<PAGE>
As filed with the Securities and Exchange Commission on December 19, 1997
1933 Act Registration No. 33-96132
1940 Act Registration No. 811-9086
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 4 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 6 [X]
------------------
WATERHOUSE INVESTORS FAMILY OF FUNDS, INC.
(formerly known as 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
Richard W. Ingram, President
Waterhouse Investors Family of Funds, 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:
[X] Immediately upon filing pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] 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 intends to file the notice required by Rule 24f-2 for
its most recent fiscal year by January 29, 1998.
<PAGE>
WATERHOUSE INVESTORS FAMILY OF FUNDS, 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
<TABLE>
<CAPTION>
Item Number of
Form N-1A; Part B Location in Prospectus
- ----------------- -------------------------
<S> <C>
1. Cover Page Cover Page
2. Synopsis A Profile of the Portfolios
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant A Profile of the Portfolios; The
Portfolios in Detail; Other
Information -- General
Information about the Company
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 Portfolios; The
Portfolios in Detail -- Pricing Your
Shares; Your Account; Operating
Expenses and Fees
8. Redemption or Repurchase Your Account
9. Pending Legal Proceedings Inapplicable
ii
<PAGE>
<CAPTION>
Item Number of Location in Statement
Form N-1A; Part B of Additional Information
- ----------------- -------------------------
<S> <C>
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
</TABLE>
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 Funds
December 18, 1997
This Prospectus describes the Waterhouse Investors Cash Management Funds, three
no-load money market portfolios (each a "Portfolio" and collectively the
"Portfolios") designed for investors who seek current income consistent with the
preservation of capital, liquidity and a stable price of $1.00 per share: Money
Market Portfolio, U.S. Government Portfolio and Municipal Portfolio. Each
Portfolio is a diversified investment portfolio of The Waterhouse Investors
Family of Funds, Inc. (the "Company"), an open-end, diversified management
investment company known as a mutual fund. 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 Portfolios which a prospective
investor should know before investing and should be retained for future
reference. A Statement of Additional Information relating to the Portfolios
dated December 18, 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 Waterhouse Securities,
Inc., 100 Wall Street, New York, New York 10005, or by calling 1-800-934-4410.
An investment in a Portfolio is neither insured nor guaranteed by the U.S.
government, the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other agency, and is not a deposit or obligation of, or guaranteed or
endorsed by, any bank. There can be no assurance that any Portfolio will be able
to maintain a stable net asset value of $1.00 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the
Portfolios' official sales literature in connection with the offer of the
Portfolios' shares, and, if given or made, such other information or
representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer in any State in which, or
to any person to whom, such offering may not lawfully be made.
<PAGE>
WATERHOUSE INVESTORS
CASH MANAGEMENT FUNDS
A PROFILE OF THE PORTFOLIOS
Who May Want to Invest
Each of the Portfolios - the Money Market Portfolio, the U.S. Government
Portfolio and the Municipal Portfolio - is a no-load money market portfolio
designed for investors who would like to earn income at current money market
rates in a liquid investment that preserves capital. Because of their emphasis
on liquidity and preservation of capital, each Portfolio may be used as a high
quality money market investment for an investor's short-term cash requirements.
Investment Objectives of Each Portfolio
Each of the Portfolios seeks maximum current income to the extent consistent
with liquidity and preservation of capital and a stable price of $1.00 per
share. The Money Market Portfolio has the flexibility to invest in a broad range
of high quality money market securities in pursuit of its objective. The U.S.
Government Portfolio offers an added measure of safety by investing exclusively
in obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The Municipal Portfolio offers investors federally tax-exempt
income by investing primarily in municipal securities. The rates of income each
Portfolio earns will vary from day to day and generally reflect short-term
interest rates. See "The Portfolios in Detail - Investment Policies and
Restrictions." There can be no assurance that any Portfolio will be able to
maintain a stable net asset value 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 Portfolios 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 Portfolio
shares. For a discussion of these withdrawals, see "Your Account - How To Sell
Shares - Automatic Sweep Redemptions."
2
<PAGE>
<TABLE>
<CAPTION>
Expenses
Money Market U.S. Government Municipal
Portfolio Portfolio Portfolio
------------ --------------- ---------
<S> <C> <C> <C>
Shareholder Transaction Expenses None None None
Annual Operating Expenses (as a percentage
of average daily net assets)(1)
Management Fees (after fee waivers and/or
expense reimbursements)(2) .35% .35% .25%
Shareholder Servicing Fees (after fee waivers
and/or expense reimbursements)(3) .12% .10% .11%
12b-1 Fees None None None
Other Expenses .36% .36% .38%
Total Portfolio Operating Expenses (after fee waivers
and/or expense reimbursements)(4) .83% .81% .74%
</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 Portfolios' most recent
fiscal year ended October 31, 1997.
2 The annual investment management fee for each Portfolio is payable to ("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 to limit
management fees to .25% of average net assets. 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 Company'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 Portfolio'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.
After that date, the fee payable under the Shareholder Servicing Plan is
.25% of average daily net assets. Shareholder Servicing Fees may be reduced
by the Company or waived by servicing agents; however, such fee reductions
or waivers may be reduced or eliminated at any time. Pursuant to a
Shareholder Servicing Agreement, Waterhouse Securities has agreed to
provide shareholder services for each Portfolio on a continuing basis in
exchange for such fees. In addition, the Company may enter into similar
agreements with other service providers.
4 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 .91%, .88% and .84%,
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:
<TABLE>
<CAPTION>
Portfolio 1 year 3 years 5 years 10 years
- --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market $8 $26 $46 $103
U.S. Government $8 $26 $45 $100
Municipal $8 $24 $41 $92
</TABLE>
The purpose of the preceding table is to assist you in understanding the various
costs and expenses that an investor in a Portfolio will bear directly or
indirectly. 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."
3
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows is included in the Company'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 periods
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 Portfolio U.S. Government Portfolio Municipal Portfolio
-------------------------------- ---------------------------- ----------------------------
Year Ended Period Ended Year Ended Period Ended Year Ended Period Ended
October 31, October 31, October 31, October 31, October 31, October 31,
1997 1996* 1997 1996* 1997 1996*
-------------- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------------- -------------- ------------ ------------ ------------ ------------
Net investment income 0.048 0.041 0.047 0.041 0.030 0.026
-------------- -------------- ------------ ------------ ------------ ------------
Distributions from net
investment income (0.048) (0.041) (0.047) (0.041) (0.030) (0.026)
-------------- -------------- ------------ ------------ ------------ ------------
Net asset value,
end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
============== ============== ============ ============ ============ ============
Ratios
Ratio of expenses to
average net assets** 0.83% 0.79% (A) 0.81% 0.73% (A) 0.74% 0.62% (A)
Ratio of net investment
income to average
net assets** 4.79% 4.64% (A) 4.69% 4.64% (A) 2.97% 2.90% (A)
Decrease reflected in
above net expense
ratio due to waivers
and/or reimbursements
by the Investment
Manager and its affiliates 0.08% 0.13% (A) 0.07% 0.18% (A) 0.10% 0.23% (A)
Supplemental Data
Total investment return (B) 4.89% 4.82% (A) 4.79% 4.82% (A) 3.01% 3.05% (A)
Net assets, end of period $1,787,786,777 $1,342,610,086 $402,685,311 $371,046,770 $265,623,696 $226,253,394
============== ============== ============ ============ ============ ============
</TABLE>
* The Portfolio commenced operations on December 20, 1995.
** The average net assets for the periods ended October 31, 1997 and October
31, 1996 for each Portfolio were, respectively, $1,592,722,254 and
$1,104,558,438 for the Money Market Portfolio; $398,635,777 and
$293,708,330 for the U.S. Government Portfolio; and $252,444,536 and
$196,592,413 for the Municipal Portfolio.
(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.
4
<PAGE>
THE PORTFOLIOS IN DETAIL
Matching Your Investment Needs to the Portfolios
The Money Market Portfolio, the U.S. Government Portfolio and the Municipal
Portfolio are each 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.
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
5
<PAGE>
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."
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 Portfolios 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
6
<PAGE>
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.
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.
7
<PAGE>
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.
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 that are "second tier securities." Generally, conduit securities are
securities issued to finance non-governmental private projects, such as
retirement homes, private hospitals, local housing projects, and industrial
development projects, with respect to which the ultimate obligor is not a
government entity. The Municipal Portfolio's investment in
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"second tier" conduit securities, which may include certain Industrial
Development Bonds, is limited to 5% of the Portfolio's total assets and, with
respect to second tier conduit securities issued by a single issuer, the greater
of $1 million or 1% of the Portfolio's total assets.
A Portfolio may borrow from banks and engage in reverse repurchase agreements.
However, as a matter of fundamental policy, a Portfolio may not borrow money
except as a temporary measure for defensive or emergency purposes, and then
(together with any reverse repurchase agreements) only in an amount up to
33 1/3% of the value of its total assets less liabilities (other than
borrowings), in order to meet redemption requests without immediately selling
any portfolio securities. No Portfolio will borrow from banks for leverage
purposes. As a matter of fundamental policy, a Portfolio will not purchase any
security, other than a security with a maturity of one day, while reverse
repurchase agreements or borrowings representing more than 5% of its total
assets are outstanding. In addition, as a matter of fundamental policy, no
Portfolio will lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be loaned to other parties, but this
limit does not apply to purchases of debt securities or to repurchase
agreements. For more information on reverse repurchase agreements and loans of
portfolio securities, see the Appendix and the SAI.
A Portfolio will not purchase or hold illiquid securities, including time
deposits and repurchase agreements not entitling the holder to payment of
principal and interest within seven days upon notice if, as a result thereof,
more than 10% of such Portfolio's net assets would be invested in such
securities. If otherwise consistent with its investment objective and policies,
each Portfolio may purchase securities that are not registered under the
Securities Act of 1933 but 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
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.
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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 Company has also adopted for
each Portfolio certain fundamental investment restrictions and policies which
are identified above and others which are set forth in the SAI. Such fundamental
investment objectives, restrictions and policies cannot be changed without
approval by holders of a "majority of the outstanding voting securities" of such
Portfolio, as defined in the SAI.
Pricing Your Shares
The price of each Portfolio's shares on any given day is its net asset value
("NAV"). The Company normally calculates the NAV of each Portfolio as of 12:00
noon and 4:00 p.m. (Eastern time) each day that the New York Stock Exchange
("NYSE") and the bank which serves as the custodian of each Portfolio's assets
(the "Custodian") are open (a "Business Day"). The NAV per share for a Portfolio
is calculated by subtracting the Portfolio's liabilities from its total assets
and then dividing the remainder by the total number of its shares outstanding.
Each Portfolio's shares are sold at the NAV 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.
