WATERHOUSE INVESTORS FAMILY OF FUNDS INC, 485APOS, 1998-10-13

WATERHOUSE INVESTORS FAMILY OF FUNDS INC
485APOS, 1998-10-13

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As filed with the Securities and Exchange Commission on October 13, 1998

1933 Act Registration No. 33-96132
1940 Act Registration No. 811-9086

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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. 6 [X]
and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 8 [X]

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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

GEORGE A. RIO, 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.
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, New York, 10022-9998

It is proposed that this filing will become effective:

[ ] Immediately upon filing pursuant to paragraph (b)

[X] 60 days after filing pursuant to paragraph (a) (1)

[ ] On (date) 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.

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[front cover]

WATERHOUSE INVESTORS
CASH MANAGEMENT FUNDS

Three money market portfolios to choose from:

MONEY MARKET PORTFOLIO
U.S. GOVERNMENT PORTFOLIO
MUNICIPAL PORTFOLIO

PROSPECTUS

[Waterhouse Securities logo]

[prospectus date]

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, and is subject to market risk including possible loss
of principal.

As with any mutual fund, the Securities and Exchange Commission (SEC) has not
approved or disapproved any Portfolio's shares as an investment or determined
whether this prospectus is adequate or complete. Any representation to the
contrary is a criminal offense.

<PAGE>

[inside front cover]

WATERHOUSE INVESTORS CASH MANAGEMENT FUNDS

ABOUT THE PORTFOLIOS
Investment Objective
Investment Approach
Risks
Who May Want to Invest
Past Performance
Expenses

HOW TO BUY AND SELL SHARES
How to Buy Shares
How to Sell Shares
How to Exchange Portfolios
Telephone Transactions

SHAREHOLDER INFORMATION
Pricing Your Shares
Dividends
Taxes
Year 2000 Information

PORTFOLIO MANAGEMENT
Investment Manager
Administrator
Distributor
Shareholder Servicing

FINANCIAL HIGHLIGHTS

FOR MORE INFORMATION back cover

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WATERHOUSE INVESTORS CASH MANAGEMENT FUNDS

ABOUT THE PORTFOLIOS
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE

Each Portfolio seeks maximum current income to the extent consistent with
liquidity and preservation of capital and a stable price of $1.00 per share.

There is no guarantee that any Portfolio will be able to maintain a stable share
price.

INVESTMENT APPROACH

Each Portfolio is a no-load money market fund. Each Portfolio invests in high
quality money market securities that the investment manager believes present
minimal credit risk. Generally, money market securities are short-term debt
obligations issued by banks, corporations or governments.

The MONEY MARKET PORTFOLIO has the flexibility to invest in a broad range of
high quality money market securities. 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 income exempt from federal taxes by investing
primarily in municipal securities.

As money market funds, the Portfolios comply with a range of federal regulations
relating to quality, maturity, liquidity and diversification that are designed
to promote price stability. Under the maturity standards, the Portfolios
maintain a dollar-weighted average portfolio maturity of 90 days or less, and
generally do not invest in any securities with a remaining maturity of more than
397 days (approximately 13 months). Under the quality standards, the Portfolios
invest only in securities that at the time of purchase are in the two highest
short-term rating categories or are of equivalent quality in the judgment of the
investment manager.

MONEY MARKET PORTFOLIO. The Money Market Portfolio invests in a broad spectrum
of high quality U.S. dollar-denominated money market instruments. The
Portfolio's investments may include obligations issued of, or guaranteed by,
U.S. or foreign governments, their agencies or instrumentalities, bank
obligations, and corporate debt obligations of U.S. and foreign issuers, as well
as repurchase agreements and asset-backed securities and other money market
instruments.

U.S. GOVERNMENT PORTFOLIO. The U.S. Government Portfolio invests 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 backed by such obligations. A U.S. government guarantee of the
securities owned by the Portfolio, however, does not guarantee the net asset
value of the Portfolio's shares.

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 invests primarily in a diversified
portfolio of short-term, high quality, tax-exempt

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municipal obligations. The Municipal Portfolio normally invests at least 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 these securities is exempt from federal income tax, but may be
subject to the federal alternative minimum tax.

The 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 money market investments. Interest income from temporary investments is
taxable to shareholders as ordinary income.

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. Investment in municipal securities repayable from
related revenue streams further concentrates the Portfolio's risks.

RISKS

The income from each Portfolio will vary with changes in prevailing interest
rates. In addition, each Portfolio's investments are subject to "credit risk,"
which is the risk that an issuer will be unable, or will be perceived to be
unable, to repay its obligations at maturity. Funds that invest primarily in
high quality securities are subject to less credit risk than funds that invest
in lower quality securities. The U.S. Government Portfolio reduces credit risk
by investing exclusively in U.S. government securities.

Although each Portfolio seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in a Portfolio. 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, and is subject to market risk including possible loss
of principal.

WHO MAY WANT TO INVEST

The Portfolios may be appropriate for the following investors:

o Investors looking to earn income at current money market rates
from a high quality portfolio.

o Investors looking for a liquid investment that preserves
capital.

o Investors pursuing a short-term investment goal.

In addition, the Municipal Portfolio may be appropriate for investors looking
for income that is exempt from federal income tax.

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PAST PERFORMANCE

The following bar chart illustrates the risks of investing in the Portfolios by
showing changes in the Portfolios' performance from year to year. The table
below shows the Portfolios' average annual returns. Of course, past performance
is not necessarily an indication of how a Portfolio will perform in the future.

YEAR-BY-YEAR TOTAL RETURN as of 12/31 each year

[insert bar chart(s)]

For the periods covered by the bar chart, the highest and lowest quarterly
returns were [ ] (for the quarter ended [ ]) and [ ] (for the quarter ended [ ])
for the Money Market Portfolio, [ ] (for the quarter ended [ ]) and [ ] (for the
quarter ended [ ]) for the U.S. Government Portfolio, and [ ] (for the quarter
ended [ ]) and [ ] (for the quarter ended [ ]) for the Municipal Portfolio,
respectively.

AVERAGE ANNUAL TOTAL RETURN as of 12/31/97(1)

Inception
1 Year (12/20/95)

Money Market Portfolio [X.XX]% [X.XX]%
U.S. Government Portfolio [X.XX]% [X.XX]%
Municipal Portfolio [X.XX]% [X.XX]%

(1) Each Portfolio's fiscal year end is 10/31. For the period from 12/31/97
through 9/30/98, total returns for the Money Market Portfolio, U.S. Government
Portfolio, and Municipal Portfolio, were [ ], [ ], and [ ], respectively. As of
12/31/97, 7-day yields for the Money Market Portfolio, U.S. Government
Portfolio, and Municipal Portfolio were [ ], [ ], and [ ], respectively. As of
the same date, the tax-equivalent 7-day yield for the Municipal Portfolio was
[ ].

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EXPENSES

As a shareholder, you may pay certain fees and expenses in connection with the
Portfolios, which are described in the tables below. Portfolio operating
expenses are paid out of Portfolio assets, so their effect is included in the
share price. The Portfolios have no sales charge (load) or 12b-1 distribution
fees.

<TABLE>
<CAPTION>
MONEY MARKET U.S. GOVERNMENT MUNICIPAL
PORTFOLIO PORTFOLIO PORTFOLIO
------------ --------------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION FEES (fees paid directly
from your investment)(1)
Maximum Sales Charge (Load) Imposed on Purchases None None None

ANNUAL OPERATING EXPENSES (expenses deducted from Portfolio assets)
Management Fees(2) 0.35% 0.35% 0.35%
Shareholder Servicing Fees(2) 0.25% 0.25% 0.25%
12b-1 Fees None None None
Other Expenses(2) X.XX% X.XX% X.XX%
------------ --------------- ---------

Total Operating Expenses(2) X.XX% X.XX% X.XX%
</TABLE>

(1) Broker-dealers that are not affiliates of the Portfolios' investment manager
may impose service fees in connection with the sale of Portfolio shares, no part
of which may be received by the Portfolio, the investment manager or affiliates
of the investment manager. These fees may differ according to the type of
account held by the investor.

(2) Expenses are based on amounts incurred by the Portfolios during their most
recent fiscal year but do not reflect reduced service fees or expense reductions
(expense reimbursements and fee waivers) by the investment manager. AFTER THESE
REDUCTIONS, ACTUAL PORTFOLIO EXPENSES FOR THE FISCAL YEAR ENDED 10/31/98 WERE:

<TABLE>
<CAPTION>
MONEY MARKET U.S. GOVERNMENT MUNICIPAL
PORTFOLIO PORTFOLIO PORTFOLIO
------------ --------------- ---------
<S> <C> <C> <C>

Management Fees 0.35% 0.35% 0.25%
Service Fees X.XX% X.XX% X.XX%
Other Expenses X.XX% X.XX% X.XX%
------------ --------------- ---------
Total Operating Expenses X.XX% X.XX% X.XX%
</TABLE>

The amounts in this footnote reflect current expenses; however, expense
reductions are voluntary and may be changed or eliminated at any time without
notifying investors.

EXAMPLE

This Example is intended to help you compare the cost of investing in a
Portfolio with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in a Portfolio for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Portfolio's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs* would be:

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<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Portfolio $XX $XX $XX $XX
U.S. Government Portfolio $XX $XX $XX $XX
Municipal Portfolio $XX $XX $XX $XX
</TABLE>

* Assuming current expense reduction arrangements, your costs would be:

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HOW TO BUY AND SELL SHARES
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Only investors maintaining brokerage, securities, money management or similar
accounts with certain broker-dealers, including Waterhouse Securities, Inc.
("Waterhouse Securities"), are eligible to purchase shares of the Portfolios.

If you would like to purchase shares of a Portfolio through Waterhouse
Securities and you are not already a customer, you need to open a Waterhouse
Securities account by completing and signing a Waterhouse Securities New Account
Application. To request an application, please call 800-934-4410. Mail it,
together with your check in the amount you wish to purchase, in the postage-paid
envelope provided with the Waterhouse Securities New Account Application.

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.

ACCOUNT PROTECTION. Within your Waterhouse Securities brokerage account, you
have access to other investments available at Waterhouse Securities such as
stocks, bonds, options, and other mutual funds. The securities in your
Waterhouse Securities brokerage account, including shares of the Portfolios, are
protected up to $75 million for loss of securities (not including loss due to
market fluctuations of securities or economic conditions). The first $500,000 is
provided by Securities Investor Protection Corporation (known as "SIPC") of
which $100,000 covers cash. The remaining $74.5 million, which covers securities
only, is provided by a private insurance carrier.

INVESTMENT MINIMUMS. There is currently no minimum requirement for initial and
subsequent purchases of Portfolio shares. However, 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

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balances. Any minimum balance requirement will not apply to Waterhouse
Securities IRA accounts.

Shares are purchased at the next net asset value (NAV) per share calculated
after an order and payment is received by the Portfolio. There is no sales
charge to buy shares of a Portfolio.

Each Portfolio reserves the right to suspend the offering of shares for a period
of time and to reject any specific purchase order, including certain purchase
orders by exchange.

WATERHOUSE INVESTORS MONEY MANAGEMENT ACCOUNTS. 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. To set up your
Waterhouse Investors Money Management Account, you should complete the
appropriate section of the Waterhouse Securities New Account Application.

HOW TO BUY SHARES

CUSTOMERS OF WATERHOUSE SECURITIES

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

BY AUTOMATIC SWEEP. 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 at 800-934-4410. 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.

CUSTOMERS OF SELECTED BROKER-DEALERS

Shares may be purchased and redeemed through certain authorized broker-dealers
other than Waterhouse Securities that have entered into a selling agreement with
the Portfolios' distributor ("Selected Brokers"). Affiliates of Waterhouse
Securities, including Jack White & Co., may be

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<PAGE>

Selected Brokers. Selected Brokers may receive payments as a processing agent
from the Transfer Agent. In addition, Selected Brokers may charge their
customers a fee for their services, no part of which is received by the
Portfolio or Waterhouse Securities.

Investors who purchase shares through a Selected Broker will be subject to the
procedures of their Selected Broker, which may include charges, limitations,
investment minimums, cutoff times and restrictions in addition to, or different
from, those generally applicable to Waterhouse Securities customers. Any such
charges would reduce the return on an investment in a Portfolio. Investors
should acquaint themselves with their Selected Broker's procedures and should
read this prospectus in conjunction with any material and information provided
by their Selected Broker. Investors who purchase Portfolio shares though a
Selected Broker may or may not be the shareholder of record. Selected Brokers
are responsible for promptly transmitting purchase, redemption and other
requests to the Portfolios.

Certain shareholder services, such as sweep programs, may not be available to
customers of Selected Brokers or may differ in scope from programs available to
Waterhouse Securities customers. Shareholders should contact their Selected
Broker for further information. The Portfolios may confirm purchases and
redemptions of a Selected Broker's customers directly to the Selected Broker,
which in turn will provide its customers with confirmation and periodic
statements. The Portfolios are not responsible for the failure of any Selected
Broker to carry out its obligations to its customer.

HOW TO SELL SHARES

To sell (redeem) shares of a Portfolio, you may use any of the methods outlined
above under "How to Buy Shares." Portfolio shares are redeemed at the next NAV
calculated after receipt by the Portfolio of a redemption request in proper
form.

PAYMENT. The proceeds of the redemption of your Portfolio shares ordinarily will
be credited to your brokerage account the following business day after receipt
by the Portfolio of a redemption request in proper form, but not later than
seven calendar days after an order to sell shares is received. If you purchased
shares by check, proceeds may be held in your brokerage account to allow for
clearance of the check (which may take up to ten calendar days). Each Portfolio
reserves the right to make redemption payments in whole or in part in securities
or other property, valued for this purpose as they are valued in computing the
Portfolio's NAV per share.

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
investment portfolio of the Waterhouse Investors Family of Funds may be sold. In
addition, shares will be sold to settle securities transactions in your
Waterhouse Securities brokerage account if on the day before settlement there is
insufficient cash in the account to settle the net transactions. Your brokerage
account, as of the close of business each business day, will be scanned for
debits and pending securities settlements, and after application of any free
credit balance in the account to the debits, a sufficient number of shares will
be sold the following business day to satisfy any remaining debits. Shares may
also be sold

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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.

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.

TELEPHONE TRANSACTIONS

Customers of Waterhouse Securities automatically have the privilege of
purchasing or redeeming Portfolio shares by telephone. Waterhouse Securities
will employ reasonable procedures to verify the genuineness of telephone
redemption 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 Portfolios 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.

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

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SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------

PRICING YOUR SHARES

The price of a Portfolio share on any given day is its NAV. Each Portfolio
calculates its NAV per share each day as of 12:00 noon and 4:00 p.m. (Eastern
time). Shares are not priced on days when either the New York Stock Exchange or
the Portfolios' custodian is closed. Each Portfolio's shares are sold at the
next NAV per share calculated after an order and payment are accepted by the
Portfolio in the manner described under "How to Buy and Sell Shares."

Like most money market funds, each Portfolio values its portfolio securities 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 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.

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.

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

TAXES

Dividends derived from interest and short-term capital gains generally are
taxable to a shareholder as ordinary income even though they are reinvested in
additional Portfolio shares. Distributions of net capital gain, if any, realized
by a Portfolio are taxable to shareholders of a Portfolio as a long-term capital
gain (at different rates depending on how long the Portfolio held its assets and
when such assets were sold by the Portfolio), regardless of the length of time
the shareholder may have held shares in the Portfolio at the time of
distribution. Due to the nature of their investments, the Portfolios'
distributions will consist primarily of ordinary income.

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.

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

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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.

MUNICIPAL PORTFOLIO. The Municipal Portfolio intends to declare and distribute
tax-exempt interest dividends. Shareholders of the 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.
Exempt-interest dividends may be subject to state income taxes or give rise to a
federal alternative minimum tax liability. Exempt-interest dividends also 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.

Dividends representing taxable net investment income (such as net interest
income from temporary investments in obligations of the U.S. government, and any
net short-term capital gains), are taxable to shareholders as ordinary income.

Market discount recognized on taxable and tax-exempt securities is also taxable
as ordinary income and is not treated as excludable income.

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 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 Portfolio.

The tax exemption of dividends from the 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.

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YEAR 2000 INFORMATION

Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). Like other investment companies and
financial and business organizations, each Portfolio could be adversely affected
if the computer systems used by the investment manager or other Portfolio
service providers do not properly address this problem prior to January 1, 2000.
The investment manager and its affiliates have established a dedicated group to
analyze these issues and to implement any systems modifications necessary to
prepare for the Year 2000. Currently, the investment manager does not anticipate
that the transition to the 21st century will have any material impact on its
ability to continue to service the Portfolios at current levels. In addition,
the investment manager has sought assurances from the Portfolios' other service
providers that they are taking all necessary steps to ensure that their computer
systems will accurately reflect the Year 2000, and the investment manager will
continue to monitor the situation. At this time, however, no assurance can be
given that the Portfolios or their service providers have anticipated every step
necessary to avoid any adverse effect on the Portfolios attributable to the Year
2000 Problem or that interaction with other non-complying computer systems will
not impact their services.

PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------

INVESTMENT MANAGER

Waterhouse Asset Management, Inc., 100 Wall Street, New York, NY 10005, (the
"investment manager") is the Portfolios' investment manager. 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 its services, each Portfolio pays the investment manager an annual
investment management fee, accrued daily and payable monthly, on a graduated
basis equal to 0.35% of the first $1 billion of average daily net assets of each
Portfolio, 0.34% of the next $1 billion, and 0.33% of assets over $2 billion.
The investment manager from time to time may assume certain expenses of the
Portfolios (or waive its fees), which would have the effect of increasing yield
to investors during the period of the expense reduction. These expense
reductions are voluntary and may be changed or eliminated at any time without
further notice to investors.

In addition to the Portfolios and the other investment portfolio in the
Waterhouse Investors Family of Funds, the investment manager currently serves as
investment manager to Waterhouse National Bank (of which it is a subsidiary) and
as of [ ], had total assets under management in excess of $[ ] billion.

ADMINISTRATOR

As administrator, Waterhouse Securities, an affiliate of the investment manager,
provides certain administrative services to the Portfolios. For its services as
administrator, Waterhouse Securities receives from each Portfolio an annual fee,
payable monthly, of 0.10% of each Portfolio's

-14-
<PAGE>

average daily net assets. Waterhouse Securities has entered into an agreement
with Funds Distributor, Inc. ("FDI") whereby FDI performs certain administrative
services for the Portfolios. Waterhouse Securities pays FDI's fees for providing
these services.

DISTRIBUTOR

FDI acts as distributor of the Portfolios' shares for no compensation.

SHAREHOLDER SERVICING

The Portfolios' Shareholder Servicing Plan permits each Portfolio to pay banks,
broker-dealers or other financial institutions (including Waterhouse Securities
and its affiliates) for shareholder support services they provide, at a rate of
up to 0.25% of the average daily net assets of each Portfolio. These services
may include, among other services, providing general shareholder liaison
services (including responding to shareholder inquiries), providing information
on shareholder investments, and establishing and maintaining shareholder
accounts and records.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The financial highlights table is intended to help you understand each
Portfolio's financial performance since inception of the Portfolio's operations.
Certain information reflects financial results for a single share of each
Portfolio. The total return amount in the table represents the rate that an
investor would have earned on an investment in a Portfolio (assuming
reinvestment of all dividends and distributions). This information has been
audited by [ ], whose report, along with the Portfolios' financial statements,
are included in the annual report, which is available upon request by calling
Customer Service at 800-934-4410.

[insert financial highlights]

-15-
<PAGE>

[back cover]

WATERHOUSE INVESTORS CASH MANAGEMENT FUNDS

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

More information on the Portfolios is available upon request, including the
following:

SHAREHOLDER REPORTS. Additional information about the Portfolios' investments is
available in the Portfolios' annual and semi-annual reports to shareholders.

STATEMENT OF ADDITIONAL INFORMATION (SAI). The SAI includes more information
about each Portfolio and its policies. The SAI is on file with the Securities
and Exchange Commission (SEC) and is incorporated by reference into (is legally
considered a part of) this prospectus.

You may request free copies of these materials, along with other information
about the Portfolios, and make shareholder inquiries by contacting:

Waterhouse Securities, Inc.
Customer Service
100 Wall Street
New York, New York 10005

Telephone: (800) 934-4410
Hearing impaired: TTY (800) 933-0555
Email: http://www.waterhouse.com

Text-only versions of the Portfolios' prospectus and other documents pertaining
to the Portfolios can be viewed online or downloaded from the SEC's web site
(http://www.sec.gov).

You also can review each Portfolio's reports and SAI at the SEC's public
reference room in Washington, DC. For a fee, you may obtain this information by
writing the SEC's Public Reference Section, Washington, DC 20549-6009. For more
information about these services, call (800)-SEC-0330.

The Portfolios are series of Waterhouse Investors Family of Funds, Inc., whose
investment company registration number is 811-9086.

-16-
<PAGE>

[front cover]

WATERHOUSE
DOW 30 FUND

PROSPECTUS

[Waterhouse Securities logo]

[prospectus date]

An investment in the Fund is neither insured nor guaranteed by the U.S.
government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other agency, and is not a deposit or obligation of, or guaranteed
or endorsed by, any bank, and is subject to market risk including possible loss
of principal.

As with any mutual fund, the Securities and Exchange Commission (SEC) has not
approved or disapproved the Fund's shares as an investment or determined whether
this prospectus is adequate or complete. Any representation to the contrary is a
criminal offense.

<PAGE>

[inside front cover]

WATERHOUSE DOW 30 FUND

ABOUT THE FUND
Investment Objective
Investment Approach
Risks
Who May Want to Invest
Expenses

ABOUT THE DOW JONES INDUSTRIAL AVERAGE(SM)

HOW TO BUY AND SELL SHARES
How to Buy Shares
How to Sell Shares
Telephone Transactions
Brokerage Account Requirements

SHAREHOLDER INFORMATION
Pricing Your Shares
Dividends
Taxes
Year 2000 Information

FUND MANAGEMENT
Investment Manager
Administrator
Distributor
Shareholder Servicing

FINANCIAL HIGHLIGHTS

FOR MORE INFORMATION back cover

-2-
<PAGE>

WATERHOUSE DOW 30 FUND

ABOUT THE FUND
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE

The Fund seeks to track the total return of the Dow Jones Industrial Average(SM)
(the "DJIA"(SM)) before Fund expenses. There can be no assurance that the Fund
will achieve this objective.

INVESTMENT APPROACH

The Fund is an "index fund" and invests primarily in the equity securities of
the 30 companies comprising the DJIA (known as the "Dow 30"(SM)) in the same
proportions that they are represented in the DJIA. The Fund employs a
"passively" managed investment approach.

The DJIA currently consists of 30 of the most widely held and actively traded
stocks listed on the New York Stock Exchange. The stocks in the DJIA represent
companies that typically are dominant firms in their respective industries. The
Fund will normally invest substantially all of its total assets in the stocks of
the DJIA and "Equity Equivalents" that offer participation in the performance of
the stocks in the DJIA. The portion of the Fund's total assets invested in the
stocks in the DJIA will vary from time to time.

Equity Equivalents include stock index futures contracts and publicly-traded
index securities (such as DIAMONDS)(SM)). DIAMONDS represent proportionate
undivided interests in a portfolio of securities consisting of all of the
component common stocks of the DJIA and are listed on the American Stock
Exchange. Equity Equivalents may be used for several purposes: to simulate full
investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transaction costs or to
seek higher investment returns where an Equity Equivalent is priced more
attractively than securities in the DJIA.

The Fund will attempt to achieve a correlation between the total return
performance of its portfolio and that of the total return of the DJIA of at
least .98 before expenses. A correlation of 1.00 would indicate perfect
correlation, which would be achieved when the Fund's net asset value, including
the value of its dividend and capital gain distributions, increases or decreases
in exact proportion to changes in the total return of the DJIA. The investment
manager monitors the correlation of the performance of the Fund in relation to
the DJIA under the supervision of the Board of Directors. In the unlikely event
that a high correlation is not achieved, the Board of Directors will take
appropriate steps based on the reasons for the lower than expected correlation.

RISKS

You could lose money on your investment in the Fund, or the Fund could
underperform other investments, if the value of the DJIA goes down. Unlike other
funds that do not attempt to track an index, the Fund may not use certain
techniques to reduce the risk of loss. For example, the Fund will not keep any
significant portion of its assets in cash. As a result, the Fund may go down in
value more than an actively managed fund in the event of a general market
decline. In addition, because the Fund has expenses whereas the DJIA does not,
the Fund's performance will tend to underperform the performance of the DJIA.

-3-
<PAGE>

The Fund's "non-diversified" status allows it to invest more than 5% of its
assets in the stock of a single company. To the extent the Fund invests a
greater percentage of its assets in a single company, the Fund has greater
exposure to the performance and risks of the stock of that company.

WHO MAY WANT TO INVEST

The Fund may be appropriate for the following investors:

o Investors looking for a convenient way to seek to track the
total return of the DJIA, one of the most widely followed
market indicators in the world.

o Investors seeking capital growth over the long term (at least
five years).

-4-
<PAGE>

EXPENSES

As a shareholder, you may pay certain fees and expenses in connection with the
Fund, which are described in the tables below. Fund operating expenses are paid
out of Fund assets, so their effect is included in the share price. The Fund has
no sales charge (load) or 12b-1 distribution fees.

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION FEES (fees paid directly from your investment)(1)
Maximum Sales Charge (Load) Imposed on Purchases None

ANNUAL OPERATING EXPENSES (expenses deducted from Fund assets)
Management Fees(2) 0.20%

Distribution (12b-1) Fees None

Service Fees(2) 0.25%

Other Expenses(2) X.XX%
-----

Total Operating Expenses(2) X.XX%
</TABLE>

(1) Broker-dealers that are not affiliates of the Fund's investment manager may
impose service fees in connection with the sale of Fund shares, no part of which
may be received by the Fund, the investment manager or affiliates of the
investment manager. These fees may differ according to the type of account held
by the investor.

