing services or any third party blue sky services.
(b) In providing for any or all of the services indicated in
section l(a) hereof, and in satisfaction of its obligations to provide such
services, the Administrator may enter into agreements with one or more other
persons to provide such services to the Fund, provided that any such agreement
shall have been approved by the Board of Directors of the Fund, and provided
further that the Administrator shall be as fully responsible to the Fund for the
acts and omissions of any such service providers as it would be for its own acts
or omissions hereunder.
2. Expenses of the Administrator. The Administrator assumes the
expenses of and shall pay for maintaining the staff and personnel necessary to
perform its obligations under this Agreement, and shall at its own expense
provide office space, facilities, equipment and the necessary personnel which it
is obligated to provide under section 1 hereof, except that the Fund shall pay
the expenses of legal counsel and accountants as provided in section 4(b) of
this Agreement. In addition, the Administrator
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shall be responsible for the payment of any persons engaged pursuant to section
l(b) hereof. The Fund shall assume and pay or cause to be paid all other
expenses of the Fund.
3. Compensation of the Administrator. For the services provided to the
Fund and each Portfolio by the Administrator pursuant to this Agreement, each
Portfolio shall pay the Administrator on the first business day of each calendar
month a fee for the previous month at an annual rate equal to .10 of 1% of such
Portfolio's average daily net assets. The value of each Portfolio's net assets
shall be computed at the times and in the manner specified in the Fund's
registration statement on Form N-lA, as amended from time to time (the
"Registration Statement"). Compensation by each Portfolio of the Administrator
shall commence on the date of the first receipt by such Portfolio of the
proceeds of the sale of its shares as described in the Registration Statement,
and the fee for the period from the date such Portfolio shall first receive the
proceeds of the sale of its shares as aforesaid to the end of the month during
which such proceeds are so received, shall be pro-rated according to the
proportion that such period bears to the full monthly period. Upon termination
of this Agreement before the end of a month, the fee for such part of that month
shall be pro-rated according to the proportion that such period bears to the
full monthly period and shall be payable within seven (7) days after the date of
termination of this Agreement.
4. Limitation of Liability of the Administrator; Indemnification.
(a) The Administrator shall not be liable to the Fund or any
Portfolio for any error of judgment or mistake of law or for any loss arising
out of any act or omission by the Administrator in the performance of its duties
hereunder. Nothing herein contained shall be construed to protect the
Administrator against any liability to the Fund, a Portfolio, or shareholders to
which the Administrator shall otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
reckless disregard of its obligations and duties hereunder.
(b) The Administrator may, at the expense of the Fund, (i)
with respect to questions of law, apply for and obtain the advice and opinion of
counsel to the Fund, and (ii) with respect to the application of generally
accepted accounting principles or
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Federal tax accounting principles, apply for and obtain the advice and opinion
of the independent auditors of the Fund. The Administrator shall be fully
protected with respect to any action taken or omitted by it in good faith in
conformity with such advice or opinion.
(c) The Fund, on behalf of each Portfolio, agrees to indemnify
and hold harmless the Administrator from and against all charges, claims,
expenses (including legal fees) and liabilities reasonably incurred by the
Administrator in connection with the performance of its duties hereunder, except
such as may arise from the Administrator's willful misfeasance, bad faith, gross
negligence in the performance of its duties or reckless disregard of its
obligations and duties hereunder. Subject to requirements of applicable laws,
such expenses shall be paid by the Fund in advance of the final disposition of
any matter upon invoice by the Administrator and receipt by the Fund of an
undertaking from the Administrator to repay such amounts if it shall ultimately
be established that the Administrator is not entitled to payment of such
expenses hereunder.
(d) As used in this section 4, the term "Administrator" shall
include any affiliates of the Administrator performing services for the Fund
contemplated hereby and directors, officers, agents and employees of the
Administrator and such affiliates.
5. Activities of the Administrator. The services of the Administrator
under this Agreement are not to be deemed exclusive, and the Administrator and
any person controlled by or under common control with the Administrator shall be
free to render similar services to others and services to the Fund in other
capacities.
6. Duration and Termination of this Agreement.
(a) This Agreement shall become effective as of the date first
above written and shall continue in effect with respect to each Portfolio until
December 12, 1997, and thereafter from year to year so long as such continuation
is specifically approved at least annually by the Board of Directors of the
Fund, including a majority of the directors who are not "interested persons" of
the Fund within the meaning of the 1940 Act and who have no direct or indirect
interest in this Agreement; provided, however, that this Agreement may be
terminated at any time without the payment of any penalty, on behalf of any or
all of the Portfolios, by the Fund, by the
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<PAGE>
Board or, with respect to any Portfolio, by "vote of a majority of the
outstanding voting securities" (as defined in the 1940 Act) of that Portfolio,
or by the Administrator on not less than 60 days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
"assignment" as defined in the 1940 Act.
(b) The Administrator hereby agrees that the books and records
prepared hereunder with respect to the Fund are the property of the Fund and
further agrees that upon the termination of this Agreement or otherwise upon
request the Administrator will surrender promptly to the Fund copies of the
books and records maintained hereunder.
7. Amendments of this Agreement. This Agreement may be amended by the
parties hereto only if such amendment is specifically approved by the Board of
Directors of the Fund and such amendment is set forth in a written instrument
executed by each of the parties hereto.
8. Governing Law. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of New York as at the
time in effect and the applicable provisions of the 1940 Act. To the extent that
the applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
9. Counterparts. This Agreement may be executed by the parties
hereto in counterparts and if executed in more than one counterpart the
separate instruments shall constitute one agreement.
10. Notices. All notices or other communications hereunder to
either party shall be in writing and shall be deemed to be received on the
earlier of the date actually received or on the fourth day after the postmark
if such notice is mailed first class postage prepaid. Notice shall be
addressed: (a) if to the Administrator, to: President, Waterhouse Asset
Management, Inc., 100 Wall Street, New York, New York 10005; or (b) if to the
Fund, to: President, Waterhouse Investors Cash Management Fund, Inc., 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
11. Separate Portfolios. This Agreement shall be construed to be made
by the Fund as a separate agreement with respect to each Portfolio, and under no
circumstances
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shall the rights, obligations or remedies with respect to a particular Portfolio
be deemed to constitute a right, obligation or remedy applicable to any other
Portfolio.
12. Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and
supersedes any prior arrangements, agreements or understandings.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
WATERHOUSE INVESTORS CASH
MANAGEMENT FUND, INC.
By: /s/ Arnold J. Feist
Title: Vice President, Assistant Secretary
WATERHOUSE ASSET MANAGEMENT, INC.
By: /s/ Michele R. Teichner
Title: Senior Vice President
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EXHIBIT (9)(F)
SUB-ADMINISTRATION AGREEMENT
SUB-ADMINISTRATION AGREEMENT made this 15th day of October, 1996 between
Waterhouse Asset Management, Inc. ("Waterhouse"), a Delaware corporation, and
Funds Distributor, Inc. ("FDI"), a Massachusetts corporation.
WHEREAS, Waterhouse serves as investment adviser to and provides certain
administrative services for certain open-end management investment companies
registered under the Investment Company Act of 1940, as amended (the "1940 Act")
(the "Funds"), and to certain portfolios of the Funds (each a "Portfolio",
collectively, the "Portfolios") as listed on Schedule A, as such Schedule shall
be automatically amended from time to time, subject to Board of Director
approval;
WHEREAS, Waterhouse serves as administrator for the Funds pursuant to an
Administration Agreement dated as of October 15, 1996, as amended from time to
time;
WHEREAS, Waterhouse desires to retain FDI to assist it in performing
administrative services with respect to the shares of the common stock (the
"Shares") of the Fund and FDI is willing to perform such services on the terms
and conditions set forth in this Agreement;
NOW THEREFORE, in consideration of the mutual agreements herein contained, the
parties agree as follows:
1. Services Provided by FDI. FDI will assist Waterhouse by providing
services to the Portfolios of the Fund, as listed in Exhibit A.
2. Services Provided by Waterhouse. In furtherance of the
responsibilities under this Agreement Waterhouse will:
(a) cause the Fund's service providers to furnish any and all
information and assist FDI in taking any other actions that may be
reasonably necessary in connection with FDI providing those services
listed in Exhibit A;
(b) cause the Fund's blue sky administrator to monitor sales of the
Shares to assure compliance with applicable state securities and Blue
Sky laws;
(c) cause the Fund's transfer agent to give necessary information for
the preparation of quarterly reports in a form satisfactory to FDI
regarding Rule 12b-1 fees, front-end sales loads, back-end sales loads,
if applicable, and other data regarding sales and sales loads as
required by the 1940 Act or as requested by the Board of Directors of
the Fund;
(d) cause the Fund's transfer agent to provide FDI with all necessary
historical information so that FDI can calculate the maximum sales
charges payable by the Fund pursuant to the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. ("NASD") and the
actual sales charges paid by the Fund, if applicable; cause the
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Fund's transfer agent to provide FDI with all of the necessary
information so that FDI can calculate the maximum sales charges payable
by the Fund pursuant to the Rules of Fair Practice of the NASD and the
actual sales charges paid by the Fund, if applicable; and cause the
Fund's transfer agent to provide such information in a form
satisfactory to FDI no less often than monthly for every Fund and on a
daily basis for any Fund where FDI determines that the remaining limit
is approaching zero, if applicable; and
(e) provide FDI with copies of, or access to, any documents that FDI
may reasonably request and will notify FDI as soon as possible of any
matter materially affecting FDI's performance of its services under
this Agreement.
3. Compensation; Reimbursement of Expenses. Waterhouse shall pay FDI the
following fee for the services provided under this Agreement:
(a) an annual fee of $250,000 for Routine Administrative Services, as
defined in Exhibit A, payable in equal monthly installments on the
second business day of each month; and
(b) for Extraordinary Administrative Services, as defined in Exhibit A:
(i) a flat fee to be negotiated after the scope of the
project has been accurately and completely defined; or
(ii) a fee for a particular project based on a blended
hourly rate of $75.00 per person. Only personnel with an
Assistant Vice President title or higher with FDI would bill
on an hourly basis.
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly in arrears. If this Agreement becomes effective subsequent to the first
day of a month or shall terminate before the last day of a month, compensation
for that part of the month this Agreement is in effect shall be prorated in a
manner consistent with the calculation of the fees as set forth above. In
addition, Waterhouse agrees to reimburse FDI for FDI's reasonable out-of-pocket
expenses as mutually agreed to by the parties from time to time.
4. Effective Date and Term. This Agreement shall become effective with respect
to a Fund as of the date first written above (or, if a particular Fund is not in
existence on that date, on the date Funds Distributor, Inc. becomes
sub-administrator to the Fund; Schedule A to this Agreement shall be deemed
amended to include such Fund from and after such date).
This Agreement shall become effective as of the date hereof and will continue
until December 12, 1997 and will continue thereafter so long as such continuance
is specifically approved at least annually (i) by the Fund's Board or (ii) by a
vote of a majority (as defined in the 1940 Act) of the Shares of the Fund or the
relevant Portfolio, as the case may be, provided that in either event its
continuance also is approved by a majority of the Board members who are not
"interested persons" (as defined in said Act) of any party to this Agreement and
who have no direct or indirect financial interest in this Agreement, by vote
cast in person at a meeting called for the purpose of voting on such approval.
This Agreement is terminable with respect to any
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Portfolio or any Fund, without penalty, on not less than sixty days' notice, by
the Fund's Board of Directors, by vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of such Fund, or by you. This
Agreement shall terminate automatically in the event of its "assignment" (as
defined in the 1940 Act). This Agreement may be terminated by either party, on
not less than 60 days written notice, upon any material breach of this Agreement
by the other party. If FDI ceases to be the Sub-Administrator of any Fund before
the fifth anniversary of the date the Fund began its investment activities,
Waterhouse shall reimburse FDI an amount equal to the number resulting from
multiplying the Fund's total unamortized organizational expenses by a fraction,
the numerator of which is equal to the number of initial shares redeemed by FDI
or its affiliate and the denominator of which is equal to the number of initial
shares still outstanding as of the date of such redemption, as long as the
administrative position of the staff of the Securities and Exchange Commission
requires FDI to reimburse the Fund such amount. (Initial shares shall mean the
shares purchased by FDI or an affiliate to provide the initial seed capital to a
Fund pursuant to Section 14 of the 1940 Act.)
5. Standard of Care and Indemnification.
(a) Waterhouse will indemnify and hold harmless FDI, its officers,
employees and agents and any persons who control FDI (together "FDI and its
employees") and hold each of them harmless from any losses, claims, damages
or liabilities, or actions in respect thereof, to which FDI and its
employees may become subject, including amounts paid in settlement with the
prior written consent of Waterhouse, insofar as such losses, claims,
damages or liabilities, or actions in respect thereof, arise out of or
result from the failure of Waterhouse to comply with the terms of this
Agreement;
(b) FDI will indemnify and hold harmless Waterhouse, its officers,
employees and agents and any persons who control Waterhouse (together
"Waterhouse and its employees") and hold each of them harmless from any
losses, claims, damages or liabilities, or actions in respect thereof, to
which Waterhouse and its employees may become subject, including amounts
paid in settlement with the prior written consent of FDI, insofar as such
losses, claims, damages or liabilities, or actions in respect thereof,
arise out of or result from the failure of FDI to comply with the terms of
this Agreement;
Waterhouse will reimburse FDI and its employees for reasonable legal or
other expenses reasonably incurred by FDI and its employees in connection
with investigating or defending against any such loss, claim, damage,
liability or action. Waterhouse shall not be liable to FDI for any action
taken or omitted by FDI in bad faith, with willful misfeasance or gross
negligence, or with reckless disregard by FDI of its obligations and duties
hereunder. The indemnities in this Section shall, upon the same terms and
conditions, extend to and inure to the benefit of each of the employees of
FDI that serve as officers or directors of the Fund and to each of the
directors and officers of FDI and any person controlling FDI within the
meaning of Section 15 of the Securities Act of 1933 ("1933 Act") or Section
20 of the Securities Exchange Act of 1934 ("1934 Act").