Like most money market funds, the Company values the securities owned by each
Portfolio at amortized cost, which means that they are valued at their
acquisition cost (as adjusted for amortization of premium or discount) rather
than at current market value. This method of valuation minimizes the effect of
changes in a security's market value and helps each Portfolio to maintain a
stable $1.00 share price. The Company's Board of Directors has adopted
procedures pursuant to which the NAV of each Portfolio, as determined under the
amortized cost method, is monitored in relation to the market value of the
Portfolios. Additional information regarding such procedures is contained in the
SAI.
Performance
From time to time, each Portfolio may advertise several types of performance
information. 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
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by IBC/Donoghue's Money Fund Report(Registered), 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(Trademark), 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(Trademark), 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.
OPERATING EXPENSES AND FEES
Management and Related Expenses
Responsibility for overall management of the Company rests with its Board of
Directors in accordance with Maryland law. Professional investment supervision
is provided by the Investment Manager, Waterhouse Asset Management, Inc., 100
Wall Street, New York, NY 10005. Pursuant to the Investment Management
Agreement, the Investment Manager acts as the investment manager for each
Portfolio and manages its investments. Subject to the general supervision of the
Company's Board of Directors and in accordance with each Portfolio's investment
policies, the Investment Manager formulates guidelines and lists of approved
investments for each Portfolio, makes decisions with respect to and places
orders for that Portfolio's purchases and sales of portfolio securities and
maintains records relating to such purchases and sales. For the investment
management services furnished to each Portfolio, such Portfolio pays the
Investment Manager an annual investment management fee, accrued daily and
payable monthly, on a graduated basis equal to .35 of 1% of the first $1 billion
of average daily net assets of each Portfolio, .34 of 1% of the next $1 billion,
and .33 of 1% of average daily net assets of each Portfolio over $2 billion. The
Investment Manager has agreed to waive a portion of 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 required by the terms of 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 Portfolios, the Investment Manager
also currently serves as investment manager to the Bank and as of September 30,
1997, had total assets under management in excess of $3.9 billion. TD Bank, a
Canadian chartered bank, is subject to the provisions of the Bank Act of Canada.
Shareholder Servicing
The Company's Shareholder Servicing Plan ("Servicing Plan") permits each
Portfolio to pay banks, broker-dealers or other financial institutions that have
entered into a shareholder services agreement with the Company ("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 Company'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 pro-
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vided by the Servicing Agents pursuant to the Servicing Plan may include, among
other services, providing general shareholder liaison services (including
responding to shareholder inquiries), providing information on shareholder
investments, establishing and maintaining shareholder accounts and records, and
providing such other similar services as may be reasonably requested.
Pursuant to a Shareholder Services Agreement between the Company and Waterhouse
Securities, Waterhouse Securities has agreed to become a Servicing Agent with
respect to each Portfolio and to be compensated in accordance with the fees set
forth above. The Company may enter into similar agreements with other service
organizations, including broker-dealers and banks whose clients are shareholders
of the Portfolios, to act as Servicing Agents and to perform support services
with respect to such clients.
The Company may suspend or reduce payments under the Servicing Plan at any time,
and payments are subject to the continuation of the Servicing Plan described
above and the terms of the various shareholder services agreements. See the SAI
for more details on the Servicing Plan and the Shareholder Services Agreement
between the Company and Waterhouse Securities.
Administration
Pursuant to an Administration Agreement with the Company, Waterhouse Securities,
as administrator, provides administrative services to each of the Portfolios.
Administrative services furnished by Waterhouse Securities include, among
others, maintaining and preserving the records of the Company, including
financial and corporate records, computing NAV, dividends, performance data and
financial information regarding the Company, preparing reports, overseeing the
preparation and filing with the SEC and state securities regulators of
registration statements, notices, reports and other material required to be
filed under applicable laws, developing and implementing procedures for
monitoring compliance with regulatory requirements, providing routine accounting
services, providing office facilities and clerical support as well as providing
general oversight of other service providers. Waterhouse Securities is an
affiliate of the Investment Manager. For its services as administrator,
Waterhouse Securities receives from each Portfolio an annual fee, payable
monthly, of .10 of 1% of average daily net assets of such Portfolio. The fee is
accrued daily as an expense of each Portfolio.
Waterhouse Securities has entered into a Subadministration Agreement with Funds
Distributor, Inc., ("FDI"), 60 State Street, Suite 1300, Boston, Massachusetts
02109, pursuant to which FDI performs certain of the foregoing administrative
services for the Portfolios. Under this Agreement, Waterhouse Securities pays
FDI's fees for providing such services. In addition, Waterhouse Securities may
enter into subadministration agreements with other persons to perform such
services from time to time.
Distribution
The distributor of the shares of each Portfolio is FDI, which has the exclusive
right to distribute shares of the Portfolios pursuant to a Distribution
Agreement between the Company and FDI. FDI may enter into dealer or selling
agency agreements with affiliates of the Investment Manager and Waterhouse
Securities and other firms for the sale of Portfolio shares. FDI has entered
into such a selling agency agreement with Waterhouse Securities. FDI receives no
fee from the Company under the Distribution Agreement for acting as distributor
to the Portfolios.
Transfer Agent and Custodian
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
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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 Portfolios also pay other expenses that are not assumed by third parties,
such as expenses relating to preparing, printing and mailing prospectuses, proxy
materials and other information to existing shareholders, blue sky servicing
fees, pricing services, legal, audit and custodian fees.
The Portfolios' expenses generally are allocated among the Portfolios on the
basis of relative net assets at the time of allocation, except that expenses
directly attributable to a particular Portfolio are charged to that Portfolio.
YOUR ACCOUNT
You may invest in the Portfolios 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 who 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.
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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.
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 Company. There is no sales charge to buy shares in the
Portfolios.
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 Company. The
proceeds of the sale of your Portfolio 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 be sold
automatically 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 Company may be sold. In addition, shares will be sold to settle
securities transactions in your Waterhouse Securities brokerage account if on
the
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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.
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. Holders of the ATM/VISA Check Card will
not be liable for unauthorized withdrawals resulting in redemptions of Portfolio
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. ATM cash withdrawals may be made through
participating financial institutions. Although Waterhouse Securities does not
charge for ATM withdrawals, institutions may charge a fee in connection with
their services.
Your Retirement Account. To sell shares and receive payment in a Retirement
Account, you should complete a 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 Company. 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.
Dividends and distributions from a Portfolio will be reinvested in additional
full and fractional shares of the same
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Portfolio at the NAV next determined after their payable date. Dividends are
declared daily and are reinvested monthly. Shareholders may elect to receive any
monthly dividend in cash by submitting a written election to 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 Company 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 Company reserves the right to refuse to honor requests made by telephone if
the Company believes them not to be genuine. The Company 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 Company reserves the right to terminate or modify
this privilege at any time.
Small Accounts
There is currently no minimum requirement for initial and subsequent purchases
of Portfolio shares. However, because currently only customers of Waterhouse
Securities are eligible to purchase shares of the Portfolios, Portfolio 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 Portfolios or Waterhouse
Securities at 100 Wall Street, New York, New York 10005, or by calling your
Waterhouse Securities Account Officer.
OTHER INFORMATION
General Information About the Company
The Company is registered under the Investment Company Act as an open-end
diversified management investment company. The Company was organized under
Maryland law on August 16, 1995 under the name Waterhouse Investors Cash
Management Fund, Inc. and was renamed under its current name on December 18,
1997. The Company is authorized to issue 100 billion shares. Because the Company
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
Company or Portfolio shares without shareholder approval.
Unless otherwise required by the Investment Company Act, ordinarily it will not
be necessary for the Company to hold annual meetings of shareholders. As a
result, shareholders may not consider each year the election of directors or the
appointment of auditors. However, pursuant to the Company's By-Laws, the holders
of at least 10% of the shares outstanding and entitled to vote may require the
Company to hold a special meeting of shareholders for any purpose,
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including the removal of directors from office. 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 Company 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 Company will not issue share certificates but will record your holdings in
noncertificated form. Your Portfolio activity will be reflected in your
Waterhouse Securities brokerage account statement. The Company 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 Portfolio account. If you would like
to receive copies of financial reports or historical account information, you
may call your Waterhouse Securities Account Officer.
The Company may charge a fee for special services, such as providing historical
account documents that are beyond the normal scope of its services.
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 any
net short-term capital gains), are taxable to shareholders as ordinary income.
Market discount recognized on taxable and tax-exempt securities is also taxable
as ordinary income and is not
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<PAGE>
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 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 Company may adjust its schedule for dividend
reinvestment for the month of December to assist in complying with reporting and
minimum distribution requirements contained in the Internal Revenue Code.
Each Portfolio will be subject to a non-deductible 4% excise tax if it does not
distribute sufficient amounts of taxable investment income and capital gains
annually. Each Portfolio intends to distribute sufficient income to avoid the
application of this excise tax. It is not anticipated that the Portfolios will
realize long-term capital gains and therefore the Portfolios do not contemplate
making distributions taxable to shareholders as long-term capital gain.
Each Portfolio is required by law to withhold 31% ("back-up withholding") of
certain dividends, distributions of capital gains and redemption proceeds paid
to certain shareholders who do not furnish a correct taxpayer identification
number (in the case of individuals, a social security number and in the case of
entities, an employer identification number) and in certain other circumstances.
Any tax withheld as a result of backup withholding does not constitute an
additional tax imposed on the shareholder of the account, and may be claimed as
a credit on such shareholder's federal income tax return. You should consult
your own tax adviser regarding the withholding requirement.
Required tax information will be provided annually. You are encouraged to retain
copies of your account statements or year-end statements for tax reporting
purposes. However, if you have incomplete records, you may obtain historical
account transaction information at a reasonable fee.
You should consult your tax adviser regarding specific questions as to federal,
state and local taxes.
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APPENDIX
The following describes in greater detail the types of investments discussed
elsewhere in the Prospectus:
Asset-Backed Securities. Each Portfolio, other than the Municipal Portfolio, may
invest in securities backed by pools of mortgages, loans, receivables or other
assets. Payment of principal and interest may be largely dependent upon the cash
flows generated by the assets backing the securities, and, in certain cases,
supported by letters of credit, surety bonds, or other credit enhancements. The
value of asset-backed securities may also be affected by the creditworthiness of
the servicing agent for the pool, the originator of the loans or receivables, or
the financial institution(s) providing the credit support. The U.S. Government
Portfolio will invest in asset-backed securities only to the extent that such
securities are considered "Government Securities."
Certificates of Participation. The Municipal Portfolio may invest in
Certificates of Participation. Certificates of Participation may be variable
rate or fixed rate with remaining maturities of one year or less. A Certificate
of Participation may be backed by an irrevocable letter of credit or guarantee
of a financial institution that satisfies rating agencies as to the credit
quality of the Municipal Security supporting the payment of principal and
interest on the Certificate of Participation. Payments of principal and interest
would be dependent upon the underlying Municipal Security and may be guaranteed
under a letter of credit to the extent of such credit. The quality rating by a
rating service of an issuer of Certificates of Participation is based primarily
upon the rating of the Municipal Security held by the trust and the credit
rating of the issuer of any letter of credit and of any other guarantor
providing credit support to the issue. The Investment Manager considers these
factors as well as others, such as any quality ratings issued by the rating
services identified above, in reviewing the credit risk presented by a
Certificate of Participation and in determining whether the Certificate of
Participation is appropriate for investment by the Portfolio. It is anticipated
by the Investment Manager that for most publicly offered Certificates of
Participation, there will be a liquid secondary market or there may be demand
features enabling the Portfolio to 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.