(2) The table shows the Fund's expenses for the Fund's first fiscal period
before the expense reductions by the Fund's investment manager. The investment
manager agreed to reduce expenses of the Fund (through paying certain expenses
and waiving fees) for the first twelve months of the Fund's operations
(March 31, 1998 through March 31, 1999), so that the Fund's total operating
expenses during the period would not exceed 0.25%. Thereafter, any expense
reductions will be voluntary and may be changed or eliminated at any time
without notifying investors. AFTER EXPENSE REDUCTIONS, ACTUAL FUND EXPENSES
WERE:

Management Fees 0.00%
Service Fees 0.00%
Other Expenses 0.25%
-----
Total Operating Expenses 0.25%

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs* would be:

-5-
<PAGE>

1 YEAR 3 YEARS 5 YEARS 10 YEARS
$[ ] $[ ] $[ ] $[ ]

* Assuming current expense reduction arrangements that limit the Fund's
operating expenses to 0.25%, your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
$[ ] $[ ] $[ ] $[ ]

-6-
<PAGE>

ABOUT THE DOW JONES INDUSTRIAL AVERAGE(SM)
- --------------------------------------------------------------------------------

The Dow Jones Industrial Average was introduced to the investing public by
Charles Dow on May 26, 1896 and originally was composed of only 12 stocks. It
has since become one of the most well known and widely followed indicators of
the U.S. stock market and is the oldest continuing stock market index in the
world. As of September 30, 1998, the 30 "blue-chip" stocks in the DJIA
represented approximately 19% of the over $10 trillion market value of all U.S.
stocks and about 21% of the market value of all stocks listed on the New York
Stock Exchange. Many of the companies represented in the DJIA are household
names and leaders in their respective industries, and their stocks are broadly
held by both individual and institutional investors. Because the DJIA is so well
known and its performance is generally perceived to reflect that of the overall
domestic equity market, it is often used as a benchmark for investments in
equities, mutual funds, and other asset classes.

The DJIA is unique for a market index -- it is price-weighted rather than market
capitalization-weighted. In essence, the DJIA consists of one share of each of
the 30 stocks included in the DJIA. Thus, the weightings of the components of
the DJIA are affected only by changes in their prices, while the weightings of
stocks in other indices are affected by price changes and changes in shares
outstanding. This distinction stems from the fact that, when initially created,
the DJIA was a simple average (hence the name), and was computed merely by
adding up the prices of the stocks in the index and dividing that sum by the
total number of stocks in the index. However, it eventually became clear that a
method was needed to smooth out the effects of stock splits and composition
changes to prevent these events from distorting the level of the index.
Therefore, a divisor was created that has been periodically adjusted over time.
This divisor, when divided into the sum of the prices of the stocks in the DJIA,
generates the number that is reported every day in newspapers, on television and
radio, and over the Internet. With the incorporation of the divisor, the DJIA is
not technically an average anymore.

The DJIA is selected and maintained by the editors of The Wall Street Journal
(without consultation with any company that comprises the DJIA), which is
published by Dow Jones & Company, Inc. ("Dow Jones"(SM)). Periodically, the
editors review and make changes to the composition of the DJIA. In selecting a
company's stock to be included in the DJIA, the following criteria are generally
used: (1) the firm is not a utility or a transportation company (there are
separate Dow Jones indices for these sectors); (2) the company has an excellent
reputation in its field; (3) the company has grown successfully; and (4) the
company has a large individual and institutional investor base. All of the 30
stocks currently included in the DJIA are listed on the New York Stock Exchange,
although this is not a criterion for selection. The inclusion of any particular
company in the DJIA does not constitute a prediction as to the company's future
results of operations or stock market performance. For the sake of historical
continuity, composition changes are rare, and generally have occurred only after
corporate acquisitions or other dramatic shifts in a company's core business.
When the editors do decide that a component stock needs to be changed, they also
review the other stocks in the index to confirm their continued presence. Thus,
when a review is completed, multiple changes often occur. The most recent
composition changes, for example, occurred on March 17, 1997, and resulted in
the withdrawal of Bethlehem Steel Corp., Texaco Inc., Westinghouse Electric
Corp. (now CBS Corp.), and Woolworth Corp.,

-7-
<PAGE>

and the addition of Hewlett-Packard Co., Johnson & Johnson, Travelers Group
Inc., and Wal-Mart Stores Inc.

The DJIA currently consists of the common stock of the following 30 companies:

AlliedSignal Inc. Hewlett-Packard Co.
Aluminum Co. of America International Business Machines Corp.
American Express Co. International Paper Co.
AT&T Corp. J.P. Morgan & Co., Inc.
The Boeing Co. Johnson & Johnson
Caterpillar Inc. McDonald's Corp.
Chevron Corp. Merck & Co., Inc.
Citigroup Inc. Minnesota Mining & Manufacturing Co.
The Coca-Cola Company Philip Morris Cos. Inc.
E.I. du Pont de Nemours and Co. The Procter & Gamble Co.
Eastman Kodak Co. Sears, Roebuck and Co.
Exxon Corp. Union Carbide Corp.
General Electric Co. United Technologies Corp.
General Motors Corp. Wal-Mart Stores, Inc.
The Goodyear Tire & Rubber Co. The Walt Disney Co.

(Copyright) 1998 Dow Jones & Co., Inc.

The following graph shows information regarding the historical performance of
the DJIA. The information in this Prospectus concerning Dow Jones and the DJIA
has been obtained from sources that the Fund believes to be reliable, but the
Fund takes no responsibility for the accuracy of such information. The Fund's
performance is likely to differ from that of the DJIA because of Fund expenses
and transaction costs. Moreover, past performance is not predictive of future
results.

-8-
<PAGE>

[BAR CHART]

HISTORY OF THE DJIA (1897-JUNE 1998)

Year
Ended Annual Return (left axis) Year-End Dividend Yield (right axis)
- ----- ------------------------- ------------------------------------

1896 NA
1897 22.2%
1898 22.5%
1899 9.2%
1900 7.0%
1901 -8.7%
1902 -0.4%
1903 -23.6%
1904 41.7%
1905 38.2%
1906 -1.9%
1907 -37.7%
1908 46.6%
1909 15.0%
1910 -17.9%
1911 0.4%
1912 7.6%
1913 -10.3%
1914 -30.7%
1915 81.7%
1916 -4.2%
1917 -21.7%
1918 10.5%
1919 30.5%
1920 -32.9%
1921 12.7%
1922 21.7%
1923 -3.3%
1924 26.2%
1925 30.0%
1926 0.3%
1927 28.8%
1928 48.2%
1929 -17.2% 5.13%
1930 -33.8% 6.76%
1931 -52.7% 10.78%
1932 -23.1% 7.71%
1933 66.7% 3.40%
1934 4.1% 3.52%
1935 38.5% 3.16%
1936 24.8% 3.92%
1937 -32.8% 7.27%
1938 28.1% 3.22%
1939 -2.9% 4.07%
1940 -12.7% 5.38%
1941 -15.4% 6.84%
1942 7.6% 5.36%
1943 13.8% 4.64%
1944 12.1% 4.31%
1945 26.6% 3.47%
1946 -8.1% 4.23%
1947 2.2% 5.08%
1948 -2.1% 6.49%
1949 12.9% 6.39%
1950 17.6% 6.85%
1951 14.4% 6.07%
1952 8.4% 5.29%
1953 -3.8% 5.74%
1954 44.0% 4.32%
1955 20.8% 4.42%
1956 2.3% 4.60%
1957 -12.8% 4.96%
1958 34.0% 3.43%
1959 16.4% 3.05%
1960 -9.3% 3.47%
1961 18.7% 3.11%
1962 -10.8% 3.57%
1963 17.0% 3.07%
1964 14.6% 3.57%
1965 10.9% 2.95%
1966 -18.9% 4.06%
1967 15.2% 3.34%
1968 4.3% 3.32%
1969 -15.2% 4.24%
1970 4.8% 3.76%
1971 6.1% 3.47%
1972 14.6% 3.16%
1973 -16.6% 4.15%
1974 -27.6% 6.12%
1975 38.3% 4.39%
1976 17.9% 4.12%
1977 -17.3% 5.52%
1978 -3.1% 6.03%
1979 4.2% 6.08%
1980 14.9% 5.64%
1981 -9.2% 6.43%
1982 19.6% 5.17%
1983 20.3% 4.48%
1984 -3.7% 5.00%
1985 27.7% 4.01%
1986 22.6% 3.54%
1987 2.3% 3.67%
1988 11.8% 3.67%
1989 27.0% 3.74%
1990 -4.3% 3.94%
1991 20.3% 3.00%
1992 4.2% 3.05%
1993 13.7% 2.65%
1994 2.1% 2.76%
1995 33.5% 2.28%
1996 26.0% 2.03%
1997 22.6% 1.72%
1998* 30.6%

* annualized return (1/1/98 - 6/30/98)

HOW TO BUY AND SELL SHARES
- --------------------------------------------------------------------------------

Investors may purchase shares of the Fund through an account maintained with
Waterhouse Securities, Inc. ("Waterhouse Securities") or certain other
broker-dealers.

If you would like to purchase shares of the Fund through Waterhouse Securities
and you are not already a customer, you need to open a Waterhouse Securities
account by completing and signing a Waterhouse Securities New Account
Application. To request a Waterhouse Dow 30 Fund application, please call
800-934-4410. Mail it, together with your check in the amount you wish to
purchase, in the self-addressed stamped envelope provided with the Waterhouse
Securities New Account Application.

Existing Waterhouse Securities customers must have funds in their Waterhouse
Securities account to buy shares of the Fund.

ACCOUNT PROTECTION. Within your Waterhouse Securities brokerage account, you
have access to other investments available at Waterhouse Securities such as
stocks, bonds, options, and other

-9-
<PAGE>

mutual funds. The securities in your Waterhouse Securities brokerage account,
including shares of the Fund, are protected up to $75 million for loss of
securities (not including loss due to market fluctuations of securities or
economic conditions). The first $500,000 is provided by Securities Investor
Protection Corporation (known as "SIPC") of which $100,000 covers cash. The
remaining $74.5 million, which covers securities only, is provided by a private
insurance carrier.

INVESTMENT MINIMUMS. There is a $1,000 minimum for initial purchases and a $100
minimum for subsequent purchases of shares of the Fund. The Fund may in its
discretion waive the investment minimums. Initial investment minimums do not
apply to investments made through a periodic investment program for investors
who make a monthly investment of $100 or more or a quarterly investment of $300
or more or to Waterhouse Securities IRA accounts.

Shares are purchased at the next net asset value (NAV) per share calculated
after an order and payment is received by the Fund. There is no sales charge to
buy shares of the Fund.

The Fund reserves the right to suspend the offering of shares for a period of
time and to reject any specific purchase order, including purchase orders that,
in the reasonable belief of the Fund, have been made by market timers or
short-term traders.

HOW TO BUY SHARES

CUSTOMERS OF WATERHOUSE SECURITIES

Waterhouse Securities brokerage customers may purchase shares of the Fund by
mail or by placing an order directly with a Waterhouse Securities Mutual Fund
Specialist by telephone at 800-934-4443. Waterhouse Securities also allows the
purchase of Fund shares by electronic means for customers with WATERHOUSE
WEBBROKER or Personal Access for Windows Accounts.

Whether by mail, telephone or electronically, please indicate your wish to buy
the Waterhouse Dow 30 Fund and provide the following information:

o your Waterhouse Securities account number

o the dollar or share amount you wish to invest

o the dividend and distribution option you have selected, either:

(a) reinvest dividends and any capital gain distributions
or

(b) pay both dividends and any capital gain distributions
in cash

BY MAIL. You may buy shares of the Fund by mailing a letter of instruction with
the information requested above, signed by one of the registered account holders
in the exact form specified on the account with a check to Waterhouse
Securities, Inc., Processing Center, 525 Washington Boulevard, P.O. Box 2021,
Jersey City, NJ 07303-2021. Checks should be made payable to

-10-
<PAGE>

"Waterhouse Securities, Inc." and you should write your Waterhouse Securities
account number on the check. Once you mail your letter, you may not modify or
cancel your instructions.

BY TELEPHONE. You may purchase shares of the Fund by calling your Waterhouse
Securities Mutual Fund Specialist at 800-934-4443.

ELECTRONICALLY. Please refer to product and services information regarding
WATERHOUSE WEBBROKER, Personal Access for Windows and TradeDirect (touch tone
trading). The World Wide Web address for Waterhouse Securities is
http://www.waterhouse.com.

THROUGH PERIODIC INVESTMENT. You may authorize monthly or quarterly amounts of
$100 or more to be withdrawn automatically from your Waterhouse Securities
brokerage account and invested in the Fund. You may sign up for this service
when you open your account at Waterhouse Securities or at another time by
calling your Waterhouse Securities Mutual Fund Specialist at 800-934-4443.

CUSTOMERS OF SELECTED BROKER-DEALERS

Shares may be purchased and redeemed through certain authorized broker-dealers
other than Waterhouse Securities that have entered into a selling agreement with
the Fund's distributor ("Selected Brokers"). Affiliates of Waterhouse
Securities, including National Investors Services Corp., may be Selected
Brokers. Selected Brokers may receive payments as a processing agent from the
Transfer Agent. In addition, Selected Brokers may charge their customers a fee
for their services, no part of which is received by the Fund or Waterhouse
Securities.

Investors who purchase shares through a Selected Broker will be subject to the
procedures of their Selected Broker, which may include charges, limitations,
investment minimums, cutoff times and restrictions in addition to, or different
from, those generally applicable to Waterhouse Securities customers. Any such
charges would reduce the return on an investment in the Fund. Investors should
acquaint themselves with their Selected Broker's procedures and should read this
prospectus in conjunction with any material and information provided by their
Selected Broker. Investors who purchase the Fund's shares though a Selected
Broker may or may not be the shareholder of record. Selected Brokers are
responsible for promptly transmitting purchase, redemption and other requests to
the Fund.

Certain shareholder services, such as periodic investment programs, may not be
available to customers of Selected Brokers or may differ in scope from programs
available to Waterhouse Securities customers. Shareholders should contact their
Selected Broker for further information. The Fund may confirm purchases and
redemptions of a Selected Broker's customers directly to the Selected Broker,
which in turn will provide its customers with confirmation and periodic
statements. The Fund is not responsible for the failure of any Selected Broker
to carry out its obligations to its customer.

HOW TO SELL SHARES

To sell (redeem) shares of the Fund, you may use any of the methods outlined
above under "How to Buy Shares." Shareholders who have invested through a
Selected Broker should redeem their

-11-
<PAGE>

shares through the Selected Broker. Shares of the Fund are redeemed at the next
NAV calculated after receipt by the Fund of a redemption request in proper form.

PAYMENT. The proceeds of the redemption of your Fund shares ordinarily will be
credited to your brokerage account the following business day after receipt by
the Fund of a redemption request in proper form, but not later than seven
calendar days after an order to sell shares is received. If you purchased shares
by check, proceeds may be held in your brokerage account to allow for clearance
of the check (which may take up to ten calendar days). The Fund reserves the
right to make redemption payments in whole or in part in securities or other
property, valued for this purpose as they are valued in computing the Fund's NAV
per share.

TELEPHONE TRANSACTIONS

Customers of Waterhouse Securities automatically have the privilege of
purchasing or redeeming Fund shares by telephone. Waterhouse Securities will
employ reasonable procedures to verify the genuineness of telephone redemption
requests. These procedures involve requiring certain personal identification
information. If such procedures are not followed, Waterhouse Securities may be
liable for any losses due to unauthorized or fraudulent instructions. Neither
Waterhouse Securities nor the Fund will be liable for following instructions
communicated by telephone that are reasonably believed to be genuine. You should
verify the accuracy of your account statements immediately after you receive
them and contact a Waterhouse Securities Mutual Fund Specialist if you question
any activity in the account.

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

BROKERAGE ACCOUNT REQUIREMENTS

Currently, only customers of Waterhouse Securities and Selected Brokers are
eligible to purchase shares of the Fund. Fund shares may be redeemed
automatically should the brokerage account in which they are held be closed.

SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------

PRICING YOUR SHARES

The price of a Fund share on any given day is its NAV. The Fund calculates its
NAV per share each day as of the close of the regular session of trading on the
New York Stock Exchange (normally 4:00 p.m. Eastern time). Shares are not priced
on days when either the New York Stock Exchange or the Fund's custodian is
closed. Securities owned by the Fund for which market quotations are readily
available are valued at current market value or, in their absence, at fair value
as determined by the Board of Directors pursuant to procedures approved by the
Board. The Fund's shares are sold at the next NAV per share calculated after an
order and payment are accepted by the Fund in the manner described under "How to
Buy and Sell Shares."

-12-
<PAGE>

RELATIONSHIP TO THE VALUE OF THE DJIA. The Fund intends to conduct its
operations so that its NAV per share on any given day will approximate .001 (or
1/1000) of the closing value of the DJIA (the "Ratio"). There can be no
assurance, however, that the Fund will be able to maintain the NAV per share at
or near the Ratio. For example, as with most mutual funds, each capital gain
distribution will cause a reduction of the NAV per share to the extent of the
amount distributed. In order to maintain the Fund's NAV per share at or near the
Ratio, the Fund may employ certain techniques, including declaring a share
split, share dividend or reverse share split. Share splits and dividends
increase the number of shares outstanding, resulting in a corresponding decrease
in the NAV per share. For example, a 2-for-1 split would double the number of
shares outstanding, thereby halving the NAV per share. Conversely, reverse
splits reduce the number of shares outstanding. For example, a 1-for-2 reverse
share split would halve the number of shares outstanding, thereby doubling the
NAV per share. These examples are given to illustrate the principles relating to
these techniques; the Fund's use of these techniques is expected to have a more
moderate impact on the Fund's NAV per share. The use of any of these techniques
will not change the absolute dollar value of a shareholder's investment in the
Fund (although the number of shares and the NAV per share would change) or
result in any additional tax burden to shareholders. While it is the Fund's
current intention to maintain the Fund's NAV per share at or near the Ratio and
to utilize the techniques described in this paragraph for this purpose, the
Board of Directors may in the future determine to change this policy. In the
event that the Board of Directors changes this policy, shareholders will be
notified.

DIVIDENDS

It is currently contemplated that dividends of the Fund's net investment income
will be declared daily and paid monthly. No dividend will be declared on any day
on which the Fund does not receive dividend or interest income from the
securities in its portfolio. In addition, any dividends declared will be net of
Fund expenses accrued to date. In the event that the Board of Directors changes
the daily dividend policy, shareholders will be notified. Net capital gain, if
any, realized by the Fund will be distributed at least annually. Unless a
shareholder elects payment in cash, all dividends and distributions of the Fund
are automatically reinvested in additional full and fractional shares of the
Fund at the NAV per share as of the payment date of the dividend or
distribution.

TAXES

Dividends derived from the Fund's net investment income and short-term capital
gains are generally taxable to a shareholder as ordinary income, even when
reinvested in additional Fund shares. Due to the nature of its investments, the
Fund's distributions will consist primarily of ordinary income. Distributions of
net capital gain, if any, realized by the Fund are taxable to shareholders of
the Fund as a long-term capital gain (at different rates depending on how long
the Fund held its assets and when such assets were sold by the Fund), regardless
of the length of time the shareholder may have held shares in the Fund at the
time of distribution.

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.

-13-
<PAGE>

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

YEAR 2000 INFORMATION

Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). Like other investment companies and
financial and business organizations, the Fund could be adversely affected if
the computer systems used by the investment manager or other Fund service
providers do not properly address this problem prior to January 1, 2000. The
investment manager and its affiliates have established a dedicated group to
analyze these issues and to implement any systems modifications necessary to
prepare for the Year 2000. Currently, the investment manager does not anticipate
that the transition to the 21st century will have any material impact on its
ability to continue to service the Fund at current levels. In addition, the
investment manager has sought assurances from the Fund's other service providers
that they are taking all necessary steps to ensure that their computer systems
will accurately reflect the Year 2000, and the investment manager will continue
to monitor the situation. At this time, however, no assurance can be given that
the Fund or its service providers have anticipated every step necessary to avoid
any adverse effect on the Fund attributable to the Year 2000 Problem or that
interaction with other non-complying computer systems will not impact their
services.

FUND MANAGEMENT
- --------------------------------------------------------------------------------

INVESTMENT MANAGER

Waterhouse Asset Management, Inc., 100 Wall Street, New York, NY 10005, is the
Fund's investment manager. The investment manager oversees the Fund's investment
program, places orders for the Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales.

For its services, the investment manager receives an annual fee of 0.20% of the
Fund's average daily net assets. The investment manager has agreed to assume
certain expenses of the Fund (or waive its fees) for the first twelve months of
the Fund's operations, so that the total operating expenses payable by the Fund
during the period will not exceed 0.25% of its average daily net assets.
Thereafter, any expense reductions will be voluntary and may be changed or
eliminated at any time without further notice to investors.

In addition to the Fund and the other investment portfolios in the Waterhouse
Investors Family of Funds, the investment manager currently serves as investment
manager to Waterhouse National Bank (of which it is a subsidiary) and as of [ ],
had total assets under management in excess of $[ ] billion.

-14-
<PAGE>

ADMINISTRATOR

As administrator, Waterhouse Securities, an affiliate of the investment manager,
provides certain administrative and management services to the Fund. The
investment manager (and not the Fund) compensates Waterhouse Securities for
providing these services. Waterhouse Securities has entered into an agreement
with Funds Distributor, Inc. ("FDI") whereby FDI performs certain administrative
services for the Portfolios. Waterhouse Securities pays FDI's fees for providing
these services.

DISTRIBUTOR

FDI acts as distributor of the Fund's shares for no compensation.

SHAREHOLDER SERVICING

The Fund's Shareholder Servicing Plan permits the Fund to pay banks,
broker-dealers or other financial institutions (including Waterhouse Securities
and its affiliates) for shareholder support services they provide, at a rate of
up to 0.25% of the average daily net assets of the Fund. These services may
include, among other services, providing general shareholder liaison services
(including responding to shareholder inquiries), providing information on
shareholder investments, and establishing and maintaining shareholder accounts
and records.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The financial highlights table is intended to help you understand the Fund's
financial performance for the fiscal period indicated. Certain information
reflects financial results for a single Fund share. The total return amount in
the table represents the rate that an investor would have earned [or lost] on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by [ ], whose report, along
with the Fund's financial statements, are included in the annual report, which
is available upon request by calling Customer Service at 800-934-4410.

[insert financial highlights]

-15-
<PAGE>

[inside back cover]

DOW JONES & COMPANY, INC. ("DOW JONES"(SM)) DOES NOT GUARANTEE THE ACCURACY
AND/ORTHE COMPLETENESS OF THE DOW JONES INDUSTRIAL AVERAGE(SM) OR ANY DATA
INCLUDED THEREIN AND DOW JONES SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. DOW JONES MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY WATERHOUSE ASSET MANAGEMENT, INC. (THE
"INVESTMENT MANAGER"), SHAREHOLDERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE DJIA OR ANY DATA INCLUDED THEREIN. DOW JONES MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
DJIA OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT SHALL DOW JONES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT,
PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSSES, EVEN IF NOTIFIED OF THE
POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR
ARRANGEMENTS BETWEEN DOW JONES, THE INVESTMENT MANAGER AND THE FUND.

"Dow Jones(SM)," "Dow Jones Industrial Average(SM)," "DJIA(SM)" and
"DIAMONDS(SM)" are service marks of Dow Jones & Company, Inc. and have been
licensed by the investment manager in connection with the operation of the Fund.
The Fund is not sponsored, endorsed, sold or promoted by Dow Jones or any
corporation that is included in the DJIA. Dow Jones makes no representation or
warranty, express or implied, to the shareholders of the Fund or any member of
the public regarding the advisability of investing in securities generally or in
the Fund particularly. Dow Jones' only relationship to the investment manager is
the licensing of certain trademarks and trade names of Dow Jones and of the
DJIA, which is determined, composed and calculated by Dow Jones without regard
to the investment manager or the Fund. Dow Jones has no obligation to take the
needs of the investment manager or the shareholders of the Fund into
consideration in determining, composing or calculating the DJIA. Dow Jones is
not responsible for and has not participated in the determination of the timing
of, prices at, or quantities of Fund shares to be issued or in the determination
or calculation of the equation by which Fund shares are to be converted into
cash. Dow Jones has no obligation or liability in connection with the
administration, marketing or offering of the Fund.

-16-
<PAGE>

[back cover]

WATERHOUSE DOW 30 FUND

FOR MORE INFORMATION
- --------------------------------------------------------------------------------

More information on the Fund is available upon request, including the following:

SHAREHOLDER REPORTS. Additional information about the Fund's investments is
available in the Fund's annual and semi-annual reports to shareholders. In the
Fund's annual report, you will find a discussion of the market conditions that
significantly affected the Fund's performance during its last fiscal year.

STATEMENT OF ADDITIONAL INFORMATION (SAI). The SAI includes more information
about the Fund and its policies. The SAI is on file with the Securities and
Exchange Commission (SEC) and is incorporated by reference into (is legally
considered a part of) this prospectus.

You may request free copies of these materials, along with other information
about the Fund, and make shareholder inquiries by contacting:

Waterhouse Securities, Inc.
Customer Service
100 Wall Street
New York, New York 10005

Telephone: (800) 934-4410
Hearing impaired: TTY (800) 933-0555
Email: http://www.waterhouse.com

Text-only versions of the Fund's prospectus can be viewed online or downloaded
from Waterhouse Securities' web site (http://www.waterhouse.com). Other
documents pertaining to the Fund can be viewed online or downloaded from the
SEC's web site (http://www.sec.gov).

You also can review the Fund's reports and SAI at the SEC's public reference
room in Washington, DC. For a fee, you may obtain this information by writing
the SEC's Public Reference Section, Washington, DC 20549-6009. For more
information about these services, call (800)-SEC-0330.

The Fund is a series of Waterhouse Investors Family of Funds, Inc., whose
investment company registration number is 811-9086.

-17-
<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
[DATE]

This Statement of Additional Information (the "SAI") is not a prospectus. It
should be read in conjunction with the prospectus dated [ ] (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").

Each Portfolio's financial statements and financial highlights for the fiscal
period ended October 31, 1998, including the independent auditors' report
thereon, are included in the Portfolio's Annual Report and are incorporated
herein by reference.

To obtain a free copy of the Prospectus or Annual Report, please write to
Waterhouse Securities, Inc., Customer Service, at 100 Wall Street, New York, New
York 10005, or call 1-800-934-4410.