FDI will reimburse Waterhouse for reasonable legal or other expenses
reasonably incurred by Waterhouse in connection with investigating or
defending against any such loss, claim,
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damage, liability or action. FDI shall not be liable to Waterhouse for any
action taken or omitted by Waterhouse in bad faith, with willful
misfeasance or gross negligence, or with reckless disregard by Waterhouse
of its obligations and duties hereunder. The indemnities in this Section
shall, upon the same terms and conditions, extend to and inure to the
benefit of each of the directors and officers of Waterhouse and any person
controlling Waterhouse within the meaning of Section 15 for the 1933 Act or
Section 20 of the 1934 Act.
(c) (i) Promptly after an indemnified party (or, if such indemnified party
is not a natural person, a responsible officer of such indemnified party)
receives notice or otherwise becomes aware of the commencement of any
action or other assertion of any losses, claims, damages or liabilities by
any third party, such indemnified party shall, if a claim in respect
thereof is to be made pursuant to this Section 5, notify the indemnitor of
the same in writing (such notice, a "claim notice"); but the omission so to
notify the indemnitor will not relieve the indemnitor from any liability
that it may have to such indemnified party otherwise than under this
Section 5. In the event that the indemnified party notifies the indemnitor
in writing of its waiver of any right to indemnification pursuant to this
Section 5 in respect of any losses, claims, damages or liabilities or
portion thereof, the provisions of clause (ii) of this Section 5(c) shall
not apply.
(ii) Promptly following receipt of a claim notice, the indemnitor, upon
request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified party
and any others the indemnitor may designate in contesting such losses,
claims, damages or liabilities and shall pay the reasonable fees and
disbursements of such counsel related to such contest. In any such contest,
any indemnified party shall have the right to retain its own counsel, but
the reasonable fees and expenses of such counsel shall be at the expense of
such indemnified party unless (A) the indemnitor and the indemnified party
shall have mutually agreed to the retention of such counsel or (B) the
named parties to any such contest (including any impleaded parties) include
both the indemnitor and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnitor shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one firm for all such indemnified parties. The
indemnitor may, at its option, at any time upon written notice to the
indemnified party, assume the responsibility for contesting any losses,
claims, damages or liabilities and may designate counsel satisfactory to
the indemnitor in connection therewith provided that the counsel so
designated would have no actual or potential conflict of interest in
connection with such representation. Unless it shall assume the
responsibility for contesting any losses, claims, damages or liabilities,
the indemnitor shall not be liable for any settlement or compromise of such
losses, claims, damages or liabilities or portion thereof which settlement
or compromise is effected without its written consent, but if settled or
compromised with such consent or if there be a final judgment for the
plaintiff asserting such losses, claims or liabilities, the indemnitor
agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement, compromise or judgment. If the
indemnitor assumes responsibility for contesting any losses, claims,
damages or liabilities, it shall be entitled to settle or compromise such
losses, claims, damages or liabilities or portion thereof with the consent
of the indemnified
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party or, if such settlement or compromise provides for release of the
indemnified party in connection with all matters relating to such losses,
claims, damages or liabilities, or, with respect to the settlement or
compromise of a portion of such losses, claims, damages or liabilities, all
matters relating to such portion of such losses, claims, damages or
liabilities, that have been asserted against the indemnified party by the
other parties to such settlement or compromise, without the consent of the
indemnified party. In the event that any expense paid by the indemnitor
pursuant to this Section 6(c) is subsequently determined to not be required
to be borne by the indemnitor, the indemnified party that received such
payment shall promptly refund the amount so paid to the indemnitor. If the
indemnitor assumes responsibility for contesting any losses, claims,
damages or liabilities, the indemnitor shall keep the indemnified party
apprised, on a current basis, of matters concerning such contest, including
without limitation (i) providing the indemnified party with reasonable
notice of and opportunity to be present in person and/or by counsel at
proceedings or discussions of settlement or compromise; (ii) providing the
indemnified party with copies of and opportunity to comment on filings,
papers or settlement agreements proposed to be filed or served by or on
behalf of the indemnitor; and (iii) providing the indemnified party with
copies of filings, papers and proposed settlement agreements received by
the indemnitor from or on behalf of persons asserting such losses, claims,
damages or liabilities.
(d) The obligation to indemnify and provide contribution pursuant to this
Section 6 shall survive the termination of this Agreement.
7. Record Retention and Confidentiality. FDI shall keep and maintain on behalf
of the Fund all books and records which the Fund and FDI are, or may be,
required to keep and maintain in connection with the services to be provided
hereunder pursuant to any applicable statutes, rules and regulations, including
without limitation Rules 31a-1 and 31a-2 under the 1940 Act. FDI further agrees
that all such books and records shall be the property of the Fund and to make
such books and records available for inspection by the Fund, by Waterhouse, or
by the Securities and Exchange Commission at reasonable times and otherwise to
keep confidential all books and records and other information relative to the
Fund and its shareholders; except when requested to divulge such information by
duly-constituted authorities or court process.
8. Rights of Ownership. All computer programs and procedures developed to
perform the services to be provided by FDI under this Agreement are the property
of FDI.
9. Return of Records. FDI may at its option at any time, and shall promptly upon
the demand of Waterhouse and/or the Fund, turn over to Waterhouse and/or the
Fund and cease to retain FDI's files, records and documents created and
maintained by FDI pursuant to this Agreement so long as FDI shall be able to
retain photocopies of such documents to the extent needed by FDI in the
performance of its services or for its legal protection. If not so turned over
to Waterhouse and/or the Fund, such documents and records will be retained by
FDI for six years from the end of the fiscal year of the Fund for which they
were created. At the end of such six-year period, such records and documents
will be turned over to Waterhouse and/or the Fund unless the Fund authorizes in
writing the destruction of such records and documents.
5
<PAGE>
10. Representations of Waterhouse. Waterhouse represents and warrants to FDI
that this Agreement has been duly authorized by Waterhouse and, when executed
and delivered by Waterhouse, will constitute a legal, valid and binding
obligation of Waterhouse, enforceable against Waterhouse in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of creditors and
secured parties.
11. Representations of FDI. FDI represents and warrants that this Agreement has
been duly authorized by FDI and, when executed and delivered by FDI, will
constitute a legal, valid and binding obligation of FDI, enforceable against FDI
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties.
12. Notices. All notices or other communications hereunder to either party shall
be in writing and shall be deemed sufficient if mailed to Waterhouse at the
following address: Waterhouse Asset Management, Inc., 100 Wall Street, New York,
New York 10005, Attention: President; and to FDI at the following address: 60
State Street, Suite 1300, Boston, MA 02109, Attention: President with a copy to
General Counsel or at such other address as such party may designate by written
notice to the other, or in either case if sent by telex, telecopier, telegram or
similar means of same day delivery (with a confirming copy by mail as provided
herein).
13. Headings. Paragraph headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
14. Assignment. This Agreement and the rights and duties hereunder shall not be
assignable by either of the parties hereto except by the specific written
consent of the other party.
15. Governing Law. This Agreement shall be governed by and provisions shall be
construed in accordance with the laws of New York.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed all as of the day and year first above written.
WATERHOUSE ASSET MANAGEMENT, INC.
By: /s/ Michele R. Teichner
Title: Senior Vice President
FUNDS DISTRIBUTOR, INC.
By: /s/ Marie E. Connolly
Title: President and Chief Executive Officer
7
<PAGE>
Dated: October 15, 1996
SCHEDULE A
TO THE AGREEMENT
BETWEEN
WATERHOUSE ASSET MANAGEMENT, INC.
AND
FUNDS DISTRIBUTOR, INC.
NAME OF FUND
WATERHOUSE INVESTORS CASH MANAGEMENT FUND, INC.
Money Market Portfolio
U.S. Government Portfolio
Municipal Portfolio
WATERHOUSE ASSET MANAGEMENT, INC.
By: /s/ Michele R. Teichner
Title: Senior Vice President
FUNDS DISTRIBUTOR, INC.
By: /s/ Marie E. Connolly
Title: President and Chief Executive Officer
8
<PAGE>
<PAGE>
EXHIBIT A
Administrative Services
Funds Distributor will provide the following routine administrative services
("Routine Administrative Services"):
Corporate and Secretarial Services
o Provide Secretary and the necessary complement of Assistant
Secretaries for the fund. These services will be provided
consistent with the procedures listed in Exhibit B.
o Maintain general corporate calendar. Track all legal and
compliance requirements through annual cycles.
o Four quarterly board meetings per year:
o Prepare agenda and background materials for legal approval
o Make presentations
o Monitor annual approval requirements
o Prepare extensive background material for annual review of
advisory fees
o Prepare minutes
o Follow-up on matters raised at meetings
o Maintain Articles of Incorporation and By-Laws of the Corporation
o Prepare organizational board meeting materials
o Draft contracts, assisting in negotiation and planning, as
appropriate. For example negotiate, draft and keep current the
following contracts: (i) investment advisory and sub-advisory
contracts; (ii) Distribution Agreement; (iii) Bank Agreements;
(iv) Broker Dealer Agreements; (v) Transfer Agency Agreement; (vi)
Custody Agreement; (vii) Administration Agreement and
Sub-Administration Agreement; (viii) 12b-1 Plans and related
agreements; (ix) Shareholder Servicing Plans and Related
Agreements; (x) IRA Custodian Agreements; (xi) Bi-Party Repurchase
Agreements; (xii) Tri-Party Repurchase Agreements; (xiii) Futures
Account Agreement and Procedural Safekeeping Agreement; (xiv) loan
agreements; and (xv) various other agreements and amendments.
9
<PAGE>
SEC and Public Disclosure Assistance
o Prepare and file one annual amendment to the Fund's registration
statement, including updating prospectuses and SAIs.
o Coordinate/monitor, with assistance from the fund administrator
and fund accountant and any other relevant fund service providers,
EDGAR (Electronic Data Gathering Analysis and Retrieval System)
on-line filings related to post-effective amendments, N-SARs,
24f-2, annual and semi-annual shareholders reports.
o Review annual and semi-annual Shareholder Reports.
o Provide legal assistance for shareholder communications.
Legal Consulting and Planning
o Provide general legal advice on matters relating to portfolio
management, fund operations, mutual fund sales, development of
advertising materials, changing or improving prospectus
disclosure, and any potential changes in the fund's investment
policies, operations, or structure.
o Maintain a continuing awareness of significant emerging regulatory
and legislative developments which may affect the fund, update the
advisor on those developments, and provide related planning
assistance.
o Develop or assist in developing guidelines and procedures to
improve overall compliance by the fund and its various agents.
o Provide advice with regard to fund litigation matters, routine
fund examinations and investigations by regulatory agencies.
o Provide advice regarding long term planning for the Waterhouse
Funds including the creation of new funds or portfolios, corporate
structural changes, mergers, acquisitions, and other asset
gathering plans including new distribution methods.
o Maintain effective communications with fund counsel, counsel to
the "non-interested" board members and to the fund's local
counsel.
o Create and implement timing and responsibility system for outside
legal counsel when necessary to implement major projects and the
legal management of such projects.
10
<PAGE>
o Monitor activities and billing practices of outside counsel
performing services for the fund or in connection with related
fund activities.
Compliance
o Review of all testing that is done by fund accountant to assist
the advisor in complying with fund prospectus guidelines and
limitations, 1940 Act requirements, and Internal Revenue Code
requirements.
o Review of monthly testing and compliance report created by fund
accountant including:
o Tax compliance testing for gross income, short three,
diversification, and single issuer,
o 5% diversification testing for tax and 1940 Act compliance
based on current market value and acquisition cost testing,
if required,
o Income available for distribution report, which includes
capital gains and interest income,
o Net investment income calculated on per-share basis each
month, and
o Prospectus and 1940 Act compliance testing-tests are tailored
to each individual fund's prospectus and tests against the
type and amount of securities held.
o Jointly create Compliance Manuals and workshops for advisory
personnel with the fund accountant.
o Consultation and advice for resolution of compliance questions
along with the investment advisor, the fund administrator, the
fund counsel and the fund accountant.
o Be actively involved with the management of SEC and other
regulatory examinations.
o Review with the investment advisor and fund administrator summary
reports created by the fund accountant of all compliance issues to
assure immediate compliance adjustments.
o Assist portfolio managers with compliance matters including
reviewing the Compliance Manual on a regular basis and attending
compliance meetings with the portfolio managers.
o Assist in developing guidelines and procedures to improve overall
compliance by the fund and its various agents.
11
<PAGE>
o Maintain legal liaison with and provide legal advice and counsel
to fund regarding its relationships, contractual or otherwise,
with the various fund agents, such as the adviser, custodian,
transfer agents, and auditors with respect to their activities on
behalf of the fund.
o Advice regarding all fund distribution arrangements for compliance
with applicable banking and broker-dealer regulations.
o Provide other fund officers as requested (e.g. President and
Vice President).
o Maintaining the fund's code of ethics.