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
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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 33 1/3% of its respective total assets to brokers, dealers and
other financial institutions, provided such loans are callable at any time by
the Portfolio and are at all times secured by cash or by equivalent collateral.
By lending its portfolio securities, a Portfolio will receive income while
retaining the securities' potential for capital appreciation. As with any
extensions of credit, there are risks of delay in recovery and, in some cases,
even loss of rights in the collateral should the borrower of the securities fail
financially. However, such loans of securities will 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.
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.
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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
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.
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 segregate
appropriate liquid assets to cover its obligation under the agreement. Each
Portfolio will enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory by the Investment Manager. Such
transactions may increase fluctuations in the market value of a Portfolio's
assets and may be viewed as a form of leverage.
Rule 144A Securities. If otherwise consistent with its investment objectives and
policies, each Portfolio, other than the Government Portfolio, may invest in
Rule 144A Securities. Rule 144A Securities are securities 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 Company's Board of Directors or the Investment Manager, acting
under guidelines approved and monitored by the Company's Board, that an adequate
trading market exists for that security. This investment practice could have the
effect of increasing the level of illiquidity in a Portfolio during any period
that qualified institutional buyers become uninterested in purchasing these
restricted securities.
Section 4(2) Paper. The Money Market Portfolio may invest in Section 4(2) paper.
Section 4(2) paper is restricted as to disposition under the federal securities
laws, and generally is sold to institutional investors such as the Money Market
Portfolio who agree that they are purchasing the paper for investment and not
with a view to public distribution. Any resale by the purchaser must be in an
exempt transaction. Section 4(2) paper normally is resold to other institutional
investors like the Portfolio through or with the assistance of the issuer or
investment dealers who make a market in the Section 4(2) paper, thus providing
liquidity. The Portfolio's Investment Manager considers the legally restricted
but readily saleable Section 4(2) paper to be liquid. However, pursuant to
procedures adopted by the Company's Board of Directors, if an investment in
Section 4(2) paper is not determined by the Investment Manager to be liquid,
that investment will be included within the 10% limitation on illiquid
securities discussed under "All Portfolios" in this Prospectus. The Portfolio's
Investment Manager will monitor the liquidity of the Portfolio's investments in
Section 4(2) paper on a continuous basis.
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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.
Tender Option Bonds. The Municipal Portfolio may purchase Tender Option Bonds.
Tender Option Bonds are created by coupling an intermediate- or long-term,
fixed-rate, tax-exempt bond (generally held pursuant to a custodial arrangement)
with a tender agreement that gives the holder the option to tender the bond at
its face value. As consideration for providing the tender option, the sponsor
(usually a bank, broker-dealer, or other financial institution) receives
periodic fees equal to the difference between the bond's fixed coupon rate and
the rate (determined by a remarketing or similar agent) that would cause the
bond, coupled with the tender option, to trade at par on the date of such
determination. After payment of the tender option fee, the Portfolio effectively
holds a demand obligation that bears interest at the prevailing short-term
tax-exempt rate. Subject to applicable regulatory requirements, the Municipal
Portfolio may buy Tender Option Bonds if the agreement gives the Portfolio the
right to tender the bond to its sponsor no less frequently than once every 397
days. In selecting Tender Option Bonds for the Portfolio, the Investment Manager
will consider the creditworthiness of the issuer of the underlying bond, the
custodian, and the third party provider of the tender option. In certain
instances, a sponsor may terminate a tender option if, for example, the issuer
of the underlying bond defaults on an interest payment.
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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.
When-Issued and Delayed Delivery Basis Securities. Each Portfolio may invest in
when-issued and delayed delivery basis securities. A security purchased on a
when-issued basis is subject to changes in market value based upon changes in
the level of interest rates and investors' perceptions of the creditworthiness
of the issuer. Generally such securities will appreciate in value when interest
rates decline and decrease in value when interest rates rise. In determining the
maturity of portfolio securities purchased on a when-issued or delayed delivery
basis, the Portfolio will consider them to have been purchased on the date when
it committed itself to the purchase. When when-issued or delayed delivery
purchases are outstanding, a Portfolio will segregate approppriate liquid assets
to cover its purchase obligations. The securities so purchased are subject to
market fluctuation and no interest accrues to the purchaser during the period
between purchase and settlement. At the time of delivery of the securities, the
value may be more or less than the purchase price and an increase in the
percentage of the Portfolio's assets committed to the purchase of securities on
a when-issued or delayed delivery basis may increase the volatility of the
Portfolio's 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.
23
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WATERHOUSE INVESTORS
CASH MANAGEMENT FUNDS
TABLE OF CONTENTS
<TABLE>
<S> <C>
A PROFILE OF THE PORTFOLIOS ............................................ 2
Who May Want to Invest ................................................. 2
Investment Objectives of Each Portfolio ................................ 2
Benefits and Features to
Waterhouse Securities Customers .................................... 2
Expenses ............................................................... 3
FINANCIAL HIGHLIGHTS ................................................... 4
THE PORTFOLIOS IN DETAIL ............................................... 5
Matching Your Investment Needs to the Portfolios ....................... 5
Investment Policies and Restrictions ................................... 5
Pricing Your Shares .................................................... 10
Performance ............................................................ 10
OPERATING EXPENSES AND FEES ............................................ 11
Management and Related Expenses ........................................ 11
Shareholder Servicing .................................................. 11
Administration ......................................................... 12
Distribution ........................................................... 12
Transfer Agent and Custodian ........................................... 12
Other Expenses ......................................................... 13
YOUR ACCOUNT ........................................................... 13
Opening a Waterhouse Securities Brokerage Account....................... 13
How to Buy Shares ...................................................... 14
How to Sell Shares ..................................................... 14
How to Exchange Portfolios ............................................. 15
Dividends .............................................................. 15
Telephone Transactions ................................................. 16
Small Accounts ......................................................... 16
Shareholder Inquiries .................................................. 16
OTHER INFORMATION ...................................................... 16
General Information About the Company .................................. 16
Statements and Reports to Shareholders ................................. 17
Taxes .................................................................. 17
APPENDIX ............................................................... 19
</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
WSI #0574 Rev. 12/97
==============================================================================
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Waterhouse
Investors Cash
Management
Funds
. . . . . . . . . . . . . . . . . .
Three money market portfolios
to choose from:
Money
Market Portfolio
U.S. Government
Portfolio
Municipal
Portfolio
December 18, 1997
[WATERHOUSE INVESTOR SERVICES LOGO]
- ------------------------------------------------------------------------------
==============================================================================
<PAGE>
WATERHOUSE INVESTORS CASH MANAGEMENT FUNDS
100 Wall Street, New York, New York 10005
Waterhouse Securities, Customer Service - 1-800-934-4410
STATEMENT OF ADDITIONAL INFORMATION
December 18, 1997
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the prospectus dated December 18, 1997 (the "Prospectus")
for the Money Market Portfolio, the U.S. Government Portfolio and the Municipal
Portfolio, each a series of Waterhouse Investors Family of Funds, Inc. (the
"Company"). To obtain a copy of the Prospectus please write to Waterhouse
Securities, Inc., Customer Service, at 100 Wall Street, New York, New York
10005, or call 1-800-934-4410.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
INVESTMENT POLICIES AND RESTRICTIONS ....................... 2
PORTFOLIO TRANSACTIONS ..................................... 9
DIRECTORS AND EXECUTIVE OFFICERS ........................... 9
THE INVESTMENT MANAGER ..................................... 11
INVESTMENT MANAGEMENT,
DISTRIBUTION AND OTHER SERVICES ............................ 12
DIVIDENDS AND TAXES ........................................ 16
SHARE PRICE CALCULATION .................................... 18
ADDITIONAL PURCHASE AND
REDEMPTION INFORMATION ..................................... 19
PERFORMANCE ................................................ 20
SHAREHOLDER RIGHTS ......................................... 22
FINANCIAL STATEMENTS ....................................... 22
ANNEX - RATINGS OF INVESTMENTS ............................. 23
</TABLE>
<PAGE>
WATERHOUSE INVESTORS CASH MANAGEMENT FUNDS
INVESTMENT POLICIES AND RESTRICTIONS
The Money Market Portfolio, the U.S. Government Portfolio, and the Municipal
Portfolio, have adopted certain fundamental investment limitations which cannot
be changed for a Portfolio without approval by holders of a majority of the
outstanding voting securities of that Portfolio. However, except for each
Portfolio's investment objectives and the fundamental investment limitations set
forth below, the investment policies and restrictions described in the
Prospectus and this Statement of Additional Information are not fundamental and
may be changed without shareholder approval. As defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and as used
herein and in the Prospectus, the term "majority of the outstanding voting
securities" of the Company, or of a particular Portfolio means, respectively,
the vote of the holders of the lesser of (i) 67% of the shares of the Company or
such Portfolio present or represented by proxy at a meeting where more than 50%
of the outstanding shares of the Company or such Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Company or such Portfolio.
The following policies and restrictions supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of a Portfolio's assets that may be invested in any
security or other assets, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Portfolio's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets, or other circumstances
will not be considered when determining whether the investment complies with the
Portfolio's investment policies and restrictions.