TABLE OF CONTENTS

PAGE
----

GENERAL INFORMATION ABOUT THE COMPANY......................................

INVESTMENT POLICIES AND RESTRICTIONS ......................................

PORTFOLIO TRANSACTIONS ....................................................

DIRECTORS AND EXECUTIVE OFFICERS ..........................................

INVESTMENT MANAGEMENT, DISTRIBUTION
AND OTHER SERVICES ........................................................

DIVIDENDS AND TAXES .......................................................

SHARE PRICE CALCULATION ...................................................

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION ............................

PERFORMANCE ...............................................................

SHAREHOLDER INFORMATION ...................................................

-1-
<PAGE>

WATERHOUSE INVESTORS
CASH MANAGEMENT FUNDS
- --------------------------------------------------------------------------------

GENERAL INFORMATION ABOUT THE COMPANY

The Company is registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), as an open-end 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. Because the Company offers multiple
portfolios (such as the Portfolios), it is known as a "series company." The
Company currently has four investment portfolios with various investment
objectives and policies. This SAI pertains only to the three Portfolios.

Each Portfolio is "diversified" as that term is defined in the Investment
Company Act. The investment manager of the Portfolios is Waterhouse Asset
Management, Inc. (the "Investment Manager").

INVESTMENT POLICIES AND RESTRICTIONS

Each Portfolio's investment objective, and its investment policies and
restrictions that are designated as fundamental, may not be changed without
approval by holders of a "majority of the outstanding voting securities" of the
Portfolio. Except as otherwise indicated, however, each Portfolio's investment
policies are not fundamental and may be changed without shareholder approval. As
defined in the Investment Company Act, and as used herein, 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. 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.

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.

-2-
<PAGE>

As money market funds, the Portfolios rely on Rule 2a-7 under the Investment
Company Act, as amended ("Rule 2a-7"), in their pursuit of a stable net asset
value. Rule 2a-7 imposes certain quality, maturity, liquidity and
diversification standards on the operation of the Portfolios. See "Rule 2a-7
Matters" below.

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 as described below.

BANK OBLIGATIONS

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.

Time deposits are non-negotiable deposits with a banking institution that earn a
specified interest rate over a given period. A certificate of deposit is an
interest-bearing negotiable certificate issued by a bank against funds deposited
in the bank. A bankers' acceptance is a short-term draft drawn on a commercial
bank by a borrower, usually in connection with an international commercial
transaction. Although the borrower is liable for payment of the draft, the bank
unconditionally guarantees to pay the draft at its face value on the maturity
date. Certificates of deposit and fixed time deposits, which are payable at the
stated maturity date and bear a fixed rate of interest, generally may be
withdrawn on demand by a Portfolio but may be subject to early withdrawal
penalties which vary depending upon market conditions and the remaining maturity
of the obligation and could reduce the Portfolio's yield. Although fixed-time
deposits do not in all cases have a secondary market, there are no contractual
restrictions on the Portfolio's right to transfer a beneficial interest in the
deposits to third parties. Deposits subject to early withdrawal penalties or
that mature in more than seven days are treated as illiquid securities if there
is no readily available market for the securities. A Portfolio's investments in
the obligations of foreign banks and their branches, agencies or subsidiaries
may be obligations of the parent, of the issuing branch, agency or subsidiary,
or both.

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. Investments in

-3-
<PAGE>

foreign bank obligations are limited to banks and branches located in countries
that the Investment Manager believes do not present undue risk.

Investment in foreign bank obligations are subject to the additional risks
associated with foreign securities.

BORROWING

The Portfolios may borrow from banks and engage in reverse repurchase
agreements. As a matter of fundamental policy, each Portfolio will limit
borrowings (including any reverse repurchase agreements) to amounts not in
excess of 33 1/3% of the value of the Portfolio's total assets 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. As a non-fundamental policy, the
Portfolio will borrow money only as a temporary measure for defensive or
emergency purposes, 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.

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.

-4-
<PAGE>

COMMERCIAL PAPER AND SIMILAR SECURITIES

Corporate debt securities include corporate bonds and notes and short-term
investments such as commercial paper and variable rate demand notes. Commercial
paper (short-term promissory notes) is issued by companies to finance their or
their affiliates' current obligations and is frequently unsecured. Issues of
commercial paper normally have maturities of less than nine months and fixed
rates of return.

Variable rate demand notes are unsecured notes that permit the indebtedness
thereunder to vary and provide for periodic adjustments in the interest rate
according to the terms of the instrument. Variable rate demand notes are
redeemable upon not more than 30 days' notice. These obligations include master
demand notes that permit investment of fluctuating amounts at varying rates of
interest pursuant to direct arrangement with the issuer of the instrument. The
issuer of these obligations often has the right, after a given period, to prepay
the outstanding principal amount of the obligations upon a specified number of
days' notice. Since these notes are direct lending arrangements between a
Portfolio and the issuer, they are not normally traded. Although there is no
secondary market in the notes, the Portfolio may demand payment of principal and
accrued interest at any time. Variable rate demand notes must satisfy the same
criteria as set forth above for commercial paper.

Loan participation interests represent interests in senior, unsecured, working
capital loans, which rank on the same priority and security level as commercial
paper. They are generally issued by corporate entities that require some
short-term funding but lack the large borrowing need or legal status required to
establish a commercial paper program. These interests are actively marketed to
money market funds and other short-term investors by a number of dealers. These
selling banks are also the originators of the underlying bank loans. The selling
banks reserve the right to allow any secondary marketing or repurchases of loan
parts.

Loan participation interests are sold on a non-recourse basis; in the event of
default of the borrower, an investor would have no direct claim on the borrower,
but rather, would look to the selling bank to proceed against the borrower. In
fact, investors must rely on the selling bank to remit all principal and
interest from loan parts on a regular basis.

A Portfolio will invest only in commercial paper rated in one of the two highest
rating categories by a nationally recognized statistical rating organization
("NRSRO"), or commercial paper or notes of issuers with a debt issue (which is
comparable in priority and security with the commercial paper or notes) rated in
one of the two highest rating categories for short-term debt obligations by an
NRSRO, or unrated commercial paper or notes of comparable quality as determined
by the Investment Manager, or commercial paper secured by a letter of credit
issued by a domestic or foreign bank rated in the highest rating category by an
NRSRO. For a description of ratings issued by Moody's Investors Service and
Standard & Poor's, two NRSROs, see "Annex - Ratings of Investments."

-5-
<PAGE>

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.

FOREIGN SECURITIES

Investments may be made in bank obligations of the foreign branches of U.S.
banks, and their non-U.S. branches (Eurodollars), U.S. branches of foreign banks
(Yankee dollars), and foreign branches of foreign banks. Investments also may be
made in U.S. dollar-denominated securities issued or guaranteed by foreign
issuers, including U.S. and foreign corporations or other business
organizations, foreign governments, foreign government agencies or
instrumentalities, and foreign financial institutions.

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

Obligations of foreign issuers involve certain additional risks. These risks may
include future unfavorable political and economic developments, withholding
taxes, increased taxation, 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.

FUNDING AGREEMENTS

Funding agreements are insurance contracts between an investor and an insurance
company. For the issuer (insurance company) they represent senior obligations
under an insurance product. For the investor, and from an Internal Revenue
Service and Securities Exchange Commission perspective, these agreements are
treated as securities. These agreements, like other insurance products, are
backed by claims on the general account of the issuing entity and rank on the
same priority level as other policy holder claims.

Funding agreements are typically issued with a one year final maturity and a
variable interest rate, which may adjust weekly, monthly, or quarterly. Some
agreements carry a

-6-
<PAGE>

seven-day put feature. A funding agreement without this feature is considered
illiquid by the Portfolio.

These agreements are regulated by the state insurance board in the state where
they are executed.

GOVERNMENT SECURITIES

Each Portfolio may invest in government securities. The term "government
securities" for this purpose includes 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. There is no guarantee that the U.S.
government will support securities not backed by its full faith and credit.
Accordingly, although these securities historically have involved little risk of
loss of principal if held to maturity, they may involve more risk than
securities backed by the U.S. government's full faith and credit.

ILLIQUID SECURITIES

Each Portfolio may invest up to 10% of its net assets in illiquid securities.
The term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Portfolio has valued the securities. In
determining the liquidity of a Portfolio's investments, the Investment Manager
may consider various factors, including (i) the frequency of trades and
quotations, (ii) the number of dealers and prospective purchasers in the
marketplace, (iii) dealer undertakings to make a market, (iv) the nature of the
security (including any demand or tender features), and (v) the nature of the
marketplace for trades (including the ability to assign or offset the
Portfolio's rights and obligations relating to the investment).

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

-7-
<PAGE>

For purposes of the 10% limit on illiquid securities, Rule 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 COMPANY SECURITIES

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

MUNICIPAL SECURITIES

Municipal securities 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,

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obtaining funds for general operating expenses and obtaining funds to loan to
other public institutions and facilities. In addition, municipal securities
include securities issued by or on behalf of public authorities to finance
various privately operated facilities, such as industrial development bonds or
other private activity bonds that are backed only by the assets and revenues of
the non-governmental user (such as manufacturing enterprises, hospitals,
colleges or other entities).

Municipal securities include municipal bonds, notes and leases. Municipal
securities may be zero-coupon securities. Yields on municipal securities are
dependent on a variety of factors, including the general conditions of the
municipal security markets and the fixed income markets in general, the size of
a particular offering, the maturity of the obligation and the rating of the
issue. Municipal securities historically have not been subject to registration
with the Securities and Exchange Commission ("SEC"), although there have been
proposals that would require registration in the future.

Municipal securities may include other securities similar to those described
below, which are or may become available.

MUNICIPAL BONDS. Municipal bonds can be classified as either "general
obligation" or "revenue" bonds. General obligation bonds are secured by a
municipality's pledge of its full faith, credit and taxing power for the payment
of principal and interest. Revenue bonds are usually 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 tax, but not from general
tax revenues. Municipal bonds include industrial development bonds. Municipal
bonds may also be "moral obligation" bonds, which are normally issued by special
purpose public authorities. If the issuer is unable to meet its obligations
under the bonds from current revenues, it may draw on a reserve fund that is
backed by the moral commitment (but not the legal obligation) of the state or
municipality that created the issuer.

Municipal bonds include tax-exempt industrial development bonds, which in most
cases are revenue bonds and generally do not have the pledge of the credit of
the municipality. The payment of the principal and interest on these bonds is
dependent solely on the ability of an initial or subsequent user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment. 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 than the Alternative Minimum Tax (AMT)).

Municipal bonds meet longer term capital needs of a municipal issuer and
generally have maturities of more than one year when issued. General obligation
bonds are used to fund a wide range of public projects, including construction
or improvement of schools, highways and roads, and water and sewer systems. The
taxes that can be levied for the payment of debt service may be limited or
unlimited as to rate or amount. Revenue bonds in recent years have come to
include an increasingly wide variety of

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types of municipal obligations. As with other kinds of municipal obligations,
the issuers of revenue bonds may consist of virtually any form of state or local
governmental entity. Generally, revenue bonds are secured by the revenues or net
revenues derived from a particular facility, class of facilities, or, in some
cases, from the proceeds of a special excise or other specific revenue source,
but not from general tax revenues. Revenue bonds are issued to finance a wide
variety of capital projects including electric, gas, water and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals. Many of these bonds are additionally secured by a
debt service reserve fund which can be used to make a limited number of
principal and interest payments should the pledged revenues be insufficient.
Various forms of credit enhancement, such as a bank letter of credit or
municipal bond insurance, may also be employed in revenue bond issues. Revenue
bonds issued by housing authorities may be secured in a number of ways,
including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund. In recent years, revenue bonds have been issued in large volumes for
projects that are privately owned and operated, as discussed below.

Municipal bonds are considered private activity bonds if they are issued to
raise money for privately owned or operated facilities used for such purposes as
production or manufacturing, housing, health care and other nonprofit or
charitable purposes. These bonds are also used to finance public facilities such
as airports, mass transit systems and ports. The payment of the principal and
interest on such bonds is dependent solely on the ability of the facility's
owner or user to meet its financial obligations and the pledge, if any, of real
and personal property as security for such payment.

While at one time the pertinent provisions of the Internal Revenue Code of 1986,
as amended (the "Code") permitted private activity bonds to bear tax-exempt
interest in connection with virtually any type of commercial or industrial
project (subject to various restrictions as to authorized costs, size
limitations, state per capita volume restrictions, and other matters), the types
of qualifying projects under the Code have become increasingly limited,
particularly since the enactment of the Tax Reform Act of 1986. Under current
provisions of the Code, tax-exempt financing remains available, under prescribed
conditions, for certain privately owned and operated facilities of organizations
described in Section 501(c)(3) of the Code, multi-family rental housing
facilities, airports, docks and wharves, mass commuting facilities and solid
waste disposal projects, among others, and for the tax-exempt refinancing of
various kinds of other private commercial projects originally financed with
tax-exempt bonds. In future years, the types of projects qualifying under the
Code for tax-exempt financing could become increasingly limited.

MUNICIPAL NOTES. Municipal notes, which may be either "general obligation" or
"revenue" securities, are intended to fulfill the short-term capital needs of
the issuer and generally have maturities not exceeding one year. Examples of
municipal notes are short-term tax anticipation notes, bond anticipation notes,
revenue anticipation notes,

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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.

MUNICIPAL LEASE OBLIGATIONS. Municipal lease 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.

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.

Investment in municipal lease obligations is generally made indirectly (i.e.,
not as a lessor of the property) through a participation interest in such
obligations owned by a bank or other third party. A participation interest gives
the investor a specified, undivided interest in the obligation in proportion to
its purchased interest in the total amount of the obligation.

MUNICIPAL PORTFOLIO. The Municipal Portfolio anticipates being as fully invested
as practicable in municipal securities; however, there may be occasions when, as
a result

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of maturities of portfolio securities, sales of Portfolio shares, or in order to
meet redemption requests, the Portfolio may hold cash that is not earning
income. In addition, there may be occasions when, in order to raise cash to meet
redemptions, the Portfolio may be required to sell securities at a loss.

From time to time, the 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 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 Portfolio will purchase taxable obligations only if they meet
its quality requirements.

ADDITIONAL RISK CONSIDERATIONS. 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.

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
Municipal Portfolio's holdings would be affected and the directors would
reevaluate the Portfolio's investment objective and policies.

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

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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. 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. 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

Reverse repurchase agreements are transactions in which a Portfolio sells a
security and simultaneously commits to repurchase that security from the buyer
at an agreed-upon price on an agreed-upon future date. The resale price in a
reverse repurchase agreement reflects a market rate of interest that is not
related to the coupon rate or maturity of the sold security. For certain demand
agreements, there is no agreed-upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase rate.

Generally, a reverse repurchase agreement enables a Portfolio to recover for the
term of the reverse repurchase agreement all or most of the cash invested in the
portfolio securities sold and to keep the interest income associated with those
portfolio securities. Such transactions are advantageous only if the interest
cost to the Portfolio of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise. In addition, interest costs on the money
received in a reverse repurchase agreement may exceed the return received on the
investments made by the Portfolio with those monies. The use of reverse
repurchase agreement proceeds to make investments may be considered to be a
speculative technique.

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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.

RULE 144A SECURITIES

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

RULE 2a-7 MATTERS

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

Except to the limited extent permitted by Rule 2a-7 and except for government
securities, no Portfolio may invest more than 5% of its total assets in the
securities of any one issuer. 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's investment in second tier "conduit securities" (as defined
in Rule 2a-7) 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. 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.

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

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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.

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
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. The Investment
Manager will monitor the liquidity of the Portfolio's investments in Section
4(2) paper on a continuous basis.

SECURITIES LENDING

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.

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 invest in an instrument supported by a
letter of credit. Standby commitments are subject

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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. 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.
Typically, no interest accrues to the purchaser until the security is delivered.
When purchasing securities on a when-issued or delayed delivery basis, a
Portfolio assumes the rights and risks of ownership, including the risk of price
and yield fluctuations. 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. 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. 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.

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. The sale of such securities by the Municipal Portfolio may result in the
realization of gains that are not exempt from federal income tax.

In determining the maturity of portfolio securities purchased on a when-issued
or delayed delivery basis, the Portfolio will consider them to have been
purchased on the date when it committed itself to the purchase. When when-issued
or delayed delivery purchases are outstanding, a Portfolio will segregate
appropriate liquid assets to cover

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its purchase obligations. A Portfolio will make commitments to purchase
securities on a when-issued or delayed delivery basis only with the intention of
actually acquiring or disposing of the securities, but the Portfolio reserves
the right to sell these securities before the settlement date if deemed
advisable.

ZERO COUPON BONDS

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

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

FUTURE DEVELOPMENTS

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

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, 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

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reverse repurchase agreements for any purpose, and (iii) pledge its assets in
connection with such borrowing to the extent necessary; provided that (i) and
(ii) in combination do not exceed 33 1/3% of the Portfolio's total assets
(including the amount borrowed) less liabilities (other than borrowings). Any
borrowings that exceed this amount will be reduced within three days (not
including 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.

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<PAGE>

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 "guarantee issued by a non-controlled person," as defined in Rule
2a-7) if, as a result, more than 5% of its total assets would be invested in the
securities of a single issuer, provided that a Portfolio may invest up to 25% of
its total assets in the first tier securities of a single issuer for up to three
business days;

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

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 Portfolio shares, to reinvest proceeds
from maturing portfolio securities and to meet redemptions of Portfolio 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.

The Investment Manager places orders for the purchase and sale of assets with
brokers and dealers selected by and in the discretion of the Investment Manager.
In placing orders for the Portfolio's portfolio transactions, the Investment
Manager seeks "best execution" (i.e., prompt and efficient execution at the most
favorable prices). Consistent with the policy of "best execution," 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

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<PAGE>

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. In no event will a broker-dealer that is affiliated with the
Investment Manager receive brokerage commissions in recognition of research
services provided to the Investment Manager.

The Investment Manager may employ broker-dealer affiliates of the Investment
Manager (collectively "Affiliated Brokers") to effect portfolio transactions for
the Portfolios, provided certain conditions are satisfied. Payment of brokerage
commissions to Affiliated Brokers is subject to Section 17(e) of the Investment
Company Act and Rule 17e-1 thereunder, which require, among other things, that
commissions for transactions on securities exchanges paid by a registered
investment company to a broker which is an affiliated person of such investment
company, or an affiliated person of another person so affiliated, not exceed the
usual and customary brokers' commissions for such transactions. The Board of
Directors, including a majority of the directors who are not "interested
persons" of the Company within the meaning of such term as defined in the
Investment Company Act ("Disinterested Directors"), has adopted procedures to
ensure that commissions paid to affiliates of the Investment Manager by the Fund
satisfy the standards of Section 17(e) and Rule 17e-1.

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.

The Company expects that purchases and sales of portfolio securities usually
will be principal transactions. Purchases and sales of fixed income portfolio
securities are generally effected as principal transactions. These securities
are normally purchased directly from the issuer or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and ask
prices. In the case of securities traded in the over-the-counter markets, there
is generally no stated commission, but the price usually includes an undisclosed
commission or markup.

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<PAGE>

DIRECTORS AND EXECUTIVE OFFICERS

Responsibility for overall management of the Company rests with its Board of
Directors in accordance with Maryland law.

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

CAROLYN B. LEWIS, Director. Ms. Lewis has served as a Director of each of the
Company and NICM since February 26, 1998. Since March 1997, Ms. Lewis has served
as President of The CBL Group providing professional services to clients in the
securities and healthcare industries. Ms. Lewis spent over 30 years at the
United States Securities and Exchange Commission (SEC) in various positions
including Senior Financial Analyst, Branch Chief and Assistant Director. In
September 1997, Ms. Lewis was appointed a member of the Board of Governors of
the Philadelphia Stock Exchange. Presently, Ms. Lewis is a member of the Board
of Directors of the Metropolitan Washington Airports Authority and a director on
various healthcare and hospital Boards, including the Board of Trustees of the
American Hospital Association. She is 61 years old. Ms. Lewis' address is 2920 W
Street Southeast, Washington, DC 20020.

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<PAGE>

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 the Company
since December 12, 1995. Mr. Toal was appointed Chairman, President and Chief
Executive Officer of The Dime Savings Bank of New York, FSB (the "Dime") 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.

GEORGE A. RIO**, President, Treasurer and Chief Financial Officer. Mr. Rio is
Executive Vice President and Client Service Director of FDI since April 1998.
From June 1995 to March 1998, Mr. Rio was Senior Vice President and Senior Key
Account Manager for Putnam Mutual Funds. From May 1994 to June 1995, Mr. Rio was
Director of Business Development for First Data Corporation. From September 1983
to May 1994, Mr. Rio was Senior Vice President and Manager of Client Services
and Director of Internal Audit at The Boston Company. He is 43 years old.

CHRISTOPHER J. KELLEY**, Vice President and Secretary. Mr. Kelley is Vice
President and Senior Associate General Counsel of FDI, 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 33 years old.

* THIS DIRECTOR IS AN "INTERESTED PERSON" OF THE COMPANY.
** ADDRESS: 60 STATE STREET, SUITE 1300, BOSTON, MA 02109

Officers and directors who are interested persons of the Investment Manager or
FDI receive no compensation from the Company. The Company expects to pay or
accrue total directors' fees of approximately $[ ] per year to those
directors who are not designated above as interested persons. Directors who are
interested persons of the Company may be compensated by the Investment Manager
for their services to the Company.

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, 1998, are as
follows:

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<PAGE>

<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Estimated
Compensation Benefits Accrued Annual Total Compensation
Name of Board from as Part of Benefits Upon from Fund Complex (1)
Member Company (5) Company's Expenses Retirement Paid to Board Members (5)
<S> <C> <C> <C> <C>
Richard W. Dalrymple $ $0 $0 $

Carolyn B. Lewis (2) $ $0 $0 $

Theodore Rosen (3) $ $0 $0 $

George F. Staudter (4) $0 $0 $0 $0

Lawrence J. Toal $ $0 $0 $
</TABLE>

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

(1) "Fund Complex" includes the Company and NICM, an investment company
also advised by the Investment Manager.
(2) Became a director of the Company and NICM on February 26, 1998.
(3) Served as a director of the Company through February 26, 1998.
(4) Interested director of the Company.
(5) Amounts do not include reimbursed expenses for attending Board
meetings.

INVESTMENT MANAGEMENT, DISTRIBUTION AND OTHER SERVICES

INVESTMENT MANAGEMENT

Waterhouse Asset Management, Inc., a Delaware corporation, is the Investment
Manager of each Portfolio. 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 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 other portfolios of the Company and to the
Bank and as of [ ] had total assets under management in excess of $[ ] 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.

The Investment Management Agreement will continue in effect only if such
continuance is specifically 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

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<PAGE>

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

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

For the investment management services furnished to each Portfolio, such
Portfolio pays the Investment Manager an annual investment management fee,
accrued daily and payable monthly, on a graduated basis equal to 0.35% of the
first $1 billion of average daily net assets of each such Portfolio, 0.34% of
the next $1 billion, and 0.33% of average daily net assets of each Portfolio
over $2 billion. The Investment Manager agreed to waive a portion of its fee
payable by the Municipal Portfolio through October 15, 1998, which had the
effect of limiting the actual fee paid annually by the Portfolio during that
period to 0.25% of 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, 1998, 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 years ended October 31,
1998 and October 31, 1997, the Investment Manager voluntarily waived [ ] and
$252,458, respectively, 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.

ADMINISTRATION

Pursuant to an Administration Agreement with the Company, Waterhouse Securities,
as Administrator, provides administrative services to each of the Portfolios.

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<PAGE>

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 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 0.10% 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, for
which it received an annual fee of 0.10% of each Portfolio's average daily net
assets.

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 only if such continuance is
specifically approved at least annually by a vote of the Board of Directors,
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 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. The Agreement terminates automatically in the
event of its "assignment" as defined in the Investment Company Act.

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<PAGE>

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
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.

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 only if such continuance is
specifically approved at least annually by a vote of the Board of Directors,
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. The
Agreement terminates automatically in the event of its "assignment" as defined
in the Investment Company Act.

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<PAGE>

SHAREHOLDER SERVICING

The Board of Directors of the Company has approved a Shareholder Servicing Plan
("Servicing Plan") pursuant to which each Portfolio may pay banks,
broker-dealers or other financial institutions that have entered into a
shareholder services agreement with the Company ("Servicing Agents") in
connection with shareholder support services that they provide. Payments under
the Servicing Plan will be calculated daily and paid monthly at a rate set from
time to time by the Board of Directors, provided that the annual rate may not
exceed 0.25% of the average daily net assets of each 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 only if such continuance is specifically approved at least annually by a
vote of the Board of Directors, 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, 1998, 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,

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<PAGE>

respectively. For the fiscal year ended October 31, 1998, Waterhouse Securities
voluntarily waived $[ ], $[ ] and $[ ] of its shareholder servicing fee for the
Money Market Portfolio, the U.S. Government Portfolio and the Municipal
Portfolio, respectively. For the fiscal year ended October 31, 1997, Waterhouse
Securities voluntarily waived $1,199,480 and $291,674 of its 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 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.

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 0.20% of each
Portfolio's average daily net assets. The Transfer Agent is permitted to
subcontract any or all of its functions with respect to all or any portion of a
Portfolio's shareholders to one or more qualified sub-transfer agents or
processing agents, which may be affiliates of the Transfer Agent, FDI or
broker-dealers authorized to sell shares of a Portfolio pursuant to a selling
agreement with FDI. The Transfer Agent is permitted to compensate those agents
for their services; however, that compensation may not increase the aggregate
amount of payments by the Portfolios to the Transfer Agent.

The Transfer Agent has entered into a Sub-Transfer Agency and Dividend
Disbursing Agency Agreement with National Investor Services Corp., 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.

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<PAGE>

Pursuant to a Custodian Agreement, The Bank of New York (the "Custodian"), 90
Washington Street, New York, NY 10286, acts as the custodian of each Portfolio's
assets. The Custodian, among other things, maintains a custody account or
accounts in the name of each Portfolio, receives and delivers all assets for the
Portfolio upon purchase and upon sale or maturity, collects all income and other
payments and distributions with respect to the assets of the Portfolio, and pays
expenses of the Portfolio.