Treasury Services
o Providing the Fund's Treasurer and the appropriate complement of
Assistant Treasurers to assume certain specified responsibilities
(these functions will be based upon the day to day work completed
by knowledgeable staff assembled by Waterhouse including the fund
accountant).
o Determining properly chargeable expenses and authorizing payment
of bills for each fund.
o Monitoring and recommending changes to expense accrual rates.
o Coordinate/monitor, with assistance from the investment adviser,
the fund accountant and any other relevant fund service provider,
all required financial materials for review by the board (for
example, items required by SEC Rule 2a-7, 10f-3, 17a-7, and 17e-1
reports, repurchase agreements, dealer lists, securities
transactions).
o Recommending dividends to be voted by the board
o Reviewing and monitoring mark-to-market comparisons for money
market funds that are generated by the fund accountant.
o Reviewing, signing off and filing all fund tax returns after such
returns have been prepared and signed by the fund's independent
auditors.
o Assisting (along with the fund accountant) the fund's advisor in
valuing securities which are not readily salable.
12
<PAGE>
o Function as a liaison with the fund's custodian, fund accountant,
outside auditors and regulators, including managing the planning
and conducting of audits and examinations.
13
<PAGE>
Funds Distributor is willing to provide any extraordinary administration
services ("Extraordinary Administrative Services") to the Waterhouse Fund
Family. All of the extraordinary legal functions set forth below may be
accomplished wholly or partially by Funds Distributor depending upon the
circumstances surrounding each request. Extraordinary Administrative Services
may, depending upon the circumstances, include the following:
o Shareholder Meetings
o Draft Proxies
o Organize, attend and keep minutes
o Work with the Transfer Agent on Solicitations and Vote
Tabulation
o Provide legal presence at meetings
o Draft Proxy/Solicitation Documents on Form N-14 (Fund Mergers).
o An Annual Post-Effective Amendment that involves major prospectus
revisions or the addition of new investment portfolios.
o Board Meeting Materials for significant corporate restructuring or
other major changes as well as more than four board meetings
during a twelve month period.
o More than one Post-Effective Amendment in any twelve month period.
o Advice regarding conversion of pooled funds and certain other bank
specific advice.
o Monitor and participate in the preparation of documents for
Exemptive Orders (e.g., Joint Repurchase Account), Revenue Rulings
(e.g., Multi-Class) and other state specific regulatory orders
(e.g., Florida Request for Technical Assistance).
o Filing advertising and sales literature with the appropriate
regulatory entities and providing all compliance review of such
materials.
14
<PAGE>
EXHIBIT B
1
SIGNATURE/OVERSIGHT PROCEDURES
RULE 24e(2)/24f(2) SHARE REGISTRATION
Documents pertaining to filing of fund share registration statements pursuant to
Rule 24e(2) or 24f(2) will be prepared by the fund accountant. The fund
accountant will provide FDI with certain financial information contained in such
filing. After the filing documents have been prepared and reviewed by
Waterhouse, the following will occur:
o Filing documents, accompanied by a completed signature request form
(see copy attached), will be forwarded to appropriate fund officer for
signature.*
o Financial statements providing the basis for the financial information
contained in the filing documents will be provided in "blueprint" form
to Funds Distributor by the fund accountant.
o Documents will be reviewed by Funds Distributor utilizing the
financial statements.
o Completed signature request form will be reviewed by Funds Distributor
for proper authorization.
o Any questions that may arise during review will be directed to
Waterhouse or the fund accountant as appropriate.
o If not in order, Funds Distributor will contact the appropriate
entities or persons with an explanation and, if necessary, documents
will be returned to Waterhouse and/or the fund accountant, as
appropriate, with explanation.
o If in order, documents will be signed by fund officer and returned to
the Waterhouse Legal Department by the request date specified in the
completed signature request form.
o To the extent that Funds Distributor must provide an opinion letter to
which another Fund service provider is the source of knowledge, that
service provider must provide Funds Distributor with an opinion letter
supporting the data that it provides Funds Distributor.
*Contact Persons:
15
<PAGE>
2
SIGNATURE/OVERSIGHT PROCEDURES
FORM N-SAR SEMI-ANNUAL REPORT
Semi-annual report on form N-SAR will be prepared for filing by the fund
accountant. The fund accountant will provide Waterhouse and Funds Distributor
with certain financial information required on Form N-SAR. After form has been
completed, the following will occur:
o Form N-SAR, accompanied by completed signature request form (see copy
attached), will be forwarded to Funds Distributor for fund officer
signature.*
o Form will be reviewed by Funds Distributor and Waterhouse.
o Completed Signature Request form will be reviewed for proper
authorization.
o Any questions that may arise during review will be directed to
Waterhouse or the fund accountant appropriate.
o If not in order, Funds Distributor will contact the appropriate
entities or persons with an explanation and, if necessary, form will be
returned to Waterhouse and/or the fund accountant, as appropriate, with
explanation.
o If in order, form will be signed by fund officer and returned to
Waterhouse by the request date specified in the completed signature
request form.
*Contact Person:
16
<PAGE>
3
SIGNATURE/OVERSIGHT PROCEDURES
TAX RETURNS
All tax and information returns will be prepared and reviewed by the fund's
auditor. When returns are completed and reviewed, the following will occur:
o Tax and information returns, signed by independent auditors and
accompanied by a completed signature request form (see copy attached),
will be forwarded to Funds Distributor for fund officer signature.*
o All returns will be reviewed by Funds Distributor and Waterhouse.
o Completed signature request form will be reviewed for proper
authorization.
o Any questions that arise during review will be directed to the funds
auditor.
o In not in order, returns will be returned to the funds auditor with
explanation.
o If in order, returns will be signed by fund officer and returned to
the fund auditor.
*Contact Persons:
17
<PAGE>
4
SIGNATURE/OVERSIGHT PROCEDURES
SEC EXAMINATION/INQUIRIES
When the Securities and Exchange Commission conducts a periodic examination of
the Funds or makes written inquiries for specific information, the following
will occur:
o Waterhouse* will promptly inform Funds Distributor* of such
examination or written inquiry.
o Waterhouse will inform Funds Distributor of the specific nature of
the information requested for examination or by inquiry.
o Funds Distributor will be actively involved with any SEC
examinations.
o Waterhouse will submit to Funds Distributor the response to
SEC-written inquiries.
o Waterhouse will forward to Funds Distributor and each fund officer a
copy of the comment letter received from the SEC upon completion of
examination.
o Waterhouse will forward to Funds Distributor and each fund officer a
copy of the response to the comment letter.
*Contact Person:
18
<PAGE>
5
SIGNATURE/OVERSIGHT PROCEDURES
AUDIT REPRESENTATION LETTER
The process of examining financial statements of the Funds by independent
auditors includes the receipt of a letter from the Funds in which various
representations are made. This letter will be prepared by the independent
auditors. Upon completion of this letter, the following will occur:
o Letter will be reviewed and signed by Waterhouse authorized signatory.
o Letter will be sent to Funds Distributor for review and fund officer
signature.*
o Letter will be reviewed by Funds Distributor.
o To the extent that Funds Distributor must provide an audit
representation letter to which another Fund service provider is the
source of knowledge (i.e. the fund auditor), that service provider
must provide Funds Distributor with an opinion letter supporting the
audit representation letter or any other data that it provides Funds
Distributor.
o If not in order, letter will be returned to Waterhouse or the fund
auditor with explanation.
o If in order, letter will be signed by fund officer and returned to
independent auditors.
*Contact Persons:
19
<PAGE>
6
SIGNATURE/OVERSIGHT PROCEDURES
VALUATION OF MUTUAL FUND PORTFOLIO SECURITIES
In connection with the valuation of mutual fund portfolio securities, it is
sometimes necessary to convene a meeting of the Fund's Portfolio Securities
Pricing Committee to place a value on a portfolio security for the purpose of
calculating NAV per share.
o Funds Distributor and a fund officer will be present at meeting,
either in person or by conference call.
o Meeting minutes or memo of Pricing Committee decisions will be sent to
Funds Distributor.
In addition, because of the complexities or large universe of various portfolio
securities (i.e., GNMA and Tax-Exempt Securities), an independent pricing
service is utilized to price such securities.
o Waterhouse will inform Funds Distributor of any change of independent
pricing service.
In connection with money market funds, it is necessary to monitor any deviation
of a fund's net asset value per share calculated using market values from the
fund's net asset value per share calculated using amortized cost prices.
o Waterhouse or the fund accountant will send Funds Distributor,* on a
daily basis, a schedule that indicates each money market fund's net
asset value per share calculated at amortized cost and market value.
o Waterhouse or the fund accountant will send Funds Distributor,* on a
monthly basis, a schedule for each fund, indicating the fund's total
net assets, dividend per share and net asset value per share
calculated at amortized cost and market value.
o Waterhouse will notify Funds Distributor* when Waterhouse intends to
apprise a fund's Board of Directors of information concerning the
fund's net asset value per share.
*Contact Persons:
20
<PAGE>
7
SIGNATURE/OVERSIGHT PROCEDURES
CHANGE IN NET ASSET VALUE PER SHARE
If a fund's net asset value per share changes after the day of calculation and
shareholder account processing, the following will occur:
o Waterhouse or the fund accountant will send Funds Distributor* a
schedule that will indicate the fund and change in net asset value per
share.
o Waterhouse or the fund accountant will document the change in net
asset value per share and forward the documentation to Funds
Distributor* accompanied by completed signature request form (see copy
attached).
*Contact Persons:
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<PAGE>
CHANGE IN NET ASSET VALUE PER SHARE
SIGNATURE REQUEST FORM
To:
--------------------------------
From:
------------------------------
Tel. #: Fax #
----------------- ------------------------
Date:
------------------------------
RIC/Fund Name:
------------------------------------------------
Restated NAV Per Share:
---------------------------------------
Documentation of Change in NAV:
------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Waterhouse Approval:
Signature: Date:
--------------------------------------- ----------------
Name:
Title:
Funds Distributor Approval:
Signature: Date:
--------------------------------------- ----------------
Fund Officer
Waterhouse Authorized Signatories Funds Distributor Contact Persons
22
<PAGE>
8
SIGNATURE/OVERSIGHT PROCEDURES
RECLAIM OF TAXES WITHHELD FROM
DIVIDENDS ON FOREIGN SECURITIES
Forms necessary to reclaim taxes withheld from dividends paid on foreign
securities are coordinated by the fund's auditor. When these forms require the
signature of a fund officer, the following will occur:
o Completed forms, accompanied by completed signature request form (see
copy attached), will be forwarded to Funds Distributor for fund
officer signature.*
o Funds Distributor will review the form.
o Funds Distributor will review the completed form for proper
authorization.
o Any questions that arise during review will be directed to the fund's
auditor.
o If not in order, form will be returned to the fund's auditor with
explanation.
o If in order, form will be signed by fund officer and returned to the
fund's auditor.
*Contact Persons:
<PAGE>
ACCOUNTING SERVICES AGREEMENT
AGREEMENT dated as of October 15, 1996 between Waterhouse Asset Management,
Inc. ("WAM"), a Delaware corporation, and MGF Service Corp. ("MGF"), an Ohio
corporation.
WHEREAS, Waterhouse Investors Cash Management Fund, Inc. (the "Fund") is an
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), currently comprised of three separate investment
portfolios (the "Portfolios"); and
WHEREAS, the WAM wishes to employ the services of MGF to provide the Fund
with certain accounting and pricing services; and
WHEREAS, MGF wishes to provide such services under the conditions set forth
below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, WAM and MGF agree as follows:
1. APPOINTMENT.
WAM hereby appoints and employs MGF as agent to perform those services
described in this Agreement for the Fund. MGF shall act under such appointment
and perform the obligations thereof upon the terms and conditions hereinafter
set forth.
2. CALCULATION OF NET ASSET VALUE.
MGF will calculate the net asset value of each Portfolio of the Fund and
the per share net asset value of each Portfolio of the Fund, in accordance with
the Fund's current prospectus and statement of additional information, twice
daily as of the times selected by the Fund's Board of Directors. MGF will
prepare and maintain a valuation of all securities and other assets of the Fund
in accordance with instructions from a designated officer of the Fund or WAM and
in the manner set forth in the Fund's prospectus and statement of additional
information as in effect from time to time. In valuing securities of the Fund,
MGF may contract with, and rely upon market quotations provided by, outside
services.
3. BOOKS AND RECORDS.
MGF will maintain and keep current the general ledger for each Portfolio of
the Fund, recording all income and expenses, capital share activity and security
transactions of the Fund. MGF will maintain such further books and records as
are necessary to enable it to perform its duties under this Agreement, and will
periodically provide reports to the Fund and its authorized agents regarding
share purchases and redemptions and trial balances of each Portfolio of the
Fund. MGF will prepare and maintain complete, accurate and current records with
respect to the Fund required to be maintained by the Fund pursuant to applicable
statues, rules and
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<PAGE>
regulations, including without limitation, under the Internal Revenue Code of
1986, as amended, and under the rules and regulations of the 1940 Act, and will
preserve said records in the manner and for the periods prescribed therein. The
retention of such records shall be at the expense of the Fund.
All of the records prepared and maintained by MGF pursuant to this Section
3 which are required to be maintained by the Fund under the Code and the 1940
Act will be the property of WAM, on behalf of the Fund, and MGF agrees to make
such records available for inspection by the Fund, by any designated affiliate
or agent of the Fund, and by the Securities and Exchange Commission, at
reasonable times, and otherwise to keep confidential all records and other
information relative to the Fund, except when requested to divulge such
information by duly constituted authorities and court process. In the event this
Agreement is terminated, all such records shall be delivered to WAM at WAM's
expense, and MGF shall be relieved of responsibility for the preparation and
maintenance of any such records delivered to the Fund. In the event this
Agreement is terminated by reason of MGF's failure to comply with any provision
hereof, WAM shall not pay expenses of MGF in connection with its duties in this
paragraph.
4. PAYMENT OF FUND EXPENSES.
MGF shall process each request received from the Fund or WAM for payment of
the Fund's expenses. Upon receipt of written instructions signed by an officer
or other authorized agent of the Fund or WAM, MGF shall prepare checks in the
appropriate amounts which shall be signed by an authorized officer of MGF and
mailed to the appropriate party.
