<PAGE>
As filed with the Securities and Exchange Commission on October 15, 1999
1933 Act Registration No. 33-96132
1940 Act Registration No. 811-9086
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 8 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 10 [X]
------------------
TD WATERHOUSE FAMILY OF FUNDS, INC.
(FORMERLY KNOWN AS WATERHOUSE INVESTORS FAMILY OF FUNDS, 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
TD WATERHOUSE 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)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] On (date) pursuant to paragraph (b)
[ ] On (date) pursuant to paragraph (a) (1)
[X] 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.
<PAGE>
[front cover]
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
- --------------------------------------------------------------------------------
TD WATERHOUSE
- -------------------------------------------------------------
CASH MANAGEMENT FUNDS
CALIFORNIA MUNICIPAL
- -------------------------------------------------------------
MONEY MARKET PORTFOLIO
NEW YORK MUNICIPAL
- -------------------------------------------------------------
MONEY MARKET PORTFOLIO
PROSPECTUS
[TD Waterhouse logo]
[prospectus date]
As with any mutual fund, the Securities and Exchange Commission (SEC) has not
approved or disapproved any Portfolio's shares or determined whether this
Prospectus is adequate or complete. Any representation to the contrary is a
criminal offense.
<PAGE>
[inside front cover]
TD WATERHOUSE CASH MANAGEMENT FUNDS
TABLE OF CONTENTS
ABOUT THE PORTFOLIOS
Investment Objectives
Investment Approach
Risks
Who May Want to Invest
EXPENSES
HOW TO BUY AND SELL SHARES
How to Buy Shares
How to Sell Shares
How to Exchange Between Portfolios
Telephone Transactions
SHAREHOLDER INFORMATION
Pricing Your Shares
Dividends
Taxes
Statements to Shareholders
Year 2000 Information
PORTFOLIO MANAGEMENT
Investment Manager
Administrator
Distributor
Shareholder Servicing
FOR MORE INFORMATION Back cover
-2-
<PAGE>
ABOUT THE PORTFOLIOS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES
The California Municipal Money Market Portfolio ("California Portfolio") seeks
maximum current income that is exempt from federal and California state
income taxes, to the extent consistent with liquidity and preservation of
capital and a stable share price of $1.00 per share.
The New York Municipal Money Market Portfolio ("New York Portfolio") seeks
maximum current income that is exempt from federal, New York state and city
income taxes, to the extent consistent with liquidity and preservation
of capital and a stable share price of $1.00 per share.
There is no guarantee that a Portfolio will be able to achieve its investment
objective or maintain a stable share price.
INVESTMENT APPROACH
Each of the California Portfolio and the New York Portfolio (together, the
"Portfolios") is a no-load money market fund intended solely for either
California or New York residents, respectively. Each Portfolio invests in high
quality municipal obligations issued by a single state, its political
subdivisions and other qualifying issuers believed by TD Waterhouse Asset
Management, Inc. ("TD WAM" or the "investment manager") to present minimal
credit risk.
Normally, each Portfolio will invest at least 80% of its assets in municipal
securities issued by the specific state or the state's political subdivisions,
authorities, instrumentalities and public corporations, or by other qualified
issuers, including the various territories and possessions of the United States,
such as Puerto Rico. In the opinion of the issuer's bond counsel, the income
from these securities is exempt from the specific state's personal income tax
and federal income tax. However, this income may be subject to the federal
alternative minimum tax.
When suitable tax-exempt securities of the specific state are unavailable, a
Portfolio may invest up to 20% of its assets in securities issued by other
states and their political subdivisions whose income is exempt from federal
income tax but is subject to state personal income tax. In addition, a 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, a Portfolio may invest its assets temporarily, without limitation, in
taxable money market investments. Interest income from temporary investments is
taxable to shareholders as ordinary income. The effect of taking such a
temporary defensive position is that the Portfolio may not achieve its
investment objective.
-3-
<PAGE>
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, each Portfolio
maintains an average portfolio maturity of 90 days or less (weighted by the
relative values of its holdings), and does not invest in any securities with a
remaining maturity of more than 397 days (approximately 13 months). Under the
quality standards, each Portfolio invests 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.
Investments may include stand-by commitments, when-issued securities and taxable
repurchase agreements. Particular securities and techniques, and their related
risks, are described in the Statement of Additional Information. Unless
otherwise noted, each Portfolio's investment objective and policies may not be
changed without a shareholder vote.