Investment Restrictions. The following are the fundamental investment
restrictions of each Portfolio of the Company. Each Portfolio may not (unless
noted otherwise):
(1) with respect to 75% of its total assets, purchase the securities of any
issuer (other than securities issued or guaranteed by the U.S. government, or
any of its agencies or instrumentalities) if, as a result thereof, (a) more than
5% of the Portfolio's total assets would be invested in the securities of that
issuer, or (b) the Portfolio would hold more than 10% of the outstanding voting
securities of that issuer;
(2) with respect to the Municipal Portfolio, normally invest less than 80% of
its total assets in obligations issued or guaranteed by states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities ("Municipal Securities"),
the income from which is exempt from federal income tax, but may be subject to
federal alternative minimum tax liability;
(3) issue senior securities, except as permitted under the Investment Company
Act;
(4) make short sales of securities or purchase securities on margin (but a
Portfolio may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities);
(5) borrow money, except that each Portfolio may: (i) borrow money for temporary
defensive or emergency purposes (not for leveraging or investment), (ii) engage
in reverse repurchase agreements for any purpose, and (iii) pledge its assets in
connection with such borrowing to the extent necessary;
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provided that (i) and (ii) in combination do not exceed 33 1/3% of the
Portfolio's total assets (including the amount borrowed) less liabilities (other
than borrowings). Any borrowings that exceed this amount will be reduced within
three days (not including Sundays and holidays) to the extent necessary to
comply with the 33 1/3% limitation. A Portfolio will not purchase any security,
other than a security with a maturity of one day, while reverse repurchase
agreements or borrowings representing more than 5% of its total assets are
outstanding;
(6) act as an underwriter (except as it may be deemed such in a sale of
restricted securities);
(7) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities;
or, in the case of the Municipal Portfolio, tax-exempt obligations issued or
guaranteed by a U.S. territory or possession or a state or local government, or
a political subdivision, agency or instrumentality of any of the foregoing) if,
as a result, more than 25% of the Portfolio's total assets would be invested in
the securities of companies whose principal business activities are in the same
industry, except that the Money Market Portfolio may invest more than 25% of its
total assets in the financial services industry and the Municipal Portfolio may
invest more than 25% of its total assets in industrial development bonds related
to a single industry. The Money Market Portfolio specifically reserves the right
to invest up to 100% of its assets in certificates of deposit or bankers'
acceptances issued by U.S. banks including their foreign branches, and U.S.
branches of foreign banks, in accordance with its investment objectives and
policies;
(8) purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent a Portfolio from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business);
(9) buy or sell commodities or commodity (futures) contracts, except for
financial futures and options thereon. This limitation does not apply to options
attached to, or acquired or traded together with, their underlying securities,
and does not apply to securities that incorporate features similar to options or
futures contracts;
(10) lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets would be loaned to other parties, but this limit does not
apply to purchases of debt securities or to repurchase agreements; or
(11) purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets or to the
extent otherwise permitted by the Investment Company Act; however, a Portfolio
may, notwithstanding any other fundamental investment policy or limitation,
invest all of its assets in the securities of a single open-end management
investment company with substantially the same fundamental investment
objectives, policies, and restrictions as the Portfolio.
The following investment restrictions are not fundamental, and may be changed
without shareholder approval. Each Portfolio does not currently intend:
(i) To purchase a security (other than a security issued or guaranteed by the
U.S. government or any of its agencies or instrumentalities, or a security
subject to an "unconditional demand feature issued by a non-controlled person,"
as defined in Rule 2a-7 under the Investment Company Act ("Rule 2a-7")) if, as a
result, more than 5% of its total assets would be invested in the securities of
a single issuer, provided that a Portfolio may invest up to 25% of its total
assets in the first tier securities of a single issuer for up to three business
days;
(ii) to purchase or hold any security if, as a result, more than 10% of its net
assets would be invested in securities that are deemed to be illiquid because
they are subject to legal or contractual restrictions on
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resale or because they cannot be sold or disposed of in the ordinary course of
business at approximately the prices at which they are valued, including
repurchase agreements not entitling the holder to payment of principal and
interest within seven days upon notice and securities restricted as to
disposition under federal securities laws, except for commercial paper issued in
reliance on the "private placement" exemption from registration afforded by
Section 4(2) of the Securities Act of 1933 ("Section 4(2) paper") and securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933
("144A securities"), which are determined to be liquid pursuant to procedures
adopted by the Company's Board of Directors; or
(iii) to invest in financial futures and options thereon.
For the Company's policies on quality and maturity, see the subsection entitled
"Quality and Maturity" below.
Each Portfolio's investments must be consistent with its investment objective
and policies. Accordingly, not all of the security types and investment
techniques discussed below are eligible investments for each of the Portfolios.
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
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and risks of ownership, including the risk of price and yield fluctuations.
Because a Portfolio is not required to pay for securities until the delivery
date, these risks are in addition to the risks associated with each Portfolio's
other investments. If a Portfolio remains substantially fully invested at a time
when when-issued or delayed delivery purchases are outstanding, the purchases
may result in a form of leverage. When when-issued or delayed delivery purchases
are outstanding, a Portfolio will segregate appropriate liquid assets to cover
its purchase obligations. When a Portfolio has sold a security on a
delayed delivery basis, the Portfolio does not participate in further gains or
losses with respect to the security. If the other party to a delayed delivery
transaction fails to deliver or pay for the securities, a Portfolio could miss a
favorable price or yield opportunity, or could suffer a loss.
Each Portfolio may renegotiate when-issued or delayed delivery transactions
after they are entered into, and may sell underlying securities before they are
delivered, which may result in capital gains or losses.
Variable or Floating Rate Obligations. Variable or Floating Rate Obligations
bear variable or floating interest rates and carry rights that permit holders to
demand payment of the unpaid principal balance plus accrued interest from the
issuers or certain financial intermediaries. Floating rate instruments have
interest rates that change whenever there is a change in a designated base rate
while variable rate instruments provide for a specified periodic adjustment in
the interest rate. These formulas are designed to result in a market value for
the instrument that approximates its amortized cost. A demand instrument with a
conditional demand feature must have received both a short-term and a long-term
high quality rating or, if unrated, have been determined to be of comparable
quality pursuant to procedures adopted by the Board of Directors. In addition,
the Board must make certain findings to insure, pursuant to Rule 2a-7, the
appropriateness of the conditional demand feature for money fund investment. A
demand instrument with an unconditional demand feature may be acquired solely in
reliance upon a short-term high quality rating or, if unrated, upon a finding of
comparable short-term quality pursuant to procedures adopted by the Board of
Directors.
Repurchase Agreements. In a repurchase agreement, a Portfolio purchases a
security and simultaneously commits to sell that security back to the original
seller at an agreed-upon price. 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
segregate appropriate liquid assets to cover its obligation under the agreement.
Each Portfolio will enter into reverse repurchase agreements only with parties
whose creditworthiness has been found satisfactory by the Investment Manager.
Illiquid Investments. Illiquid investments are investments that cannot be sold
or disposed of in the ordinary course of business within seven days at
approximately the prices at which they are valued. Under the supervision of the
Board of Directors, the Investment Manager determines the liquidity of a
Portfolio's investments and, through reports from the Investment Manager, the
Board monitors investments in illiquid instruments. In determining the liquidity
of a Portfolio's investments, the Investment Manager may consider various
factors, including (i) the frequency of trades and quotations, (ii) the number
of dealers and prospective purchasers in the marketplace, (iii) dealer
undertakings to
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make a market, (iv) the nature of the security (including any demand or tender
features), and (v) the nature of the marketplace for trades (including the
ability to assign or offset the Portfolio's rights and obligations relating to
the investment).
Investments currently considered by the Portfolios to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days upon notice. Also, with regard to the Money Market
Portfolio, the Investment Manager may determine some time deposits to be
illiquid. In the absence of market quotations, illiquid investments are valued
for purposes of monitoring amortized cost valuation at fair value as determined
in good faith by or under the direction of the Board of Directors. If through a
change in values, net assets, or other circumstances, a Portfolio were in a
position where more than 10% of its net assets was invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
For purposes of the 10% limit on illiquid securities, 144A securities will not
be considered to be illiquid so long as the Investment Manager determines, in
accordance with procedures adopted by the Board of Directors, that such
securities have a readily available market. The Investment Manager will monitor
the liquidity of such securities subject to the supervision of the Board of
Directors.
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. Each Portfolio may also invest in U.S. dollar-denominated securities
issued or guaranteed by other U.S. or foreign issuers, including U.S. and
foreign corporations or other business organizations, foreign governments,
foreign government agencies or instrumentalities, and U.S. and foreign financial
institutions, including savings and loan institutions, insurance companies,
mortgage bankers, and real estate investment trusts, as well as banks.
The obligations of foreign branches of U.S. banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by governmental regulation. Payment of
interest and principal on these obligations may also be affected by governmental
action in the country of domicile of the branch (generally referred to as
sovereign risk). In addition, evidence of ownership of portfolio securities may
be held outside of the United States and the Company may be subject to the risks
associated with the holding of such property overseas. Various provisions of
federal law governing the establishment and operation of U.S. branches do not
apply to foreign branches of U.S. banks.
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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.
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.
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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.
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
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shares, or in order to meet redemption requests, the Portfolio may hold cash
that is not earning income. In addition, there may be occasions when, in order
to raise cash to meet redemptions, the Portfolio may be required to sell
securities at a loss.
PORTFOLIO TRANSACTIONS
Portfolio transactions are undertaken principally to pursue the objective of
each Portfolio in relation to movements in the general level of interest rates,
to invest money obtained from the sale of Company shares, to reinvest proceeds
from maturing portfolio securities and to meet redemptions of Company shares.
This may increase or decrease the yield of a Portfolio depending upon the
Investment Manager's ability to correctly time and execute such transactions.
Each Portfolio normally intends to hold its portfolio securities to maturity.
The Portfolios do not intend to trade portfolio securities although they may do
so to take advantage of short-term market movements.
In effecting purchases and sales of portfolio securities for the account of each
Portfolio, the Investment Manager will implement the Company's policy of seeking
the best execution of orders, which includes best net prices. Consistent with
this policy, orders for portfolio transactions are placed with broker-dealer
firms giving consideration to the quality, quantity and nature of the firms'
professional services which include execution, clearance procedures, reliability
and other factors. In selecting among the firms believed to meet the criteria
for handling a particular transaction, the Investment Manager may give
consideration to those firms that provide market, statistical and other research
information to the Company and the Investment Manager, although the Investment
Manager is not authorized to pay higher prices to firms that provide such
services. Any research benefits derived are available for all clients. Because
statistical and other research information is only supplementary to the
Investment Manager's research efforts and still must be analyzed and reviewed by
its staff, the receipt of research information is not expected to significantly
reduce its expenses. The Company expects that purchases and sales of portfolio
securities usually will be principal transactions. Portfolio securities will
normally be purchased directly from the issuer or from an underwriter or market
maker for the securities. Purchases from underwriters may include a commission
or concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers will include the spread between the bid and asked
prices.
The investment decisions for each Portfolio will be reached independently from
those for each other and for other accounts, if any, managed by the Investment
Manager. On occasions when the Investment Manager deems the purchase or sale of
securities to be in the best interest of one or more Portfolios as well as other
clients of the Investment Manager, the Investment Manager, to the extent
permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be so sold or purchased in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the Investment
Manager in accordance with its policy for aggregation of orders, as in effect
from time to time. In some cases this procedure may affect the size or price of
the position obtainable for a Portfolio.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, along with their principal
occupations over the past five years and their affiliations, if any, with the
Investment Manager and Funds Distributor, Inc. ("FDI"), the Company's
distributor, are listed below.
RICHARD W. DALRYMPLE, Director. Mr. Dalrymple has served as a Director of
Waterhouse Investors Family of Funds, Inc. since December 12, 1995. Mr.
Dalrymple has been the President of Teamwork Management, Inc. since January
1997. Mr. Dalrymple has served as a Director of Dime Bancorp since 1990. Mr.
Dalrymple has been a Trustee of The Shannon McCormack Foundation since 1988 and
the Kevin Scott Dalrymple Foundation since 1993. He presently serves as Chairman
of the Board of National Center for Disability
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Services and has been a Director since 1983. From 1990 through 1995, Mr.