5. FORM N-SAR.
MGF shall maintain such records within its control and shall be requested
to assist the Fund in fulfilling the requirements of Form N-SAR.
6. COOPERATION WITH ACCOUNTANTS.
MGF shall cooperate with the Fund's independent auditors and shall take all
reasonable action in the performance of its obligations under this Agreement to
assure that the necessary information is made available to such auditors for the
expression of their unqualified opinion where required for any document for the
Fund.
7. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
- 2 -
<PAGE>
8. FEES.
For the performance of the services under this Agreement, WAM shall pay MGF
a monthly fee in accordance with the schedule attached hereto as Schedule A. The
fees with respect to any month shall be paid to MGF on the last business day of
such month. WAM shall also promptly reimburse MGF for the cost of external
pricing services utilized by MGF. If this Agreement becomes effective subsequent
to the first day of a month, or is terminated before the last day of a month,
fees for the part of the month this Agreement is in effect shall be pro rated
accordingly.
9. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
The parties hereto acknowledge and agree that nothing contained herein
shall be construed to require MGF to perform any services for the Fund which
services could cause MGF to be deemed an "investment adviser" of the Fund within
the meaning of Section 2(a)(20) of the 1940 Act or to supersede or contravene
the Fund's prospectus or statement of additional information or any provisions
of the 1940 Act and the rules thereunder. Except as otherwise provided in this
Agreement and except for the accuracy and completeness of information furnished
to it by MGF, the Fund assumes full responsibility for complying with all
applicable requirements of the 1940 Act, the Securities Act of 1933, as amended,
and any other laws, rules and regulations of governmental authorities having
jurisdiction over the Fund.
10. INDEMNIFICATION OF MGF.
A. MGF may rely on information reasonably believed by it to be accurate and
reliable. Except as may otherwise be required by the 1940 Act and the rules
thereunder, neither MGF nor its officers, directors, employees, agents, control
persons or affiliates of any thereof shall be subject to any liability for, or
any damages, expenses or losses incurred by the Fund or WAM in connection with,
any error of judgment, mistake of law, any act or omission connected with or
arising out of any services rendered under or payments made pursuant to this
Agreement or any other matter to which this Agreement relates, except by reason
of willful misfeasance, bad faith or negligence on the part of any such persons
in the performance of the duties of MGF under this Agreement or by reason of
reckless disregard by any of such persons of the obligations and duties of MGF
under this Agreement.
B. Any person, even though also a director, officer, employee, or agent of
MGF, or any of its affiliates, who may be or become an officer, director,
employee or agent of the Fund, shall be deemed, when rendering services to the
Fund or acting on any business of the Fund, to be rendering such services to or
acting solely as an officer, director, employee or agent of the Fund and not as
a director, officer, employee, shareholder or agent of or one under the control
or direction of MGF or any of its affiliates, even though paid by one of those
entities.
- 3 -
<PAGE>
C. WAM shall indemnify and hold harmless MGF, its directors, officers,
employees, agents, control persons and affiliates from and against any and all
claims, demands, expenses and liabilities of any and every nature which MGF may
sustain or incur or which may be asserted against MGF by any person by reason
of, or as a result of: (i) any action taken or omitted to be taken by MGF in
good faith in reliance upon any certificate, instrument, order or share
certificate reasonably believed by it to be genuine and to be signed,
countersigned or executed by any duly authorized person, upon the oral
instructions or written instructions of an authorized person of the Fund or WAM
or upon the opinion of legal counsel for the Fund or WAM or its own counsel; or
(ii) any action taken or omitted to be taken by MGF in connection with its
appointment in good faith in reliance upon any law, act, regulation or
interpretation of the same even though the same may thereafter have been
altered, changed, amended or repealed. However, indemnification under this
subparagraph shall not apply to actions or omissions of MGF or its directors,
officers, employees, shareholders or agents in cases of its or their own
negligence, willful misconduct, bad faith, or reckless disregard of its or their
own duties hereunder.
11. INDEMNIFICATION OF FUND AND WAM.
MGF shall indemnify and hold harmless the Fund and WAM, and their
respective directors, officers, employees, agents, control persons and
affiliates from and against any and all claims, demands, expenses and
liabilities of any and every nature which the Fund or WAM or such persons may
sustain or incur by reason of, or as a result of MGF's negligence, willful
misconduct, bad faith, or reckless disregard of its duties hereunder.
12. TERMINATION.
A. The provisions of this Agreement shall be effective on the date first
above written, shall continue until December 12, 1997 and shall continue in
force from year to year thereafter, but only so long as such continuance is
approved (1) by MGF, (2) by vote, cast in person at a meeting called for the
purpose, of a majority of the Fund's directors who are not parties to this
Agreement or interested persons (as defined in the 1940 Act) of any such party,
and (3) by vote of a majority of the Fund's Board of Directors or a majority of
the Fund's outstanding voting securities.
B. Either party may terminate this Agreement on any date by giving the
other party at least sixty (60) days' prior written notice of such termination
specifying the date fixed therefore. Upon termination of this Agreement, WAM
shall pay to MGF such compensation as may be due as of the date of such
termination, and shall likewise reimburse MGF for any out-of-pocket expenses and
disbursements reasonably incurred by MGF to such date.
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C. In the event that in connection with the termination of this Agreement a
successor to any of MGF's duties or responsibilities under this Agreement is
designated by WAM by written notice to MGF, MGF shall, promptly upon such
termination and at the expense of WAM, transfer to the Fund or its successor, as
indicated by such notice, all records maintained by MGF under this Agreement and
shall cooperate in the transfer of such duties and responsibilities, including
provision for assistance from MGF's cognizant personnel in the establishment of
books, records and other data by such successor. In the event this Agreement is
terminated by reason of MGF's failure to comply with any provision hereof, WAM
shall not pay any expenses of MGF in connection with its duties in this
paragraph.
13. SERVICES FOR OTHERS.
Nothing in this Agreement shall prevent MGF or any affiliated person (as
defined in the 1940 Act) of MGF from providing services for any other person,
firm or corporation (including other investment companies); provided, however,
that MGF expressly represents that it will undertake no activities which, in its
judgment, will adversely affect the performance of its obligations to WAM under
this Agreement.
14. SEVERABILITY.
In the event any provision of this Agreement is determined to be void or
unenforceable, such determination shall not affect the remainder of this
Agreement, which shall continue to be in force.
15. QUESTIONS OF INTERPRETATION.
This Agreement shall be governed by the laws of the State of New York. Any
question of interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the Securities and Exchange Commission issued pursuant to said 1940 Act. In
addition, where the effect of a requirement of the 1940 Act, reflected in any
provision of this Agreement, is revised by rule, regulation or order of the
Securities and Exchange Commission, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
16. NOTICES.
All notices, requests, consents and other communications required or
permitted under this Agreement shall be in writing (including telex and
telegraphic communication) and shall be (as elected by the person giving such
notice) hand delivered by messenger or courier service, telecommunicated, or
mailed (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to:
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To WAM and the Fund: Waterhouse Asset Management, Inc.
100 Wall Street
New York, NY 10005
Attention: Michele R. Teichner
To MGF: MGF Service Corp.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Attention: Robert H. Leshner
or to such other address as any party may designate by notice complying with the
terms of this Section 16. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date telecommunicated if by
telegraph; (c) on the date of transmission with confirmed answer back if by
telex, telefax or other telegraphic method; and (d) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
17. AMENDMENT.
This Agreement may not be amended or modified except by a written agreement
executed by both parties and approved by the Fund's Board of Directors.
18. BINDING EFFECT.
Each of the undersigned expressly warrants and represents that he has the
full power and authority to sign this Agreement on behalf of the party
indicated, and that his signature will operate to bind the party indicated to
the foregoing terms.
19. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
20. FORCE MAJEURE.
If MGF shall be delayed in its performance of services or prevented
entirely or in part from performing services due to causes or events beyond its
control, including and without limitation, acts of God, interruption of power or
other utility, transportation or communication services, acts of civil or
military authority, sabotages, national emergencies, explosion, flood, accident,
earthquake or other catastrophe, fire, strike or other labor problems, legal
action, present or future law, governmental order, rule or regulation, or
shortages of suitable parts, materials, labor or transportation, such delay or
non-performance shall be excused and a
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reasonable time for performance in connection with this Agreement shall be
extended to include the period of such delay or non-performance.
21. MISCELLANEOUS.
The captions in this Agreement are included for convenience of reference
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
WATERHOUSE ASSET MANAGEMENT, INC.
By: /s/ Dennis C. Borecki
Its: President
MGF SERVICE CORP.
By: /s/ Robert Dorsey
Its: President
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Schedule A
COMPENSATION
MGF will receive a monthly fee from each Portfolio, based upon the average net
assets of such Portfolio during such month, in accordance with the following
schedule:
Portfolio's Average Net Assets Monthly Fee
------------------------------ -----------
Less than $250,000,000 $3,000
$250,000,000 - $400,000,000 4,000
$400,000,000 - $500,000,000 4,500
$500,000,000 - $600,000,000 5,000
Over $600,000,000 6,000
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EXHIBIT 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors and Reports to Shareholders" and to the
use of our report dated December 5, 1996 in this Registration Statement (Form
N-1A No. 33-96132) of Waterhouse Investors Cash Management Fund, Inc.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
February 21, 1997
<PAGE>
WATERHOUSE NATIONAL BANK
INDIVIDUAL RETIREMENT ACCOUNT
CUSTODIAL ACCOUNT AGREEMENT
& DISCLOSURE STATEMENT
Please save this agreement for future reference.
Article I Introduction
This Agreement is established pursuant to which Waterhouse National Bank, will
act as a custodian of individual retirement accounts. All such accounts are
intended to qualify as "individual retirement accounts" within the meaning of
section 408 of the Internal Revenue Code of 1986, as amended and are established
and maintained for the exclusive benefit of individuals (and their
beneficiaries) for whom the accounts are held.
Article II Definitions
As used in this Agreement, the following terms shall have the meaning
hereinafter set forth, unless a different meaning is plainly required by the
context.
2.1 "Adoption Agreement" shall mean the application by which this Agreement, as
may be amended from time to time, is adopted by the Participant. The statements
contained in the Adoption Agreement shall be part of this Agreement as fully set
forth herein.
2.2 "Beneficiary" shall mean the person or persons designated by the
Participant.
2.3 "Broker" shall mean Waterhouse Securities, Inc.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.5 "Compensation" shall mean, wages, salaries, professional fees, or other
amounts derived from or received for personal services actually rendered
(including, but not limited to commissions paid salesmen, compensation for
services on the basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses) and includes earned income, as defined in Code
section 401(c) (2) (reduced by the deduction the self-employed individual takes
for contributions made to a self-employed retirement plan). For purposes of this
definition, Code section 401 (c) (2) shall be applied as if the term trade or
business for purposes of Code section 1402 included service described in
subsection (c) (6). Compensation does not include amounts derived from or
received as earnings or profits from property (including but not limited to
interest and dividends) or amounts not includable in gross income. Compensation
also does not include any amount received as a pension or annuity or as deferred
compensation. The term "compensation" shall include any amount includable in the
individual's gross income under Code section 71 with respect to a divorce or
separation instrument described in subparagraph (A) of Code section 71 (b) (2).
2.6 "Custodial Account" shall mean the account which the Custodian shall
establish under this Agreement, as amended from time to time, on behalf of the
Participant and which will consist of any and all contributions made by or for
the Participant under this Agreement and any earnings thereon.
2.7 "Custodial Account Year" shall mean the calendar year from January 1 to
December 31 each year.
2.8 "Custodian" shall mean Waterhouse National Bank, and any successor
custodians under this Agreement.
2.9 "Disabled" or "Disability" shall mean the Participant's inability to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
long-continued and indefinite in duration.
2.10 "ERISA" shall mean the Employee Retirement Income Security Act of 1974.
2.11 "Participant" shall mean an individual who adopts the Agreement and who
makes contributions or on whose behalf contributions are made to a Custodial
Account under this Agreement. If a Spousal IRA, it shall also mean the spouse
who establishes the Custodial Account.
2.12 "Simplified Employee Pension" or "SEP" shall mean a Custodial Account
established by an individual whose employer has adopted a simplified employee
pension plan under Code section 408(k) where such plan permits the establishment
of such accounts.
2.13 "Spousal IRA" shall mean a Custodial Account established by, or for the
benefit of, an individual who is a nonemployed spouse or a divorced or legally
separated spouse of an individual.
Article III Eligibility
3.1 General Rules. Any person who receives compensation during the taxable year
is an eligible individual. An individual who is a divorced or legally separated
spouse for whom a Spousal IRA was established by such individual's former or
separated spouse is an eligible individual. An individual making a rollover
contribution as described in Code section 402(c), 403(a)(4), 403(b)(8), or
408(d)(3), or a contribution made in accordance with the terms of a Simplified
Employee Pension as described in Code section 408 (k) is also an eligible
individual.
3.2 Consent to Participate. As a condition of participation, the Participant
shall consent to the terms and conditions of this Agreement, as may be amended
from time to time.
Article IV Contributions
4.1 Contribution Limits. Except in the case of a rollover contribution (as
permitted by Code section 402 (c), 403 (a) (4), 403 (b) (8), or 408 (d) (3)) or
a contribution made in accordance with the terms of a Simplified Employee
Pension as described in Code section 408 (k), no contributions will be accepted
unless they are in cash, and the total of such contributions shall not exceed
$2,000 for any taxable year. If a Spousal IRA
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has been established for a Participant's spouse, a higher amount shall be used
in lieu of $2,000. For taxable years beginning before January 1, 1997, the
amount shall be $2,250. For taxable years beginning on or after January 1, 1997,
the amount shall be $4,000.