RISKS
The income from a 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 yields of California or New York municipal securities depend on, among other
things, conditions in that state's municipal securities markets and debt
securities markets generally, the size of a particular offering, the maturity of
the obligation and the rating of the issue.
Each Portfolio's "non-diversified" status allows it to invest more than 5% of
its assets in a single issuer. As a result, the Portfolios are riskier than
other types of money market funds that require greater diversification among
issuers. Because the Portfolios invest primarily in securities issued by a
single state and its municipalities, the Portfolios are more vulnerable to
unfavorable developments within that state, than funds that invest in municipal
securities of many states.
Moreover, although each 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 a Portfolio's risks.
An investment in a Portfolio is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. 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.
WHO MAY WANT TO INVEST
The Portfolios may be appropriate for the following investors:
-4-
<PAGE>
o Investors looking to earn income that is exempt from federal and state
of California or New York state and city income taxes.
o Investors looking for a liquid investment that preserves capital.
o Investors pursuing a short-term investment goal.
-5-
<PAGE>
EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolios.
<TABLE>
<CAPTION>
CALIFORNIA NEW YORK
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
SHAREHOLDER TRANSACTION FEES (fees paid directly
from your investment)/1
Maximum Sales Charge (Load) Imposed on Purchases None None
ANNUAL OPERATING EXPENSES (expenses deducted
from Portfolio assets)
Management Fees/2 0.35% 0.35%
Distribution (12b-1) Fees None None
Shareholder Servicing Fees/2 0.25% 0.25%
Other Expenses/2 0.39% 0.39%
Total Operating Expenses/2 0.99% 0.99%
---- ----
</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 estimated amounts for each Portfolio's first fiscal
period ending October 31, 2000. The investment manager has agreed to reduce
expenses of each Portfolio (through paying certain expenses and waiving fees)
for the first twelve months of each Portfolio's operations (December 15, 1999
through December 15, 2000), so that each Portfolio's total operating expenses
during the period will not exceed 0.65%. Thereafter, any decrease in expense
reductions will be voluntary and may be changed or eliminated at any time upon
notifying investors. The Portfolios' expenses, after taking into account such
waivers and reimbursements, would be:
<TABLE>
<CAPTION>
CALIFORNIA NEW YORK
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
Management Fees 0.25% 0.25%
Shareholder Servicing Fees 0.11% 0.11%
Other Expenses 0.29% 0.29%
Total Operating Expenses 0.65% 0.65%
</TABLE>
-6-
<PAGE>
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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<C> <C>
$101 $315
</TABLE>
[FN]
* Assuming current expense reduction arrangements that limit a Portfolio's
operating expenses to 0.65%, your costs would be:
</FN>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<C> <C>
$66 $208
</TABLE>
-7-
<PAGE>
HOW TO BUY AND SELL SHARES
- --------------------------------------------------------------------------------
Only investors maintaining brokerage, securities, money management or similar
accounts with certain broker-dealers, including TD Waterhouse Investor Services,
Inc. ("TD Waterhouse"), are eligible to purchase shares of the Portfolios.
If you would like to purchase shares of a Portfolio through TD Waterhouse and
you are not already a customer, you need to open a TD Waterhouse account by
completing and signing a TD Waterhouse New Account Application. To request an
application, please call 1-800-934-4410. Mail it, together with your check in
the amount you wish to purchase, in the postage-prepaid envelope provided with
the TD Waterhouse New Account Application.
The Portfolios are two of the TD Waterhouse Cash Management Funds. The other
funds are offered through a separate prospectus.
AUTOMATIC SWEEP. By setting up your TD Waterhouse 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 TD Waterhouse brokerage account that are available for
payment or investment.
To set up your TD Waterhouse brokerage account for automatic sweep, you should
select one of the money market sweep portfolios in the appropriate section of
the TD Waterhouse New Account Application. If you already have a TD Waterhouse
brokerage account but it is not set up to sweep free credit balances
automatically, simply call the TD Waterhouse office handling your account. In
most cases, a TD Waterhouse 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 TD Waterhouse Cash Management Funds
at any time, only one such fund (including a Portfolio) may be designated as
your Sweep Portfolio. The sweep feature is subject to the terms and conditions
of your TD Waterhouse brokerage account agreement.
ACCOUNT PROTECTION. Within your TD Waterhouse brokerage account, you have access
to other investments available at TD Waterhouse such as stocks, bonds, options,
and other mutual funds. The securities in your TD Waterhouse brokerage account,
including shares of the Portfolios, are protected up to $150 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 $149.5 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
-8-
<PAGE>
should the TD Waterhouse brokerage account in which they are held be closed or
if TD Waterhouse imposes certain requirements with respect to its brokerage
accounts and eligibility for sweep arrangements, including requirements relating
to minimum account balances. Any minimum balance requirement will not apply to
TD Waterhouse IRA accounts.