Dalrymple served as President and Chief Operating Officer of Anchor Bank. From
1985 through 1990, Mr. Dalrymple worked for the Bank of Boston. During this
time, Mr. Dalrymple served as the President of Massachusetts Banking and the
Southern New England Region, and as Department Executive of Banking Services. He
is 54 years old. Mr. Dalrymple's address is 45 Rockefeller Plaza, New York, NY
10111.
THEODORE ROSEN, Director. Mr. Rosen has served as a Director of Waterhouse
Investors Family of Funds, 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 with other firms including
D.H. Blair & Co., Morgan Stanley & Co., Ladenburg Thalman, and Burnham & Co. Mr.
Rosen was the founder and President of Summit Capital Group, a money management
and investment banking firm. He is 73 years old. Mr. Rosen's address is 1325
Avenue of the Americas, New York, NY 10019
GEORGE F. STAUDTER*, Director. Mr. Staudter has served as Chairman of the Board
of Directors of Waterhouse Investors Family of Funds, 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 66 years old. Mr. Staudter's address is 9637 Preston Trail West, Ponte Vedra,
FL 32082.
LAWRENCE J. TOAL, Director. Mr. Toal has served as a Director of Waterhouse
Investors Family of Funds, 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. Mr. Toal is also President and Chief Executive
Officer of Dime Bancorp, Inc., the Dime's holding company. He joined the Dime
in 1991 as President and Chief Operating Officer. 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 60 years old. Mr. Toal's
address is 589 Fifth Avenue, 3rd Floor, New York, NY 10017.
RICHARD W. INGRAM**, President, Treasurer and Chief Financial Officer. Executive
Vice President and Director of Client Services and Treasury Administration of
FDI. Executive Vice President of Premier Mutual Fund Services, Inc., an
affiliate of FDI ("Premier Mutual") and an officer of certain investment
companies advised or administered by the Dreyfus Corporation, Harris Trust and
Savings Bank ("Harris"), J.P. Morgan ("Morgan"), Montgomery Asset Management,
L.P. ("Montgomery") and RCM Capital Management LLC 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 42 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, Morgan and Montgomery 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. He
is 32 years old.
Officers and directors who are interested persons of the Investment Manager or
FDI will receive no compensation from the Company. The Company expects to pay or
accrue total directors' fees of approximately $60,000 per year to those
directors who are not designated above as "interested persons." Directors who
are interested persons of the Company may be compensated by the Investment
Manager
10
<PAGE>
for their services to the Company. On December 1, 1997, the officers and
directors of the Company, as a group, owned less than 1% of the outstanding
shares of each Portfolio.
The Company pays its directors an annual retainer and a per meeting fee and
reimburses them for their expenses. The amounts of compensation that the Company
paid to each director for the fiscal year ended October 31, 1997, are as
follows:
* This director is an "interested person" of the Company.
** Address: 60 State Street, Suite 1300, Boston, MA 02109
<TABLE>
<CAPTION>
Pension or Retirement Total Compensation
Aggregate Benefits Accrued as Estimated Annual from
Name of Board Compensation from Part of Company's Benefits Upon Fund Complex
Member Company Expenses Retirement Paid to Board Members (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 Company.
(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 Company.
THE INVESTMENT MANAGER
Waterhouse Asset Management, Inc., a Delaware corporation, is the Investment
Manager of each Portfolio. The Investment Manager is a wholly owned subsidiary
of Waterhouse National Bank (the "Bank"), which is a wholly owned subsidiary of
Waterhouse Investor Services, Inc. ("Waterhouse"), which is in turn a wholly
owned subsidiary of The Toronto-Dominion Bank ("TD Bank"). The Bank offers
various banking products and services primarily to the customers of Waterhouse
Securities, the principal subsidiary of Waterhouse. TD Bank, a Canadian
chartered bank, is subject to the provisions of the Bank Act of Canada. The
Investment Manager also currently serves as investment manager to the Bank and
as of September 30, 1997 had total assets under management in excess of $3.9
billion.
Personnel of the Investment Manager may invest in securities for their own
account pursuant to a code of ethics that sets forth all employees' fiduciary
responsibilities regarding the Company, establishes procedures for personal
investing and restricts certain transactions. Restrictions on the timing of
personal investing relative to trades by the Company have been adopted.
The following persons are senior officers of the Investment
Manager, each of whom have substantial responsibilities in connection with
the management of the Portfolios:
FRANK J. PETRILLI, Chairman, President and Chief Executive Officer of 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 47 years old. Mr. Petrilli's address is
100 Wall Street, New York, NY 10005.
11
<PAGE>
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 51 years old. Mr. Hartman's address is 100 Wall Street, New York, NY 10005.
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 38 years
old. Ms. Teichner's address is 100 Wall Street, New York, NY 10005.
INVESTMENT MANAGEMENT, DISTRIBUTION AND OTHER SERVICES
Investment Management
Pursuant to the Investment Management Agreement with the Company on behalf of
each Portfolio, the Investment Manager manages each Portfolio's investments in
accordance with its stated policies and restrictions, subject to oversight by
the Company's Board of Directors.
The Investment Management Agreement continues in effect until December 12, 1998
and thereafter from year to year so long as its continuation is approved at
least annually by (i) a majority vote of the directors who are not parties to
such agreement or interested persons of any such party except in their capacity
as directors of the Company, cast in person at a meeting called for such
purpose, and (ii) by the vote of a majority (as defined in the Investment
Company Act) of the outstanding voting securities of each Portfolio, or by the
Company's Board of Directors. The agreement may be terminated as to any
Portfolio at any time upon 60 days prior written notice, without penalty, by
either party, or by a majority vote of the outstanding shares of a Portfolio
with respect to that Portfolio, and will terminate automatically upon
assignment. The Investment Management Agreement was approved by the Board of
Directors of the Company, including a majority of the Disinterested Directors
who have no direct or indirect financial
12
<PAGE>
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.
Total fees paid by the Company to the Investment Manager for the fiscal years
ended October 31, 1997 and October 31, 1996 were $5,512,519 and $3,339,325 for
the Money Market Portfolio, $1,394,481 and $890,354 for the U.S. Government
Portfolio, and $883,242 and $595,954 for the Municipal Portfolio, respectively.
For the fiscal year ended October 31, 1997, the Investment Manager voluntarily
waived $252,458 of its investment management fee 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 Company is FDI, 60 State Street, Suite 1300, Boston,
Massachusetts 02109. Pursuant to a Distribution Agreement between the Company
and FDI, FDI has the exclusive right to distribute shares of the Company. FDI
may enter into dealer or agency agreements with affiliates of the Investment
Manager and other firms for the sale of Company shares. FDI has entered into
such an agency agreement with Waterhouse Securities. FDI receives no fee from
the Company under the Distribution Agreement for acting as distributor to the
Company. FDI also acts as a subadministrator for the Company.
The Distribution Agreement will continue in effect until December 12, 1998 and
is renewable thereafter for periods of one year, so long as such continuance is
approved at least annually by a vote of the Board of Directors of the Company,
including a majority of Disinterested Directors who have no direct or indirect
financial interest in the Agreement. The Agreement was approved by the Board of
Directors of the Company, including a majority of Disinterested Directors who
have no direct or indirect financial interest in the Agreement. Each Portfolio
may terminate the Distribution Agreement on 60 days' prior written notice
without penalty. Termination by a Portfolio may be by vote of a majority of the
Company's Board of Directors, or a majority of the Disinterested Directors, or
by a "majority of the outstanding voting securities" of such Portfolio as
defined under the Investment Company Act. The Agreement terminates automatically
in the event of its "assignment" as defined in the Investment Company Act.
Shareholder Servicing
The Board of Directors of the Company has approved a Shareholder Servicing Plan
("Servicing Plan")
13
<PAGE>
pursuant to which each Portfolio may pay banks, broker-dealers or other
financial institutions that have entered into a shareholder services agreement
with the Company ("Servicing Agents") in connection with shareholder support
services that they provide. Payments under the Servicing Plan will be calculated
daily and 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 Company'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 Company with respect to
any Portfolio by a vote of a majority of the Disinterested Directors who have no
direct or indirect financial interest in the Plan or any agreements relating
thereto.
Pursuant to a Shareholder Services Agreement between the Company and Waterhouse
Securities, Waterhouse Securities has agreed to provide shareholder services to
each Portfolio pursuant to the Shareholder Servicing Plan. The Company may enter
into similar agreements with other service organizations, including
broker-dealers and banks whose clients are shareholders of the Company, to act
as Servicing Agents and to perform shareholder support services with respect to
such clients.
The Shareholder Services Agreement with Waterhouse Securities will continue in
effect until December 12, 1998, and is renewable thereafter for periods of one
year, so long as such continuance is approved at least annually by a vote of the
Board of Directors of the Company, including a majority of the Disinterested
Directors who have no direct or indirect financial interest in the Agreement.
The Agreement was approved by the Board of Directors of the Company, including a
majority of the Disinterested Directors who have no direct or indirect financial
interest in the Agreement. Each Portfolio or Waterhouse Securities may terminate
the Shareholder Services Agreement on 60 days' prior written notice without
penalty. Termination by a Portfolio may be by vote of the Company's Board of
Directors, or a majority of the Disinterested Directors who have no direct or
indirect financial interest in the Agreement. The Agreement terminates
automatically in the event of its "assignment" as defined in the Investment
Company Act.
Total fees paid by the Company to Waterhouse Securities for the fiscal years
ended October 31, 1997 and October 31, 1996 were $3,183,862 and $1,913,360 for
the Money Market Portfolio, $677,320 and $432,457 for the U.S. Government
Portfolio, and $277,561 and $187,300 for the Municipal Portfolio, respectively.
For the fiscal year ended October 31, 1997, Waterhouse Securities voluntarily
waived $1,199,480 and $291,674 of its shareholder servicing fee for the Money
Market Portfolio and the U.S. Government Portfolio, respectively. 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 Company in connection with the investment of fiduciary
assets in Company shares. Servicing Agents, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers are
urged to consult their legal advisers before investing such assets in Company
shares.
14
<PAGE>
Administration
Pursuant to an Administration Agreement with the Company,
Waterhouse Securities, as Administrator, provides administrative services to
each of the Portfolios. Administrative services furnished by Waterhouse
Securities include, among others, maintaining and preserving the records of the
Company, including financial and corporate records, computing net asset value,
dividends, performance data and financial information regarding the Company,
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,
Waterhouse Securities receives from each Portfolio an annual fee, payable
monthly, of .10 of 1% of average daily net assets of such Portfolio. The fee is
accrued daily as an expense of each Portfolio. Prior to June 11, 1997, the
Company retained the Investment Manager to serve as Administrator, which
received from each Portfolio an annual fee, payable monthly, of .10 of 1% of
average daily net assets of such Portfolio.
Total fees paid by the Company to Waterhouse Securities and the Investment
Manager, as Administrator, for the fiscal year ended October 31, 1997 were
$1,591,931 for the Money Market Portfolio, $398,423 for the U.S. Government
Portfolio and $252,319 for the Municipal Portfolio, respectively. Total fees
paid by the Company 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.