4.2 Deductible Contributions.
A. The participant's contribution may be fully deductible if (i) in the case of
an individual who is not married, the individual either has adjusted gross
income ("AGI") that does not exceed the Applicable Dollar Amount or is not an
active participant in an employer-maintained retirement plan for any part of the
plan year ending with or within the taxable year; (ii) in the case of married
taxpayers filing a joint return, either the couple has AGI that does not exceed
the Applicable Dollar Amount or neither spouse is an active participant in an
employer-maintained retirement plan for any part of the plan year ending with or
within the taxable year; or (iii) in the case of a married taxpayer filing
separately, either the taxpayer has AGI that does not exceed the Applicable
Dollar Amount or neither spouse is an active participant in an
employer-maintained retirement plan for any part of the plan year ending with or
within the taxable year.
B. Each taxable year, an individual who (a) is a participant in an
employer-maintained retirement plan or (b) is married and whose spouse is a
participant in an employer-maintained retirement plan, may deduct an amount not
to exceed the lesser of 100% of the individual's compensation or an amount that
bears the same ratio to $2,000 as the taxpayer's AGI in excess of the Applicable
Dollar Amount (or, in the case of a married couple filing a joint return, the
couple's AGI in excess of the Applicable Dollar Amount) bears to $10,000. If a
Spousal IRA has been established for a Participant's spouse, a higher amount
shall be used in lieu of $2,000. For taxable years beginning before January 1,
1997, the amount shall be $2,250. For taxable years beginning on or after
January 1, 1997, the amount shall be $4,000.
C. The Applicable Dollar Amount is (1) $25,000 in the case of an unmarried
individual, (2) $40,000 in the case of a married couple filing a joint return,
and (3) $0 in the case of a married individual filing separately. The dollar
limit is rounded to the next highest $10 in the case of a limit that is not a
multiple of $10. The IRA dollar limit for individuals whose AGI is not above the
phaseout range shall not be less than $200. AGI shall be calculated without
regard to any deductible IRA contributions made for the taxable year and without
regard to the exclusion provided for certain foreign earned income, but with
regard to any taxable social security benefits and with regard to any passive
loss limitations. For purposes of this Section, an individual is an active
participant in an employer-maintained retirement plan with respect to the
individual's taxable year if the individual is an active participant for any
part of the plan year ending with or within the individual's taxable year. An
employer maintained retirement plan means (i) a qualified pension,
profit-sharing, or stock bonus plan; (ii) a qualified annuity plan described in
Code section 403(a); (iii) a plan established for its employees by the United
States, by a State or political subdivision, or by an agency or instrumentality
of the United States or a State or political subdivision (other than an unfunded
deferred compensation plan of a State or local government); (iv) an annuity
contract described in Code section 403(b); (v) a simplified employee pension
described in Code section 408(k); or (vi) a plan described in Code section
501(c)(18).
4.3 Non-Deductible Contributions. Each taxable year an individual may contribute
under this Agreement, in addition to any amounts which may be deducted under
Section 4.2, an amount equal to the amount of the contribution which is not
deductible by the phase-out rule in Section 4.2.B. Moreover, an individual may
elect to have a contribution under Section 4.2 treated as a contribution under
this Section. Any individual who elects to have a contribution under Section 4.2
treated as a contribution under this Section or who makes a contribution under
this Section 4.3 shall designate such contribution as a non-deductible
contribution on the individual's tax return for the year to which the
designation relates.
4.4 Time and Manner of Making Contributions. Contributions made under this
Agreement shall be in cash. Contributions made under this Agreement by the
Participant shall be made to, or for the account of, the Custodian no later than
the due date (without regard to extensions) for filing the Participant's tax
return. Contributions by an Employer to a SEP must be made no later than the due
date (including extensions) for filing the Employer's tax return. All
contributions so received together with the income therefrom and any other
increment thereon shall be held, managed and administered by the Custodian
pursuant to the terms of this Agreement without distinction between principal
and income and without liability for the payment of interest thereon. The
Custodian shall not be responsible for the computation and collection of any
contributions under the Agreement and shall be under no duty to determine
whether the amount of any contribution is in accordance with the Agreement.
4.5 Custodian's Acceptance of Contributions. Except in the case of a rollover
contribution as that term is described in Article VII, the Custodian will accept
only cash and will not accept contributions on behalf of the Participant in
excess of the limits referred to in Section 4.2 and 4.3.
4.6 Nonforfeitability of Contributions. Contributions made under this Agreement
by or for a Participant shall be fully vested and nonforfeitable at all times.
4.7 Investment of Contributions. The Participant shall direct the Custodian with
respect to the investment of all contributions and the earnings therefrom under
the Agreement. Such direction shall be limited to securities obtainable through
the Custodian "over-the-counter" or on a recognized exchange without any duty to
diversify. The Custodian may leave earnings on any securities so obtained with
the Custodian for reinvestment in accordance with the instructions of the
Participant. Notwithstanding the above, the Participant may direct contributions
and earnings to be placed in a savings account or a Certificate of Deposit with
an institution approved by the Custodian. Contributions may not be invested in
collectibles.
4.8 Maximum Age for Contributions. A Participant shall not make contributions
under this Agreement on or after the taxable year during which the Participant
attains age 70 1/2.
4.9 Withdrawal of Excess Contributions. If a Participant makes a contribution
under this Agreement which exceeds the limits set forth in Section 4.1 or such
limits as may be prescribed by law, then the excess portion may be withdrawn by
the Participant. Such withdrawal must be made prior to the date, including any
extension thereof, on which the Participant is required to file a Federal income
tax return. Any income allocable to the excess amount of such contribution must
be withdrawn by the Participant at the same time.
Article V Disability Benefits
A Participant shall, immediately upon becoming disabled (within the meaning of
Code section 72(m)(7)), be entitled to receive the entire interest in such
Participant's Custodial Account.
Article VI Distribution
6.1 General Rule. Subject to the provisions of this Article VI, the Custodian
shall, on the written directions of the Participant in accordance with the
provisions of the Agreement, make distributions out of the Custodial Account to
such individuals, in such manner, in such amounts and for such purposes as may
be specified in such directions. Notwithstanding any provisions of the Agreement
to the contrary, the distribution of a Participant's interest in the Custodial
Account shall be made in accordance with the minimum distribution requirements
of
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Code section 408(a)(6) or Code section 408(b)(3) and the regulations thereunder,
including the incidental death benefit provisions of section 1.401(a)(9)-2 of
the proposed Income Tax regulations and any subsequent final regulations, all of
which are herein incorporated by reference.
6.2 Premature Distributions. No part of a Participant's interest in the
Custodial Account shall be distributed to such Participant prior to attaining
the age of 59 1/2, except on account of disability, death of the Participant or
rollover, unless such distribution is a part of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the Participant or the joint lives (or joint life expectancies)
of the Participant and his/her designated beneficiary. If a distribution is made
prior to age 59 1/2, the Participant must notify the Custodian in writing of the
intended disposition of such distribution.
6.3 Commencement of Distribution of Benefits. A Participant's interest in the
Custodial Account must commence to be paid to the Participant in a manner
specified in Section 6.5 not later than April 1 of the year following the year
in which such Participant attains age 70 1/2.
6.4 Scope of Custodian's Liability. The Custodian shall not be liable for the
proper application of any part of the Agreement if distributions are made in
accordance with the written directions of the Participant as herein provided,
nor shall the Custodian be responsible for the adequacy of the Custodial Account
to meet and discharge any and all distributions and liabilities.
6.5 Methods of Distribution. The Participant may direct in writing to the
Custodian, subject to the provisions of this Agreement, to have the balance in
the Custodial Account distributed during any taxable year in the form of:
(a) a single payment, or
(b) equal or substantially equal monthly, quarterly, semiannual or annual
payments commencing at the close of such taxable year over the life of the
Participant, or
(c) equal or substantially equal monthly, quarterly, semiannual or annual
payments commencing at the close of such taxable year over the joint lives of
the Participant and the Participant's designated beneficiary, or
(d) equal or substantially equal monthly, quarterly, semiannual or annual
payments commencing at the close of such taxable year over a period certain not
extending beyond the life expectancy of the Participant, or
(e) equal or substantially equal monthly, quarterly, semiannual or annual
payments commencing at the close of such taxable year over a period certain not
extending beyond the joint life and last survivor expectancy of the Participant
and the Participant's designated beneficiary.
Notwithstanding that distributions may have commenced pursuant to one of the
above options, the Participant may receive a distribution of the balance in the
Custodial Account at any time upon written notice to the Custodian.
6.6 Required Distributions. The Participant's entire interest in the Custodial
Account must be distributed, or begin to be distributed, by the Participant's
required beginning date, which is the April 1st following the calendar year in
which the Participant reaches age 70 1/2. For each succeeding year, a
distribution must be made on or before December 31st. A Participant may satisfy
the minimum distribution requirements under Code sections 408 (a)(6) and 408
(b)(3) by receiving a distribution from one individual retirement account that
is equal to the amount required to satisfy the minimum distribution requirements
for two or more individual retirement accounts. For this purpose, the owner of
two or more individual retirement accounts may use the "alternative method"
described in Notice 88-38, 1988-1 C.B. 524, to satisfy the minimum distribution
requirements described above.
6.7 Computation of Periodic Payments. If the Participant elects a mode of
distribution under Sections 6.5(b), (c), (d) or (e) above, the minimum amount of
each payment will be determined by dividing the Participant's entire interest in
the Custodial Account at the beginning of each year by the lesser of the life
expectancy of the Participant (or the joint life and last survivor expectancy of
the Participant and the Participant's designated beneficiary) and the applicable
divisor from the table in Q&A-4 of section 1.401 (a)(9)-2 of the proposed Income
Tax regulations or in the final Income Tax regulations. If the amount of payment
actually made is less than this minimum amount, a fifty percent (50%)
nondeductible Federal excise tax, payable by the individual, shall be imposed on
the amount by which the minimum amount required to be distributed during such
year exceeds the amount actually distributed during the year.
6.8 Death Benefits. If the Participant dies before the entire interest is
distributed, the following distribution provisions shall apply:
(a) Distributions Beginning Before Death. If the Participant dies after
distribution of his/her interest has begun, the remaining portion of such
interest will continue to be distributed at least as rapidly as under the method
of distribution being used prior to the Participant's death.
(b) Distributions Beginning After Death. If the Participant dies before
distribution of his/her interest begins, the Participant's entire interest will
be distributed in accordance with one of the following four provisions:
(1) The Participant's entire interest will be paid by December 31st of the year
containing the fifth anniversary of the Participant's death; or
(2) If the Participant's interest is payable to a Beneficiary designated by the
Participant and the Participant has not elected (1) above, then the entire
interest will be distributed in substantially equal installments over the life
or life expectancy of the designated Beneficiary commencing no later than the
December 31st of the year after the year of the Participant's death. The
designated Beneficiary may elect at any time to receive greater payments; or
(3) If the designated Beneficiary of the Participant is the Participant's
surviving spouse, the spouse may elect within the five year period commencing
with the Participant's date of death to receive equal or substantially equal
payments over the life or life expectancy of the surviving spouse commencing at
any date prior to the December 31st of the year in which the deceased
Participant would have attained age 70 1/2. The surviving spouse may accelerate
these payments at any time, i.e., increase the frequency or amount of such
payments; or
(4) If the designated Beneficiary is the Participant's surviving spouse, the
spouse may treat the account as his or her own individual retirement
arrangement. This election will be deemed to have been made if such surviving
spouse makes a regular IRA contribution to the account, makes a rollover to or
from such account, or fails to elect any of the above three provisions.
6.9 Recalculation of Life Expectancies. Unless otherwise elected by the
Participant prior to the commencement of distributions under Section 6.5 or, if
applicable, by the Participant's surviving spouse where the Participant dies
before distributions have commenced, the life expectancies of the Participant or
spouse Beneficiary shall be recalculated annually for purposes of distributions
under Sections 6.5 and 6.8. An election not to recalculate shall be irrevocable
and shall apply to all subsequent years. Such election must be made no later
than the April 1st following the year in which the participant attains the age
of 70 1/2. The life expectancy of a nonspouse Beneficiary shall not be
recalculated. In the case of a nonspouse Beneficiary, life expectancy will be
calculated at the time payment first commences and payments for any 12
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consecutive month period will be based upon such life expectancy minus
the number of whole years passed since distribution first commenced.
Life expectancies for purposes of determining the required distributions
must be computed by use of the expected return multiples in section
1.72-9 of the Income Tax regulations.
Article VII Rollover Contributions
7.1 General Rule. Rollovers meeting the requirements of Section 4.1 may be
accepted.
7.2 Timing of Rollover. A rollover must be completed within 60 days after the
day on which the Participant receives the payment or distribution.
7.3 Transfers from Custodial Account. An individual may direct the Custodian to
transfer all or part of the individual's entire interest in the Custodial
Account to an individual retirement trust meeting the requirements of Code
section 408(a), or to an annuity contract meeting the requirements of Code
section 408(b).
7.4 Direct Rollovers. Effective January 1, 1993, an individual who will receive
an "eligible rollover distribution", as defined in Code section 402 (f)(2)(A),
may request the Custodian to accept a direct rollover of such distribution in
accordance with the provisions of Code section 401 (a)(31) and the applicable
regulations.
Article VIII Designation of Beneficiary
8.1 General Rule. The Participant shall designate a Beneficiary in the Adoption
Agreement and may change the Beneficiary designation by filing a written notice
with the Custodian. Such Beneficiary shall be entitled to the Participant's
entire interest in the event of death of the Participant prior to the complete
distribution of the entire interest.
8.2 Failure to Designate Beneficiary. If the designation of a Beneficiary has
not been made by a Participant at the time of the death of the Participant, the
Beneficiary shall be the spouse of the Participant, or if there is no spouse
living at the time of the Participant's death, the Beneficiary shall be the
estate of the Participant.