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 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
its investment portfolios (such as the Portfolios) on the basis of relative net
assets at the time of allocation, except that expenses directly attributable to
a particular investment 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 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 NAV at $1.00 per share.

-30-
<PAGE>

CAPITAL GAIN DISTRIBUTIONS

If a Portfolio realizes any net capital gain, such gain will be distributed at
least once during the year as determined by the Board of Directors, to maintain
its NAV at $1.00 per share. Short-term capital gain distributions by a Portfolio
are taxable to shareholders as ordinary income, not as capital gain. Any
realized capital loss to the extent not offset by realized capital gain will be
carried forward. It is not anticipated that a Portfolio will realize any capital
gain from the sale of securities held for more than 12 months, but if it does
so, this gain will be distributed annually.

TAX STATUS OF THE COMPANY

The Fund intends to continue to meet the requirements of the Code applicable to
regulated investment companies and to distribute all of its investment company
taxable income and net realized gain, if any, to shareholders. Accordingly, it
is not anticipated that any Portfolio will be liable for Federal income or
excise taxes to which it would otherwise be subject. Qualification as a
regulated investment company does not, of course, involve governmental
supervision of management or investment practices or policies.

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 INCOME 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

-31-
<PAGE>

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. Shareholders are advised to consult their tax
advisers with respect to alternative minimum tax consequences of an investment
in the Municipal Portfolio.

Exempt-interest dividends must be taken into account in computing the portion,
if any, of social security or railroad retirement benefits that must be included
in an individual shareholder's gross income and subject to federal income tax.
Receipt of exempt-interest dividends may result in other collateral federal
income tax consequences to certain taxpayers. Prospective investors should
consult their own tax advisers as to such consequences.

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

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

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

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

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<PAGE>

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.

Each Portfolio generally 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.
Dividends paid to foreign investors generally will be subject to a 30% (or lower
treaty rate) withholding tax.

The information above, together with the information set forth in the Prospectus
and this SAI, 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 on redemptions or other dispositions of shares of the Portfolios, 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, [ ], 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

The price of each Portfolio's shares on any given day is its NAV per share. NAV
is calculated by the Company for each Portfolio on each day that the New York
Stock Exchange (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.

-33-
<PAGE>

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

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

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

During periods of declining interest rates, each Portfolio's yield based on
amortized cost may be higher than the yield based on market valuations. Under
these circumstances, a shareholder of any Portfolio would be able to retain a
somewhat higher yield than would result if each Portfolio utilized market
valuations to determine its NAV. The converse would apply in a period of rising
interest rates.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares of each Portfolio are sold on a continuous basis by the distributor.

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 NAV of each Portfolio as of 12:00 noon and
4:00 p.m. (Eastern time) each day that the NYSE and the Custodian are open. To
the extent that portfolio securities are traded in other markets on days when
the NYSE or the

-34-
<PAGE>

Custodian is closed, a Portfolio's NAV may be affected on days when investors do
not have access to the Company to purchase or redeem shares. In addition,
trading in some of a Portfolio's portfolio securities may not occur on days when
the Company is open for business.

If the Board of Directors determines that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing a
Portfolio's NAV. Shareholders receiving securities or other property on
redemption may realize a gain or loss for tax purposes, and will incur any costs
of sale, as well as the associated inconveniences. An in kind distribution of
portfolio securities will be less liquid than cash. The shareholder may have
difficulty in finding a buyer for portfolio securities received in payment for
redeemed shares. Portfolio securities may decline in value between the time of
receipt by the shareholder and conversion to cash. A redemption in kind of a
Portfolio's portfolio securities could result in a less diversified portfolio of
investments for the Portfolio and could affect adversely the liquidity of the
Portfolio's portfolio.

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

PERFORMANCE

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, 1998 was
[ ]% for the Money Market Portfolio, [ ]% for the U.S. Government Portfolio and
[ ]% for the Municipal Portfolio.

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<PAGE>

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, 1998 was [ ]% for the Money Market Portfolio, [ ]% for the U.S. Government
Portfolio and [ ]% 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, 1998 was [ ]%. 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, 1998 was [ ]%. 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.

The performance of the Company's Portfolios may be compared to that of other
money market mutual funds tracked by Lipper Analytical Services, Inc.
("Lipper"), a widely used independent research firm that ranks mutual funds by
overall performance, investment objectives and assets. Lipper performance
calculations include the reinvestment of all capital gain and income dividends
for the periods covered by the calculations. A Portfolio's performance also may
be compared to other money market funds as reported by IBC/Donoghue's Money Fund
Report(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

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<PAGE>

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 NAV 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 U.S.
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 U.S.
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.

OTHER ADVERTISEMENT MATTERS

In connection with its advertisements, the Portfolios may provide information
about their Investment Manager, Waterhouse Securities or any of their other
service providers, including information relating to policies, business
practices or services. For instance, a Portfolio may provide information about
Waterhouse Securities in its advertisements, including the difference between
commissions paid on stock trades executed by Waterhouse Securities compared to
full-price and discount brokers (as illustrated below) and a description of
services available through Waterhouse Securities. This example is for
illustrative purposes only; investors should contact the Customer Service
Department at Waterhouse Securities at 1-800-934-4410 for information about
services and commissions.

-37-
<PAGE>

<TABLE>
<CAPTION>
Full Price 200 shares 300 shares 500 shares 500 shares 1,000 shares
Brokers @ $25 @ $20 @ $15 @ $18 @ $14
- ------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Merrill Lynch $129.50 $164.85 $205.54 $225.23 $308.28
Smith Barney 139.61 166.39 212.15 235.26 351.51
Prudential 146.35 173.35 218.35 240.35 359.35
Waterhouse
Securities 35.00 40.82 52.05 57.62 90.33

<CAPTION>
Discount 200 shares 300 shares 500 shares 500 shares 1,000 shares
Brokers @ $25 @ $20 @ $15 @ $18 @ $14
- ------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Schwab $ 89.00 $ 95.60 $101.50 $106.60 $123.60
Fidelity 113.00 127.00 155.00 155.00 165.00
Quick & Reilly 60.50 65.00 77.75 81.50 94.00
Waterhouse
Securities 35.00 40.82 52.05 57.62 90.33
</TABLE>

- ----------
Survey date 8/31/98. Services may vary by firm. Commission rates surveyed are
for stocks and may vary for other products. Waterhouse Securities minimum
commission $35. This information is subject to change.

SHAREHOLDER INFORMATION

Each investment portfolio issues shares of common stock in the Company. 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. Shares are fully paid and nonassessable when issued, are transferable
without restriction, and have no preemptive or conversion rights. Shares of the
Company have equal rights with respect to voting, except that the holders of
shares of an investment portfolio will have the exclusive right to vote on
matters affecting only the rights of the holders of that portfolio. For example,
holders of a Portfolio will have the exclusive right to vote on any investment
management agreement or investment restriction that relates only to that
Portfolio. Shareholders of the investment portfolios of the Company 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.

-38-
<PAGE>

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 investment portfolios:
60 billion shares of the Money Market Portfolio; 20 billion shares of the U.S.
Government Portfolio; 10 billion shares of the Municipal Portfolio; and 10
billion shares of the Waterhouse Dow 30 Fund. Each investment portfolio share is
entitled to participate pro rata in the dividends and distributions from that
portfolio.

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.

OWNERSHIP OF PORTFOLIO SHARES

[Insert Control/Principal Shareholder information, if any (Item 14); if control,
explain effect of control (i.e., that such a shareholder may be able to greatly
affect (if not determine) the outcome of a shareholder vote)]

[On [ ], the officers and directors of the Company, as a group, owned less than
1% of the outstanding shares of each Portfolio. (Item 14)]

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<PAGE>

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

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 that 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.

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<PAGE>

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

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

MOODY'S INVESTORS SERVICE BOND RATINGS

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

Aa. Bonds that 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 that make the
long term risks appear somewhat larger than in Aaa securities.

A. Bonds that 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 that
suggest a susceptibility to impairment sometime in the future.

-41-
<PAGE>

WATERHOUSE DOW 30 FUND
100 WALL STREET, NEW YORK, NEW YORK 10005
WATERHOUSE SECURITIES, CUSTOMER SERVICE - 1-800-934-4410

STATEMENT OF ADDITIONAL INFORMATION
[DATE]

This Statement of Additional Information (the "SAI") is not a prospectus. It
should be read in conjunction with the prospectus dated [ ] (the "Prospectus")
for the Waterhouse Dow 30 Fund (the "Fund"), a series of Waterhouse Investors
Family of Funds, Inc. (the "Company").

The Fund's financial statements and financial highlights for the fiscal period
ended October 31, 1998, including the independent auditors' report thereon, are
included in the Fund's Annual Report and are incorporated herein by reference.

To obtain a free copy of the Prospectus or Annual Report, please write to
Waterhouse Securities, Inc., Customer Service, at 100 Wall Street, New York, New
York 10005, or call 1-800-934-4410.

TABLE OF CONTENTS

PAGE
----

GENERAL INFORMATION ABOUT THE FUND........................................

INVESTMENT POLICIES AND RESTRICTIONS .....................................

INFORMATION ABOUT THE DOW JONES
INDUSTRIAL AVERAGE(SM)....................................................

PORTFOLIO TRANSACTIONS ...................................................

DIRECTORS AND EXECUTIVE OFFICERS .........................................

INVESTMENT MANAGEMENT, DISTRIBUTION
AND OTHER SERVICES .......................................................

DIVIDENDS AND TAXES ......................................................

SHARE PRICE CALCULATION ..................................................

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION ...........................

PERFORMANCE ..............................................................

SHAREHOLDER INFORMATION ..................................................

-1-
<PAGE>

DOW JONES & COMPANY, INC. ("DOW JONES") DOES NOT GUARANTEE THE ACCURACY AND/OR
THE COMPLETENESS OF THE DOW JONES INDUSTRIAL AVERAGE(SM) ("DJIA"(SM)) OR ANY
DATA INCLUDED THEREIN AND DOW JONES SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. DOW JONES MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY WATERHOUSE ASSET MANAGEMENT, INC. (THE
"INVESTMENT MANAGER"), SHAREHOLDERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE DJIA OR ANY DATA INCLUDED THEREIN. DOW JONES MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
DJIA OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT SHALL DOW JONES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT,
PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSSES, EVEN IF NOTIFIED OF THE
POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR
ARRANGEMENTS BETWEEN DOW JONES, THE INVESTMENT MANAGER AND THE FUND.

"Dow Jones(SM)," "Dow Jones Industrial Average(SM)," "DJIA(SM)" and
"DIAMONDS(SM)" are service marks of Dow Jones & Company, Inc. and have been
licensed by the Investment Manager in connection with the operation of the Fund.
The Fund is not sponsored, endorsed, sold or promoted by Dow Jones or any
corporation that is included in the DJIA. Dow Jones makes no representation or
warranty, express or implied, to the shareholders of the Fund or any member of
the public regarding the advisability of investing in securities generally or in
the Fund particularly. Dow Jones' only relationship to the Investment Manager is
the licensing of certain trademarks and trade names of Dow Jones and of the
DJIA, which is determined, composed and calculated by Dow Jones without regard
to the Investment Manager or the Fund. Dow Jones has no obligation to take the
needs of the Investment Manager or the shareholders of the Fund into
consideration in determining, composing or calculating the DJIA. Dow Jones is
not responsible for and has not participated in the determination of the timing
of, prices at, or quantities of Fund shares to be issued or in the determination
or calculation of the equation by which Fund shares are to be converted into
cash. Dow Jones has no obligation or liability in connection with the
administration, marketing or offering of the Fund.

-2-
<PAGE>

WATERHOUSE DOW 30 FUND
- --------------------------------------------------------------------------------

GENERAL INFORMATION ABOUT THE FUND

The Company is registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), as an open-end 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. Because the Company offers multiple
portfolios (such as the Fund), it is known as a "series company." The Company
currently has four investment portfolios with various investment objectives and
policies. The Fund commenced operation on March 30, 1998 and was originally
called the Waterhouse Dow Jones Industrial Average(SM) Index Fund. The Fund was
renamed under its current name on July 22, 1998.

The investment objective of the Fund is to track the total return of the Dow
Jones Industrial Average(SM) ("DJIA"(SM)) before Fund expenses. The investment
manager of the Fund is Waterhouse Asset Management, Inc. (the "Investment
Manager").

INVESTMENT POLICIES AND RESTRICTIONS

The Fund's investment objective, and its investment policies and restrictions
that are designated as fundamental, may not be changed without approval by
holders of a "majority of the outstanding voting securities" of the Fund. Except
as otherwise indicated, however, the Fund's investment policies are not
fundamental and may be changed without shareholder approval. As defined in the
Investment Company Act, and as used herein, the term "majority of the
outstanding voting securities" of the Company, or of the Fund, means,
respectively, the vote of the holders of the lesser of (i) 67% of the shares of
the Company or the Fund or represented by proxy at a meeting where more than 50%
of the outstanding shares of the Company or the Fund are present or represented
by proxy, or (ii) more than 50% of the outstanding shares of the Company or the
Fund.

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 the Fund'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 Fund'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
Fund's investment policies and restrictions.

-3-
<PAGE>

COMMON STOCK

The Fund will invest primarily in the common stock of the 30 companies
comprising the DJIA. Common stockholders are the owners of the company issuing
the stock and, accordingly, vote on various corporate governance matters such as
mergers. They are not creditors of the company, but rather, upon liquidation of
the company are entitled to their pro rata share of the company's assets after
creditors (including fixed income security holders) and, if applicable,
preferred stockholders, are paid.

CASH AND CASH EQUIVALENTS

The Fund will hold from time to time a certain portion of its assets in cash or
cash equivalents to retain flexibility in meeting redemptions, paying expenses,
and timing of new investments. Cash equivalents may include (i) short-term
obligations issued or guaranteed by the United States government, its agencies
or instrumentalities ("U.S. Government Securities"), (ii) certificates of
deposit, bankers' acceptances and interest-bearing savings deposits of
commercial banks doing business in the United States that have a minimum rating
of A-1 from Standard & Poor's ("S&P") or P-1 from Moody's Investors Service
("Moody's") or a comparable rating from another nationally recognized
statistical rating organization ("NRSRO") or unrated securities of comparable
quality, (iii) commercial paper rated at least A-1 by S&P or P-1 by Moody's or a
comparable rating from another NRSRO or unrated securities of comparable
quality, (iv) repurchase agreements covering any of the securities in which the
Fund may invest directly, and (v) money market mutual funds. The Fund will not
invest in cash or cash equivalents as part of a temporary defensive strategy to
protect against potential stock market declines.

DIAMONDS(SM) AND OTHER INDEX SECURITIES

The Fund may invest in publicly-traded index securities, including DIAMONDS.
DIAMONDS are shares of a publicly-traded unit investment trust that owns the
stocks in the DJIA in approximately the same proportions as represented in the
DJIA. DIAMONDS trade on the AMEX at approximately .01 (or 1/100) of the value of
the DJIA. Because DIAMONDS replicate the DJIA, any price movement away from the
value of the underlying stocks is generally quickly eliminated by professional
traders. In light of the structural features of DIAMONDS, the Investment Manager
believes that the movement of DIAMONDS share prices should closely track the
movement of the DJIA. The DIAMONDS program bears operational expenses, which are
deducted from the dividends paid to DIAMONDS investors. To the extent the Fund
invests in these securities, the Fund must bear these expenses in addition to
the expenses of its own operation. The Fund also may invest in Standard & Poor's
Depositary Receipts, index securities similar to DIAMONDS that are based on the
Standard & Poor's 500 Index and also are traded on the AMEX.

INVESTMENT COMPANY SECURITIES

The Fund may invest in securities issued by other investment companies (or
series thereof) to the extent that such investments are consistent with the
Fund's investment objectives and policies and are permissible under the
Investment Company Act. Under one of the Investment Company Act's limitations,
the Fund may invest in shares of

-4-
<PAGE>

investment companies to the extent the Fund and its affiliated persons do not
own more than 3% of the outstanding securities of any one issuer of these
securities, provided that the issuer is not obligated to redeem securities
representing more than 1% of the issuer's total outstanding securities during
any period of less than 30 days. A separate limitation of the Investment Company
Act may limit the Fund from (i) investing more than 10% of its assets in shares
of investment companies; (ii) investing more than 5% of its assets in any one
investment company; or (iii) acquiring more than 3% of the voting stock of an
acquired investment company. As a shareholder of another investment company, the
Fund 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 the Fund bears
directly in connection with its own operations. Investment company securities
include shares of registered unit investment trusts, including DIAMONDS and
Standard & Poor's Depositary Receipts.

FUTURES CONTRACTS

The Fund may invest in stock index futures contracts. A futures contract is a
bilateral agreement wherein one party agrees to accept, and the other party
agrees to make, delivery of cash, an underlying debt security or the currency as
called for in the contract at a specified future date and at a specified price.
For futures contracts with respect to an index, delivery is of an amount of cash
equal to a specified dollar amount times the difference between the index value
at the time of the contract and the close of trading of the contract. Use of
futures contracts is subject to regulation by the several futures exchanges upon
which futures are traded and the Commodity Futures Trading Commission (the
"CFTC").

The Fund may purchase index futures contracts for several reasons: to simulate
full investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transactions costs, or to
seek higher investment returns when a futures contract is priced more
attractively than securities in the index.

As required by applicable regulatory guidelines, the Fund will set aside cash or
other appropriate liquid assets in a segregated account in the prescribed
manner. Any assets held in a segregated account cannot be sold or closed out
while the futures contract is outstanding, unless they are replaced with similar
assets. As a result, there is a possibility that the use of segregation
involving a large percentage of the Fund's assets could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.

SPECIAL CHARACTERISTICS AND RISKS OF FUTURES TRADING. No price is paid upon
entering into futures contracts; rather, the Fund is required to deposit an
amount of cash or U.S. Government securities generally equal to 5% or less of
the contract value. This amount is known as initial margin. Subsequent payments,
called variation margin, to and from the broker, would be made on a daily basis
as the value of the futures position varies. The initial margin in futures
transactions is in the nature of a performance bond

-5-
<PAGE>

or good-faith deposit on the contract that is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied.

Holders of futures contracts can enter into offsetting closing transactions by
selling a futures contract with the same terms as the position held. Positions
in futures contracts may be closed only on an exchange or board of trade
providing a secondary market for such futures contracts.

Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract may vary either up or down from the
previous day's settlement price. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that
limit. Prices could move to the daily limit for several consecutive trading days
with little or no trading and thereby prevent prompt liquidation of positions.
In such event, it may not be possible for the Fund to close a position, and in
the event of adverse price movements, the Fund would have to make daily cash
payments of variation margin. In addition:

(1) Successful use of futures contracts will require different skills
and techniques than investing in individual securities. Moreover, futures
contracts relate not to the current level of the underlying instrument but to
the anticipated levels at some point in the future; thus, for example, trading
of stock index futures contracts may not reflect the trading of the securities
that are used to formulate an index or even actual fluctuations in the index
itself.

(2) The price of index futures contracts may not correlate perfectly
with movement in the index due to price distortions in the futures market or
otherwise. There may be several reasons unrelated to the value of the underlying
securities that cause this situation to occur.

(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of variation
margin.

(4) The Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.

CFTC REQUIREMENTS. The Fund will invest in futures contracts that are subject to
the jurisdiction of the CFTC subject to the requirements of Section 4.5 of the
rules of the CFTC. Under that section the Fund is permitted to purchase such
futures or options contracts only for bona fide hedging purposes within the
meaning of the rules of the CFTC; provided, however, that in addition, with
respect to positions in commodity futures contracts not for bona fide hedging
purposes, the Fund will limit the aggregate initial margin and premiums required
to establish these positions (subject to certain exclusions) to no more than 5%
of the liquidation value of the Fund's assets after taking

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<PAGE>

into account unrealized profits and losses on any such contract into which the
Fund has entered.

REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements, which are instruments under which
the Fund 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 Fund's purchase price), thereby determining the
yield during the Fund's holding period. Repurchase agreements are, in effect,
loans collateralized by the underlying securities. In the event of a bankruptcy
or other default of a seller of a repurchase agreement, the Fund might have
expenses in enforcing its rights to the proceeds of the repurchase agreement or
collateral thereunder, and could experience losses, including a decline in the
value of the underlying security and loss of income.

REVERSE REPURCHASE AGREEMENTS

Reverse repurchase agreements are transactions in which the Fund sells a
security and simultaneously commits to repurchase that security from the buyer
at an agreed-upon price on an agreed-upon future date. The resale price in a
reverse repurchase agreement reflects a market rate of interest that is not
related to the coupon rate or maturity of the sold security. For certain demand
agreements, there is no agreed-upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase rate.

Generally, a reverse repurchase agreement enables the Fund to recover for the
term of the reverse repurchase agreement all or most of the cash invested in the
portfolio securities sold and to keep the interest income associated with those
portfolio securities. Such transactions are advantageous only if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost of
obtaining the cash otherwise. In addition, interest costs on the money received
in a reverse repurchase agreement may exceed the return received on the
investments made by the Fund with those monies. The use of reverse repurchase
agreement proceeds to make investments may be considered to be a speculative
technique.

While a reverse repurchase agreement is outstanding, the Fund will maintain
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. The Fund will enter into reverse repurchase
agreements only with parties whose creditworthiness has been found satisfactory
by the Investment Manager.

ILLIQUID SECURITIES

The Fund may invest up to 15% of its net assets in illiquid securities. The term
"illiquid securities" for this purpose means securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount at which the Fund has valued the securities and includes, among other
things, repurchase agreements maturing in more than seven days.

-7-
<PAGE>

The Board of Directors has the ultimate responsibility for determining whether
specific securities are liquid or illiquid. The Board has delegated the function
of making day-to-day determinations of liquidity to the Investment Manager,
pursuant to guidelines approved by the Board. The Investment Manager takes into
account a number of factors in reaching liquidity determinations, including but
not limited to: (1) the frequency of trades and quotations for the security; (2)
the number of dealers willing to purchase or sell the security and the number of
other potential buyers; (3) the willingness of dealers to undertake to make a
market in the security; and (4) the nature of trading in the marketplace,
including the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer. The Investment Manager monitors the
liquidity of the securities in the Fund's portfolio and reports periodically on
such decisions to the Board.

SECURITIES LENDING

The Fund may lend portfolio securities in amounts up to 33 1/3% of its total
assets to brokers, dealers and other financial institutions, provided such loans
are callable at any time by the Fund and are at all times secured by cash or by
equivalent collateral. By lending its portfolio securities, the Fund 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.

BORROWING

The Fund may borrow from banks and engage in reverse repurchase agreements. As a
matter of fundamental policy, the Fund will limit borrowings (including any
reverse repurchase agreements) to amounts not in excess of 33 1/3% of the value
of the Fund's total assets less liabilities (other than borrowings). As a
non-fundamental policy, the Fund will borrow money only as a temporary measure
for defensive or emergency purposes, in order to meet redemption requests
without immediately selling any portfolio securities.

DIVERSIFICATION AND CONCENTRATION

The Fund is classified as "non-diversified" for purposes of the Investment
Company Act, which means that the Fund is not limited by the Investment Company
Act with regard to the portion of its assets that may be invested in the
securities of a single issuer. To the extent the Fund makes investments in
excess of 5% of its assets in the securities of a particular issuer, its
exposure to the risks associated with that issuer is increased. Because the Fund
invests in a limited number of issuers, the performance of particular securities
may adversely affect the performance of the Fund or subject the Fund to greater
price volatility than that experienced by diversified investment companies.

The Fund will not concentrate its assets in the securities of issuers in any
industry. As a fundamental policy, except as set forth below, the Fund may not
purchase securities if, immediately after the purchase, more than 25% of the
value of the Fund's total assets

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<PAGE>

would be invested in the securities of issuers conducting their principal
business activities in the same industry. This limitation does not apply to
investments in U.S. Government Securities, repurchase agreements covering U.S.
Government Securities and shares of other investment companies, including unit
investment trusts and mutual funds. The Fund's investments in issuers
representing particular industries will reflect the composition of the DJIA
which, by design, reflects a range of industries; however, in the event that the
DJIA includes concentration in a particular industry, the Fund's holdings will
reflect a comparable level of concentration. Historically, emphasis by the DJIA
in particular industries has been minimized through periodic recomposition.

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

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

(2) make short sales of securities, except as may be described in the
Prospectus and SAI from time to time, or purchase securities on margin (but the
Fund may obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities);

(3) borrow money, except as permitted under the Investment Company Act;

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

(5) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities, repurchase agreements with respect to these securities, and
shares of investment companies and series thereof) if, as a result, more than
25% of the Fund's total assets would be invested in the securities of companies
whose principal business activities are in the same industry; provided, however,
that this restriction does not apply to the extent that more than 25% of the
DJIA is represented by securities of companies whose principal business
activities are in any one industry;

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

(7) buy or sell physical commodities or physical commodity (futures)
contracts, which do not include financial futures and options thereon as
described in the Prospectus and SAI from time to time; or

(8) 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.

-9-
<PAGE>

THE FOLLOWING INVESTMENT RESTRICTIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED BY
VOTE OF THE BOARD OF DIRECTORS WITHOUT SHAREHOLDER APPROVAL. THE FUND MAY NOT:

(i) purchase or hold any security if, as a result, more than 15% of its net
assets would be invested in securities that are deemed to be illiquid because
they are subject to legal or contractual restrictions on resale or because they
cannot be sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued, including repurchase
agreements not entitling the holder to payment of principal and interest within
seven days upon notice and securities restricted as to disposition under federal
securities laws, except for commercial paper issued in reliance on the "private
placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933 and securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933, which are determined to be liquid pursuant to
procedures adopted by the Company's Board of Directors; or

(ii) purchase securities of other investment companies, except to the extent
permitted by the Investment Company Act; however, the Fund 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 Fund.