TD WATERHOUSE INVESTORS MONEY MANAGEMENT ACCOUNTS. For those TD Waterhouse
customers who qualify, a TD 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 Debit Card. You should contact
a TD Waterhouse Account Officer for more details. To set up your TD Waterhouse
Investors Money Management Account, you should complete the appropriate section
of the TD Waterhouse New Account Application.
HOW TO BUY SHARES
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.
CUSTOMERS OF TD WATERHOUSE
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 TD Waterhouse brokerage account
will be automatically invested each business day in the Sweep Portfolio you have
selected. Checks deposited to your TD Waterhouse 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 TD Waterhouse brokerage customer may purchase shares of
either Portfolio by placing an order directly with a TD Waterhouse Account
Officer at 1-800-934-4410. You may buy shares by mailing or bringing your check
to any TD Waterhouse office. Checks should be made payable to "TD Waterhouse
Investor Services, Inc." and you should write your TD Waterhouse account number
on the check. The check will be deposited to your TD Waterhouse brokerage
account. TD Waterhouse 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 TD Waterhouse that have entered into a selling agreement with the
Portfolios' distributor
-9-
<PAGE>
("Selected Brokers"). Affiliates of TD Waterhouse 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 a Portfolio or TD Waterhouse.
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 TD Waterhouse 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 periodic investment programs, may not be
available to customers of Selected Brokers or may differ in scope from programs
available to TD Waterhouse. 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 TD Waterhouse 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 the other
Portfolio or any other fund of the TD Waterhouse Family of Funds, Inc. may be
sold. In addition, shares will be sold to settle securities transactions in your
TD Waterhouse 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
-10-
<PAGE>
the following business day to satisfy any remaining debits. Shares may also be
sold automatically to provide the cash collateral necessary to meet your margin
obligations to TD Waterhouse.
If you have a TD Waterhouse Investors Money Management Account and you withdraw
cash from your TD Waterhouse brokerage account by way of a check or ATM/VISA
Debit Card, shares of your Sweep Portfolio will automatically be sold to satisfy
any resulting debit balance. Holders of the ATM/VISA Debit Card will not be
liable for unauthorized withdrawals resulting in redemptions of Portfolio shares
that occur after TD Waterhouse is notified of the loss, theft or unauthorized
use of the Card. Further information regarding the rights of holders of the
ATM/VISA Debit Card is set forth in the TD Waterhouse Investors Money Management
Agreement provided to each customer who opens a TD Waterhouse Investors Money
Management Account. ATM cash withdrawals may be made through participating
financial institutions. Although TD Waterhouse does not charge for ATM
withdrawals, institutions may charge a fee in connection with their services.
HOW TO EXCHANGE BETWEEN PORTFOLIOS
You may change your designated Sweep Portfolio to any TD Waterhouse Cash
Management Fund at any time without charge. You may also exchange shares of a
Portfolio for shares of another TD Waterhouse Cash Management Fund. To effect an
exchange, call a TD Waterhouse Account Officer with instructions to move your
money from one Portfolio to another, or you may mail written instructions to
your local TD Waterhouse office. Your letter should reference your TD Waterhouse
brokerage account number, the Portfolio from which you are exchanging and the
Portfolio(s) into which you are exchanging. At least one registered account
holder should sign this letter.
An exchange involves the redemption of Portfolio shares and the purchase of
shares of another Portfolio at their respective NAVs after receipt of an
exchange request in proper form. Each Portfolio reserves the right to reject
specific exchange orders and, on 60 days' prior written notice, to suspend,
modify or terminate exchange privileges.
TELEPHONE TRANSACTIONS
As a customer of TD Waterhouse you automatically have the privilege of
purchasing, exchanging or redeeming Portfolio shares by telephone. TD Waterhouse
and the Portfolios 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, TD
Waterhouse and the Portfolios may be liable for any losses due to unauthorized
or fraudulent instructions. Neither TD Waterhouse 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 TD Waterhouse
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
-11-
<PAGE>
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.
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 as of the close of
regular trading on the New York Stock exchange, generally 4:00 p.m. (Eastern
time), except on days when either the New York Stock Exchange or the Portfolios'
custodian is closed. Each Portfolio's shares are purchased and sold at the next
NAV per share calculated after an order and, in the case of purchase orders,
payment are received 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 a
Portfolio, as determined under the amortized cost method, is monitored in
relation to the market value of the Portfolio.