8.3 Where Beneficiary is a Minor. If the Beneficiary designated to receive
payments hereunder is a minor or person of unsound mind, whether so formally
adjudicated or not, the Custodian, in its discretion, may make such payment to
such person as may be acting as parent, guardian, committee, conservator,
trustee, or legal representative of such minor or incompetent and the receipt by
any such person as selected by the Custodian shall be a full and complete
discharge of the Custodian for any sums so paid.
8.4 Custodian Unable to Pay Benefits. If the Custodian is unable to make a
payment to a Beneficiary hereunder within six months after any such payment is
due, because the Custodian cannot ascertain the whereabouts or the identity of
the Beneficiary by mailing to the last known address shown on the Custodian's
records, and such Beneficiary has not submitted a written claim for such payment
before the expiration of said six-month period, then the Custodian may deposit
the Beneficiary's funds in a special savings account established in the name of
the Custodian for such Beneficiary.
Article IX Investment and Administration
9.1 General Rules. The Custodian shall have the power and authority in the
administration of this Agreement to do all acts, including by way of
illustration, but not in limitation of the powers conferred by law, the
following:
(a) Pursuant to the directions of the Participant or the Participant's agent, to
invest and reinvest all or any part of the Custodial Account in securities
obtainable through the Broker, and to invest in any lawful investment which is
administratively acceptable to the Custodian without any duty to diversify and
without regard to whether such property is authorized by the laws of any
jurisdiction for investment by a custodian;
(b) To hold part or all of the Custodial Account uninvested or, pursuant to
directions of the Participant, to place the same in a savings account approved
by the Participant or purchase a Certificate of Deposit with an institution
approved by the Custodian;
(c) To employ suitable agents and counsel and to pay their reasonable expenses
and compensation;
(d) Pursuant to the directions of the Participant or the Participant's agent, to
vote in person or by proxy upon securities held by the Custodian and to delegate
its discretionary power;
(e) Pursuant to the directions of the Participant or the Participant's agent, to
write covered listed call options against existing positions and to liquidate or
close such option contracts and the purchase of put options on existing long
positions (the same securities cannot be used to simultaneously cover more than
one position), to exercise conversion privileges or rights to subscribe for
additional securities, and to make payments therefore;
(f) To consent to or participate in dissolutions, reorganizations,
consolidations, mergers, sales, leases, mortgages and transfers or other changes
affecting securities held by the Custodian;
(g) To leave any securities or cash for safekeeping or on deposit, with or
without interest, with such banks, brokers and other custodians as the Custodian
may select, and to hold any securities in bearer form or in the name of the
banks, brokers and other custodians or in the name of the Custodian without
qualification or description or in the name of any nominee; and
(h) Prior to the entry of any orders to purchase or sell securities in the
Participant's account, the Participant shall approve beforehand all such orders
and direct the Broker, to implement the Participant's instructions. Selling
short and executing purchases in an amount greater than available cash are
prohibited transactions. All investments outside of the cash account shall be
accompanied by additional written instructions.
9.2 Prohibition Against Commingling and Life Insurance. No investments shall be
made in life insurance contracts nor shall any assets be commingled.
9.3 Custodian Not Required to Review Investments. The Custodian shall be under
no duty to question any such direction of the individual, to review any
securities or other property held in the Custodial Account, or to make
suggestions to the individual with respect to the investment, retention or
disposition of any assets held in the Custodial Account. Similarly, the
Custodian shall not make any investment or dispose of any investment held in the
Custodial Account, except upon the direction of the Participant or the
Participant's agent.
9.4 Participant Not a Fiduciary. In accordance with section 404(c) of ERISA and
being that the Participant exercises control over the assets in such
Participant's Custodial Account, such Participant or beneficiary shall not be
deemed to be a fiduciary by reason of such exercise, and no person who is
otherwise a fiduciary shall be liable under this Agreement for any loss, or by
reason of any breach, which results from such Participant's exercise of control.
9.5 Appointment of Investment Manager. The Participant may appoint in writing an
investment manager or managers to manage (including power to acquire and dispose
of) any assets in the Custodial Account.
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Any such investment manager shall be registered as an investment advisor under
the Investment Advisors Act of 1940. If investment of the Custodial Account is
to be directed by an investment manager, the Participant shall deliver to the
Custodian a copy of the instruments appointing the investment manager and
evidencing the investment manager's acceptance of such appointment, and
acknowledgement by the investment manager that it is a fiduciary, and a
certificate evidencing the investment manager's current registration under said
Act. The Custodian shall be fully protected in relying upon such instruments and
certificate until otherwise notified in writing by the Participant.
The Custodian shall follow the directions of the investment manager regarding
the investment and reinvestment of amounts in the Custodial Account, or such
portion thereof as shall be under management by the investment manager. The
Custodian shall be under no duty or obligation to review any investment to be
acquired, held or disposed of pursuant to such directions nor to make any
recommendations with respect to the disposition or continued retention of any
such investment or the exercise or nonexercise of the powers. Therefore, and in
accordance with section 405(d)(1) of ERISA, the Custodian shall have no
liability or responsibility for acting or not acting pursuant to the direction
of, or failing to act in the absence of any direction from the investment
manager, unless the Custodian knows that by such action or failure to act it
would be itself committing or participating in a breach of fiduciary duty by the
investment manager. The Participant hereby agrees to indemnify the Custodian and
hold it harmless from and against any claim or liability which may be asserted
against the Custodian by reason of its acting or not acting pursuant to any
direction from the investment manager or failing to act in the absence of any
such direction.
The investment manager at any time and from time to time may issue orders for
the purchase or sale of securities directly to the Broker; and in order to
facilitate such transaction, the Custodian upon request shall execute and
deliver appropriate trading authorizations. Written notification of the issuance
of each such order shall be given promptly to the Custodian by the investment
manager, and the execution of each such order shall be confirmed by written
advice via confirms or otherwise to the Custodian by the Broker.
The Custodian shall be under no duty to question any direction of the
Participant or investment manager to review any securities or other property
held under the Custodial Account or to make suggestions to the Participant, or
investment manager with respect to the investment, retention or disposition of
any assets held in the Custodial Account.
9.6 Prohibition Against Loans and Compensation to Related Parties.
Notwithstanding anything herein contained to the contrary, the Custodian shall
not (a) lend any part of the corpus or income of the Custodial Account to, (b)
pay any compensation for personal services rendered in connection with the
Custodial Account to, (c) make any part of its services available on a
preferential basis to, or (d) acquire for the Custodial Account any property
(other than cash) from or sell any property to, the Participant (or to any
member of the Participant's family) or to a corporation controlled by the
Participant (through the ownership, directly or indirectly, of 50% or more of
the total combined voting power of all classes of stock entitled to vote or 50%
or more of the total value of shares of all classes of stock of such
corporation).
9.7 Custodial Account. All contributions made by the Participant and all
investments made with such contributions and the earnings thereon shall be
credited to the Custodial Account maintained for the Participant by the
Custodian. Such account shall reflect the amounts contributed by the individual.
9.8 Accounting. Within 90 days from the close of each Custodial Account Year,
the Custodian shall render an accounting valuing the assets at fair market value
to the individual which accounting may consist of copies of regularly issued
broker-dealer statements of the Custodian. In the absence of the filing in
writing with the Custodian by the Participant of exceptions or objections to any
such account within 60 days after the mailing of such accounting, the
Participant shall be deemed to have approved such account. In such case, or upon
the written approval of the Participant of any such account, the Custodian shall
be released, relieved and discharged with respect to all matters and things set
forth in such account as though such account had been settled by the decree of a
court of competent jurisdiction. No person other than the Participant may
require an accounting or bring any action against the Custodian with respect to
the Custodial Account or its actions as Custodian.
The Custodian shall have the right at any time to apply to a court of competent
jurisdiction for judicial settlement of its accounts for determination of any
questions of construction which may arise or for instructions. The only
necessary party defendant to such action shall be the Participant except that
the Custodian may, if it so elects, bring in as party defendant any other person
or persons.
9.9 Scope of Custodian's Liability. The Custodian shall be fully protected in
acting upon any instrument, certificate, or paper believed by it to be genuine
and to be signed or presented by the proper person or persons, and the Custodian
shall be under no duty to make any investigation or inquiry as to any statement
contained in any such writing but may accept the same as conclusive evidence of
the truth and accuracy of the statements therein contained.
The Custodian shall be under no duty to (a) question any direction of a
Participant or the Participant's agent with respect to investments, (b) review
any securities or other property held in the Custodial Account or (c) make
suggestions to the Participant or the Participant's agent with respect to
investments, and the Custodian shall not be liable for any loss which may result
by reason of investments made by it in accordance with the directions of a
Participant or the Participant's agent.
9.10 Obligations of Surviving Spouse and Beneficiary. The surviving spouse
and/or Beneficiary shall be bound by Article IX regarding investments and
administration of their interest. However, should the Beneficiary be a minor or
in the discretion of the Custodian of unsound mind, the Custodian will liquidate
the interest of such Beneficiary and hold such interest in an interest-bearing
account or money market account until distributed.
9.11 Reporting. The Participant agrees to provide the Custodian with information
necessary for the Custodian to prepare any reports required under Code section
408 (i) and related regulations. The Custodian agrees to submit reports to the
Internal Revenue Service and the Participant as prescribed by the Internal
Revenue Service. The Custodian shall furnish annual calendar year reports
concerning the status of the Custodial Account.
Article X Compensation, Taxes and Expenses
10.1 Compensation of Custodian. The Custodian shall be paid such reasonable
compensation as shall from time to time be agreed upon by the Participant and
the Custodian, and such compensation shall be chargeable to the Participant.
10.2 Taxes and Administration Expenses. The Custodian shall charge against the
Participant any taxes paid by it which may be imposed upon the income of the
Custodial Account or upon which the Custodian is required to pay, as well as all
expenses of administration of the Custodian.
10.3 Failure to Pay Compensation, Taxes and Expenses. In the event the
participant shall at any time fail to pay the Custodian's compensation, taxes or
expenses, within a reasonable time after demand for such payment has been made
by the Custodian on the Participant, the Custodian will charge the Custodial
Account such fees, taxes and expenses and may liquidate such of the assets in
the Custodial Account for such pur-
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poses as in its sole discretion it shall determine. If the Custodial Account is
not sufficient to satisfy these fees, taxes and expenses, then the Custodian
will charge the Participant for such unpaid fees, taxes and expenses.
Article XI Amendment and Termination
11.1 Amendment. Each Participant who adopts this Agreement delegates to the
Custodian the power to amend this Agreement, including any retroactive
amendments, by submitting a copy of such amendments to each Participant, but
only after receiving a favorable ruling or determination letter from the
Commissioner of Internal Revenue that the Custodial Agreement as amended,
continues to meet the requirements of Code section 408. Each individual shall be
deemed to have consented to any and all such amendments. However, no amendment
shall deprive any Participant or Beneficiary of any benefit to which he or she
may be entitled under this Agreement by reason of contributions made prior to
the modification or amendment, unless such amendment is necessary to conform
this Agreement to, or satisfy the conditions of, any law, governmental
regulations or ruling or to permit this Agreement to meet the requirements of
Code section 408.
The Participant shall be permitted to revoke this Agreement in writing within a
period not to exceed seven days after the date that this Agreement is adopted by
the Participant. In the event of such revocation, the Custodian will return the
full amount of the account plus any Custodian fees as soon as practical.
11.2 Termination. An individual shall have the right to terminate or partially
terminate this Agreement at any time, and from time to time, by delivering to
the Custodian a signed copy of a statement of termination. This Agreement will
be terminated in the case of complete distribution of the Custodial Account.
11.3 Resignation and Removal of Custodian. The Custodian may resign at any time
upon 30 days' notice to the Participant. The Custodian may elect to appoint a
successor Custodian to be effective as of the date specified in such instrument
and upon acceptance by the successor custodian, provided, however, that any
successor custodian so appointed shall be an entity authorized to act as
Custodian of custodial accounts established under individual retirement
accounts, organized under the laws of the United States or any state of the
United States, and subject to supervision and examination by governmental
authority.
The Custodian may be removed at any time by the Participant upon 30 days'
written notice to the Custodian. Upon resignation or removal of the Custodian,
the Participant shall appoint a successor Custodian which shall have the same
powers and duties as are conferred upon the Custodian hereunder, and in default
thereof, such successor Custodian may be appointed by a court of competent
jurisdiction.
The Participant shall substitute a trustee or another custodian upon
notification by the Commissioner of Internal Revenue that such substitution is
required because the Custodian has failed to comply with Treasury Regulation
1.401-12(n) or is not keeping records, or is not making such returns, or is not
rendering such statements as are required by the applicable forms and
regulations.
Upon the delivery by the resigning or removed Custodian to its successor
Custodian of all property of the Custodial Account, less such reasonable amount
as it shall deem necessary to provide for its expenses, compensation and any
taxes or advances chargeable or payable out of the Custodial Account, the
successor Custodian shall thereupon have the same powers and duties as are
conferred upon the Custodian.
11.4 Liability of Successor Custodian. No successor Custodian shall have any
obligation or liability with respect to the acts or omissions of its
predecessors. The actual appointment and qualification of a successor Custodian
to whom the assets in the Custodial Account may be transferred are conditions
which must be fulfilled before the resignation or removal of the Custodian shall
become effective. The transfer of the assets shall be made coincidentally with
an accounting by the resigned or removed Custodian and such resigned or removed
Custodian shall endorse, transfer, convey and deliver to the successor Custodian
all of the funds, securities or other property then held by it under this
Agreement, together with such records as may be reasonably required in order
that the successor Custodian may properly administer the Agreement.