LICENSE AGREEMENT

The Investment Manager is a party to the License Agreement with Dow Jones that
grants to the Investment Manager and to the Fund a non-exclusive license to use
the DJIA, the proprietary data contained therein, and related trademarks and
service marks solely in connection with the operations of the Fund. As the
licensee, the Investment Manager pays Dow Jones a licensing fee. Accordingly,
the DJIA and Dow Jones related marks are not assets of the Fund and can be
withdrawn from the Fund. Currently, the License Agreement is scheduled to expire
five years from the commencement date of initial issuance of the Fund and is
subject to a renewal term of three years (the "Renewal Term") after which the
license is automatically extended for successive additional terms of one year
each (each, an "Additional Term") unless either Dow Jones or the Investment
Manager gives written notice to the other that the Agreement will not be
extended at least 90 days before the expiration of the Renewal Term or such
Additional Term. As a condition to the Renewal Term, the assets of the Fund must
be at least $250 million. The parties thereto may extend the term of the License
Agreement beyond its final expiration date without the consent of any of the
shareholders of the Fund.

PORTFOLIO TRANSACTIONS

The Investment Manager places orders for the purchase and sale of assets with
brokers and dealers selected by and in the discretion of the Investment Manager.
In placing

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<PAGE>

orders for the Fund's portfolio transactions, the Investment Manager seeks "best
execution" (i.e., prompt and efficient execution at the most favorable prices).

Consistent with the policy of "best execution," 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. In addition, the Fund may pay higher than the lowest
available commission rates when the Investment Manager believes it is reasonable
to do so in light of the value of the brokerage and research services provided
by the broker effecting the transaction, viewed in terms of either the
particular transaction or the Investment Manager's overall responsibilities with
respect to accounts as to which it exercises investment discretion. 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. In no
event will a broker-dealer that is affiliated with the Investment Manager
receive brokerage commissions in recognition of research services provided to
the Investment Manager.

The Investment Manager intends to employ broker-dealer affiliates of the
Investment Manager (collectively "Affiliated Brokers") to effect portfolio
transactions for the Fund, provided certain conditions are satisfied. Payment of
brokerage commissions to Affiliated Brokers is subject to Section 17(e) of the
Investment Company Act and Rule 17e-1 thereunder, which require, among other
things, that commissions for transactions on securities exchanges paid by a
registered investment company to a broker which is an affiliated person of such
investment company, or an affiliated person of another person so affiliated, not
exceed the usual and customary brokers' commissions for such transactions. The
Board of Directors, including a majority of the directors who are not
"interested persons" of the Company within the meaning of such term as defined
in the Investment Company Act ("Disinterested Directors"), has adopted
procedures to ensure that commissions paid to affiliates of the Investment
Manager by the Fund satisfy the standards of Section 17(e) and Rule 17e-1.
Certain transactions may be effected for the Fund by a broker-dealer affiliate
of the Investment Manager at no net cost to the Fund; however, the broker-dealer
may be compensated by another broker-dealer in connection with such transaction
for the order flow to the second broker-dealer. Receipt of such compensation
will be subject to the Fund's procedures pursuant to Section 17(e) and Rule
17e-1.

The investment decisions for the Fund will be reached independently from those
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 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,

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<PAGE>

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 the Fund.

Purchases and sales of equity securities on exchanges are generally effected
through brokers who charge commissions. In transactions on stock exchanges in
the United States, these commissions generally are negotiated. In all cases, the
Fund will attempt to negotiate best execution.

Purchases and sales of fixed income portfolio securities are generally effected
as principal transactions. These securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. There
usually are no brokerage commissions paid for such purchases. Purchases from
underwriters of portfolio securities include a commission or concession paid by
the issuer to the underwriter, and purchases from dealers serving as market
makers include the spread between the bid and ask prices. In the case of
securities traded in the over-the-counter markets, there is generally no stated
commission, but the price usually includes an undisclosed commission or markup.

For the fiscal period ended October 31, 1998, the Fund paid no brokerage
commissions.

DIRECTORS AND EXECUTIVE OFFICERS

Responsibility for overall management of the Company rests with its Board of
Directors in accordance with Maryland law.

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<PAGE>

Department Executive of Banking Services. He is 54 years old. Mr. Dalrymple's
address is 45 Rockefeller Plaza, New York, NY 10111.

GEORGE F. STAUDTER*, Director. Mr. Staudter has served as Chairman of the Board
of Directors of the Company since December 12, 1995. Mr. Staudter is a Director
of Koger Equity, Inc. Mr. Staudter served as a Director of Waterhouse Investor
Services, Inc. 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.

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<PAGE>

to May 1994, Mr. Rio was Senior Vice President and Manager of Client Services
and Director of Internal Audit at The Boston Company. He is 43 years old.

* THIS DIRECTOR IS AN "INTERESTED PERSON" OF THE COMPANY.
** ADDRESS: 60 STATE STREET, SUITE 1300, BOSTON, MA 02109

Officers and directors who are interested persons of the Investment Manager or
FDI receive no compensation from the Company. The Company expects to pay or
accrue total directors' fees of approximately [$ ] per year to those
directors who are not designated above as interested persons. Directors who are
interested persons of the Company may be compensated by the Investment Manager
for their services to the Company.

Richard W. Dalrymple $ $0 $0 $

Carolyn B. Lewis (2) $ $0 $0 $

Theodore Rosen (3) $ $0 $0 $

George F. Staudter (4) $0 $0 $0 $0

Lawrence J. Toal $ $0 $0 $
</TABLE>

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<PAGE>

INVESTMENT MANAGEMENT, DISTRIBUTION AND OTHER SERVICES

INVESTMENT MANAGEMENT

Waterhouse Asset Management, Inc., a Delaware corporation, is the Investment
Manager of the Fund. Pursuant to the Investment Management Agreement with the
Company on behalf of the Fund, the Investment Manager manages the Fund's
investments in accordance with its stated policies and restrictions, subject to
oversight by the Company's Board of Directors.

The Investment Management Agreement, which is dated February 26, 1998, will
continue in effect for an initial two-year term, and thereafter from year to
year so long as continuation is specifically approved at least annually by a
vote of the Board of Directors or by vote of the shareholders of the Fund, and
in either case by a majority of Disinterested Directors who have no direct or
indirect financial interest in the Agreement. The agreement may be terminated as
to the Fund at any time upon 60 days prior written notice, without penalty, by
either party, or by a majority vote of the outstanding shares of the Fund, and
will terminate automatically upon assignment.

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
the Fund 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 Fund 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 the Fund, the Fund pays the
Investment Manager an annual investment management fee, accrued daily and
payable monthly, of 0.20% of the Fund's average daily net assets.

The Investment Manager and its affiliates may, from time to time, voluntarily
waive or reimburse all or a part of the Fund's operating expenses. Expense
reimbursements by

-15-
<PAGE>

the Investment Manager or its affiliates will increase the Fund's total return.
The Investment Manager has agreed to assume certain expenses of the Fund (or
waive its fees) for the first twelve months of the Fund's operations, so that
the total operating expenses payable by the Fund during the period will not
exceed 0.25% of its average daily net assets. Thereafter, any such fee waivers
or reductions will be voluntary and may be reduced or eliminated at any time
without further notice to investors.

For the fiscal period ended October 31, 1998, the Investment Manager waived its
entire investment management fee of $[ ].

ADMINISTRATION

Pursuant to an Administration Agreement with the Company and the Investment
Manager, Waterhouse Securities, as Administrator, provides administrative
services to the Fund. 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 (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. The Investment Manager (and not the Fund)
compensates Waterhouse Securities for providing services under the
Administration Agreement at the annual rate of 0.10% of the Fund's average daily
net assets.

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

The Administration Agreement, which is dated February 26, 1998, will continue in
effect for an initial two-year term, and thereafter from year to year so long as
such continuation is specifically approved at least annually by a vote of the
Board of Directors, including a majority of Disinterested Directors who have no
direct or indirect financial interest in the Agreement. The Fund or Waterhouse
Securities may terminate the Administration Agreement on 60 days' prior written
notice without penalty. Termination by the Fund 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, or by a majority of the
outstanding voting securities of the Fund. 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 the Fund
in connection

-16-
<PAGE>

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
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 perform only 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.

DISTRIBUTION

The Distribution Agreement will continue in effect only if such continuance is
specifically approved at least annually by a vote of the Board of Directors,
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, including a majority of Disinterested Directors who have no direct or
indirect financial interest in the Agreement. The Fund may terminate the
Distribution Agreement on 60 days' prior written notice without penalty.
Termination by the Fund 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 the Fund. The Agreement terminates
automatically in the event of its "assignment" as defined in the Investment
Company Act.

-17-
<PAGE>

SHAREHOLDER SERVICING

The Board of Directors has approved a Shareholder Servicing Plan ("Servicing
Plan") pursuant to which the Fund 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 0.25% of the average
daily net assets of the Fund. 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
the Fund 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
the Fund 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 only if such continuance is specifically approved at least annually by a
vote of the Board of Directors, 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, including a majority of
the Disinterested Directors who have no direct or indirect financial interest in
the Agreement. The Fund may terminate the Shareholder Services Agreement on 60
days' prior written notice without penalty. Termination by the Fund 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.

-18-
<PAGE>

and investment advisers and other money managers are urged to consult their
legal advisers before investing such assets in Company shares.

TRANSFER AGENT AND CUSTODIAN

National Investor Services Corp. (the "Transfer Agent"), 55 Water Street, New
York, an affiliate of the Investment Manager, serves as transfer and dividend
disbursing agent for the Fund. 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 0.05% of the Fund's
average daily net assets. The Transfer Agent is permitted to subcontract any or
all of its functions with respect to all or any portion of the Fund's
shareholders to one or more qualified sub-transfer agents or processing agents,
which may be affiliates of the Transfer Agent, FDI or broker-dealers authorized
to sell shares of the Fund pursuant to a selling agreement with FDI. The
Transfer Agent is permitted to compensate those agents for their services;
however, that compensation may not increase the aggregate amount of payments by
the Fund to the Transfer Agent.

Pursuant to a Custodian Agreement, The Bank of New York (the "Custodian"), 90
Washington Street, New York, NY 10286, acts as the custodian of the Fund's
assets. The Custodian, among other things, maintains a custody account or
accounts in the name of the Fund, receives and delivers all assets for the Fund
upon purchase and upon sale or maturity, collects all income and other payments
and distributions with respect to the assets of the Fund, and pays expenses of
the Fund.

OTHER EXPENSES

The Fund 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
Fund and its shares for distribution under federal and state securities laws. In
addition, the Fund pays for typesetting, printing and mailing proxy material,
prospectuses, statements of additional information, notices and reports to
existing shareholders, and the fees of the Disinterested Directors. The Fund 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 its investment
portfolios (such as the Fund) on the basis of relative net assets at the time of
allocation, except that

-19-
<PAGE>

expenses directly attributable to a particular investment portfolio are charged
to that portfolio.

DIVIDENDS AND TAXES

DIVIDENDS

It is currently contemplated that dividends of the Fund's net investment income
will be declared daily and paid monthly. No dividends will be declared on any
day on which the Fund does not receive dividends or interest income from the
securities in its portfolio. In addition, any dividends declared will be net of
Fund expenses accrued to date. In the event the Board of Directors changes the
daily dividend policy, shareholders will be notified.

CAPITAL GAIN DISTRIBUTIONS

If the Fund realizes any net capital gain, such gain will be distributed at
least once during the year as determined by the Board of Directors. Short-term
capital gain distributions by the Fund are taxable to shareholders as ordinary
income, not as capital gain. Any realized capital loss to the extent not offset
by realized capital gain will be carried forward.

TAX STATUS OF THE COMPANY

The Fund intends to continue 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 gain, if any, to
shareholders. Accordingly, it is not anticipated that the Fund will be liable
for Federal income or excise taxes to which it would otherwise be subject.
Qualification as a regulated investment company does not, of course, involve
governmental supervision of management or investment practices or policies.

The Fund is treated as a separate entity from the other investment portfolios of
the Company for tax purposes.

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.

Long-term capital gains realized by non-corporate taxpayers are subject to a
reduced maximum tax rate.

It is expected that a portion of the Fund's dividends from net investment income
will be eligible for the dividends received deduction for corporations. The
amount of such dividends eligible for the dividends received deduction is in
general, limited to the amount of qualifying dividends from domestic
corporations received during the Fund's fiscal year. You should consult with
your tax adviser in this regard.

-20-
<PAGE>

Any dividend or distribution received by a shareholder on shares of the Fund
will have the effect of reducing the NAV of the shares by the amount of the
dividend or distribution. Furthermore, a dividend or distribution made shortly
after the purchase of shares by a shareholder, although in effect a return of
capital to that particular shareholder, would be taxable to the shareholder as
described above.

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

Redemptions of Fund shares are taxable events, and, accordingly, shareholders
may recognize gains or losses on such transactions. Except for dealers, any such
gains or losses will be capital gains or losses, and will be long-term capital
gains or losses if such shares were held for more than 12 months. In the case of
an individual, any such capital gain will be taxable at the maximum rate of
20%. In the case of a corporation, long-term capital gain is taxable at the same
rates as ordinary income. A loss realized on a redemption of Fund shares will be
disallowed if other Fund shares are acquired (whether through dividend
reinvestment or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date the shares are redeemed. In such case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss. If a
shareholder holds shares for six months or less and during that period receives
a distribution taxable to the shareholder as a capital gain, any loss realized
on the sale of the shares during that six-month period would be a long-term
capital loss to the extent of the distribution.

The Fund generally 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. Dividends paid to
foreign investors generally will be subject to a 30% (or lower treaty rate)
withholding tax.

The information above, together with the information set forth in the Prospectus
and this SAI, is only a summary of some of the federal income tax consequences
generally affecting the Fund and its shareholders, and no attempt has been made
to present a detailed explanation of the tax treatment of the Fund 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 on
redemptions or other dispositions of shares of the Portfolios, and shares may be
subject to state and local personal property taxes. Investors should consult
their tax advisers regarding specific questions as to

-21-
<PAGE>

federal, state and local taxes or to determine whether the Fund 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

SHARE PRICE CALCULATION

The price of the Fund's shares on any given day is its net asset value ("NAV")
per share. NAV is calculated by the Company for the Fund on each day that the
New York Stock Exchange (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.

Securities owned by the Fund for which market quotations are readily available
are valued at current market value. The Fund values its securities as follows. A
security listed or traded on an exchange is valued at its last sale price (prior
to the time as of which assets are valued) on the exchange where it is
principally traded. Lacking any such sales on the day of valuation, the security
is valued at the mean of the last bid and asked prices. All other securities for
which over-the-counter market quotations are readily available generally are
valued at the mean of the current bid and asked prices. When market quotations
are not readily available, securities are valued at fair value as determined in
good faith by the Board. Debt securities may be valued on the basis of
valuations furnished by pricing services that utilize electronic data processing
techniques to determine valuations for normal institutional-size trading units
of debt securities, without regard to sale or bid prices, when such valuations
are believed to more accurately reflect the fair market value of such
securities. Debt obligations with remaining maturities of 60 days or less
generally are valued at amortized cost. The amortized cost method involves
valuing a security at its cost and amortizing any discount or premium over the
period until maturity, regardless of the impact of fluctuating interest rates on
the market value of the security.

The Fund intends to conduct its operations so that its NAV per share on any
given day will approximate .001 (or 1/1000) of the closing value of the DJIA
(the "Ratio"). There can be no assurance, however, that the Fund will be able to
maintain the NAV per share at or near the Ratio. For example, as with most
mutual funds, each capital gain

-22-
<PAGE>

distribution will cause a reduction of the NAV per share to the extent of the
amount distributed. In order to maintain the Fund's NAV per share at or near the
Ratio, the Fund may employ certain techniques, including declaring a share
split, share dividend or reverse share split. Share splits and dividends
increase the number of shares outstanding, resulting in a corresponding decrease
in the NAV per share. For example, a 2-for-1 split would double the number of
shares outstanding, thereby halving the NAV per share. Conversely, reverse
splits reduce the number of shares outstanding. For example, a 1-for-2 reverse
share split would halve the number of shares outstanding, thereby doubling the
NAV per share. These examples are given to illustrate the principles relating to
these techniques; the Fund's use of these techniques is expected to have a more
moderate impact on the Fund's NAV per share. The use of any of these techniques
will not change the absolute dollar value of a shareholder's investment in the
Fund (although the number of shares and the NAV per share would change) or
result in any additional tax burden to shareholders. While it is the Fund's
current intention to maintain the Fund's NAV per share at or near the Ratio and
to utilize the techniques described in this paragraph for this purpose, the
Board of Directors may in the future determine to change this policy. In the
event that the Board of Directors changes this policy, shareholders will be
notified.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares of the Fund are sold on a continuous basis by the distributor.

The minimum initial investment in shares of the Fund is $1,000. The minimum
subsequent investment is $100. Minimum requirements may be imposed or changed at
any time and the Fund may waive minimum investment requirements for purchases by
directors, officers or employees of the Company, Waterhouse or any of its
subsidiaries. Initial investment minimums do not apply to investments made
through a periodic investment program for investors who make a monthly
investment of $100 or more or a quarterly investment of $300 or more or to
Waterhouse Securities IRA accounts.

The Company normally calculates the NAV per share of the Fund as of the close of
the regular session of trading on the NYSE (normally 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, the Fund'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 the Fund's portfolio securities may not
occur on days when the Company is open for business.

-23-
<PAGE>

cash. The shareholder may have difficulty in finding a buyer for portfolio
securities received in payment for redeemed shares. Portfolio securities may
decline in value between the time of receipt by the shareholder and conversion
to cash. A redemption in kind of the Fund's portfolio securities could result in
a less diversified portfolio of investments for the Fund and could affect
adversely the liquidity of the Fund's portfolio.

PERFORMANCE

The historical performance calculation for the Fund may be shown in the form of
"total return" or "yield." These various measures of performance are described
below.

Quotations of performance may from time to time be used in advertisements, sales
literature, shareholder reports or other communications to shareholders or
prospective investors. All performance information supplied by the Fund is
historical and is not intended to indicate future returns. The Fund's total
return and yield fluctuate in response to market conditions and other factors.
The value of the Fund's shares when redeemed may be more or less than their
original cost.

In performance advertising, the Fund may compare its performance information
with data published by independent evaluators such as Morningstar, Inc., Lipper
Analytical Services, Inc., or other companies that track the investment
performance of investment companies ("Fund Tracking Companies"). The Fund may
also compare any of its performance information with the performance of
recognized stock, bond and other indexes, including but not limited to the Dow
Jones Industrial Average, Standard & Poor's 500 Composite Stock Index, Russell
2000 Index, Morgan Stanley - Europe, Australian and Far East Index, Lehman
Brothers Intermediate Government Index, Lehman Brothers Intermediate
Government/Corporate Index, Salomon Brothers Bond Index, Shearson Lehman Bond
Index, U.S. Treasury bonds, bills or notes and changes in the Consumer Price
Index as published by the U.S. Department of Commerce. The Fund may refer to
general market performances over past time periods such as those published by
Ibbotson Associates (for instance, its "Stocks, Bonds, Bills and Inflation
Yearbook"). In addition, the Fund may refer in such materials to mutual fund
performance rankings and other data published by Fund Tracking Companies.
Performance advertising may also refer to discussions of the Fund and
comparative mutual fund data and ratings reported in independent periodicals,
such as newspapers and financial magazines.

TOTAL RETURN CALCULATIONS

Standardized total returns quoted in advertising and sales literature reflect
all aspects of the Fund's return, including the effect of reinvesting dividends
and capital gain

-24-
<PAGE>

distributions, and any change in the Fund's net asset value per share over the
period. Average annual returns are calculated by determining the growth or
decline in value of a hypothetical historical investment in the Fund over a
stated period, and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline in value
had been constant over the period. For example, a cumulative return of 100% over
ten years would produce an average annual return of 7.18%, which is the steady
annual rate that would equal 100% growth on a compounded basis in ten years.
While average annual returns are a convenient means of comparing investment
alternatives, investors should realize that the performance is not constant over
time but changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of the Fund.

Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:

P(1+T)(to the nth power) = ERV

Where:
P = a hypothetical initial payment of $10,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the end
of the applicable period, of a hypothetical $1,000 payment
made at the beginning of the applicable period.

Since March 30, 1998 (the Fund's inception), the Fund's total return
(unannualized) was [ ].

In addition to average annual returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gain and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Period total return
is calculated according to the following formula:

PT = (ERV/P-1)

Where:
PT = period total return.
The other definitions are the same as in average annual total
return above.

-25-
<PAGE>

SEC YIELD CALCULATIONS

Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. The yields of the Fund are not fixed or guaranteed, and an
investment in the Fund is not insured or guaranteed. Accordingly, yield
information may not necessarily be used to compare shares of the Fund with
investment alternatives which, like money market instruments or bank accounts,
may provide a fixed rate of interest. Also, it may not be appropriate to compare
the Fund's yield information directly to similar information regarding
investment alternatives which are insured or guaranteed.

Standardized yields for the Fund used in advertising are computed by dividing
the Fund's dividend and interest income (in accordance with specific
standardized rules) for a given 30 days or one month period, net of expenses, by
the average number of shares entitled to receive distributions during the
period, dividing this figure by the Fund's NAV per share at the end of the
period and annualizing the result (assuming compounding of income in accordance
with specific standardized rules) in order to arrive at an annual percentage
rate. Capital gain and loss generally are excluded from these calculations.

Income calculated for the purpose of determining the Fund's standardized yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for the Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.

OTHER ADVERTISEMENT MATTERS

The Fund may advertise other forms of performance. For example, the Fund may
quote unaveraged or cumulative total returns reflecting the change in the value
of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, and/or a series of
redemptions over any time period.

The Fund may also include various information in its advertisements. Information
included in the Fund's advertisements may include, but is not limited to (i)
portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer, industry or by maturity, (ii) statements or illustrations relating to
the appropriateness of types of securities and/or mutual funds that may be
employed by an investor to meet specific financial goals, such as funding
retirement, paying for children's education and financially supporting aging
parents, (iii) information regarding the effects of automatic investment and
systematic withdrawal plans, including the principle of dollar cost averaging,
(iv) descriptions of the Fund's portfolio manager(s) and the portfolio
management staff of

-26-
<PAGE>

the Investment Manager or summaries of the views of the portfolio managers with
respect to the financial markets, (v) the results of a hypothetical investment
in the Fund or the DJIA over a given number of years, including the amount that
the investment would be at the end of the period, (vi) the effects of investing
in a tax-deferred account, such as an individual retirement account or Section
401(k) pension plan and (vii) the net asset value, net assets or number of
shareholders of the Fund as of one or more dates.

In connection with its advertisements, the Fund may provide information about
its Investment Manager, Waterhouse Securities or any of the Fund's other service
providers, including information relating to policies, business practices or
services. For instance, the Fund may provide information about Waterhouse
Securities in its advertisements, including the difference between commissions
paid on stock trades executed by Waterhouse Securities compared to full-price
and discount brokers (as illustrated below) and a description of services
available through Waterhouse Securities. This example is for illustrative
purposes only; investors should contact the Customer Service Department at
Waterhouse Securities at 1-800-934-4410 for information about services and
commissions.

<TABLE>
<CAPTION>
Full Price 200 shares 300 shares 500 shares 500 shares 1,000 shares
Brokers @ $25 @ $20 @ $15 @ $18 @ $14
<S> <C> <C> <C> <C> <C>
Merrill Lynch $129.50 $164.85 $205.54 $225.23 $308.28
Smith Barney 139.61 166.39 212.15 235.26 351.51
Prudential 146.35 173.35 218.35 240.35 359.35
Waterhouse
Securities 35.00 40.82 52.05 57.62 90.33

<CAPTION>
Discount 200 shares 300 shares 500 shares 500 shares 1,000 shares
Brokers @ $25 @ $20 @ $15 @ $18 @ $14
<S> <C> <C> <C> <C> <C>
Schwab $ 89.00 $ 95.60 $101.50 $106.60 $123.60
Fidelity 113.00 127.00 155.00 155.00 165.00
Quick & Reilly 60.50 65.00 77.75 81.50 94.00
Waterhouse
Securities 35.00 40.82 52.05 57.62 90.33
</TABLE>

- ----------

Survey date 8/31/98. Services may vary by firm. Commission rates surveyed are
for stocks and may vary for other products. Waterhouse Securities minimum
commission $35. This information is subject to change.

The Fund may advertise information regarding the effects of periodic investment,
including the principle of dollar cost averaging. In a dollar cost averaging
program, an investor invests a fixed dollar amount in the Fund at period
intervals, thereby purchasing fewer shares when prices are high and more shares
when prices are low. While such a strategy does not ensure a profit or guard
against a loss in a declining market, the investor's average cost per share can
be lower than if fixed numbers of

-27-
<PAGE>

shares had been purchased at those intervals. In evaluating such a plan,
investors should consider their ability to continue purchasing shares through
periods of low price levels. For example, if an investor invests $100 a month
for a period of six months in the Fund the following will be the relationship
between average cost per share ($14.35 in the example given) and average price
per share:

Systematic Share Shares
Period Investment Price Purchased
------ ---------- ----- ---------
1 $100 $10 10.000
2 $100 $12 8.333
3 $100 $15 6.666
4 $100 $20 5.000
5 $100 $18 5.555
6 $100 $16 6.250
---- --- -----
Total Invested $600 Avg. Price $15.17 Total Shares 41.804

SHAREHOLDER INFORMATION

Each investment portfolio issues shares of common stock in the Company. 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. Shares are fully paid and nonassessable when issued, are transferable
without restriction, and have no preemptive or conversion rights. Shares of the
Company have equal rights with respect to voting, except that the holders of
shares of the Fund will have the exclusive right to vote on matters affecting
only the rights of the holders of the Fund. For example, holders of a particular
investment portfolio will have the exclusive right to vote on any investment
management agreement or investment restriction that relates only to such
investment portfolio. Shareholders of the investment 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.

-28-
<PAGE>

Government Portfolio; 10 billion shares of the Municipal Portfolio; and 10
billion shares of the Waterhouse Dow 30 Fund. Each investment portfolio share is
entitled to participate pro rata in the dividends and distributions from that
investment portfolio.