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. You may elect to receive any monthly dividend in cash by submitting a
written election to TD Waterhouse by the tenth day of the specific month to
which the election to receive cash relates.
TAXES
FEDERAL INCOME TAXES. Each of the California Portfolio and the New York
Portfolio intends to declare and distribute dividends exempt from federal
income tax and California income tax or New York income tax, respectively.
You will not be required to include the "exempt-interest" portion of
dividends paid by a Portfolio in your gross income for federal income tax
purposes. However, you will be required to report the receipt of exempt-interest
dividends and other tax-exempt interest on your federal income tax returns.
Exempt-interest dividends for federal income tax purposes may give rise to a
federal alternative minimum tax liability or either California or New York state
or local taxes. Exempt-interest dividends also may affect the amount of social
security benefits subject to federal income tax,
-12-
<PAGE>
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 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 a 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 a Portfolio.
CALIFORNIA PERSONAL INCOME TAXES. The California Portfolio anticipates that
substantially all of the dividends paid by it will be exempt from California
personal income tax. In order for the Portfolio to pay dividends that are exempt
from California income tax, California law generally requires that, at the close
of each fiscal quarter, at least 50% of the value of the California Portfolio's
assets consists of obligations whose interest is exempt from California income
tax when held by an individual. Assuming compliance with this requirement,
dividends and distributions made by the California Portfolio from interest on
such obligations are excludable from gross income for purposes of the California
personal income tax. Distributions from other obligations, as well as
distributions from short- or long-term capital gains, are subject to California
personal income tax. Corporate taxpayers should note that the California
Portfolio's dividends and distributions are not exempt from California state
corporate income or franchise taxes.
NEW YORK PERSONAL INCOME TAXES. Individual shareholders of the New York
Portfolio resident in New York state will not be subject to state income tax on
distributions received from the New York Portfolio to the extent such
distributions are attributable to interest on tax-exempt obligations of the
state of New York and its political subdivisions, and obligations of the
Governments of Puerto Rico, the Virgin Islands and Guam, provided that such
interest is exempt from federal income tax pursuant to Section 103(a) of the
Internal Revenue Code, and that the New York Portfolio qualifies as a regulated
investment company and satisfies the requirements of the Internal Revenue Code
necessary to pay exempt-interest dividends, including the
-13-
<PAGE>
requirement that at least 50% of the value of its assets at the close of each
quarter of its taxable year be invested in state, municipal or other obligations
the interest on which is excluded from gross income for federal income tax
purposes under Section 103(a) of the Internal Revenue Code. Individual
shareholders who reside in New York City will be able to exclude such
distributions for city income tax purposes. Other distributions from the New
York Portfolio, including those related to market discount and capital gains,
generally will not be exempt from state or city income tax. Distributions from
the New York Portfolio will not be excluded from net income and shares of the
New York Portfolio will not be excluded from investment capital in determining
state or city franchise and corporation taxes for corporate shareholders. Shares
of the New York Portfolio will not be subject to any state or city property tax.
Shareholders of the New York Portfolio should consult their advisers about other
state and local tax consequences of their investments in the Portfolio.
GENERAL. Required tax information will be provided annually. You are encouraged
to retain copies of your account statements or year-end statements for tax
reporting purposes. However, if you have incomplete records, you may obtain
historical account transaction information at a reasonable fee.
You should consult your tax adviser regarding specific questions as to federal,
state and local taxes.
STATEMENTS TO SHAREHOLDERS
The Company does not issue share certificates but records your holdings in
noncertificated form. Your Portfolio activity is reflected in your TD Waterhouse
brokerage account statement. The Company provides you with annual audited and
semi-annual unaudited financial statements. To reduce expenses, only one copy of
most financial reports is mailed to you if you hold shares of more than one
Portfolio under the same account name and tax identification number.
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 Year 2000 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
-14-
<PAGE>
systems will not impact their services. In addition, the Portfolios may be
subject to similar risks with respect to the issuers of securities in which they
invest.
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
TD Waterhouse Asset Management, Inc., 100 Wall Street, New York, NY 10005, 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, the investment manager is entitled to an annual 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 has
agreed to assume certain expenses of each Portfolio (or waive its fees)
for the first twelve months of each Portfolio's operations, so that the
total operating expenses payable by each Portfolio during the period will not
exceed 0.65% of its average daily net assets. Thereafter, any decrease in
expense reductions will be voluntary and may be changed or eliminated at any
time upon notifying investors.