Waterhouse Securities has entered into a Subadministration Agreement with FDI
pursuant to which FDI performs certain of the foregoing administrative services
for the Company. 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, 1998,
and is renewable thereafter for periods of one year, so long as such continuance
is approved at least annually by a vote of the Board of Directors of the
Company, including a majority of Disinterested Directors of the Company who have
no direct or indirect financial interest in the Agreement. The Agreement was
approved by the Board of Directors of the Company, including a majority of the
Disinterested Directors of the Company who have no direct or indirect financial
interest in the Agreement. Each Portfolio or Waterhouse Securities may terminate
the Administration Agreement on 60 days' prior written notice without penalty.
Termination by a Portfolio may be by vote of the Company's Board of Directors,
or a majority of the Disinterested Directors of the Company who have no direct
or indirect financial interest in the Agreement, or by a "majority of the
outstanding voting securities" of such Portfolio as defined under the Investment
Company Act. The Agreement terminates automatically in the event of its
"assignment" as defined in the Investment Company Act.
The Administration Agreement provides that Waterhouse Securities 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
Waterhouse Securities' 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,
Waterhouse Securities and the Investment Manager believe that such laws should
15
<PAGE>
not preclude them from acting as administrator and investment manager,
respectively, to the Company. Accordingly, Waterhouse Securities under the
Administration Agreement and the Investment Manager under the Investment
Management Agreement will only perform administrative and investment management
servicing functions, respectively. 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 Waterhouse Securities or the Investment
Manager from continuing to perform all or a part of their administration or
investment management activities, respectively. If Waterhouse Securities or the
Investment Manager were prohibited from so acting, alternative means of
continuing such services would be sought by the Board of Directors of the
Company.
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 paid by the Company to the Bank for the fiscal years ended October
31, 1997 and October 31, 1996 were $3,183,862 and $1,913,360 for the Money
Market Portfolio, $796,847 and $508,773 for the U.S. Government Portfolio, and
$504,638 and $340,545 for the Municipal Portfolio, respectively. 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 Company.
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.
Other Expenses
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 Company 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 Company may be a party, and any obligation it may have
to indemnify the Company's officers and directors with respect to any
litigation. The Company'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.
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
16
<PAGE>
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 capital gains from the sale
of securities held for more than 12 months, but if it does so, these gains will
be distributed annually.
Tax Status of the Company. Each Portfolio intends to meet the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its investment company taxable income and net realized gains,
if applicable, to shareholders. Therefore, it is not anticipated that any of the
Portfolios will be subject to the 4% excise tax applicable to regulated
investment companies that fail to satisfy certain distribution requirements.
Each Portfolio is treated as a separate entity from the other Portfolios for tax
purposes.
State and Local Tax Issues. Shareholders are urged to consult with their tax
advisers as to whether any of the dividends paid by the U.S. Government
Portfolio are exempt from state and local taxation. The exemption from state and
local income taxation does not preclude states from assessing other taxes on the
ownership of U.S. government securities whether such securities are held
directly or through the Company.
Federal Tax Issues - Municipal Portfolio. Distributions from the Municipal
Portfolio will constitute exempt-interest dividends to the extent of the
Portfolio's tax-exempt interest income (net of expenses and amortized bond
premium). Exempt-interest dividends distributed to shareholders of the Municipal
Portfolio are excluded from gross income for federal income tax purposes.
However, shareholders required to file a federal income tax return will be
required to report the receipt of exempt-interest dividends on their returns.
Moreover, while exempt-interest dividends are excluded from gross income for
federal income tax purposes, they may be subject to alternative minimum tax
("AMT") in certain circumstances and may have other collateral tax consequences
as discussed below. Distributions by the Municipal Portfolio of any investment
company taxable income (which include any short-term capital gains and market
discount) will be taxable to shareholders.
Dividend distributions resulting from a recharacterization of gain from the sale
of bonds purchased with market discount are not considered income for purposes
of the Municipal Portfolio's policy of investing so that at least 80% of its
income is free from federal income tax.
AMT is imposed in addition to, but only to the extent it exceeds, the regular
tax and is computed at a maximum marginal rate of 28% for noncorporate taxpayers
and 20% for corporate taxpayers on the excess of the taxpayer's alternative
minimum taxable income ("AMTI") over an exemption amount. Exempt-interest
dividends derived from certain "private activity" municipal obligations issued
after August 7, 1986 will generally constitute an item of tax preference
includable in AMTI 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
17
<PAGE>
subject to federal income tax. Receipt of exempt-interest dividends may result
inother collateral federal income tax consequences to certain taxpayers.
Prospective investors should consult their own tax advisers as to such
consequences.
Interest on indebtedness which is incurred to purchase or carry shares of a
mutual fund portfolio which distributes exempt-interest dividends during the
year is not deductible for federal income tax purposes. Further, the Municipal
Portfolio may not be an appropriate investment for (i) persons who are
"substantial users" of facilities financed by industrial development bonds held
by the Municipal Portfolio or are "related persons" to such users; or (ii)
persons who are investing through a tax-exempt retirement plan, IRA or Keogh
Account.
A separate tax is imposed on corporations at a rate of 0.12 percent of the
excess of such corporation's "modified" AMTI over $2,000,000. A portion of
tax-exempt interest, including exempt-interest dividends, may be includable in
modified AMTI. Corporate shareholders are advised to consult with their tax
advisers.
The Municipal Portfolio purchases municipal obligations based on opinions of
bond counsel regarding the federal income tax status of the obligations. These
opinions generally will be based on covenants by the issuers regarding
continuing compliance with federal tax requirements. If the issuer of an
obligation fails to comply with its covenant at any time, interest on the
obligation could become federally taxable, either prospectively or retroactively
to the date the obligation was issued.
Each of the Portfolios may invest in obligations such as zero coupon bonds,
issued with original issue discount ("OID") for federal income tax purposes.
Accrued OID constitutes income subject to the distribution requirements
applicable to regulated investment companies, although such income may not be
represented by any cash payment. Accordingly, it may be necessary for a
Portfolio to dispose of other assets in order to satisfy such distribution
requirements.
Other Tax Information. The Transfer Agent will send each shareholder a notice in
January describing the tax status of dividend and capital gain distributions
(where applicable) for the prior year.
The information above, together with the information set forth in the
Prospectus, is only a summary of some of the federal income tax consequences
generally affecting each Portfolio and its shareholders, and no attempt has been
made to present a detailed explanation of the tax treatment of each Portfolio or
to discuss individual tax consequences. In addition to federal income taxes,
shareholders may be subject to state and local taxes on Company distributions,
and shares may be subject to state and local personal property taxes. Investors
should consult their tax advisers to determine whether a Portfolio is suitable
to their particular tax situation.
Foreign shareholders should consult their tax advisers regarding foreign tax
consequences applicable to their purchase of Company shares.
Independent Auditors and Reports to Shareholders. The Company's independent
auditors, Ernst & Young LLP, whose address is 787 Seventh Avenue, New York, New
York 10019, audit and report on the Company's annual financial statements,
review certain regulatory reports and the Company's federal income tax returns,
and perform other professional accounting, auditing, tax and advisory services
when engaged to do so by the Company. Shareholders will receive annual audited
financial statements and semi-annual unaudited financial statements.
SHARE PRICE CALCULATION
Each Portfolio values its portfolio instruments at amortized cost, which means
that they are valued at their acquisition cost, as adjusted for amortization of
premium or accretion of discount, rather than at current market value. The
amortized cost value of an instrument may be higher or lower than the price
18
<PAGE>
each Portfolio would receive if it sold the instrument.
Valuing a Portfolio's instruments on the basis of amortized cost and use of the
term "money market fund" are permitted by Rule 2a-7. Each Portfolio must adhere
to certain conditions under Rule 2a-7.
The Board of Directors of the Company oversees the Investment Manager's
adherence to SEC rules concerning money market funds, and has established
procedures designed to stabilize each Portfolio's NAV per share at $1.00. At
such intervals as they deem appropriate, the Board of Directors considers the
extent to which NAV calculated by using market valuations would deviate from
$1.00 per share. Market valuations are obtained by using actual quotations
provided by market makers, estimates of current market value, or values obtained
from yield data relating to classes of money market instruments published by
reputable sources at the mean between the bid and asked prices of the
instruments. If a deviation were to occur between the net asset value per share
calculated by reference to market values and a Portfolio's net asset value per
share, which the Board of Directors of the Company believed may result in
material dilution or other unfair results to shareholders, the directors have
agreed promptly to consider what corrective action they deem appropriate to
eliminate or reduce, to the extent reasonably practicable, the dilution or
unfair results. Such corrective action could include selling portfolio
securities prior to maturity; withholding dividends; redeeming shares in kind;
establishing NAV by using available market quotations; and such other measures
as the directors may deem appropriate.
During periods of declining interest rates, each Portfolio's yield based on
amortized cost may be higher than the yield based on market valuations. Under
these circumstances, a shareholder of any Portfolio would be able to retain a
somewhat higher yield than would result if each Portfolio utilized market
valuations to determine its NAV. The converse would apply in a period of rising
interest rates.
Net asset value is calculated by the Company as to each Portfolio on each day
that the NYSE and the Custodian are open. Currently, the NYSE is closed on
weekends and New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. In addition to these holidays, the Custodian generally is closed
on Veteran's Day and Columbus Day.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each Portfolio does not currently impose a minimum for initial or subsequent
investments. However, minimum requirements may be imposed or changed at any
time. Each Portfolio may waive minimum investment requirements for purchases by
directors, officers or employees of the Company, Waterhouse or any of its
subsidiaries.
The Company 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 Company to purchase or redeem shares. In addition, trading in some
of a Portfolio's portfolio securities may not occur on days when the Company is
open for business.
If the Board of Directors determines that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing a
Portfolio's NAV. Shareholders receiving securities or other property on
redemption may realize a gain or loss for tax purposes, and will incur any costs
of sale, as well as the associated inconveniences.
The Company may suspend redemption rights and postpone payments at times when
trading on the NYSE is restricted, the NYSE is closed for any reason other than
its customary weekend or holiday closings, emergency circumstances as determined
by the SEC exist, or for such other circumstances as
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the SEC may permit.
PERFORMANCE
As reflected in the Prospectus, the historical performance calculation for a
Portfolio may be shown in the form of "yield," "effective yield" and, for the
Municipal Portfolio only, "tax equivalent yield" and "tax equivalent effective
yield." These various measures of performance are described below.
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, 1997 was
4.93% for the Money Market Portfolio, 4.80% for the U.S. Government Portfolio
and 3.04% 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, 1997 was 5.05% for the Money Market Portfolio, 4.91% for the U.S. Government
Portfolio and 3.09% 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, 1997 was 4.75%. 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, 1997 was 4.83%. 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
Company's Portfolios may
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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 Registered, a reporting service on
money market funds. As reported by Money Fund Report, all investment results
represent total return (annualized results for the period net of management fees
and expenses) and one year investment results are effective annual yields
assuming reinvestment of dividends.