OWNERSHIP OF FUND SHARES

[On [ ], the officers and directors of the Company, as a group, owned less than
1% of the outstanding shares of the Fund. (Item 14)]

-29-
<PAGE>

PART C

OTHER INFORMATION

Item 23. Exhibits.
---------

(a) (1) Articles of Incorporation (see Note B)

(2) Articles of Amendment to Articles of Incorporation dated
December 18, 1997 (see Note D)

(3) Articles of Amendment to Articles of Incorporation dated March
12, 1998 (filed herewith)

(b) By-Laws, as amended to date (see Note A)

(c) Instruments Defining Shareholder Rights (incorporated by
reference to Exhibits 1 and 2 to the Registration Statement,
as incorporated herein)

(d) (1) Investment Management Agreement between Registrant and
Waterhouse Asset Management, Inc., on behalf of Money Market
Portfolio, U.S. Government Portfolio and Municipal Portfolio,
dated October 15, 1996 (see Note C)

(2) Investment Management Agreement between Registrant and
Waterhouse Asset Management, Inc. on behalf of Waterhouse Dow
30 Fund (formerly known as Waterhouse Investors Dow Jones
Industrial Average(SM) Index Fund) dated February 26, 1998
(filed herewith)

(e) (1) Distribution Agreement between Registrant and Funds
Distributor, Inc., on behalf of Money Market Portfolio, U.S.
Government Portfolio and Municipal Portfolio, dated December
15, 1995 (see Note B)

(2) Amendment to Distribution Agreement between Registrant and
Funds Distributor, Inc. relating to the provision of services
to Waterhouse Dow 30 Fund (formerly known as Waterhouse
Investors Dow Jones Industrial Average(SM) Index Fund) dated
February 26, 1998 (filed herewith)

(3) Form of Agency Selling Agreement (see Note A)

(4) Agency Selling Agreement for Waterhouse Securities, Inc. dated
February 15, 1996 (see Note B)

(f) Inapplicable

(g) (1) Custody Agreement between Registrant and The Bank of New
York, on behalf of Money Market Portfolio, U.S. Government
Portfolio and Municipal Portfolio, dated December 19, 1995
(see Note B)

(2) Amendment to Custody Agreement between Registrant and The Bank
of New York, on behalf of Money Market Portfolio, U.S.
Government Portfolio and Municipal Portfolio, dated December
10, 1997 (filed herewith)

(3) Amendment to Custody Agreement between Registrant and The Bank
of New York relating to the provision of services to
Waterhouse Dow 30 Fund (formerly known as Waterhouse Investors
Dow Jones Industrial Average(SM) Index Fund) dated
February 12, 1998 (filed herewith)

(4) Foreign Custody Manager Agreement between Registrant and The
Bank of New York dated December 10, 1997 (filed herewith)

(h) (1) Transfer Agency and Dividend Disbursing Agency Agreement
between Registrant and Waterhouse National Bank dated October
15, 1996 (see Note C)

(2) Transfer Agency and Dividend Disbursing Agency Agreement
between Registrant and National Investor Services Corp. on
behalf of Waterhouse Dow 30 Fund (formerly known as Waterhouse
Investors Dow Jones Industrial Average(SM) Index Fund) dated
February 26, 1998 (filed herewith)

<PAGE>

(3) 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 (see Note C)

(4) Amendment to 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 Money Market Portfolio, U.S. Government
Portfolio and Municipal Portfolio, dated December 10, 1997
(filed herewith)

(5) Form of Shareholder Servicing Plan (see Note A)

(6) Form of Shareholder Services Agreement (see Note A)

(7) Shareholder Services Agreement for Waterhouse Securities Inc.
dated October 15, 1996 (see Note C)

(8) Administration Agreement between Registrant and Waterhouse
Securities, Inc., dated June 11, 1997 (see Note D)

(9) Administration Agreement between Registrant and Waterhouse
Securities, Inc. on behalf of Waterhouse Dow 30 Fund (formerly
known as Waterhouse Investors Dow Jones Industrial Average(SM)
Index Fund) dated February 26, 1998 (filed herewith)

(10) Subadministration Agreement between Waterhouse Securities,
Inc. and Funds Distributor, Inc. on behalf of Registrant
(Money Market Portfolio, U.S. Government Portfolio and
Municipal Portfolio) dated June 11, 1997 (see Note D)

(11) Amendment to Sub-Administration Agreement between Waterhouse
Securities, Inc. and Funds Distributor on behalf of Registrant
relating to the provision of services to Waterhouse Dow 30
Fund (formerly known as Waterhouse Investors Dow Jones
Industrial Average(SM) Index Fund) dated February 26, 1998
(filed herewith)

(12) Accounting Services Agreement between Waterhouse Securities,
Inc. and Countrywide Fund Services, Inc. on behalf of
Registrant (Money Market Portfolio, U.S. Government Portfolio
and Municipal Portfolio) dated February 28, 1997 (see Note D)

(13) Accounting Services Agreement between Waterhouse Securities,
Inc. and Countrywide Fund Services, Inc. on behalf of
Registrant (Money Market Portfolio, U.S. Government Portfolio
and Municipal Portfolio) dated December 10, 1997 (filed
herewith)

(14) Amendment to Accounting Services Agreement between Waterhouse
Securities, Inc. and Countrywide Fund Services, Inc. on behalf
of Registrant relating to the provision of services to
Waterhouse Dow 30 Fund (formerly known as Waterhouse Investors
Dow Jones Industrial Average(SM) Index Fund) dated
February 26, 1998 (filed herewith)

(15) State Registration Services Agreement between Registrant and
Clear Sky Corporation dated November 27, 1995 (see Note B)

(16) Amendment to State Registration Services Agreement between
Registrant and Clear Sky Corporation relating to the provision
of services to Waterhouse Dow 30 Fund (formerly known as
Waterhouse Investors Dow Jones Industrial Average(SM) Index
Fund) dated February 26, 1998 (filed herewith)

(i) Opinion and Consent of Swidler, Berlin, Shereff, Friedman,
LLP as to legality of the securities being registered (see
Note A)

(j) Inapplicable

(k) Inapplicable

(l) (1) Subscription Agreement between Registrant and FDI Distribution
Services, Inc. dated December 12, 1995 (see Note B)

<PAGE>

(2) Subscription Agreement between Registrant and FDI Distribution
Services on behalf of Waterhouse Dow 30 Fund (formerly known
as Waterhouse Investors Dow Jones Industrial Average(SM) Index
Fund) dated March 30, 1998 (filed herewith)

(m) Inapplicable

(n) Inapplicable

(o) Inapplicable

Other Exhibit:
Power of Attorney for George F. Staudter, Richard Dalrymple, Anthony J.
Pace, Lawrence Toal and Theodore Rosen dated June 12, 1996 (see Note C)

Note A: Filed as an exhibit to Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A, File Nos. 33-96132; 811-9086, on
December 12, 1995, and incorporated herein by reference.

Note B: Filed as an exhibit to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A, File Nos. 33-96132; 811-9086, on
June 20, 1996, and incorporated herein by reference.

Note C: Filed as an exhibit to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A, File Nos. 33-96132; 811-9086, on
February 28, 1997, and incorporated herein by reference.

Note D: Filed as an exhibit to Post-Effective Amendment No. 4 to Registrant's
Registration Statement on Form N-1A, File Nos. 33-96132; 811-9086, on
December 19, 1997, and incorporated herein by reference.

Item 24. Persons Controlled by or under Common Control with Registrant.
--------------------------------------------------------------

Not applicable.

Item 25. 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.

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

<PAGE>

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 26. Business and Other Connections of Investment Adviser.
-----------------------------------------------------

The following persons are the directors and officers of the Investment
Manager:

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

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

FRANK J. PETRILLI*, Director. Mr. Petrilli has served as Chairman,
President and Chief Executive Officer of Waterhouse Asset Management, Inc. since
January 1997. Mr. Petrilli has served as President and Chief Executive Officer
of Waterhouse Investor Services, Inc. since March 1998. He also served as
President and Chief Operating Officer of Waterhouse Investor Services, Inc. from
January 1995 to March 1998. 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.

<PAGE>

B. KEVIN STERNS**, Senior Vice President, Chief Financial Officer and
Treasurer. Mr. Sterns has served as Executive Vice President, Chief Financial
Officer and Treasurer of Waterhouse Investor Services, Inc. and Waterhouse
Securities, Inc. since October 1996. Prior to that, Mr. Sterns served in various
positions with Toronto-Dominion Bank from November 1970 to October 1996. He has
served as Vice President since 1990.

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
Chairman of Waterhouse Investor Services, Inc. since its inception in 1987 and
Chief Executive Officer from 1987 to March 1998. 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 27. Principal Underwriters.
- -------- -----------------------

(a) Funds Distributor, Inc. (the "Distributor") acts as principal
underwriter for the following investment companies.

American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
BJB Investment Funds
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
Founders Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
J.P. Morgan Institutional Funds
J.P. Morgan Funds
JPM Series Trust
JPM Series Trust II
Kobrick-Cendant Investment Trust
LaSalle Partners Funds, Inc.
Merrimac Series
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds I
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
National Investors Cash Management Fund, Inc.
Orbitex Group of Funds
SG Cowen Funds, Inc.

<PAGE>

SG Cowen Income + Growth Fund, Inc.
SG Cowen Standby Reserve Fund, Inc.
SG Cowen Standby Tax-Exempt Reserve Fund, Inc.
SG Cowen Series Funds, Inc.
St. Clair Funds, Inc.
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 - George A. Rio
Executive Vice President - Donald R. Roberson
Senior Vice President, General Counsel, Chief - Margaret W. Chambers
Compliance Officer, Secretary and Clerk
Senior Vice President - Michael S. Petrucelli
Director, Senior Vice President, Treasurer and - Joseph F. Tower, III
Chief Financial Officer
Senior Vice President - Paula R. David
Senior Vice President - Allen B. Closser
Senior Vice President - Bernard A. Whalen
Chairman and Director - William J. Nutt

Item 28. 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, 525 Washington Blvd., Jersey City, New Jersey 07310, or Transfer
Agent 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 29. Management Services.
--------------------

Not applicable.

Item 30. Undertakings.
-------------

Not applicable.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this 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 13th day of October, 1998.

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.

SIGNATURE TITLE DATE
- --------- ----- ----

/s/ George A. Rio President, Treasurer October 13, 1998
George A. Rio and Chief Financial
Officer

George F. Staudter* Chairman of the Board October 13, 1998
and Director

Richard W. Dalrymple* Director October 13, 1998

Lawrence J. Toal* Director October 13, 1998

*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)

<PAGE>

INDEX TO EXHIBITS
-----------------

(a)(3) Articles of Amendment to Articles of Incorporation dated March 12, 1998

(d)(2) Investment Management Agreement dated February 26, 1998

(e)(2) Amendment to Distribution Agreement dated February 26, 1998

(g)(2) Amendment to Custody Agreement dated December 10, 1997

(g)(3) Amendment to Custody Agreement dated February 12, 1998

(g)(4) Foreign Custody Manager Agreement dated December 10, 1997

(h)(2) Transfer Agency and Dividend Disbursing Agency Agreement dated
February 26, 1998

(h)(4) Amendment to Sub-Transfer Agency and Dividend Disbursing Agency
Agreement dated December 10, 1997

(h)(9) Administration Agreement dated February 26, 1998

(h)(11) Amendment to Sub-Administration Agreement dated February 26, 1998

(h)(13) Accounting Services Agreement dated December 10, 1997

(h)(14) Amendment to Accounting Services Agreement dated February 26, 1998

(h)(16) Amendment to State Registration Services Agreement dated February 26,
1998

(l)(2) Subscription Agreement dated March 30, 1998

<PAGE>

Exhibit (a)(3)

WATERHOUSE INVESTORS FAMILY OF FUNDS, INC.

ARTICLES OF AMENDMENT

TO THE ARTICLES OF INCORPORATION

Waterhouse Investors Family of Funds, Inc., a Maryland corporation
having its principal Maryland office c/o The Corporation Trust Incorporated,
300 East Lombard Street, Baltimore, Maryland 21202 (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:

FIRST: Article V(1) of the Corporation's charter is hereby amended in
its entirety to read as follows:

The total number of shares which the Corporation has
authority to issue is one hundred billion (100,000,000,000)
shares of common stock (par value $0.0001 per share),
amounting in aggregate par value to ten million dollars
($10,000,000.00). All of such shares of common stock are
classified into four separate series to be known as "Money
Market Portfolio," "U.S. Government Portfolio," "Municipal
Portfolio" and "Waterhouse Investors Dow Jones Industrial
Average(SM) Index Fund." Each such series shall be divided as
follows: the Money Market Portfolio shall consist of sixty
billion (60,000,000,000) shares; the U.S. Government
Portfolio shall consist of twenty billion (20,000,000,000)
shares; the Municipal Portfolio shall consist of ten billion
(10,000,000,000) shares and the Waterhouse Investors Dow
Jones Industrial Average(SM) Index Fund shall consist of ten
billion (10,000,000,000) shares. All of the shares of each
such series are classified as a single class.

SECOND: The foregoing amendments have been effected in the manner and
by the vote required by the Corporation's charter and the laws of the State of
Maryland. The amendments were 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.

THIRD: Except as amended hereby, the Corporation's charter shall
remain in full force and effect.

FOURTH: The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.

1
<PAGE>

The Vice President and Secretary acknowledges these Articles of
Amendment to be the corporate act of the Corporation and states that to the
best of his knowledge, information and belief, the matters set forth in these
Articles of Amendment with respect to the authorization and approval of the
amendment of the Corporation's charter are true in all material respects, and
that this statement is made under the penalties of perjury.

IN WITNESS WHEREOF, WATERHOUSE INVESTORS FAMILY OF FUNDS, INC. has
caused these Articles of Amendment to be signed in its name and on its behalf
by its Vice President and Secretary, a duly authorized officer of the
Corporation, and attested by its Assistant Secretary, effective the 12th day
of March, 1998.

WATERHOUSE INVESTORS FAMILY
OF FUNDS, INC.

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

ATTEST:

/s/ Karen Jacoppo-Wood
- -------------------------
Karen Jacoppo-Wood
Assistant Secretary

<PAGE>

Exhibit (d)(2)

INVESTMENT MANAGEMENT AGREEMENT

AGREEMENT made this 26th day of February, 1998, by and
between WATERHOUSE INVESTORS FAMILY OF FUNDS, INC., a Maryland corporation,
whose address is 100 Wall Street, New York, New York 10005 (the "Fund") and
WATERHOUSE ASSET MANAGEMENT, INC., a Delaware corporation, whose address is
100 Wall Street, New York, New York 10005 (the "Investment Manager").

W I T N E S S E T H:

WHEREAS, the Fund is an open-end, management investment
company, registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), with distinct series of shares each having its own investment
objectives, policies and restrictions, including Waterhouse Investors Dow
Jones Industrial Average(SM) Index Fund (the "Portfolio"), as more fully
described in the Fund's Registration Statement on Form N-1A under the 1940 Act
and the Securities Act of 1933, as amended (the "Registration Statement"), as
filed with the Securities and Exchange Commission (the "Commission") relating
to the Fund and shares of the Fund's capital stock, and all amendments
thereto;

WHEREAS, the Investment Manager is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended; and

WHEREAS, the Fund and the Investment Manager desire to enter
into an agreement to provide for comprehensive management and investment
advisory services to the Portfolio upon the terms and conditions hereinafter
set forth.

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

1. Duties of Investment Manager. (a) The Fund hereby employs
the Investment Manager to act as the investment adviser for the Portfolio and
to manage the investment and reinvestment of the assets of the Portfolio in
accordance with the investment objectives, policies and restrictions of the
Portfolio as the same are set forth in the Registration Statement, and in
accordance with the requirements of the 1940 Act and all other applicable
state and federal laws, rules and regulations, subject to the supervision of
the Board of Directors of the Fund for the period and upon the terms herein
set forth. The investment of funds shall also be subject to all applicable
restrictions of the Articles of Incorporation and By-laws of the Fund as may
from time to time be in force. Without limiting the generality of the
foregoing, the Investment Manager shall:

(i) formulate and implement a continuing program for the
purchases and sales of securities for the Portfolio and regularly report
thereon to the Fund's Board of Directors; and

(ii) make decisions with respect to and take, on behalf of
the Portfolio, all actions which appear necessary to carry into effect such
purchase and sale program and supervisory

3
<PAGE>

functions aforesaid, including the placing of orders for the purchase and sale
of securities for the Portfolio.

(b) Subject to the supervision and direction of the Board of
Directors of the Fund, the Investment Manager also shall perform or arrange
for the performance of the following administrative and clerical services with
respect to the Portfolio: (i) maintain and preserve the books and records,
including financial and corporate records, of the Fund as required by law or
otherwise for the proper operation of the Fund; (ii) prepare and, subject to
approval by the Fund, file registration statements, notices, reports and other
documents required by U.S. Federal, state and other applicable laws and
regulations (other than state "blue sky" laws), including proxy materials and
periodic reports to Fund shareholders, oversee the preparation and filing of
registration statements, notices, reports and other documents required by
state "blue sky" laws, and oversee the monitoring of sales of shares of the
Fund for compliance with state securities laws; (iii) calculate and publish,
or arrange for the calculation and publication of, the net asset value of the
Portfolio's shares; (iv) calculate, or arrange for the calculation of,
dividends and distributions and performance data, and prepare other financial
information regarding the Portfolio; (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 Portfolio's investment policies and
restrictions as set forth in the Portfolio's currently effective Prospectus
and Statement of Additional Information filed under the Securities Act of
1933, as amended; and (xiii) provide such assistance to 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.
Notwithstanding anything to the contrary herein contained, the Fund, and not
the Investment Manager, shall be responsible for and bear the cost of any
third party pricing services or any third party blue sky services.

(c) The Investment Manager accepts such employment and
agrees during such period to render such services and to assume the
obligations herein set forth for the compensation herein provided. The
Investment Manager shall give the Portfolio the benefit of its best judgment,
efforts and facilities in rendering its services as an investment manager. The
Investment Manager shall for all purposes herein provided be deemed to be an
independent contractor and, unless

4
<PAGE>

otherwise expressly provided or authorized, shall have no authority to act for
or represent the Fund in any way or otherwise be deemed an agent of the Fund.
It is understood and agreed that the Investment Manager, by separate
agreements with the Fund, may also serve the Fund in other capacities. It is
further agreed that the Investment Manager and its officers and directors are
not prohibited from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, officers or
directors of any other firm or corporation, including other investment
companies, so long as its or their services hereunder are not impaired
thereby. It is further agreed that personnel of the Investment Manager may
invest in securities for their own account pursuant to a code of ethics that
sets forth all employees' fiduciary responsibilities regarding the Fund,
establishes procedures for personal investing and restricts certain
transactions.

(d) The Investment Manager shall keep any books and records
relevant to the provision of its investment advisory services to the Portfolio
and shall specifically maintain all books and records with respect to the
Portfolio's securities and portfolio transactions and shall render to the
Fund's Board of Directors such periodic and special reports as the Board may
reasonably request. The Investment Manager agrees that all records which it
maintains for the Fund are the property of the Fund and it will surrender
promptly to the Fund any such records upon the Fund's request, provided
however that the Investment Manager may retain a copy of such records. The
Investment Manager further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any such records kept by the Investment Manager
in connection with investment advisory services provided pursuant hereto.

(e) The Fund has delivered to the Investment Manager copies
of each of the following documents and will deliver to it all future
amendments and supplements thereto, if any:

(i) The Registration Statement; and

(ii) The Prospectus of the Portfolio (such Prospectus
and the related Statement of Additional Information
of the Portfolio, as currently in effect and as
amended or supplemented from time to time, being
herein collectively called the "Prospectus").

(f) The Fund shall at all times keep the Investment Manager
fully informed with regard to the securities owned by the Portfolio, its funds
available or to become available for investment, and generally as to the
condition of its affairs. The Fund shall furnish the Investment Manager with a
copy of all financial statements and each report prepared by certified public
accountants with respect to it, and with such other information with regard to
its affairs as the Investment Manager may from time to time reasonably
request.

(g) The Investment Manager may enter into agreements with
one or more other persons, including affiliates of the Investment Manager, to
perform any or all the Investment Manager's duties hereunder, provided that
(i) any such agreement shall have been approved by the Board of Directors of
the Fund; (ii) the Investment Manager 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; and (iii) the cost of performance of
such duties by others are to be borne and paid by the Investment Manager.

5
<PAGE>

(h) Any investment program undertaken by the Investment
Manager pursuant to this Agreement, as well as any other activities undertaken
by the Investment Manager on behalf of the Portfolio pursuant thereto, shall
at all times be subject to any directives of the Board of Directors.

2. Expenses. The Investment Manager shall pay all of its
expenses arising from the performance of its obligations under Section 1 of
this Agreement, including the payment of any persons engaged pursuant to
Section l(g), and shall pay any salaries, fees and expenses of Fund directors
or officers who are employees, officers or directors of the Investment
Manager.

The Investment Manager shall not be required to pay any
other expenses of the Fund or the Portfolio, including (a) the fees and
expenses of directors who are not "interested persons" of the Fund, as defined
by the 1940 Act, and travel and related expenses of the directors for
attendance at meetings; (b) the fees and expenses of the custodian and
transfer agent of the Fund or any pricing service, including but not limited
to fees and expenses relating to Fund accounting, pricing of portfolio shares,
and computation of net asset value; (c) the fees and expenses of calculating
yield and/or performance of the Portfolio; (d) the charges and expenses of
legal counsel and independent accountants; (e) taxes and corporate fees
payable to governmental agencies; (f) the costs of share certificates and of
membership dues of any trade association of which the Fund is a member; (g)
reimbursement of the organization expenses of the Portfolio; (h) the fees and
expenses involved in registering and maintaining registration of the Fund and
the Portfolio's shares with the Commission, blue sky service providers,
registering the Fund as a broker or dealer and qualifying the shares of the
Portfolio (or applying for applicable exemptions, as the case may be) under
state securities laws, including the preparation and printing of the
registration statements and prospectuses for such purposes; (i) allocable
communications expenses with respect to investor services, expenses of
shareholders' and Board of Directors' meetings and preparing, printing and
mailing proxies, prospectuses and reports to shareholders; (j) costs of
acquiring and disposing of portfolio securities, including but not limited to
brokers' commissions, dealers' mark-ups and any issue or transfer taxes
chargeable in connection with the Portfolio's transactions; (k) the cost of
stock certificates representing shares of the Portfolio, if any; (l) insurance
expenses, including, but not limited to, the cost of a fidelity bond,
directors and officers insurance and errors and omissions insurance; and (m)
litigation and indemnification expenses, expenses incurred in connection with
mergers, and other extraordinary expenses not incurred in the ordinary course
of the Portfolio's business.

3. Compensation. (a) For the services described in Section 1
hereof, the Fund, on behalf of the Portfolio, will pay to the Investment
Manager promptly after the end of each calendar month, an investment
management fee computed at the annual rate applicable to the Portfolio set
forth on Schedule A hereto. The fee as computed in accordance with Schedule A
shall be based upon the net assets of the Portfolio as to which this Agreement
is then effective. The value of the net assets for the Portfolio shall be
calculated in accordance with the provisions of the Portfolio's Prospectus.
For purposes of this Agreement, on each day when net asset value is not
calculated, the net assets of the Portfolio shall be deemed to be the net
assets of the Portfolio as of the close of business on the last day on which
net asset value was determined. Except as hereinafter set forth, compensation
under this Agreement shall be calculated and accrued daily and the amounts of
the daily accruals shall be paid monthly in arrears (i.e., the applicable
annual fee rate divided by

6
<PAGE>

365 as applied to each prior day's net assets in order to calculate the daily
accrual). If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month, compensation for that
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fees as set forth above.

(b) In the event the operating expenses of the Portfolio
including all management fees, for any fiscal year ending on a date on which
this Agreement is in effect exceed the expense limitation applicable to the
Portfolio imposed by the securities laws or regulations thereunder of any
state or jurisdiction in which the Portfolio's shares are qualified for sale,
as such limitations may be raised or lowered from time to time, the Investment
Manager shall reduce its management fee to the extent of such excess and, if
required, pursuant to any such laws or regulations, will reimburse the
Portfolio for any annual operating expenses (after reductions of all
management fees) in excess of any expense limitation that may be applicable;
provided, however, there shall be excluded from such expenses the amount of
any interest, taxes, brokerage commission and extraordinary expenses
(including but not limited to legal claims and liabilities and litigation
costs and any indemnification related thereto) paid or payable by the Fund and
attributable to the Portfolio. Such reduction, if any, shall be computed and
accrued daily, shall be settled on a monthly basis and shall be based upon the
expense limitation applicable to the Portfolio as at the end of the last
business day of the month. Should two or more such expense limitations be
applicable as at the end of the last business day of the month, that expense
limitation which results in the largest reduction in the Investment Manager's
fee shall be applicable.

4. Brokerage. In managing the assets of the Portfolio, the
Investment Manager shall purchase securities from or through and sell
securities to or through such persons, brokers or dealers as the Investment
Manager shall deem appropriate in conformity with applicable law and with the
terms of the Registration Statement, and as the Fund's Board of Directors may
direct from time to time. Without limiting the generality of the foregoing,
the Investment Manager will implement the Fund's policy of seeking the best
execution of orders, which includes best net prices, in effecting purchases
and sales of portfolio securities for the account of the Portfolio (consistent
with this obligation, when the execution and price offered by two or more
persons, brokers or dealers are comparable, the Investment Manager, in its
discretion, purchase and sell portfolio securities to and from persons,
brokers and dealers who provide the Investment Manager with research advice
and other services).

On occasions when the Investment Manager deems the purchase
or sale of securities to be in the best interest of the Portfolio and one or
more of the other investment portfolios of the Fund, 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.

5. Interested Persons. No director, officer or employee of
the Fund shall receive from the Fund any salary or other compensation as such
director, officer or employee while he or she is at the same time a director,
officer or employee of the Investment Manager or any

7
<PAGE>

affiliated person (as defined in the 1940 Act) thereof. The Investment Manager
shall authorize and permit any of its directors, officers and employees who
may be elected as directors or officers of the Fund to serve in the capacities
in which they are elected, subject to their individual consent and to any
limitations imposed by law. All services to be furnished by the Investment
Manager under this Agreement may be furnished through the medium of any such
directors, officers or employees of the Investment Manager.

6. Limitation of Liability. Subject to Section 36 of the
1940 Act, the Investment Manager shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Portfolio in connection with
the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the
Investment Manager in the performance of its obligations and duties or by
reason of its reckless disregard of its obligations and duties under this
Agreement.