In addition to the Portfolios, the investment manager currently serves as
investment manager to the other investment funds in TD Waterhouse Family of
Funds, Inc., National Investors Cash Management Funds, Inc., TD Waterhouse Trust
and to TD Waterhouse Bank, N.A. and as of [ ], had total assets under management
in excess of $[ ] billion.
ADMINISTRATOR
As administrator, TD Waterhouse, an affiliate of the investment manager,
provides certain administrative services to the Portfolios. For its services as
administrator, TD Waterhouse receives from each Portfolio an annual fee, payable
monthly, of 0.10% of each Portfolio's average daily net assets. TD Waterhouse
has entered into an agreement with Funds Distributor, Inc. ("FDI") whereby FDI
performs certain administrative services for the Portfolios. TD Waterhouse 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 TD Waterhouse 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
-15-
<PAGE>
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.
-16-
<PAGE>
[back cover]
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
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:
TD Waterhouse Investor Services, Inc.
Customer Service
100 Wall Street
New York, New York 10005
Telephone: 1-800-934-4410
Hearing impaired: TTY 1-800-933-0555
Internet Site: http://www.tdwaterhouse.com
Text-only versions of the Portfolios' prospectus and other documents pertaining
to the Portfolios can be viewed online or downloaded from the SEC
(http://www.sec.gov).
You also can review and copy each Portfolio's reports and SAI at the SEC's
public reference room in Washington, DC. For a duplicating fee, you may obtain
copies of this information by writing the SEC's Public Reference Section,
Washington, DC 20549-6009. For more information about these services, call
1-800-SEC-0330.
The Portfolios are series of TD Waterhouse Family of Funds, Inc., whose
investment company registration number is [smaller font]: 811-9086.
-17-
<PAGE>
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Statement of Additional
Information does not constitute a prospectus.
- --------------------------------------------------------------------------------
TD WATERHOUSE
CASH MANAGEMENT FUNDS
100 WALL STREET, NEW YORK, NEW YORK 10005
TD WATERHOUSE, 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 [date] (the "Prospectus") for the California Municipal Money
Market Portfolio (the "California Portfolio") and the New York
Municipal Money Market Portfolio (the "New York Portfolio," and
together with the California Portfolio, the "Portfolios"), each a
series of TD Waterhouse Family of Funds, Inc. (the "Company").
To obtain a free copy of the Prospectus, please write to TD
Waterhouse Investor Services, 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 ........................
OTHER INVESTMENTS AND TECHNIQUES ............................
INFORMATION ABOUT CALIFORNIA ................................
INFORMATION ABOUT NEW YORK ..................................
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 .....................................
<PAGE>
TD WATERHOUSE
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. The Company changed its name from Waterhouse
Investors Family of Funds, Inc. to TD Waterhouse Family of Funds,
Inc. on September 20, 1999. Because the Company offers multiple
portfolios (including the Portfolios), it is known as a "series
company." The Company currently has three other investment portfolios
with various investment objectives and policies. As of the date of
this SAI, the Portfolios had not yet commenced operations.
The California Portfolio seeks maximum current income that is
exempt from federal and California state income taxes, to the
extent consistent with liquidity and preservation of capital and a
stable share price of $1.00 per share. The New York Portfolio seeks
maximum current income that is exempt from federal, New York
state and city income taxes, to the extent consistent with
liquidity and preservation of capital and a stable share price of
$1.00 per share. The investment manager of the Portfolios is TD
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 or
represented by proxy at a meeting where more than 50% of the
outstanding shares of the Company or such Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding shares
of the Company or such Portfolio.
The following policies and restrictions supplement those set forth in
the Prospectus. Unless otherwise noted, whenever an investment policy
or limitation states a maximum percentage of a Portfolio's assets
that may be invested in any security or other assets, or sets forth a
policy regarding quality standards, such standard or percentage
limitation will be determined immediately after and as a result of
the Portfolio's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets,
-2-
<PAGE>
or other circumstances will not be considered when determining
whether the investment complies with a Portfolio's investment
policies and restrictions.
As money market funds, the Portfolios rely on Rule 2a-7 under the
Investment Company Act ("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.
MUNICIPAL SECURITIES
The Portfolios invest primarily in municipal securities issued by a
specific state (California or New York) and its political
subdivisions, authorities, instrumentalities and public corporations,
or by other qualified issuers, which may include the various
territories and possessions of the United States, such as Puerto
Rico. 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, 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.