BANK RATE MONITOR(trademark), N. Palm Beach, Florida 33408, a financial
reporting service which each week publishes average rates of bank and thrift
institution money market deposit accounts and interest bearing checking
accounts, reports results for the BANK RATE MONITOR National Index. The rates
published by the BANK RATE MONITOR National Index are averages of the personal
account rates offered on the Wednesday prior to the date of publication by 100
of the leading bank and thrift institutions in the ten largest Consolidated
Metropolitan Statistical Areas. Account minimums range upward from $2,000 in
each institution and compounding methods vary. Interest bearing checking
accounts generally offer unlimited checking while money market deposit accounts
generally restrict the number of checks that may be written. If more than one
rate is offered, the lowest rate is used. Rates are determined by the financial
institution and are subject to change at any time specified by the institution.
Bank products represent a taxable alternative income producing product. Bank and
thrift institution account deposits may be insured. Shareholder accounts in the
Company are not insured. Bank savings accounts compete with money market mutual
fund products with respect to certain liquidity features but may not offer all
of the features available from a money market mutual fund, such as 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.
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SHAREHOLDER RIGHTS
The Company was organized under Maryland law on August 16, 1995 under the name
Waterhouse Investors Cash Management Fund, Inc. and was renamed under its
current name on December 18, 1997. The shares of the Company 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 Company. Shares of the
Company 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 Company voting together for the election of directors may elect all of the
members of the Board of Directors. In such event, the remaining holders cannot
elect any members of the Board of Directors.
The 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 Company will not normally hold annual
shareholders' meetings. Under Maryland law and the Company's By-Laws, an annual
meeting is not required to be held in any year in which the election of
directors is not required to be acted upon under the Investment Company Act. The
Company's By-Laws provide that special meetings of shareholders, unless
otherwise provided by law or by the Articles of Incorporation, may be called for
any purpose or purposes by a majority of the Board of Directors, the Chairman of
the Board, the President, or the written request of the holders of at least 10%
of the outstanding shares of capital stock of the corporation entitled to be
voted at such meeting to the extent permitted by Maryland law.
Each director serves until the next election of directors and until the election
and qualification of his successor or until such director sooner dies, resigns,
retires or is removed by the affirmative vote of a majority of the outstanding
voting securities of the Company. In accordance with the Investment Company Act
(i) the Company will hold a shareholder meeting for the election 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 Company's financial statements and financial highlights for the fiscal year
ended October 31, 1997, including the independent auditors' report thereon, are
included in the Company's Annual Report and is incorporated herein by reference.
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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 ("Moody's"). 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
Ratings of Moody's 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.
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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.
WATERHOUSE INVESTORS CASH MANAGEMENT FUNDS
100 Wall Street, New York, New York 10005
Waterhouse Securities, Customer Service - 1-800-934-4410
<PAGE>
PART C
OTHER INFORMATION
WATERHOUSE INVESTORS FAMILY OF FUNDS, INC.
Item 24. Financial Statements and Exhibits.
(a) Financial Statements included in the Prospectus:
Financial Highlights for the fiscal year ended
October 31, 1997 and for the period 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,
1997
Statements of Operations, for the year ended October
31, 1997
Statements of Changes in Net Assets, for the year
ended October 31, 1997 and for the period from
December 20, 1995 (commencement of operations)
through October 31, 1996
Financial Highlights, for the year ended October 31,
1997 and for the period from December 20, 1995
(commencement of operations) through October 31,
1996
Notes to Financial Statements -- October 31, 1997
Schedules of Investments, October 31, 1997
Notes to Schedules of Investments, October 31, 1997
Report of Independent Auditors
* Audited financial statements for each Portfolio of the Company and the
auditors' report thereon for the fiscal year ended October 31, 1997 (with
respect to each Portfolio are part of the Company's Annual Report filed with the
Securities and Exchange Commission on December 18, 1997 pursuant to Rule 30b2-1
under the Investment Company Act of 1940, as amended, accession number
889812-97-2691) have been incorporated by reference thereto in the Statement of
Additional Information.
<TABLE>
<S> <C>
(b) Exhibits
(1)(a) Articles of Incorporation (Incorporated by Reference to
Exhibit 1 to Post-Effective Amendment No. 1 to Registration
Statement on Form N-1A, File Nos. 33-96132; 811-9086, filed on
June 20, 1996)
(b) Articles of Amendment to Articles of Incorporation dated
December 18, 1997, filed herewith
(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
(Incorporated by Reference to Exhibit 5 to Post-Effective
Amendment No. 3 to the Registration Statement on Form N-1A,
File Nos. 33-96132; 811-9086, filed on February 28, 1997)
(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**
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(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 (Incorporated by Reference to Exhibit 9(a) to
Post-Effective Amendment No. 3 to the Registration Statement
on Form N-1A, File Nos. 33-96132; 811-9086, filed on February
28, 1997)
(b) Sub-Transfer Agency and Dividend Disbursing Agency Agreement
by and among Waterhouse National Bank, National Investor
Services Corp. and Waterhouse Securities, Inc. on behalf of
Registrant dated October 15, 1996 (Incorporated by Reference
to Exhibit 9(b) to Post-Effective Amendment No. 3 to the
Registration Statement on Form N-1A, File Nos. 33-96132;
811-9086, filed on February 28, 1997)
(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 (Incorporated by Reference to Exhibit
9(d)(ii) to Post-Effective Amendment No. 3 to the Registration
Statement on Form N-1A, File Nos. 33-96132; 811-9086, filed on
February 28, 1997)
(e) Administration Agreement between Registrant and Waterhouse
Securities, Inc., dated June 11, 1997, filed herewith
(f) Subadministration Agreement between Waterhouse Securities,
Inc. and Funds Distributor, Inc., on behalf of Registrant
dated June 11, 1997, filed herewith
(g) Accounting Services Agreement between Waterhouse Asset
Management, Inc. and Countrywide Fund Services, Inc., on
behalf of Registrant dated February 28, 1997, 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
(Incorporated by Reference to Exhibit 9(a) to Post-Effective
Amendment No. 3 to the Registration Statement on Form N-1A,
File Nos. 33-96132; 811-9086, filed on February 28, 1997)
(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) Schedule for computation of each performance quotation for
Municipal Portfolio**
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(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
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Other Exhibit:
Power of Attorney for George F. Staudter, Richard
Dalrymple, Anthony J. Pace, Lawrence Toal and Theodore Rosen dated June
12, 1996 (Incorporated by Reference to Other Exhibit to Post-Effective
Amendment No. 3 to the Registration Statement on Form N-1A, File Nos.
33-96132; 811-9086, filed on February 28, 1997)
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* 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 November 28, 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 216,315
U.S. Government Portfolio 33,829
Municipal Portfolio 17,533
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.
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.
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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.
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.
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<PAGE>
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.
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: 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
The Brinson Funds
Burridge Funds
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight
Funds
The JPM Institutional Funds
The JPM Pierpont Funds
The JPM Series Trust
The JPM Series Trust II
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
Orbitex Group of Funds
The PanAgora Institutional Funds
RCM Capital Funds, Inc.
RCM Equity Funds, Inc.
St. Clair Funds, Inc.
C - 5
<PAGE>
The Skyline Funds
Waterhouse Investors Family of Funds, Inc.
WEBS Index 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 following is a list of the executive officers, directors and
partners of Funds Distributor, Inc.
Director, President and Chief Executive Officer - Marie E. Connolly
Executive Vice President - Richard W. Ingram
Executive Vice President - Donald R. Roberson
Senior Vice President - Michael S. Petrucelli
Director, Senior Vice President, Treasurer and - Joseph F. Tower, III
Chief Financial Officer
Senior Vice President - Paula R. David
Senior Vice President - Allen B. Closser
Senior Vice President - Bernard A. Whalen
(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. and
Waterhouse Securities, Inc., respectively, 100 Wall Street, New York, New York
10005, or (i) in the case of records concerning custodial functions, at the
offices of the Registrant's Custodian, The Bank of New York, 48 Wall Street, New
York, New York 10286; (ii) in the case of records concerning transfer agency
functions, at the offices of the Registrant's transfer agent, 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 - 6
<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 18 day of December, 1997.
WATERHOUSE INVESTORS FAMILY OF FUNDS, INC.
Registrant
By /s/ Christopher J. Kelley
Christopher J. Kelley
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
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/ Richard W. Ingram President, Treasurer December 18, 1997
Richard W. Ingram and Chief Financial
Officer
George F. Staudter* Chairman of the Board December 18, 1997
and Director
Richard W. Dalrymple* Director December 18, 1997
Theodore Rosen* Director December 18, 1997
Lawrence J. Toal* Director December 18, 1997
</TABLE>
*By /s/ Richard H. Neiman
Richard H. Neiman
Attorney-in-Fact pursuant to a power of attorney dated June 12, 1996
(Incorporated by Reference to Other Exhibit to Post-Effective Amendment
No. 3 to the Registration Statement on Form N-1A, File Nos. 33-96132;
811-9086, filed on February 28, 1997)
C - 7
<PAGE>
INDEX TO EXHIBITS
(1)(b) Articles of Amendment to Articles of Incorporation
(9)(e) Administration Agreement
(9)(f) Subadministration Agreement
(9)(g) Accounting Services Agreement
(11) Consent of Independent Auditors
(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
<PAGE>
Exhibit 1(b)
Waterhouse Investors Cash Management Fund, Inc.
ARTICLES OF AMENDMENT
Waterhouse Investors Cash Management Fund, Inc., a Maryland corporation
having its principal office in Baltimore, Maryland c/o The Corporation Trust,
Incorporated, 300 East Lombard Street, Baltimore, Maryland 21202 (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Second Article of the Corporation's charter is hereby
amended in its entirety to read as follows:
The name of the corporation is Waterhouse Investors Family of Funds,
Inc. (herein called the "Corporation").
SECOND: The foregoing amendments of the charter of the Corporation have
been approved by a majority of the Board of Directors of the Corporation without
action of stockholders in accordance with Section 2-605(a)(4) of the Maryland
General Corporation Law, and the Corporation is registered as an open-end
company under the Investment Company Act of 1940.
IN WITNESS WHEREOF: Waterhouse Investors Cash Management Fund, Inc.,
has caused these presents to be signed in its name and on its behalf by its Vice
President and Secretary on December 18, 1997.
Waterhouse Investors Cash Management Fund, Inc.
/s/ Christopher J. Kelley
------------------------------------
Name: Christopher J. Kelley
Title: Vice President and Secretary
ATTEST:
/s/ Karen Jacoppo-Wood
- --------------------------
Name: Karen Jacoppo-Wood
Title: Vice President and Assistant Secretary
<PAGE>
Exhibit 9(e)
ADMINISTRATION AGREEMENT
AGREEMENT made as of the 11th day of June, 1997 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 SECURITIES, 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 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 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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
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 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.