7. Non-Exclusive Use of the Name "Waterhouse". The Fund
acknowledges that it adopted its name and the name of the Portfolio through
the permission of the Investment Manager, and that the Fund is subject to the
provisions of that certain Sublicense Agreement between the Investment Manager
and the Fund dated December 12, 1995. The Investment Manager hereby consents
to the non-exclusive use by the Fund of the marks "Waterhouse", "Waterhouse
Investors Family of Funds" and the Waterhouse logo only so long as the
Investment Manager (or its affiliate or successor) serves as the investment
manager to one or more portfolios of the Fund. The Fund covenants and agrees
to protect, exonerate, defend, indemnify and hold harmless the Investment
Manager, its officers, agents and employees from and against any and all
costs, losses, claims, damages or liabilities, joint or several, including all
legal expenses which may arise or have arisen out of the Fund's use or misuse
of the name "Waterhouse", "Waterhouse Investors Family of Funds" or the
Waterhouse logo or out of any breach of or failure to comply with this
paragraph.

Neither the Fund nor the Portfolio shall distribute or
circulate any prospectus, proxy statement, sales literature, promotional
material or other printed matter required to be filed with the Securities and
Exchange Commission under Section 24(b) of the 1940 Act which contains any
reference to the Investment Manager or using the name "Waterhouse",
"Waterhouse Investors Family of Funds" or the Waterhouse logo without the
approval of the Investment Manager and shall submit all such materials
requiring approval of the Investment Manager in draft form, allowing
sufficient time for review by the Investment Manager and its counsel prior to
any deadline for printing. If the Investment Manager or any successor to its
business shall cease to furnish services to the Fund under this Agreement or
similar contractual arrangement, the Fund:

(a) as promptly as practicable, will take all necessary
action to cause its Articles of Incorporation to be amended to accomplish a
change of name; and

(b) within 90 days after the termination of this Agreement
or such similar contractual arrangement, shall cease to use in any other
manner, including but not limited to use in any prospectus, sales literature
or promotional material, the name "Waterhouse", "Waterhouse Investors Family
of Funds" and the Waterhouse logo or any name, mark or logotype derived from
or similar to such marks or indicating that the Fund or the Portfolio is
managed by or otherwise associated with the Investment Manager.

8
<PAGE>

8. Term of Agreement. This Agreement shall become effective
upon its execution by an authorized officer of the respective parties hereto.
This Agreement shall continue in effect for an initial two-year term, and
thereafter from year to year so long as such continuation is specifically
approved at least annually in conformity with the requirements of the 1940 Act
with regard to investment advisory contracts; provided, however, that this
Agreement may be terminated at any time without the payment of any penalty by
the Fund, by the Board or by "vote of a majority of the outstanding voting
securities" (as defined in the 1940 Act) of the Portfolio, or by the
Investment Manager on not less than 60 days' written notice to the other
party. This Agreement shall terminate automatically in the event of its
"assignment" (as defined in the 1940 Act).

Termination of this Agreement shall not affect the right of
the Investment Manager to receive payments on any unpaid balance of the
compensation described in Section 3 hereof earned prior to such termination.

9. Amendments; Partial Invalidity. This Agreement may be
amended by mutual consent, but the consent of the Fund must be obtained in
conformity with the requirements of the 1940 Act. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder shall not be thereby affected.

10. Notices. All notices or other communications hereunder
to either party shall be in writing and shall be deemed to be received on the
earlier of the date actually received or on the fourth day after postmark if
such notice is mailed first class postage prepaid. Notice shall be addressed:
(a) if to the Fund, to: President, Waterhouse Investors Investors Family of
Funds, Inc., 100 Wall Street, New York, New York 10005; or (b) if to the
Investment Manager, to: President, Waterhouse Asset Management, Inc., 100 Wall
Street, New York, New York 10005, or at such other address as either party may
designate by written notice to the other. Notice shall also be deemed
sufficient if given by telex, telecopier, telegram or similar means of same
day delivery (with a confirming copy by mail as provided herein).

11. Entire Agreement; Governing Law. This Agreement contains
the entire agreement between the parties hereto and supersedes all prior
agreements, understandings and arrangements with respect to the subject matter
hereof. This Agreement shall be construed in accordance with applicable
federal law and the laws of the State of New York. Anything herein to the
contrary notwithstanding, this Agreement shall not be construed to require, or
to impose any duty upon, either of the parties to do anything in violation of
any applicable laws or regulations.

IN WITNESS WHEREOF, the Fund and the Investment Manager have
caused this Agreement to be executed as of the day and year first above
written.

WATERHOUSE INVESTORS FAMILY
OF FUNDS, INC.

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

9
<PAGE>

WITNESS:

/s/ Karen Jacoppo-Wood
- ----------------------------
WATERHOUSE ASSET MANAGEMENT, INC.

By: /s/ David Hartman
----------------------------

WITNESS:

/s/ Michele R. Teichner
- ----------------------------

10
<PAGE>

SCHEDULE A

Fees

For the services provided by the Investment Manager under the foregoing
agreement to the Portfolio, the Investment Manager will receive the following
fee:

An annual fee, payable monthly, of .20 of 1% of average daily net assets of
the Portfolio.

<PAGE>

Exhibit (e)(2)

Dated: February 26, 1998

EXHIBIT A TO THE
DISTRIBUTION AGREEMENT
BETWEEN
WATERHOUSE INVESTORS FAMILY OF FUNDS, INC.
AND
FUNDS DISTRIBUTOR, INC.

Series of Funds

WATERHOUSE INVESTORS FAMILY OF FUNDS, INC.
Money Market Portfolio
U.S. Government Portfolio
Municipal Portfolio
Waterhouse Investors Dow Jones Industrial Average(SM) Index Fund

WATERHOUSE INVESTORS FAMILY
OF FUNDS, INC.

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

FUNDS DISTRIBUTOR, INC.

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

<PAGE>

Exhibit (g)(2)

AMENDMENT TO THE CUSTODY AGREEMENT BETWEEN WATERHOUSE
INVESTORS FAMILY OF FUNDS, INC. AND THE BANK OF NEW YORK

Amendment made as of December 10, 1997 to the Custody Agreement as of
December 19, 1995 (the "Agreement") between Waterhouse Investors Family of
Funds, Inc. (formerly "Waterhouse Investors Cash Management Fund, Inc." and
hereinafter the "Fund") and The Bank of New York (hereinafter the "Bank").

WITNESSETH:

WHEREAS, the Bank and the Fund desire to make an amendment to the Agreement;

NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereby agree as follows:

1. The definition of "Certificate" in Article I, Section 3 of the Agreement is
hereby amended to read in its entirety as follows:

"Certificate" shall mean any notice, instruction, or other instrument
in writing, authorized or required by this Agreement to be given to
the Custodian which is actually received by the Custodian and signed
on behalf of the Fund by any two Officers or other authorized
signatories of the Fund, and the term Certificate shall also include
instructions by the Fund to the Custodian communicated by a Terminal
Link.

2. Except as specifically amended hereby, the Agreement remains in full force
and effect.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Agreement to be executed by their respective corporate Officers, thereunto
duly authorized and their respective corporate seals to be hereunto affixed,
as of the day and year first hereinabove written.

WATERHOUSE INVESTORS FAMILY
OF FUNDS, INC.

[SEAL] By: /s/ Richard W. Ingram
------------------------
Attest:

/s/ Karen Jacoppo-Wood

THE BANK OF NEW YORK

[SEAL] By: /s/ Stephen E. Grunston
------------------------
Vice President

13
<PAGE>

Attest:

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

<PAGE>

Exhibit (g)(3)

AMENDMENT TO CUSTODY AGREEMENT BETWEEN WATERHOUSE INVESTORS
FAMILY OF FUNDS, INC. AND THE BANK OF NEW YORK

Amendment made as of February 12, 1998 to the Custody Agreement dated
as of December 19, 1995 (the "Agreement") between Waterhouse Investors Family
of Funds, Inc. (formerly "Waterhouse Investors Cash Management Fund, Inc." and
hereinafter the "Fund") and The Bank of New York (hereinafter the "Bank") as
previously amended on December 10, 1997.

WITNESSETH:

WHEREAS, the bank and the Fund desire to make an amendment to the Agreement;

NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereby agree as follows:

1. Appendix B is hereby amended to read in its entirety as follows:

SERIES
Money Market Portfolio
U.S. Government Portfolio
Municipal Portfolio
Waterhouse Investors Dow Jones Industrial Average(SM) Index Fund.

2. The first sentence of paragraph 1 of Article XVIII is hereby amended by
replacing the phrase "not less than ninety (90) days" with the phrase "not
less than sixty (60) days."

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective corporate officers, thereunto duly authorized and
their respective corporate seals to be hereunto affixed, as of the day and
year above written.

WATERHOUSE INVESTORS FAMILY
OF FUNDS, INC.

By: /s/ Richard W. Ingram
------------------------
[SEAL]

Attest:

/s/ Karen Jacoppo-Wood
- ------------------------

15
<PAGE>

THE BANK OF NEW YORK

By: /s/ Stephen E. Grunston
------------------------
Vice President

[SEAL]

Attest:

<PAGE>

Exhibit (g)(4)

FOREIGN CUSTODY MANAGER AGREEMENT

AGREEMENT made as of December 10, 1997, between Waterhouse Investors
Family of Funds, Inc., formerly Waterhouse Investors Cash Management Funds,
Inc. (the "Fund") and The Bank of New York ("BNY").

W I T N E S S E T H:

WHEREAS, the Fund desires to appoint BNY as a Foreign Custody Manager
on the terms and conditions contained herein;

WHEREAS, BNY desires to serve as a Foreign Custody Manager and
perform the duties set forth herein on the terms and condition contained
herein;

NOW THEREFORE, in consideration of the mutual promises hereinafter
contained in this Agreement, the Fund and BNY hereby agree as follows:

ARTICLE I
DEFINITIONS

Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:

1. "Board" shall mean the board of directors or board of trustees, as
the case may be, of the Fund.

2. "Eligible Foreign Custodian" shall have the meaning provided in
the Rule.

3. "Monitoring System" shall mean a system established by BNY to
fulfill the Responsibilities specified in clauses 1(d) and 1(e) of Article III
of this Agreement.

4. "Qualified Foreign Bank" shall have the meaning provided in the
Rule.

5. "Responsibilities" shall mean the responsibilities delegated to
BNY as a Foreign Custody Manager with respect to each Specified Country and
each Eligible Foreign Custodian selected by BNY, as such responsibilities are
more fully described in Article III of this Agreement.

6. "Rule" shall mean Rule 17f-5 under the Investment Company Act of
1940, as amended, as such Rule became effective on June 16, 1997, and as may
hereafter be amended from time to time.

7. "Securities Depository" shall mean any securities depository or
clearing agency within the meaning of Section (a)(1)(ii) or (a)(1)(iii) of the
Rule.

17
<PAGE>

8. "Specified Country" shall mean each country listed on Schedule I
attached hereto and each country, other than the United States, constituting
the primary market for a security with respect to which the Fund has given
settlement instructions to The Bank of New York as custodian (the "Custodian")
under its Custody Agreement with the Fund.

ARTICLE II
BNY AS A FOREIGN CUSTODY MANAGER

1. The Fund on behalf of its Board hereby delegates to BNY with
respect to each Specified Country the Responsibilities.

2. BNY accepts the Board's delegation of Responsibilities with
respect to each Specified Country and agrees in performing the
Responsibilities as a Foreign Custody Manager to exercise reasonable care,
prudence and diligence such as a person having responsibility for the
safekeeping of the Fund's assets would exercise.

3. BNY shall provide to the Board at such times as the Board deems
reasonable and appropriate based on the circumstances of the Fund's foreign
custody arrangements, but not less frequently than quarterly, written reports
notifying the Board of the placement of assets of the Fund with a particular
Eligible Foreign Custodian within a Specified Country and of any material
change in the arrangements (including, in the case of Qualified Foreign Banks,
any material change in any contract governing such arrangements and in the
case of Securities Depositories, any material change in the established
practices or procedures of such Securities Depositories) with respect to
assets of the Fund with any such Eligible Foreign Custodian.

ARTICLE III
RESPONSIBILITIES

1. Subject to the provisions of this Agreement, BNY shall with
respect to each Specified Country select an Eligible Foreign Custodian. In
connection therewith, BNY shall: (a) determine that assets of the Fund held by
such Eligible Foreign Custodian will be subject to reasonable care, based on
the standards applicable to custodians in the relevant market in which such
Eligible Foreign Custodian operates, after considering all factors relevant to
the safekeeping of such assets, including, without limitation, those contained
in Section (c)(1) of the Rule; (b) determine that the Fund's foreign custody
arrangements with each Qualified Foreign Bank are governed by a written
contract with the Custodian (or, in the case of a Securities Depository, by
such a contract, by the rules or established practices or procedures of the
Securities Depository, or by any combination of the foregoing) which will
provide reasonable care for the Fund's assets based on the standards specified
in paragraph (c)(1) of the Rule; (c) determine that each contract with a
Qualified Foreign Bank shall include the provisions specified in paragraph
(c)(2)(i)(A) through (F) of the Rule or, alternatively, in lieu of any or all
of such (c)(2)(i)(A) through (F) provisions, such other provisions as BNY
determines will provide, in their entirety, the same or a greater level of
care and protection for the assets of the Fund as such specified provisions;
(d) monitor pursuant to the Monitoring System the appropriateness of
maintaining the assets of the Fund with a particular Eligible Foreign
Custodian pursuant to paragraph (c)(1) of the Rule and in

18
<PAGE>

the case of a Qualified Foreign Bank, any material change in the contract
governing such arrangement and in the case of a Securities Depository, any
material change in the established practices or procedures of such Securities
Depository; and (e) advise the Fund promptly whenever an arrangement
(including, in the case of a Qualified Foreign Bank, any material change in
the contract governing such arrangement and in the case of a Securities
Depository, any material change in the established practices or procedures of
such Securities Depository) described in preceding clause (d) no longer meets
the requirements of the Rule. Anything in this Agreement to the contrary
notwithstanding, BNY shall in no event be deemed to have selected any
Securities Depository the use of which is mandatory by law or regulation or
because securities cannot be withdrawn from such Securities Depository, or
because maintaining securities outside the Securities Depository is not
consistent with prevailing custodial practices in the relevant market (each, a
"Compulsory Depository"); it being understood however, that for each
Compulsory Depository utilized or intended to be utilized by the Fund, BNY
shall provide the Fund from time to time with information addressing the
factors set forth in Section (c)(1) of the Rule and BNY's opinions with
respect thereto so that the Fund may determine the appropriateness of placing
Fund assets therein. BNY shall also provide to the Fund or its designee such
other information relating to the Specified Countries as may reasonably be
requested by the Fund to assist in the Fund's evaluation of Country Risk,
including without limitation, information relating to each Specified Country's
custody and settlement practices.

2. (a) For purposes of Clauses (a) and (b) of preceding Section 1 of
this Article, with respect to Securities Depositories, it is understood that
such determination shall be made on the basis of, and limited by, publicly
available information with respect to each such Securities Depository.

(b) For purposes of clause (d) of preceding Section 1 of this
Article, BNY's determination of appropriateness shall not include, nor be
deemed to include, any evaluation of Country Risks associated with investment
in a particular country. For purposes hereof, "Country Risks" shall mean
systemic risks of holding assets in a particular country including, but not
limited to, (a) the use of Compulsory Depositories, (b) such country's
financial infrastructure, (c) such country's prevailing custody and settlement
practices, (d) nationalization, expropriation or other governmental actions,
(e) regulation of the banking or securities industry, (f) currency controls,
restrictions, devaluations or fluctuations, and (g) market conditions which
affect the orderly execution of securities transactions or affect the value of
securities.

ARTICLE IV
REPRESENTATIONS

1. The Fund hereby represents that: (a) this Agreement has been duly
authorized, executed and delivered by the Fund, constitutes a valid and
legally binding obligation of the Fund enforceable in accordance with its
terms, and no statute, regulation, rule, order, judgment or contract binding
on the Fund prohibits the Fund's execution or performance of this Agreement;
(b) this Agreement has been approved and ratified by the Board at a meeting
duly called and at which a quorum was at all times present; and (c) the Board
or its investment advisor has considered the Country Risks associated with
investment in each Specified Country and will

19
<PAGE>

have considered such risks prior to any settlement instructions being given to
the Custodian with respect to any other Specified Country.

2. BNY hereby represents that: (a) BNY is duly organized and existing
under the laws of the State of New York, with full power to carry on its
businesses as now conducted, and to enter into this Agreement and to perform
its obligations hereunder; (b) this Agreement has been duly authorized,
executed and delivered by BNY, constitutes a valid and legally binding
obligation of BNY enforceable in accordance with its terms, and no statute,
regulation, rule, order, judgment or contract binding on BNY prohibits BNY's
execution or performance of this Agreement; and (c) BNY has established the
Monitoring System.

ARTICLE V
CONCERNING BNY

1. BNY shall not be liable for any costs, expenses, damages,
liabilities or claims, including attorneys' and accountants' fees, sustained
or incurred by, or asserted against, the Fund except to the extent the same
arises out of the failure of BNY to exercise the care, prudence and diligence
required by Section 2 of Article II hereof. In no event shall BNY be liable to
the Fund, the Board, or any third party for special, indirect or consequential
damages, or for lost profits or loss of business, arising in connection with
this Agreement.

2. The Fund shall indemnify BNY and hold it harmless from and against
any and all costs, expenses, damages, liabilities or claims, including
reasonable attorneys' and accountants' fees, sustained or incurred by, or
asserted against, BNY by reason or as a result of any action or inaction, or
arising out of BNY's performance hereunder, provided that the Fund shall not
indemnify BNY to the extent any such costs, expenses, damages, liabilities or
claims arises out of BNY's failure to exercise the reasonable care, prudence
and diligence required by Section 2 of Article II hereof, including without
limitation, in the event of BNY's negligence or willful misconduct.

3. For its services hereunder, the Fund agrees to pay to BNY such
compensation and out-of-pocket expenses as shall be mutually agreed.

4. BNY shall have only such duties as are expressly set forth herein.
In no event shall BNY be liable for any Country Risks associated with
investments in a particular country.

ARTICLE VI
MISCELLANEOUS

1. This Agreement constitutes the entire agreement between the Fund
and BNY, and no provision in the Custody Agreement between the Fund and the
Custodian shall affect the duties and obligations of BNY hereunder, nor shall
any provision in this Agreement affect the duties or obligations of the
Custodian under the Custody Agreement.

2. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to BNY, shall be sufficiently given if received
by it at its offices at 90

20
<PAGE>

Washington Street, New York, New York 10286, or at such other place as BNY may
from time to time designate in writing.

3. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Fund shall be sufficiently given if
received by it at its offices at 100 Wall Street, New York, New York 10005 or
at such other place as the Fund may from time to time designate in writing.

4. In case any provision in or obligation under this Agreement shall
be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions shall not in any way
be affected thereby. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties. This Agreement
shall extend to and shall be binding upon the parties hereto, and their
respective successors and assigns; provided however, that this Agreement shall
not be assignable by either party without the written consent of the other.

5. This Agreement shall be construed in accordance with the
substantive laws of the State of New York, without regard to conflicts of laws
principles thereof. The Fund and BNY hereby consent to the exclusive
jurisdiction of a state or federal court situated in New York City, New York
in connection with any dispute arising hereunder. The Fund and BNY each hereby
irrevocably waives any and all rights to trial by jury in any legal proceeding
arising out of or relating to this Agreement.

6. The parties hereto agree that in performing hereunder, BNY is
acting solely on behalf of the Fund and no contractual or service relationship
shall be deemed to be established hereby between BNY and any other person.

7. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.

8. This Agreement shall terminate simultaneously with the termination
of the Custody Agreement between the Fund and the Custodian, and may otherwise
be terminated by either party giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than thirty
(30) days after the date of such notice.

21
<PAGE>

IN WITNESS WHEREOF, the Fund and BNY have caused this Agreement to be
executed by their respective officers, thereunto duly authorized, as of the
date first above written.

WATERHOUSE INVESTORS FAMILY
OF FUNDS, INC., FORMERLY
WATERHOUSE INVESTORS CASH
MANAGEMENT FUNDS, INC.

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

Title: President

Tax Identification No.:

THE BANK OF NEW YORK

By: /s/ Stephen E. Grunston
-------------------------

Title: Vice President

22
<PAGE>

SCHEDULE 1

FOREIGN CUSTODY MANAGER AGREEMENT

SCHEDULE I

Argentina Luxembourg
Australia Malaysia
Austria Mauritius
Bangladesh Mexico
Belgium Morocco
Bermuda Namibia
Botswana Netherlands
Brazil New Zealand
Bulgaria Nigeria
Canada Norway
Chile Pakistan
China Peru
Colombia Philippines
Cyprus Poland
Czech Republic Portugal
Denmark Russia
Easdaq Singapore
Ecuador Slovenia
Egypt South Africa
Estonia Spain
Euromarket (Cedel) Sri Lanka
Finland Swaziland
France Sweden
Germany Switzerland
Ghana Taiwan
Greece Thailand
Hong Kong Tunisia
Hungary Turkey
India Ukraine
Indonesia United Kingdom
Ireland United States
Israel Uruguay
Italy Venezuela
Ivory Coast Zambia
Japan Zimbabwe
Jordan
Kenya
Korea
Latvia
Lebanon
Lithuania

<PAGE>

Exhibit (h)(2)

TRANSFER AGENCY AND DIVIDEND
DISBURSING AGENCY AGREEMENT

AGREEMENT made as of the 26th day of February, 1998 by and
between WATERHOUSE INVESTORS FAMILY OF FUNDS, INC., a Maryland corporation
(the "Company"), on its own behalf and on behalf of its Waterhouse Investors
Dow Jones Industrial Average(SM) Index Fund (the "Fund"), and NATIONAL INVESTOR
SERVICES CORP., a Delware corporation ("NISC").

WITNESSETH:

WHEREAS, the Company is an open-end, management investment
company registered as such under the Investment Company Act of 1940, as
amended, currently comprised of four separate investment portfolios; and

WHEREAS, the Company desires to appoint NISC to be the
Transfer Agent and Dividend Disbursing Agent for the Fund upon, and subject
to, the terms and provisions of this Agreement; and

WHEREAS, the NISC desires to accept such appointment upon,
and subject to, such terms and provisions.

NOW, THEREFORE, in consideration of the premises and mutual
convenants hereinafter contained, the Company and NISC agree as follows:

1. Appointment of NISC as Transfer Agent and Dividend Disbursing
Agent.

(a) The Company hereby appoints NISC to act as Transfer
Agent and Dividend Disbursing Agent for the Fund upon, and subject to, the
terms and provisions of this Agreement.

(b) NISC hereby accepts the appointment as Transfer Agent
and Dividend Disbursing Agent for the Fund, and agrees to act as such upon,
and subject to, the terms and provisions of this Agreement.

2. Definitions. In this Agreement:

(1) The term "Act" means the Investment Company Act of 1940,
as amended, and any rule or regulation thereunder;

24
<PAGE>

(2) The term "Account" means any account of a Shareholder,
or, if the shares are held in an account in the name of
Waterhouse Securities, Inc. or other broker-dealer for
benefit of an identified customer, such account, and
includes any Plan Account;

(3) The term "application" means an application made by a
Shareholder or prospective Shareholder respecting the
opening of an Account;

(4) The term "Instruction" means an instruction in writing
given on behalf of the Company to NISC, and signed on behalf
of the Company by the President, any Vice President, the
Secretary or the Treasurer of the Comp or other authorized
person;

(5) The term "Plan Account" means an account opened by a
Shareholder or prospective Shareholder in respect of a
"sweep account" (in each case by whatever name referred to
in the Prospectus), and may also include an account relating
to any other plan if and when provision is made for such
plan in the Prospectus;

(6) The term "Prospectus" includes the Prospectus and the
Statement of Additional Information of the Company as from
time to time in effect;

(7) The term "Shareholder" means a holder of record of
Shares;

(8) The term "Shares" means shares of stock of the Fund.

3. Duties of NISC as Transfer Agent and Dividend Disbursing Agent.

(a) Subject to the other provisions of the Agreement, NISC
hereby agrees to perform the following functions as Transfer Agent and
Dividend Disbursing Agent for the Fund: (i) processing the issuance, transfer
and redemption of Shares, and recording the same in the appropriate Accounts;
(ii) opening, maintaining, servicing and closing Accounts; (iii) acting as
agent for the Shareholders and/or customers of Waterhouse Securities, Inc. or
other broker-dealer in connection with Plan Accounts, upon the terms and
subject to the conditions contained in the Prospectus and application relating
to the specific Plan Account; (iv) exchanging the investment of an investor
into or from the Shares of one or more other investment companies (or
portfolios thereof) if and to the extent permitted by the Prospectus at the
direction of such investor; (v) examining and approving legal transfers; (vi)
replacing lost, stolen or destroyed certificates, if any,

25
<PAGE>

representing Shares, in accordance with, and subject to, procedures and
conditions adopted by the Company; (vii) furnishing confirmations of purchases
and sales relating to Shares as required by applicable law; (viii) furnishing
appropriate periodic and year end statements relating to Accounts, together
with additional enclosures, including appropriate income tax information and
income tax forms duly completed, as required by applicable law; (ix) mailing
annual, semi-annual and quarterly reports and dividend notices prepared by or
on behalf of the Fund, and mailing new Prospectuses upon their issue to
Shareholders as required by applicable law; (x) furnishing such periodic
statements of transactions effected by NISC, reconciliations, balances and
summaries as the Fund may reasonably request; (xi) withholding taxes on
non-resident alien Accounts, and preparing and filing U.S. Treasury Department
Form 1099 and other appropriate forms as required by applicable law with
respect to dividends and distributions; and (xii) processing dividend and
distribution payments, including reinvesting dividends for full and fractional
shares and disbursing cash dividends, as applicable.