The Investment Manager relies on the opinion of the issuer's counsel,
which is rendered at the time the security is issued, to determine
whether the security is appropriate, with respect to its tax status,
to be purchased by a Portfolio.
Municipal securities may include other securities similar to those
described below that 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
-3-
<PAGE>
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 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
-4-
<PAGE>
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.
The types of projects for which private activity bonds may bear
tax-exempt interest under the Internal Revenue Code of 1986, as
amended (the "Code") have become increasingly limited, particularly
since the enactment of the Tax Reform Act of 1986, and continue to be
subject to various restrictions as to authorized costs, size
limitations, state per capita volume restrictions, and other matters.
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, 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
-5-
<PAGE>
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. A 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.
TENDER OPTION BONDS. Each 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, a
Portfolio effectively holds a demand obligation that bears interest
at the prevailing short-term tax-exempt rate. Subject to applicable
regulatory requirements, a 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 a Portfolio, the Investment Manager will
consider the creditworthiness of the issuer of the underlying bond,
the custodian, and the third party provider of the tender option. In
certain instances, a sponsor may terminate a tender option if, for
example, the issuer of the underlying bond defaults on an interest
payment.
VARIABLE OR FLOATING RATE OBLIGATIONS. Each Portfolio may invest in
variable rate or floating rate obligations. Floating rate instruments
have interest rates that change whenever there is a change in a
designated base rate while variable rate instruments provide for a
specified periodic adjustment in the interest rate. The interest rate
of variable rate obligations ordinarily is determined by reference to
or is a percentage of an objective standard such as a bank's prime
rate, the 90-day U.S. Treasury Bill rate, or the rate of return on
commercial paper or bank certificates of deposit. Generally, the
changes in the interest rate on variable rate obligations reduce the
fluctuation in the market value of such securities. Accordingly, as
interest rates decrease or increase, the potential for capital
appreciation or depreciation is less than for fixed-rate obligations.
Each Portfolio determines the maturity of variable rate obligations
and floating rate
-6-
<PAGE>
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.
ALTERNATIVE MINIMUM TAX (AMT). Municipal securities are also
categorized according to whether the interest is or is not includable
in the calculation of alternative minimum taxes imposed on
individuals, according to whether the costs of acquiring or carrying
the securities are or are not deductible in part by banks and other
financial institutions, and according to other criteria relevant for
federal income tax purposes. Due to the increasing complexity of the
Code and related requirements governing the issuance of tax-exempt
securities, industry practice has uniformly required, as a condition
to the issuance of the securities, but particularly for revenue
bonds, an opinion of nationally recognized bond counsel as to the
tax-exempt status of interest on the securities.
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 a
Portfolio's distributions. If such proposals were enacted, the
availability of municipal obligations and the value of a Portfolio's
holdings would be affected and the Board of Directors would
reevaluate the Portfolio's investment objective and policies.
OTHER INVESTMENTS AND TECHNIQUES
CASH AND CASH EQUIVALENTS; TAXABLE INVESTMENTS
Each Portfolio anticipates being as fully invested as practicable in
municipal securities; however, there may be occasions when, as a
result of maturities of portfolio securities, sales of Portfolio
shares, or in order to meet redemption requests, a Portfolio may hold
cash or cash equivalents. In addition, there may be occasions when,
in order to raise cash to meet redemptions, a Portfolio may be
required to sell securities at a loss.
-7-
<PAGE>
From time to time, a Portfolio may invest a portion of its assets on
a temporary basis in fixed-income obligations whose interest is
subject to federal and either California or New York state income tax
(as applicable). For example, a Portfolio may invest in obligations
whose interest is taxable when suitable state specific tax-exempt
securities are unavailable or 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 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.
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 a 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 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.
-8-
<PAGE>
CERTIFICATES OF PARTICIPATION
Each 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 a 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 a Portfolio to
readily sell its certificates of participation prior to maturity to
the issuer or third party. As to those instruments with demand
features, each 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.
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,
a 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.
-9-
<PAGE>
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 ("Moody's") and Standard & Poor's
("S&P"), two NRSROs, see "Annex - Ratings of Investments."
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.
-10-
<PAGE>
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.
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.
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, a
Portfolio 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
-11-
<PAGE>
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.
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, 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 a
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 a Portfolio 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, 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.
-12-
<PAGE>
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.
BORROWING
Each Portfolio 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, a 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.
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.