Article XII Miscellaneous
12.1 Prohibition Against Assignment of Benefits. Notwithstanding anything to the
contrary contained in this Agreement or in any amendment thereto, no part of the
Custodial Account other than such part as is required to pay taxes and
administration expenses, shall be used for, or diverted to, purposes other than
for the exclusive benefit of the Participant, the Participant's Beneficiary(ies)
or estate. No Participant shall have the right to sell, assign, discount or
pledge as collateral for a loan any asset of this Agreement.
12.2 Scope of Liability of Custodian. The Custodian shall not be liable for any
act or omission made in connection with the Agreement except for its intentional
misconduct or negligence.
12.3 Word Construction. Words used in the masculine shall apply to the feminine
where applicable, and wherever the context of this Agreement indicates the
plural shall be read as the singular, and the singular as the plural.
12.4 Captions Have No Effect. The Captions of Articles in this Agreement are
included for convenience only and shall not be considered a part of, or an aid
to, the construction of this Agreement.
12.5 Governing Law. This Agreement created hereby shall be construed, regulated
and administered under the laws of the State of New York, and any court
accounting shall be in the courts of New York.
12.6 Arbitration. The Participant agrees that all controversies which may arise
under this Agreement or in connection with the Participant's account shall be
governed by the Participant's Customer Agreement with the Broker.
Notwithstanding any other provision in the document, any arbitration provision
shall be subject to the interpretation of the Code and regulations thereunder.
12.7 Inquiries. The Participant authorizes Custodian to furnish upon request (i)
to the Broker all information relating to the Participant's individual
retirement account and (ii) to the issuer of securities the Participant's name,
address and securities positions relating to the securities of such issuer.
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DISCLOSURE STATEMENT
This Disclosure Statement, which is provided you in compliance with Treasury
Regulation section 1.408-6(d)(4) explains what you should know about your
individual retirement account (IRA), and is a general review of the federal
income tax law applicable to it.
A. Revocation.
You may revoke your account within seven days from the date you enter into the
Custodial Agreement by mailing or delivering a written request for revocation to
Waterhouse National Bank c/o, Waterhouse Securities, Inc., ATTN: Retirement
Plans Customer Service Dept., 100 Wall Street, 23rd Floor, New York, NY 10005.
Upon revocation, the entire account will be returned to you. If you have
questions regarding this procedure please call 1-800-934-2995.
If you mail the written notification, it will be deemed to be mailed on the date
of the postmark. If you send the notification by certified or registered mail,
it will be deemed to be mailed as of the date of certification or registration.
If mailed, the written notice of revocation must be mailed in the United States
in an envelope, or other appropriate wrapper, first class mail with the postage
prepaid.
B. IRS Approval.
The Waterhouse National Bank Individual Retirement Plan has been approved by the
IRS as to form. IRS approval is a determination as to form only and does not
represent a determination of the merits of the IRA or account.
C. Statutory Requirements.
The Statutory requirements with respect to your account as described in section
408(a) of the Internal Revenue Code (the "Code") are as follows:
1. Except for rollover contributions, contributions must be in cash, and may not
be in excess of the lesser of $2,000 or 100% of your compensation for any
taxable year.
2. No part of the custodial account funds may be invested in life insurance.
3. Your entire account balance is non-forfeitable.
4. The assets of your account may not be commingled and for that reason you have
a separate individual account.
5. The entire balance in your IRA must be distributed either (i) not later than
April 1 of the year following the year in which you attain age 70 1/2 (the
"Required Beginning Date") or (ii) commencing not later than the Required
Beginning Date, over your life or the lives of you and your designated
beneficiary or a period of time not extending beyond the life expectancy of you
or the joint life expectancy of you and your designated beneficiary.
Distributions to you or your beneficiary are taxed as ordinary income. If the
method of distribution selected does not result in a distribution which is at
least as rapid as either of the methods referred to above, a non-deductible
excise tax of 50% will be imposed on the difference between the amount required
to be distributed and the amount actually distributed.
6. Death Benefits. If you die before your entire interest is distributed, the
following distribution provisions shall apply.
a. If you die after your Required Beginning Date, the remaining portion
of such interest will continue to be distributed at least as rapidly
as under the method of distribution being used as of the date of your
death.
b. If you die before your Required Beginning Date, your entire interest
will be distributed in accordance with one of the following four
provisions:
(i) Your entire interest will be paid within five years after the date of
your death; or
(ii) If your interest is payable to a beneficiary designated by you and
you have not elected (i) above, the entire interest will be
distributed in substantially equal installments over the life or life
expectancy of your designated beneficiary commencing no later than
the end of the year after the year of your death. The designated
beneficiary may elect at any time to receive greater payments; or
(iii) If your designated beneficiary is your surviving spouse, your spouse
may elect within the five-year period commencing with your date of
death to receive equal or substantially equal payments over the life
or life expectancy of your surviving spouse commencing at any date
prior to the end of the year in which you would have attained age
70 1/2. Your surviving spouse may accelerate these payments at any
time, i.e., increase the frequency or amount of such payments.
(iv) If the designated beneficiary is your surviving spouse, your spouse
may treat the account as his or her own individual retirement
arrangement. This election will be deemed to have been made if such
surviving spouse makes a regular IRA contribution to the account,
makes a rollover to or from such account, or fails to elect any of
the above three provisions. If the distribution or your benefits upon
death is not as rapid as the applicable method of distribution
referred to above, a nondeductible excise tax of 50% will be imposed
on the difference between the amount required to be distributed and
the amount actually distributed.
D. Deductible Contributions.
The limitations and restrictions on the deduction for contributions are as
follows:
1. The maximum deductible contribution is the lesser of 100% of compensation
or $2,000 (subject to the reduction described in paragraph D.3).
2. The maximum deduction is computed separately for each individual and is
applied without regard to any community property law. However, if your
spouse is not employed you may establish separate individual accounts for
you and your spouse (an IRA established for your spouse is referred to as a
"Spousal IRA"), and each year you may contribute to both accounts a total
not to exceed the lesser of $2,250 or 100% of your compensation. For
taxable years beginning on or after January 1, 1997, the $2,250 limitation
shall be increased to $4,000. This contribution need not be divided equally
between the two accounts, but not more than $2,000 may be contributed to
one account.
3. The $2,000 (or the higher limitation set forth in paragraph D. 2 if there
is also a Spousal IRA) deduction limit will be reduced if your federal
adjusted gross income exceeds a certain amount ($40,000 for married
individuals filing a joint return, $0 for married individuals filing
separate returns, and $25,000 for single individuals) and you or your
spouse is a participant in an employer maintained retirement plan. In such
case, the $2,000 (or the higher limitation set forth in paragraph D. 2 if
there is also a Spousal IRA) deduction limit will be reduced to an amount
which bears the same ratio to $2,000 (or the
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higher limitation set forth in paragraph D. 2 if there is also a Spousal
IRA) as your AGI in excess of the applicable dollar amount (described
above) bears to $10,000. The dollar limit is rounded up to the next $10,
and will not be less than $200 unless the limit is reduced to zero. The
higher limitation set forth in paragraph D. 2 is $2,250 for taxable years
beginning before January 1, 1997 and $4,000 for taxable years beginning on
or after January 1, 1997.
4. No contribution is allowed for an individual during the taxable year in
which he attains 701/2 or for a subsequent year.
5. No deduction is allowed with respect to a rollover contribution.
6. A divorced or legally separated spouse is allowed a deduction for
contributions to an IRA. For this purpose, money received as alimony or
separate maintenance pursuant to a decree of divorce or separation is
considered compensation.
E. Nondeductible Contributions.
A contribution may also be made on a nondeductible basis, in an amount equal to
the amount that the $2,000 limit is reduced as a result of you or your spouse
being covered under an employer maintained retirement plan. Moreover, you may
elect to have your deductible contribution treated as a nondeductible
contribution. If you make a non-deductible contribution, you must designate such
contribution as being nondeductible on your tax return.
F. Rollover IRA.
1. Permissible Tax-Free Rollovers.
a. From a qualified plan to an IRA.
b. From a qualified plan to another through an IRA.
c. From a tax sheltered annuity to an IRA.
d. From a tax sheltered annuity to another through an IRA.
e. The redemption proceeds from a qualified bond purchase plan to an
IRA.
f. Distribution received by a spouse due to participant's death.
g. From an IRA to another IRA.
2. General Requirements for a Rollover.
a. Must be received by the Custodian within 60 days after distribution
is received by the Participant.
b. Only one tax-free rollover per year between IRAs.
c. Must be a lump sum distribution, a partial distribution (as defined
in Code section 402) or a qualified total distribution resulting
from a plan termination. (An individual need not be a plan
participant for 5 years to qualify for a rollover).
d. Must include only amounts otherwise reportable as taxable income.
e. If the rollover includes property such as company stock and the
property has been sold, the proceeds may still be rolled over. If
the rollover is for the entire amount allowable, the gain or loss
on the sale of the property is not recognized.
f. Rollovers to a "new" qualified plan can include only assets
received from the "old" qualified plan.
Therefore, a rollover to an IRA should be made to a separate account
and should not include contributions made by an eligible person for his
retirement to his IRA.
3. Limits on Amount of Rollovers.
a. No dollar limit.
b. All or any portion of the distribution minus non-taxable amounts.
c. No endowment or life insurance contracts.
4. Amounts distributed from an IRA are taxed as ordinary income in the year
received. Distributions from IRA's are not eligible for the special tax
treatment applicable to lump sum distributions from qualified retirement plans.
G. Prohibited Transactions.
Should an individual or his beneficiary engage directly or indirectly in any
transaction prohibited by Code section 4975(c), the IRA will lose its exemption
from tax and the owner of the account must include in his gross income the fair
market value of his account. Prohibited transactions include:
1. Sale, exchange or leasing of any property between the IRA and a
party-in-interest.
2. Lending of money or any other extension of credit to a
party-in-interest.
3. Furnishing of goods, services or facilities between the IRA and a
party-in-interest.
4. Transfer to, or use by or for the benefit of, a party-in-interest of
the income or assets of the IRA.
5. Act by a party-in-interest who is a fiduciary whereby he deals with the
income or assets of the IRA in his own interest or for his own account;
or
6. Receipt of any consideration for his own personal account by any
party-in-interest who is a fiduciary dealing with the IRA in connection
with the transaction involving the income or assets of the IRA.
H. Other Prohibited Transactions.
1. Should a benefited individual pledge an IRA as security for a loan, the
portion so pledged will be treated as a distribution to that
individual.
2. Consult with your Account Officer regarding administrative restrictions
that are imposed by the Custodian. For example, permissible investments
include investments in stocks, bonds, government obligations, savings
accounts and certificates of deposit with a bank approved by the
Custodian.
3. These prohibited transactions and certain exemptions are further
described in Code section 4975.
I. Penalty Tax.
A 10% nondeductible penalty tax is imposed on certain distributions made before
you attain the age of 59 1/2 unless the distribution is made on account of death
or disability or a rollover contribution is made with such distribution, or as
part of substantially equal distributions over the Participant's life or over
the joint life expectancy of the participant and the designated beneficiary for
a period of 5 years and the attainment of age 59 1/2.
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J. Excess Contributions.
You will be considered to have made an excess contribution for any year if
either (a) you contributed to your IRA an amount in excess of the lesser of 100%
of compensation or $2,000 (reduced as described in paragraph D.3) or (b) you
contributed to your IRA and a Spousal IRA (see paragraph D.2) a total amount in
excess of the lesser of the higher limitation set forth in paragraph D.2
(reduced as described in paragraph D.3) or 100% of compensation, or more than
$2,000 was paid to a single IRA for you or your spouse. A contribution for any
year which (1) is returned to you prior to your tax return due date (including
extensions) for such year, (2) is not deductible, and (3) is accompanied by the
amount of net income attributable to such contribution is not treated as an
excess contribution. If you make an excess contribution for any year, you will
be liable for a nondeductible 6% excise tax each year until the excess is
eliminated. The excess can be eliminated (i) by a distribution of the excess
(and any income earned on the excess) to you or (ii) by your making reduced
contributions in a future year.
Since an excess contribution is not deductible when made, it is not included in
your income when returned and it is not subject to the 10% tax on premature
distribution. Income earned with respect to an excess contribution, however,
must be reported on your individual income tax return. An exception to this rule
is that a distribution to you of an excess contribution will be included in your
income if a deduction was allowed for the excess contribution or your total
contribution (including the excess contribution) for the year exceeds $2,250.
Excess rollover contributions can be corrected without subjecting the correction
to the double taxation clause if a participant reasonably relied on information
supplied to him as required by law for determining the amount of the rollover
contribution, and the information was erroneous.
K. Financial Disclosure.
1. The amount of money that will be available at any period of time will
depend on the following:
a. Amount of contributions.
b. Total years of participation.
c. Earnings from such account including interest, dividends,
realized and unrealized gains and losses.
d. Expenses incurred for brokerage commissions and Custodian's fees
if applicable.
e. Due to the numerous modes of investment that you may choose,
neither a guaranteed return or a projected amount can be
practically furnished.
2. There is no annual maintenance fee charged by the Custodian. There
is, however, a $25 fee for the termination or transfer of an existing
IRA.
Brokerage commissions are considered a cost of the security and are
not billed separately. Brokerage commissions are in addition to the
above. Questions relative to brokerage commission should be discussed
with your Account Officer prior to executing any orders.
3. In order to compute and allocate annual earnings, simply compare
year-end market value plus interest earned for your total account.
L. Investments.
It is the responsibility of the individual to select and direct the investment
of his Custodial Account either in person or through an investment manager.
Selection of investments must conform to the Custodial Agreement. For example,
investments may be made in common stocks, government and corporate bonds, the
purchase of put options and writing of covered listed call options, and other
lawful investments which are administratively acceptable to the Custodian.