(b) NISC agrees to act as proxy agent in connection with the
holding of annual, if any, and special meetings of Shareholders, mailing such
notices, proxies and proxy statements in connection with the holding of such
meetings as may be required by applicable law, receiving and tabulating votes
cast by proxy and communicating to the Company the results of such tabulation
accompanied by appropriate certificates, and preparing and furnishing to the
Company certified lists of Shareholders (of the Fund or one or more of its
investment portfolios, as appropriate) as of such date, in such form and
containing such information as may be required by the Company.

(c) NISC agrees to deal with, and answer in a timely manner,
all correspondence and inquires relating to the functions of NISC under this
Agreement with respect to Accounts.

(d) NISC agrees to furnish to the Company or its designated
agent such information at such intervals as is necessary for the Company to
comply with the registration and/or the reporting requirements (including
applicable escheat laws) of the Securities and Exchange Commission, state
securities or Blue Sky authorities or other governmental authorities.

26
<PAGE>

(e) NISC agrees to provide to the Company such information
as may reasonably be required to enable the Company to reconcile the number of
outstanding Shares of the Fund between the NISC's records and the account
books of the Company.

(f) Notwithstanding anything in the foregoing provisions of
this section 3, NISC agrees to perform its functions thereunder subject to
such modification (whether in respect of particular cases or in any particular
class of cases) as may from time to time be contained in an Instruction.

(g) In providing for any or all of the services indicated in
this section 3, and in satisfaction of its obligations to provide such
services, NISC 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 Company, provided further that
NISC shall be as fully responsible to the Company for the acts and omissions
of such persons as it would be for its own acts or omissions hereunder.

4. Compensation. For the services provided to the Company by NISC
pursuant to this Agreement, the Fund shall pay NISC on the first business day
of each calendar month a fee for the previous month at an annual rate equal to
.05 of 1% of the Fund's average daily net assets. The value of the Fund's net
assets shall be computed at the times and in the manner specified in the
Company's registration statement on Form N-1A, as amended from time to time
(the "Registration Statement"). Compensation by the Fund of NISC shall
commence on the date of the first receipt by the Fund of the proceeds of the
sale of its Shares as described in the Registration Statement, and the fee for
the period from the date the Fund shall first receive the proceeds of the sale
of its Shares as aforesaid to the end of the month during which such proceeds
are so received, shall be pro-rated according to the proportion that such
period bears to the full monthly period. Upon termination of this Agreement
before the end of a month, the fee for such part of that month shall be
pro-rated according to the proportion that such period bears to the full
monthly period and shall be payable within seven (7) days after the date of
termination of this Agreement.

5. Maintenance of Records, Right of Inspection. In connection with
the performance of its duties hereunder, NISC shall maintain such books and
records relating to transactions effected by NISC as are required by the Act,
or by any other applicable provision of law, rule or regulation, to be
maintained by the Company or its transfer agent

27
<PAGE>

with respect to transactions. NISC shall preserve, or cause to be preserved,
any such books and records for such periods as may be required by any such
law, rule or regulation and as may be agreed upon from time to time between
NISC and the Company. In addition, NISC agrees to maintain and preserve master
files and historical computer tapes on a daily basis in multiple separate
locations a sufficient distance apart to insure preservation of at least one
copy of such information. NISC agrees that it will, in a timely manner, make
available to and permit, any officer, accountant, attorney or authorized agent
of the Company to examine and make transcripts and copies (including photocopies
and computer or other electronic information storage media and print-outs) of
any and all of the books and records which are maintained pursuant to this
Agreement.

6. Confidential Relationship. NISC agrees that it will, on behalf of
itself and its officers and employees, treat all transactions contemplated by
this Agreement, and all information germane thereto, as confidential and not
to be disclosed to any person (other than the Shareholder concerned, or the
Company, or as may be disclosed in the examination of any books or records by
any person lawfully entitled to examine the same) except as may be authorized
by the Company by way of an Instruction.

7. Indemnification.

(a) NISC shall not be liable to the Company or the Fund for
any error of judgment or mistake of law or for any loss arising out of any act
or omission by NISC in the performance of its duties hereunder. Nothing herein
contained shall be construed to protect NISC against any liability to the
Company, the Fund, Shareholders or any investment adviser to the Company to
which NISC shall otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by reckless
disregard of its obligations and duties hereunder.

(b) The Company, on behalf of the Fund, agrees to indemnify
and hold harmless NISC and any sub-agent from and against all charges, claims,
expenses (including legal fees) and liabilities reasonably incurred by NISC
and each sub-agent in connection with the performance of its duties hereunder,
except such as may arise from NISC's or sub-agent's willful misfeasance, bad
faith, gross negligence in the performance of its duties or by reckless
disregard of its obligations and duties hereunder. Subject to the requirements
of the Act, such expenses shall be paid by the Company in advance of the final
disposition of any

28
<PAGE>

matter upon invoice by NISC or a sub-agent and receipt by the Company of an
undertaking from NISC or such sub-agent to repay such amounts if it shall
ultimately be established that NISC is not entitled to payment of such
expenses hereunder.

(c) As used in this section 7, the term "NISC" and
"sub-agent" shall include any affiliates of NISC and each sub-agent performing
services for the Company contemplated hereby and directors, officers, agents
and employees of NISC, each such sub-agent and such affiliates.

8. Regarding NISC.

(a) NISC warrants and represents that its officers and
supervisory personnel or agents (including any sub-transfer agents or
sub-dividend disbursing agents) charged with carrying out its functions as
Transfer Agent and Dividend Disbursing Agent for the Company possess the
special skill and technical knowledge appropriate for that purpose. NISC shall
at all times exercise due care and diligence in the performance of its
functions as Transfer Agent and Dividend Disbursing Agent for the Company.
NISC agrees that, in determining whether it has exercised due care and
diligence, its conduct shall be measured by the standard applicable to persons
possessing such special skill and technical knowledge.

(b) NISC warrants and represents that it is duly authorized
and permitted to act as Transfer Agent and Dividend Disbursing Agent under all
applicable laws and that it will immediately notify the Company of any
revocation of such authority or permission or of the commencement of any
proceeding or other action which may lead to such revocation.

9. Termination.

(a) This Agreement shall become effective as of the date
first above written and shall thereafter continue from year to year. This
Agreement may be terminated by the Company or NISC (without penalty to the
Company or NISC) provided that the terminating party gives the other party
written notice of such termination at least sixty (60) days in advance, except
that the Company may terminate this Agreement immediately upon written notice
to NISC if the authority or permission of NISC to act as Transfer Agent and
Dividend Disbursing Agent has been revoked of if any proceeding or other
action which the Company reasonably believes will lead to such revocation has
been commenced.

(b) Upon termination of this Agreement, NISC shall deliver
all unissued and canceled stock certificates representing Shares, if any,
remaining in its possession, and

29
<PAGE>

all Shareholder records, books, stock ledgers, instruments and other documents
(including computer or other electronically stored information) made or
accumulated in the performance of its duties as Transfer Agent and Dividend
Disbursing Agent for the Company along with a certified locator document
clearly indicating the complete contents therein, to such successor as may be
specified in a notice to termination or Instruction. The Company assumes all
responsibility for failure thereafter to produce any paper, record or document
so delivered and identified in the locator document, if and when required to
be produced.

10. Amendment. Except to the extent that the performance by NISC of
its functions under this Agreement may from time to time be modified by an
Instruction, this Agreement may be amended or modified by the parties hereto
only if such amendment is specifically approved by the Board of Directors of
the Company, including a majority of the Directors who are not " interested
persons" of the Company within the meaning of the Act and who have no direct
or indirect interest in this Agreement, and such amendment is set forth in a
written instrument executed by each of the parties hereto.

11. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Act. To the
extent that the applicable law of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Act, the
latter shall control.

12. Counterparts. This Agreement may be executed by the parties
hereto in counterparts and if executed in more than one counterpart the
separate instruments shall constitute one agreement.

13. Notices. All notices or other communications hereunder to either
party shall be in writing and shall be deemed to be received on the earlier of
the date actually received or on the fourth day after the postmark if such
notice is mailed first class postage prepaid. Notice shall be addressed: (a)
if to NISC, to: President, National Investors Service Corp., 55 Water Street,
New York, New York 10041; or (b) if to the Company, to: President, Waterhouse
Investors Family of Funds, Inc., 100 Wall Street, New York 10005 or at such
other address as either party may designate by written notice to the other.
Notice also shall be deemed sufficient if given by telex, telecopier, telegram
or similar means of same day delivery (with a confirming copy by mail as
provided herein).

30
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective duly authorized officers as of the day and year
above written.

WATERHOUSE INVESTORS FAMILY
OF FUNDS, INC.

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

NATIONAL INVESTOR SERVICES CORP.

By: /s/ Richard H. Neiman
----------------------------

<PAGE>

Exhibit (h)(4)

AMENDMENT TO THE SUB-TRANSFER AGENCY AND DIVIDEND
DISBURSING AGENCY AGREEMENT BY AND AMONG WATERHOUSE
NATIONAL BANK, NATIONAL INVESTOR SERVICES CORP., AND
WATERHOUSE SECURITIES, INC.

Amendment made as of December 10, 1997 to the Sub-Transfer Agency and
Dividend Disbursing Agency Agreement as of October 15, 1996 (the "Agreement")
by and among WATERHOUSE NATIONAL BANK (the "Bank"), NATIONAL INVESTOR SERVICES
CORP. ("NISC"), and WATERHOUSE SECURITIES, INC. ("Waterhouse Securities," and
together with NISC, the "Sub-Agents").

WITNESSETH:

WHEREAS, the Bank and the Sub-Agents desire to make an amendment to the
Agreement;

NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereby agree as follows:

1. The definition of "Instruction" in Section 2(4) of the Agreement is hereby
amended to read in its entirety as follows:

"Instruction" means an instruction in writing given on behalf of the
Fund to the Bank, and signed on behalf of the Fund by any two of the
following: the President, any Vice President, the Secretary or the
Treasurer of the Fund or other authorized person, and transmitted by
the Bank to a Sub-Agent;

2. Section 9.(a) is hereby amended to read in its entirety as follows:

This Agreement shall become effective as of the date first above
written and shall thereafter continue from year to year. This
Agreement may be terminated by the Fund, the Bank or the Sub-Agent
(without penalty to the Fund, the Bank or the Sub-Agent) provided
that the terminating party gives the other parties written notice of
such termination at least sixty (60) days in advance, except that the
Fund or the Bank may terminate this Agreement immediately upon
written notice to the Sub-Agent if the authority or permission of the
Sub-Agent to act as Sub-Transfer Agent and Sub-Dividend Disbursing
Agent has been revoked or if any proceeding or other action that the
Bank or the Fund reasonably believes will lead to such revocation has
been commenced.

3. Except as specifically amended hereby, the Agreement remains in full force
and effect.

32
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Agreement to be signed by their respective duly authorized officers as of the
day and year above written.

WATERHOUSE NATIONAL BANK

By: /s/ Frank J. Petrilli
-------------------------

WATERHOUSE SECURITIES, INC.

By: /s/ John Chapel
-------------------------

NATIONAL INVESTOR SERVICES
CORP.

By: /s/ Peter A. Wigger
-------------------------

<PAGE>

Exhibit (h)(9)

ADMINISTRATION AGREEMENT

AGREEMENT made as of the 26th day of February, 1998 by,
between and among WATERHOUSE ASSET MANAGEMENT, INC. (the "Investment
Manager"), WATERHOUSE SECURITIES, INC., a Delaware corporation (the
"Administrator"), and WATERHOUSE INVESTORS FAMILY OF FUNDS, INC., a Maryland
corporation (the "Fund").

WITNESSETH:

WHEREAS, the Investment Manager, a registered investment
adviser under the Investment Advisers Act of 1940, as amended, is obligated to
provide certain administrative services with respect to Waterhouse Investors
Dow Jones Industrial Average(SM) Index Fund (the "Portfolio"), a series of the
Fund, pursuant to an Investment Management Agreement with the Fund;

WHEREAS, the Investment Manager desires to retain the
Administrator to render or otherwise provide for administrative services to
the Portfolio 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, the Administrator and the
Fund, on behalf of the Portfolio agree as follows:

1. Duties of the Administrator.

(a) The Investment Manager hereby retains the Administrator
to act as administrator of the Portfolio (each reference herein to the Fund
shall also be understood to refer to the Portfolio, as appropriate), subject
to the oversight of the Investment Manager and 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 with respect to the Portfolio: (i)
maintain and preserve the books and records, including financial and corporate
records,

34
<PAGE>

of the Fund as required by law or otherwise for the proper operation of the
Fund; (ii) prepare and, subject to approval by the Fund, file registration
statements, notices, reports and other documents required by U.S. Federal,
state and other applicable laws and regulations (other than state "blue sky"
laws), including proxy materials and periodic reports to Fund shareholders,
oversee the preparation and filing of registration statements, notices,
reports and other documents required by state "blue sky" laws, and oversee the
monitoring of sales of shares of the Fund for compliance with state securities
laws; (iii) calculate and publish, or arrange for the calculation and
publication of, the net asset value of the Portfolio's shares; (iv) calculate,
or arrange for the calculation of, dividends and distributions and performance
data, and prepare other financial information regarding the Portfolio; (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 Portfolio's
investment policies and restrictions as set forth in the Portfolio's currently
effective Prospectus and Statement of Additional Information filed under the
Securities Act of 1933, as amended; and (xiii)

35
<PAGE>

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
Investment Manager agrees to deliver, or cause the Fund to deliver, to the
Administrator, on a timely basis, such information as may be necessary or
appropriate for the Administrator's performance of its duties and
responsibilities hereunder, including but not limited to, shareholder reports,
records of transactions, valuations of investments (which may be based on
information provided by a pricing service) and records of expenses borne by
the Fund, and the Administrator shall be entitled to rely on the accuracy and
completeness of such information in performing its duties hereunder.
Notwithstanding anything to the contrary herein contained, the Fund, and not
the Administrator, shall be responsible for and bear the cost of any third
party pricing services or any third party blue sky services.

(b) In providing for any or all of the services indicated in
section l(a) hereof, and in satisfaction of its obligations to provide such
services, the Administrator may enter into agreements with one or more other
persons to provide such services to the Fund, provided that any such agreement
shall have been approved by the Board of Directors of the Fund, and provided
further that the Administrator shall be as fully responsible to the Fund for
the acts and omissions of any such service providers as it would be for its
own acts or omissions hereunder.

2. Expenses of the Administrator. The Administrator assumes the
expenses of and shall pay for maintaining the staff and personnel necessary to
perform its obligations under this Agreement, and shall at its own expense
provide office space, facilities, equipment and the necessary personnel which
it is obligated to provide under section 1 hereof, except that the Fund shall
pay the expenses of legal counsel and accountants as provided in section 4(b)
of this Agreement. In addition, the Administrator 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 by
the Administrator pursuant to this Agreement, the Investment Manager (and not
the Fund) shall pay the Administrator on the first business day of each
calendar month a fee for the

36
<PAGE>

previous month at an annual rate equal to .10 of 1% of the Portfolio's average
daily net assets. The value of the 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 the Investment Manager of the Administrator shall commence on
the date of the first receipt by the 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 the Portfolio shall first receive the proceeds of the
sale of its shares as aforesaid to the end of the month during which such
proceeds are so received, shall be pro-rated according to the proportion that
such period bears to the full monthly period. Upon termination of this
Agreement before the end of a month, the fee for such part of that month shall
be pro-rated according to the proportion that such period bears to the full
monthly period and shall be payable within seven (7) days after the date of
termination of this Agreement.

4. Limitation of Liability of the Administrator; Indemnification.

(a) The Administrator shall not be liable to the Fund or the
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, the 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 the 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

37
<PAGE>

performance of its duties hereunder, except such as may arise from the
Administrator's willful misfeasance, bad faith, gross negligence in the
performance of its duties or reckless disregard of its obligations and duties
hereunder. Subject to requirements of applicable laws, such expenses shall be
paid by the Fund in advance of the final disposition of any matter upon
invoice by the Administrator and receipt by the Fund of an undertaking from
the Administrator to repay such amounts if it shall ultimately be established
that the Administrator is not entitled to payment of such expenses hereunder.

(d) As used in this section 4, the term "Administrator"
shall include any affiliates of the Administrator performing services for the
Fund contemplated hereby and directors, officers, agents and employees of the
Administrator and such affiliates.

5. Activities of the Administrator. The services of the Administrator
under this Agreement are not to be deemed exclusive, and the Administrator and
any person controlled by or under common control with the Administrator shall
be free to render similar services to others and services to the Investment
Manager and 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 for an initial two-year term,
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 Investment Company Act of 1940, as amended (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 by the Fund, by the Board or by "vote of a majority
of the outstanding voting securities" (as defined in the 1940 Act) of the
Portfolio, by the Investment Manager 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

38
<PAGE>

Administrator will surrender promptly to the Fund copies of the books and
records maintained hereunder.

7. Amendments of this Agreement. This Agreement may be amended by the
parties hereto only if such amendment is specifically approved by the Board of
Directors of the Fund and such amendment is set forth in a written instrument
executed by each of the parties hereto.

8. Governing Law. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of New York as at the
time in effect and the applicable provisions of the 1940 Act. To the extent
that the applicable law of the State of New York, or any of the provisions
herein, conflict with the applicable provisions of the 1940 Act, the latter
shall control.

9. Counterparts. This Agreement may be executed by the parties hereto
in counterparts and if executed in more than one counterpart the separate
instruments shall constitute one agreement.

10. Notices. All notices or other communications hereunder to either
party shall be in writing and shall be deemed to be received on the earlier of
the date actually received or on the fourth day after the postmark if such
notice is mailed first class postage prepaid. Notice shall be addressed: (a)
if to the Investment Manager, to: President, Waterhouse Asset Management,
Inc., 100 Wall Street, New York, New York 10005; (b) if to the Administrator,
to: President, Waterhouse Securities, Inc., 100 Wall Street, New York, New
York 10005; or (c) if to the Fund, to: President, Waterhouse Investors Family
of Funds, Inc., 100 Wall Street, New York, New York 10005;.

11. Third Party Beneficiaries. This Agreement is intended for the
benefit of the Fund and the Portfolio, which shall have all rights against the
Administrator as would pertain to it if this Agreement were directly between
the Fund and the Administrator.

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.

39
<PAGE>

WATERHOUSE ASSET MANAGEMENT, INC.

By: /s/ David Hartman
-----------------------------
Title:

WATERHOUSE SECURITIES, INC.

By: /s/ Michele R. Teichner
-----------------------------
Title: Senior Vice President

WATERHOUSE INVESTORS
FAMILY OF FUNDS, INC.

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

<PAGE>

Exhibit (h)(11)

Dated: February 26, 1998

SCHEDULE A TO THE
SUB-ADMINISTRATION AGREEMENT
BETWEEN
WATERHOUSE SECURITIES, INC.
AND
FUNDS DISTRIBUTOR, INC.

NAME OF FUND

WATERHOUSE INVESTORS FAMILY OF FUNDS, INC.
Money Market Portfolio
U.S. Government Portfolio
Municipal Portfolio
Waterhouse Investors Dow Jones Industrial Average(SM) Index Fund

WATERHOUSE SECURITIES, INC.

By: /s/ Michele R. Teichner
---------------------------

Title: Senior Vice President

FUNDS DISTRIBUTOR, INC.

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

Title: Executive Vice President

<PAGE>

Exhibit (h)(13)

ACCOUNTING SERVICES AGREEMENT

AGREEMENT dated as of December 10, 1997 between Waterhouse
Securities, Inc. ("WSI"), a Delaware corporation, and Countrywide Fund
Services, Inc. ("Countrywide"), an Ohio corporation.

WHEREAS, Waterhouse Investors Cash Management Fund (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, WSI 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, WSI and Countrywide agree as follows:

1. APPOINTMENT.

WSI 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 WSI 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 security transactions of the Fund. Countrywide will
maintain such further books and

42
<PAGE>

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 WSI, 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 WSI at WSI'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, WSI 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 WSI for payment of the Fund's expenses. Upon receipt of written
instructions signed by two officers or other authorized agents of the Fund or
WSI, 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.

7. FURTHER ACTIONS.

43
<PAGE>

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,
WSI 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. WSI 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 is 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 WSI 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, 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,

44
<PAGE>

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. WSI 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 WSI or upon the opinion of legal counsel for
the Fund or WSI 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 WSI.

Countrywide shall indemnify and hold harmless the Fund and
WSI, 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 WSI 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 in effect until December 12, 1998
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.

B. Either party, or the Fund, may terminate this Agreement
on any date by giving all parties at least sixty (60) days' prior written
notice of such termination specifying the date fixed therefor. Upon
termination of this Agreement, WSI 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.

45
<PAGE>

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 WSI by written notice to Countrywide,
Countrywide shall, promptly upon such termination and at the expense of WSI,
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, WSI 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 WSI under this Agreement.

14. SEVERABILITY.

In the event any provision of this Agreement is determined
to be void or unenforceable, such determination shall not affect the remainder
of this Agreement, which shall continue to be in force.

15. QUESTIONS OF INTERPRETATION.

This Agreement shall be governed by the laws of the State of
New York. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or
provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Securities and Exchange
Commission issued pursuant to said 1940 Act. In addition, where the effect of
a requirement of the 1940 Act, reflected in any provision of this Agreement,
is revised by rule, regulation or order of the Securities and Exchange
Commission, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.

16. NOTICES.

All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including
telex and telegraphic communication) and shall be (as elected by the person
giving such notice) hand delivered

46
<PAGE>

by messenger or courier service, telecommunicated, or mailed (airmail if
international) by registered or certified mail (postage prepaid), return
receipt requested, addressed to:

To WSI and the Fund: Waterhouse Securities, 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.

47
<PAGE>

19. COUNTERPARTS.

This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

20. FORCE MAJEURE.

If 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 SECURITIES, INC.

By: /s/ John Chapel
---------------------------
Its: President

COUNTRYWIDE FUND SERVICES, INC.

By: /s/ Robert Dorsey
---------------------------
Its: President

48
<PAGE>

Schedule A

COMPENSATION

Countrywide will receive a monthly fee with respect to 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 (h)(14)

AMENDMENT TO THE ACCOUNTING SERVICES AGREEMENT BY AND
BETWEEN WATERHOUSE SECURITIES, INC. AND COUNTRYWIDE FUND
SERVICES, INC.

Amendment made as of February 26, 1998 to the Accounting Services
Agreement as of December 10, 1997 (the "Agreement") by and among WATERHOUSE
SECURITIES, INC. ("WSI") and COUNTRYWIDE FUND SERVICES, INC. ("Countrywide").

WITNESSETH:

WHEREAS, WSI and Countrywide desire to make an amendment to the Agreement;

NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereby agree as follows:

1. The Waterhouse Investors Dow Jones Industrial Average(SM) Index Fund is
included as a "Portfolio" under the Agreement for all purposes.

2. Schedule A is hereby amended to read in its entirety as follows:

COMPENSATION

Countrywide will receive a monthly fee with respect to each of the Money
Market Portfolio, U.S. Government Portfolio and Municipal 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

Countrywide will receive a monthly fee with respect to the Waterhouse
Investors Dow Jones Industrial Average(SM) Index Fund (the "Fund"), based upon
the average monthly net assets of such Fund during such month, in accordance
with the following schedule:

Fund's Average Monthly Net Assets Monthly Fee
- --------------------------------- -----------
Less than $100,000,000 $2,500
$100,000,000 - $250,000,000 3,500
$250,000,000 - $400,000,000 4,500
$400,000,000 - $500,000,000 5,000

50
<PAGE>

Over $500,000,000 6,000 + .001%

The fee of .001% on assets over $500,000,000 represents the asset based fee
Countrywide is charged by SunGard.

Countrywide will be reimbursed for the cost of external pricing services used
by the Fund.

3. Except as specifically amended hereby, the Agreement remains in full force
and effect.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Agreement to be signed by their respective duly authorized officers as of the
day and year above written.

WATERHOUSE SECURITIES, INC.

By: /s/ Michele R. Teichner
--------------------------

COUNTRYWIDE FUND SERVICES, INC.

By: /s/ Robert Dorsey
--------------------------

<PAGE>

Exhibit (h)(16)

AMENDMENT TO THE STATE REGISTRATION SERVICES AGREEMENT BY
AND BETWEEN WATERHOUSE INVESTORS FAMILY OF FUNDS, INC. AND
CLEARSKY, A DIVISION OF AUTOMATED BUSINESS
DEVELOPMENT CORPORATION

Amendment made as of February 26, 1998 to the State Registration
Services Agreement as of November 27, 1995 (the "Agreement") by and among
WATERHOUSE INVESTORS FAMILY OF FUNDS, INC. (the "Company") and CLEARSKY, a
division of Automated Business Development Corporation ("ClearSky").

WITNESSETH:

WHEREAS, the Company and ClearSky desire to make an amendment to the Agreement;

NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereby agree as follows:

1. The Waterhouse Investors Dow Jones Industrial Average(SM) Index Fund is
included as a new portfolio series under the Agreement for all purposes.

2. Except as specifically amended hereby, the Agreement remains in full force
and effect.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Agreement to be signed by their respective duly authorized officers as of the
day and year above written.

WATERHOUSE INVESTORS FAMILY
OF FUNDS, INC.

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

AUTOMATED BUSINESS
DEVELOPMENT CORPORATION,
on behalf of ClearSky

By: /s/ Peter Lemay
------------------------

<PAGE>

Exhibit (l)(2)

SUBSCRIPTION AGREEMENT

Waterhouse Investors Family of Funds, Inc. (the "Company"), a
Maryland corporation, and FDI Distribution Services, Inc. ("FDI"), a Delaware
corporation, hereby agree with each other as follows:

1. The Company hereby offers FDI and FDI hereby purchases 250.893
shares (par value $.0001 per share) of the Waterhouse Investors Dow Jones
Industrial Average(SM) Index Fund of the Company at a price determined by
multiplying the closing value of the Dow Jones Industrial Average(SM) on the
date of such purchase by one one-thousandth (1/1000) and carrying the product
of such multiplication to the second decimal place.

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

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

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

IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the 30th day of March, 1998.

(SEAL) Waterhouse Investors Family of Funds, Inc.

ATTEST:

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

(SEAL) FDI Distribution Services, Inc.

ATTEST:

/s/ Christopher J. Kelley By: /s/ Joseph F. Tower, III
- -------------------------- --------------------------------------