DIVERSIFICATION AND CONCENTRATION
Each Portfolio is classified as "non-diversified" for purposes of the
Investment Company Act, which means that the Portfolio 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 a Portfolio 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 each
Portfolio invests primarily in securities issued by a single state
and its municipalities, it is more vulnerable to unfavorable
developments within that particular state, than funds that invest in
municipal securities of many states.
Neither Portfolio will concentrate its assets in the securities of
issuers in any industry. As a fundamental policy, except as set forth
below, each Portfolio may not purchase securities if, immediately
after the purchase, more than 25% of the value of the Portfolio's
total assets would be invested in the securities of issuers
conducting their
-13-
<PAGE>
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, shares of
other investment companies, including unit investment trusts and
mutual funds, and industrial development bonds relating to a single
industry. Although a Portfolio does not currently intend to do so on
a regular basis, it may, however, 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 a Portfolio's risks.
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. In the absence
of market quotations, illiquid investments are valued for purposes of
monitoring amortized cost valuation at fair value as determined in
good faith by or under the direction of the Board of Directors. If
through a change in values, net assets, or other circumstances, a
Portfolio were in a position where more than 10% of its net assets
was invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.
For purposes of the 10% limit on illiquid securities, 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 a 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
-14-
<PAGE>
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.
PUT FEATURES
Put features entitle the holder to sell a security (including a
repurchase agreement) back to the issuer or a third party at any time
or at specific intervals. They are subject to the risk that the put
provider is unable to honor the put feature (purchase the security).
Put providers often support their ability to buy securities on demand
by obtaining letters of credit or other guarantees from domestic or
foreign banks. The Investment Manager may rely on its evaluation of a
bank's credit in determining whether to purchase a security supported
by a letter of credit. In evaluating a foreign bank's credit, the
Investment Manager will consider whether adequate public information
about the bank is available and whether the bank may be subject to
unfavorable political or economic developments, currency controls, or
other government restrictions that might affect the bank's ability to
honor its credit commitment. Demand features, standby commitments,
and tender options are types of put features.
RULE 144A SECURITIES
If otherwise consistent with its investment objectives and policies,
each 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
-15-
<PAGE>
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."
No Portfolio may invest more than 5% of its total assets in the
securities of any one issuer unless the securities are first tier
securities. A 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 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
Each 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 a 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 a 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 a
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
Each Portfolio may acquire standby commitments. Standby commitments
are put options that entitle holders to same day settlement at an
exercise price equal to the
-16-
<PAGE>
amortized cost of the underlying security plus accrued interest,
if any, at the time of exercise. A 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, a 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. Each Portfolio may
purchase standby commitments separate from or in conjunction with the
purchase of securities subject to such commitments. In the latter
case, a 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 a 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 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 a
Portfolio; and the possibility that the maturities of the underlying
securities may be different from those of the commitments.
TEMPORARY DEFENSIVE POSITION
When market or business conditions warrant, each Portfolio may assume
a temporary defensive position and invest without limit in cash or
cash equivalents. For temporary defensive purposes, cash equivalents
may include (i) short-term obligations issued or guaranteed by the
United States government, its agencies or instrumentalities, (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 S&P or P-1 from Moody's
or a comparable rating from an 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 a Portfolio may invest
directly, and (v) money market mutual funds. To the extent a
Portfolio assumes a temporary defensive position, it may not be
pursuing its investment objective. When a Portfolio assumes a
temporary defensive position, it is likely that its shareholders will
be subject to federal and either California or New York state income
taxes (as applicable) on a greater portion of their income dividends
received from the Portfolio.
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
-17-
<PAGE>
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 a 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, a Portfolio will consider them
to have been purchased on the date when it committed itself to the
purchase. When when-issued or delayed delivery purchases are
outstanding, a Portfolio will segregate appropriate liquid assets to
cover its purchase obligations. 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.