<PAGE>
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 Securities, 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 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
WATERHOUSE SECURITIES, INC.
By: /s/ Michele R. Teichner
-------------------------
Title: Senior Vice President
<PAGE>
Exhibit 9(f)
SUB-ADMINISTRATION AGREEMENT
SUB-ADMINISTRATION AGREEMENT made this 11th day of June, 1997 between Waterhouse
Securities, Inc. ("Waterhouse"), a Delaware corporation, and Funds Distributor,
Inc. ("FDI"), a Massachusetts corporation.
WHEREAS, Waterhouse 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 June 11, 1997, 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 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
<PAGE>
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 Portfolio
<PAGE>
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,
<PAGE>
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
<PAGE>
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.
<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 Securities, 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.
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 SECURITIES, INC.
By: /s/ Michele R. Teichner
---------------------------
Title: Senior Vice President
FUNDS DISTRIBUTOR, INC.
By: /s/ Marie E. Connolly
-------------------------
Title: President and Chief Executive Officer
<PAGE>
Dated: June 11, 1997
SCHEDULE A
TO THE AGREEMENT
BETWEEN
WATERHOUSE SECURITIES, INC.
AND
FUNDS DISTRIBUTOR, INC.
NAME OF FUND
WATERHOUSE INVESTORS CASH MANAGEMENT FUND, INC.
Money Market Portfolio
U.S. Government Portfolio
Municipal Portfolio
By: /s/ Michele R. Teichner
------------------------
Title: Senior Vice President
FUNDS DISTRIBUTOR, INC.
By: /s/ Marie E. Connolly
-----------------------
Title: President and Chief Executive Officer
<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.
SEC and Public Disclosure Assistance
o Prepare and file one annual amendment to the Fund's registration
statement, including updating prospectuses and SAIs.
<PAGE>
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.
o Monitor activities and billing practices of outside counsel
performing services for the fund or in connection with related
fund activities.
Compliance
<PAGE>
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.
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.
<PAGE>
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.
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.
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:
<PAGE>
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.
<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:
<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:
<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:
<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:
<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:
<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:
<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:
<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
<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>
Exhibit 9(g)
ACCOUNTING SERVICES AGREEMENT
AGREEMENT dated as of February 27, 1997 between Waterhouse Asset
Management, Inc. ("WAM"), a Delaware corporation, and Countrywide Fund Services,
Inc. ("Countrywide"), 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 Countrywide to
provide the Fund with certain accounting and pricing services; and
WHEREAS, Countrywide 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 Countrywide agree as follows:
1. APPOINTMENT.
WAM hereby appoints and employs Countrywide as agent to
perform those services described in this Agreement for the Fund. Countrywide
shall act under such appointment and perform the obligations thereof upon the
terms and conditions hereinafter set forth.
2. CALCULATION OF NET ASSET VALUE.
Countrywide 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. Countrywide 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, Countrywide may contract with, and rely
upon market quotations provided by, outside services.
3. BOOKS AND RECORDS.
Countrywide will maintain and keep current the general ledger
for each Portfolio of the Fund, recording all income and expenses, capital share
activity and
<PAGE>
security transactions of the Fund. Countrywide 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. Countrywide 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 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 Countrywide
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 Countrywide 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 Countrywide 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 Countrywide's failure to
comply with any provision hereof, WAM shall not pay expenses of Countrywide in
connection with its duties in this paragraph.
4. PAYMENT OF FUND EXPENSES.
Countrywide 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, Countrywide
shall prepare checks in the appropriate amounts which shall be signed by an
authorized officer of Countrywide and mailed to the appropriate party.
5. FORM N-SAR.
Countrywide 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.
Countrywide 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.
<PAGE>
7. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
8. FEES.
For the performance of the services under this Agreement, WAM
shall pay Countrywide a monthly fee in accordance with the schedule attached
hereto as Schedule A. The fees with respect to any month shall be paid to
Countrywide on the last business day of such month. WAM shall also promptly
reimburse Countrywide for the cost of external pricing services utilized by
Countrywide. 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 Countrywide to perform any
services for the Fund which services could cause Countrywide 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 Countrywide, 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 COUNTRYWIDE.
A. Countrywide 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 Countrywide 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
Countrywide under this Agreement or by reason of reckless disregard by any of
such persons of the obligations and duties of Countrywide under this Agreement.
B. Any person, even though also a director, officer, employee,
or agent of Countrywide, or any of its affiliates, who may be or become an
officer, director,
<PAGE>
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 Countrywide or any of its affiliates, even though paid by one of
those entities.
C. WAM shall indemnify and hold harmless Countrywide, 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
Countrywide may sustain or incur or which may be asserted against Countrywide by
any person by reason of, or as a result of: (i) any action taken or omitted to
be taken by Countrywide 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 Countrywide 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 Countrywide 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.
Countrywide 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 Countrywide'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 Countrywide, (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.
<PAGE>
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 Countrywide such compensation as may be due as of
the date of such termination, and shall likewise reimburse Countrywide for any
out-of-pocket expenses and disbursements reasonably incurred by Countrywide to
such date.
C. In the event that in connection with the termination of
this Agreement a successor to any of Countrywide's duties or responsibilities
under this Agreement is designated by WAM by written notice to Countrywide,
Countrywide 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 Countrywide under this Agreement and shall cooperate in the
transfer of such duties and responsibilities, including provision for
assistance from Countrywide'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 Countrywide's failure to comply with any provision
hereof, WAM shall not pay any expenses of Countrywide in connection with its
duties in this paragraph.
13. SERVICES FOR OTHERS.
Nothing in this Agreement shall prevent Countrywide or any
affiliated person (as defined in the 1940 Act) of Countrywide from providing
services for any other person, firm or corporation (including other investment
companies); provided, however, that Countrywide 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
<PAGE>
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:
To WAM and the Fund: Waterhouse Asset Management, Inc.
100 Wall Street
New York, NY 10005
Attention: Michele R. Teichner
To Countrywide: Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Attention: Robert G. Dorsey
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.
<PAGE>
20. FORCE MAJEURE.
If Countrywide 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 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/ Frank Petrilli
--------------------
Its: President
COUNTRYWIDE FUND SERVICES, INC.
By: /s/ Robert G. Dorsey
----------------------
Its: President
<PAGE>
Schedule A
COMPENSATION
Countrywide 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
<PAGE>
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 1, 1997, which is incorporated by reference, in
this Registration Statement (Form N-1A No. 33-96132) of Waterhouse Investors
Family of Funds, Inc.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
December 16, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Waterhouse Investors Family of Funds, Inc. (formerly known as Waterhouse
Investors Cash Management Fund, Inc.) Annual Report for the period ended October
31, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000949881
<NAME> WATERHOUSE INVESTORS FAMILY OF FUNDS, INC.
<SERIES>
<NUMBER> 1
<NAME> MONEY MARKET PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 1,813,994,290
<INVESTMENTS-AT-VALUE> 1,813,994,290
<RECEIVABLES> 11,317,609
<ASSETS-OTHER> 1,258
<OTHER-ITEMS-ASSETS> 4,007
<TOTAL-ASSETS> 1,825,317,164
<PAYABLE-FOR-SECURITIES> 36,007,480
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,522,907
<TOTAL-LIABILITIES> 37,530,387
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,787,789,596
<SHARES-COMMON-STOCK> 1,787,789,596
<SHARES-COMMON-PRIOR> 1,342,610,881
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,819)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,787,786,777
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 89,563,425
<OTHER-INCOME> 0
<EXPENSES-NET> 13,267,135
<NET-INVESTMENT-INCOME> 76,296,290
<REALIZED-GAINS-CURRENT> 21,960
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 76,318,250
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (76,296,290)
<DISTRIBUTIONS-OF-GAINS> (23,984)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,645,355,075
<NUMBER-OF-SHARES-REDEEMED> (5,278,973,994)
<SHARES-REINVESTED> 78,797,634
<NET-CHANGE-IN-ASSETS> 445,176,691
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (795)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,512,519
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14,466,615
<AVERAGE-NET-ASSETS> 1,592,722,254
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.048
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.048)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Waterhouse Investors Family of Funds, Inc. (formerly known as Waterhouse
Investors Cash Management Fund, Inc.) Annual Report for the period ended October
31, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000949881
<NAME> WATERHOUSE INVESTORS FAMILY OF FUNDS, INC.
<SERIES>
<NUMBER> 2
<NAME> U.S. GOVERNMENT PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 459,968,854
<INVESTMENTS-AT-VALUE> 459,968,854
<RECEIVABLES> 4,982,310
<ASSETS-OTHER> 3,055,316
<OTHER-ITEMS-ASSETS> 1,030
<TOTAL-ASSETS> 468,007,510
<PAYABLE-FOR-SECURITIES> 64,980,400
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 341,799
<TOTAL-LIABILITIES> 65,322,199
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 402,685,073
<SHARES-COMMON-STOCK> 402,685,073
<SHARES-COMMON-PRIOR> 371,046,981
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 238
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 402,685,311
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,919,970
<OTHER-INCOME> 0
<EXPENSES-NET> 3,228,740
<NET-INVESTMENT-INCOME> 18,691,230
<REALIZED-GAINS-CURRENT> 449
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 18,691,679
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (18,691,230)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,215,495,738
<NUMBER-OF-SHARES-REDEEMED> (1,203,241,288)
<SHARES-REINVESTED> 19,383,642
<NET-CHANGE-IN-ASSETS> 31,638,541
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (211)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,394,481
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,520,414
<AVERAGE-NET-ASSETS> 398,635,777
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.047
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.047)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Waterhouse Investors Family of Funds, Inc. (formerly known as Waterhouse
Investors Cash Management Fund, Inc.) Annual Report for the period ended October
31, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000949881
<NAME> WATERHOUSE INVESTORS FAMILY OF FUNDS, INC.
<SERIES>
<NUMBER> 3
<NAME> MUNICIPAL PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 265,440,650
<INVESTMENTS-AT-VALUE> 265,440,650
<RECEIVABLES> 1,575,575
<ASSETS-OTHER> 4,494
<OTHER-ITEMS-ASSETS> 687
<TOTAL-ASSETS> 267,021,406
<PAYABLE-FOR-SECURITIES> 1,197,465
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 200,245
<TOTAL-LIABILITIES> 1,397,710
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 265,627,109
<SHARES-COMMON-STOCK> 265,627,109
<SHARES-COMMON-PRIOR> 226,254,165
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,413)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 265,623,696
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,370,922
<OTHER-INCOME> 0
<EXPENSES-NET> 1,878,231
<NET-INVESTMENT-INCOME> 7,492,691
<REALIZED-GAINS-CURRENT> (2,642)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,490,049
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,492,691)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 742,968,364
<NUMBER-OF-SHARES-REDEEMED> (711,355,530)
<SHARES-REINVESTED> 7,760,110
<NET-CHANGE-IN-ASSETS> 39,370,302
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (771)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 883,242
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,130,689
<AVERAGE-NET-ASSETS> 252,444,536
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.030)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