Investments not generating confirmations must be accompanied by additional
written instructions. Although brokerage firms may provide investment
information to your account, they do not intend that any information given by
them will serve as a primary basis for investment decisions. Furthermore, it is
our understanding that you will exercise independent judgement in making your
investment decisions.
M. Form 5329
Generally, form 5329 (Return for Individual Retirement Savings Arrangement) must
accompany your tax return (Form 1040) only if you owe excess contribution taxes,
premature distribution taxes, or taxes on certain accumulations.
N. Additional Information.
1. Additional information on Waterhouse National Bank's "Self Directed
Individual Retirement Custodial Agreement" can be found in this
booklet.
2. Further information can be obtained from any district office of the
Internal Revenue Service.
O. Simplified Employee Pension (SEP)
Additional information regarding SEPs can be found in this booklet. If a SEP is
adopted, the Employer must provide the Employee with a copy of the appropriate
SEP form or similar information as may be required by law. Under a Simplified
Employee Pension ("SEP"), an individual's employer may contribute under this
Agreement on behalf of such individual an amount not in excess of the sum of (1)
the lesser of 15% of such individual's Compensation under Code section 402(h)
and $30,000, as adjusted for cost-of-living adjustments under Code section
415(d), and (2) the lesser of 100% of such individual's Compensation or $2,000.
Contributions under a salary reduction SEP are limited to $9,240 per year for
contributions made for tax year 1995. Contributions under a salary reduction SEP
are limited to $9,500 per year for contributions made for tax year 1996 and
subsequent years or if greater the Code section 402(g) limit then in effect. No
Employer may establish a salary reduction SEP on or after January 1, 1997.
However, Employees may continue to elect to have the Employer make salary
reduction contributions if the terms of the salary reduction SEP on December 31,
1996 provide for salary reduction elections. Employees hired after 1996 may also
participate in such a salary reduction SEP.
P. Estate and Gift Tax Exemptions.
Generally, there is no specific exclusion for IRAs under the Estate Tax rules.
Therefore, in the event of your death, your IRA will be includable in your gross
estate for federal tax purposes. However, if your surviving spouse is the
beneficiary of your IRA, the amount in your IRA may qualify for the marital
deduction under Section 2056 of the Internal Revenue Code. A transfer of
property for federal gift tax purposes does not include an amount which a
beneficiary receives from an IRA plan.
30
<PAGE>
CUSTOMER AGREEMENT
In consideration of Waterhouse Securities, Inc. (WSI) and National Investor
Services Corp. (NISC)(Collectively "you") accepting and carrying for me one or
more accounts, I hereby understand and agree that:
1. Legal Capacity to Enter Into Agreements - I am at least the age of 18 years
and am of full legal age in the state in which I reside. If I am an employee,
member or partner of any security exchange or member firm thereof, of any
corporation a majority of the stock of which is owned by any exchange or a
broker/dealer I have so indicated on the account application. I also agree to
notify you promptly if I should later become employed in any of the capacities
cited above.
2. Definitions - Applicable Rules and Regulations - The terms "securities",
"options", or "other property", as used herein, shall include money, securities
and commodities of every kind and nature and all contracts and options relating
thereto. All transactions shall be subject to the rules, customs and usages of
the exchange, market or clearing house where executed, and to all applicable
federal and state laws and regulations.
3. Orders, Executions and Statements - Reports of the execution of orders and
statements of my account shall be deemed accepted by me if you have not received
written objections from me within five days with respect to the former and ten
days with respect to the latter after transmitted by you to me. You may execute
any transaction authorized by me on any exchange or other market where such
business is then transacted. You may reject any order I place with you in your
sole discretion. I understand that you reserve the right to refuse, and assume
no responsibility for, orders sent through the mail for the purchase or sale of
securities or other investments. I also understand that if I request the
transfer or registration of foreign securities, I may be responsible for any
transfer fees charged to you.
I understand that you direct customer orders in equity securities to exchanges
and market makers based on an analysis of their ability to provide rapid and
quality executions. These market participants guarantee that all customer orders
are executed at a price equal to or better than the displayed national best
bid/best offer. Your policy also assures that these market participants provide
your customer orders with price improvement and limit order protection. I
further understand that you may receive remuneration for directing customer
orders to these market participants, the source and amount of which is available
upon written request.
4. Deposit of Equity - Consent to Recording - I understand that you reserve the
right to require full payment or an acceptable equity deposit prior to the
acceptance of any order. I understand that you may tape record telephone
conversations with customers in order to permit you to verify data concerning
securities transactions.
5. Payment of Indebtedness Upon Demand - I shall at all times be liable for the
payment upon demand of any debit balance or other obligations owing in any of my
accounts with you; and, I shall be liable to you for any deficiency remaining in
any such accounts in the event of the liquidation thereof, in whole or in part,
by you or by me, and, I shall make payments of such obligations and indebtedness
upon demand.
6. Security for Indebtedness - All securities and other property whatsoever
which you may hold, carry or maintain for any purpose, in or for any of my
accounts, whether individually or jointly held with others, are subject to a
lien in your favor for the discharge of all the indebtedness of me to you, and I
hereby grant to you a continuing lien, security interest and right of set-off in
all such property and securities whether now owned by me or hereafter acquired.
You may hold securities and other property as security for the payment of any
liability or indebtedness of me to you, and you shall have the right to transfer
such securities and other property in any of my accounts from or to any other of
my accounts, when in your judgement such transfer may be necessary for your
protection. In enforcing your lien you shall have the right to sell, assign, and
deliver all or any part of the securities or other property in any of my
accounts when you deem it necessary for your protection. You reserve the right
to close transactions in my account if you believe there is inadequate security
for my obligation or upon an event which in your opinion jeopardizes my account.
You shall have all rights of a secured party under the Uniform Commercial Code.
7. Costs of Collection - The reasonable costs of collection of the debit balance
and any unpaid deficiency in my accounts, including attorney's fees incurred by
you, shall be paid or reimbursed by me to you.
8. The Laws of New York Govern - This agreement and its enforcement shall be
governed BY THE LAWS OF THE STATE OF NEW YORK; shall cover individually and
collectively all accounts (Cash, Margin, Option or other) which I may open or
reopen with you; and shall inure to the benefit of your successors, whether by
merger, consolidation or otherwise, and assigns and you may transfer my accounts
and my agreements to your successors and assigns, and this Agreement shall be
binding upon my heirs, executors, administrators, successors and assigns.
9. Agreement To Arbitrate Controversies -
o Arbitration is final and binding on the parties.
o The parties are waiving their right to seek remedies in court, including
the right to jury trial.
o Pre-arbitration discovery is generally more limited than and different
from court proceedings.
o The arbitrators' award is not required to include factual findings or
legal reasoning and any party's right to appeal or to seek modification
of rulings by the arbitrators is strictly limited.
o The panel of arbitrators will typically include a minority of
arbitrators who were or are affiliated with the securities industry.
I agree that any controversy relating to any of my accounts or any agreement
that I have with you will be submitted to arbitration conducted only under the
provisions of the Constitution and Rules of the New York Stock Exchange, Inc. or
pursuant to the code of the Arbitration of the National Association of
Securities Dealers, Inc. Arbitration must be initiated by service upon the other
party of a written demand for arbitration or notice of intention to arbitrate.
Judgement, upon any award rendered by the arbitrator, may be entered in any
court having jurisdiction. No person shall bring a putative or certified class
action to arbitration, nor seek to enforce any pre-dispute arbitration agreement
against any person who has initiated in court a putative class action; or who is
a member of a putative class who has not opted out of the class with respect to
any claims encompassed by the putative class action until: (i) the class
certification is denied; or (ii) the class is decertified; or (iii) the customer
is excluded from the class by the court. Such forbearance to enforce an
agreement to arbitrate shall not constitute a waiver of any rights under this
agreement except to the extent stated herein.
10. Losses Due to Extraordinary Events - You shall not be liable for loss caused
directly or indirectly by war, natural disasters, government restrictions,
exchange or market rulings or other conditions beyond your control.
11. Joint and Several Liability - If there is more than one owner of the
account, then obligations under this agreement shall be joint and several.
12. Separation of Provisions - If any provision or condition of this agreement
shall be held to be invalid or unenforceable by any court, or regulatory or
self-regulating agency or body, such invalidity or unenforceability shall attach
only to such provisions or condition. The validity of the remaining provisions
and conditions shall not be affected thereby, and this agreement shall be
carried out as if such invalid or unenforceable provision or condition were not
contained herein.
13. Presumption of Receipt of Communications - Communications may be sent to me
at my address given in the New Account Application as a mailing address, or at
such other address as I may hereafter give you in writing and all communication
so sent, whether by mail, telegraph, messenger, or otherwise, shall be
considered delivered to me personally, whether actually received or not.
14. SEC Rule 14b - 1(c) - Communication Between Companies and Shareholders - You
will release my name, address, and security positions to requesting companies in
which I own shares that are held in my account, unless I notify you in writing
that I object.
15. Credit Information - I authorize you to make inquiries for the purpose of
verifying my creditworthiness and to provide information regarding my
performance under this agreement to credit reporting agencies and to your
affiliates. I understand that, upon my request, you will tell me whether a
credit report was requested and provide the name and address of the agency
that furnished it.
I understand that any alteration to this Agreement will be ineffective to
relieve me of my obligations hereunder.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Waterhouse Investors Cash Management Fund, Inc. Annual Report for the period
ended October 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000949881
<NAME> WATERHOUSE INVESTORS CASH MANAGEMENT FUND, INC.
<SERIES>
<NUMBER> 1
<NAME> MONEY MARKET PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> DEC-20-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 1,337,591,981
<INVESTMENTS-AT-VALUE> 1,337,591,981
<RECEIVABLES> 9,108,815
<ASSETS-OTHER> 384,739
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,347,085,535
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,475,449
<TOTAL-LIABILITIES> 4,475,449
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,342,610,881
<SHARES-COMMON-STOCK> 1,342,610,881
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (795)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,342,610,086
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 51,980,895
<OTHER-INCOME> 0
<EXPENSES-NET> 7,551,096
<NET-INVESTMENT-INCOME> 44,429,799
<REALIZED-GAINS-CURRENT> (795)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 44,429,004
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (44,429,799)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,317,083,085
<NUMBER-OF-SHARES-REDEEMED> (3,016,216,402)
<SHARES-REINVESTED> 41,684,198
<NET-CHANGE-IN-ASSETS> 1,342,550,086
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,339,325
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,841,203
<AVERAGE-NET-ASSETS> 1,104,558,438
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.041
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.041)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Waterhouse Investors Cash Management Fund, Inc. Annual Report for the period
ended October 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000949881
<NAME> WATERHOUSE INVESTORS CASH MANAGEMENT FUND, INC.
<SERIES>
<NUMBER> 2
<NAME> U.S. GOVERNMENT PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> DEC-20-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 370,434,312
<INVESTMENTS-AT-VALUE> 370,434,312
<RECEIVABLES> 1,707,247
<ASSETS-OTHER> 100,132
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 372,241,691
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,194,921
<TOTAL-LIABILITIES> 1,194,921
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 371,046,981
<SHARES-COMMON-STOCK> 371,046,981
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (211)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 371,046,770
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,666,433
<OTHER-INCOME> 0
<EXPENSES-NET> 1,863,795
<NET-INVESTMENT-INCOME> 11,802,638
<REALIZED-GAINS-CURRENT> (211)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 11,802,427
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,802,638)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,126,273,406
<NUMBER-OF-SHARES-REDEEMED> (766,303,700)
<SHARES-REINVESTED> 11,057,275
<NET-CHANGE-IN-ASSETS> 371,026,770
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 890,354
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,312,526
<AVERAGE-NET-ASSETS> 293,708,330
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.041
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.041)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Waterhouse Investors Cash Management Fund, Inc. Annual Report for the period
ended October 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000949881
<NAME> WATERHOUSE INVESTORS CASH MANAGEMENT FUND, INC.
<SERIES>
<NUMBER> 3
<NAME> MUNICIPAL PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> DEC-20-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 225,449,734
<INVESTMENTS-AT-VALUE> 225,449,734
<RECEIVABLES> 1,333,208
<ASSETS-OTHER> 100,980
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 226,883,922
<PAYABLE-FOR-SECURITIES> 75,531
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 554,997
<TOTAL-LIABILITIES> 630,528
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 226,254,165
<SHARES-COMMON-STOCK> 226,254,165
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (771)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 226,253,394
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,000,283
<OTHER-INCOME> 0
<EXPENSES-NET> 1,064,737
<NET-INVESTMENT-INCOME> 4,935,546
<REALIZED-GAINS-CURRENT> (771)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,934,775
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,935,546)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 711,316,179
<NUMBER-OF-SHARES-REDEEMED> (489,728,549)
<SHARES-REINVESTED> 4,646,535
<NET-CHANGE-IN-ASSETS> 226,233,394
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 595,954
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,450,508
<AVERAGE-NET-ASSETS> 196,592,413
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.026
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.026)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints Margery K.
Neale, Joel H. Goldberg and Richard Neiman, and each of them, with full power to
act, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (until revoked in writing) to sign any and all amendments
to the Registration Statement for Waterhouse Investors Cash Management Fund,
Inc. (including post-effective amendments and amendments thereto), and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission and any state securities
commissions, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing, and ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/George F. Staudter
----------------------------
George F. Staudter, Director
/s/ Richard Dalrymple /s/ Lawrence Toal
--------------------------- ------------------------
Richard Dalrymple, Director Lawrence Toal, Director
/s/ Anthony J. Pace /s/ Theodore Rosen
--------------------------- ------------------------
Anthony J. Pace, Director Theodore Rosen, Director
Dated: June 12, 1996