--------------------------------
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. A PORTFOLIO MAY NOT (UNLESS NOTED OTHERWISE):
(1) with respect to the California Portfolio, normally invest less
than 80% of its total assets in municipal obligations issued by the
state of California, its political subdivisions, authorities,
instrumentalities and public corporations, or by other qualified
issuers, including the various territories and possessions of the
United States,
-18-
<PAGE>
the income from which is exempt from both California personal income
tax and federal income tax, but may be subject to federal alternative
minimum tax liability;
(2) with respect to the New York Portfolio, normally invest less than
80% of its total assets in municipal obligations issued by the state
of New York, its political subdivisions, authorities,
instrumentalities and public corporations, or by other qualified
issuers, including the various territories and possessions of the
United States , the income from which is exempt from both New York
personal income tax and 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 a Portfolio may: (i) borrow money for
temporary defensive or emergency purposes (not for leveraging or
investment), (ii) engage in reverse repurchase agreements for any
purpose, and (iii) pledge its assets in connection with such
borrowing to the extent necessary; provided that (i) and (ii) in
combination do not exceed 33 1/3% of the Portfolio's total assets
(including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed this amount will be reduced
within three days (not including 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) if, as a result, immediately after the purchase,
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 a Portfolio may invest in
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, or invest more than 25% of
its total assets in industrial development bonds related to a single
industry;
(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
-19-
<PAGE>
acquired or traded together with, their underlying securities, and
does not apply to securities that incorporate features similar to
options or futures contracts;
(10) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be loaned to other parties,
but this limit does not apply to purchases of debt securities or to
repurchase agreements; or
(11) purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or
acquisition of assets or to the extent otherwise permitted by the
Investment Company Act; however, a Portfolio may, notwithstanding any
other fundamental investment policy or limitation, invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment
objectives, policies, and restrictions as the Portfolio.
THE FOLLOWING INVESTMENT RESTRICTIONS ARE NOT FUNDAMENTAL, AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL. EACH PORTFOLIO DOES NOT
CURRENTLY INTEND:
(i) to purchase 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 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"), and other securities which are determined
to be liquid pursuant to procedures adopted by the Company's Board of
Directors; or
(ii) to invest in financial futures and options thereon.
[ADD CALIFORNIA DISCLOSURE]
-20-
INFORMATION ABOUT NEW YORK
Following is a brief summary of some of the factors that may affect
the financial condition of the state of New York and its political
subdivisions. It is not a complete or comprehensive description of
these factors or an analysis of financial conditions and may not be
indicative of the financial condition of issuers of obligations held
by the New York Portfolio or any particular projects financed with
the proceeds of such obligations. Many factors not included in the
summary, such as the national economy, social and environmental
policies and conditions, and the national and international markets
for products produced in the state of New York could have an adverse
impact on the financial condition of the state of New York and its
political subdivisions, including issuers of obligations held by the
Portfolio. It is not possible to predict whether and to what extent
those factors may affect the financial condition of the state of New
York and its political subdivisions, including the issuers of
obligations held by the Portfolio.
The following summary is based on publicly available information that
has not been independently verified by the Company or its legal
counsel.
[ADD NEW YORK DISCLOSURE]
PORTFOLIO TRANSACTIONS
Portfolio transactions are undertaken principally to pursue the
objective of a 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 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 of the
Investment Manager and may be used
-21-
<PAGE>
in connection with the Portfolios. 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 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.
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 that 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 Affiliated Brokers by
the Portfolios satisfy the standards of Section 17(e) and Rule 17e-1.
The investment decisions for each Portfolio 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 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.
-22-
<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, National Investors Cash Management
Fund, Inc. ("NICM") and TD Waterhouse Trust ("TDWT") since December
12, 1995, February 26, 1998 and September 8, 1999, 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 56 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, NICM and TDWT since February 26, 1998, February
26, 1998 and September 8, 1999, respectively. Since March 1997, Ms.
Lewis has served as President of The CBL Group providing professional
services to clients in the securities and healthcare industries. Ms.
Lewis spent over 30 years at the SEC in various positions including
Senior Financial Analyst, Branch Chief and Assistant Director. In
September 1997, Ms. Lewis was appointed a member of the Board of
Governors of the Philadelphia Stock Exchange. Presently, Ms. Lewis is
a member of the Board of Directors of the Metropolitan Washington
Airports Authority and a director on various healthcare and hospital
Boards, including Chairman Elect of the Board of Trustees of the
American Hospital Association. She is 62 years old. Ms. Lewis'
address is 2920 W Street Southeast, Washington, DC 20020.
GEORGE F. STAUDTER*, Director. Mr. Staudter has served as Chairman of
the Board of Directors of each of the Company and TDWT since December
12, 1995 and September 8, 1999, respectively. 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.
-23-
<PAGE>
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
67 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 each
of the Company and TDWT since December 12, 1995 and September 8,
1999, respectively. 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 62 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 Director of Client Services
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
44 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 distributed by FDI or its
affiliates. From April 1994 to July 1996, Mr. Kelley was Assistant
Counsel at Forum Financial Group. He is 34 years old.
* THIS DIRECTOR IS AN "INTERESTED PERSON" OF THE COMPANY.
** ADDRESS: 60 STATE STREET, SUITE 1300, BOSTON, MA 02109
On [date], the officers and directors of the Company, as a group,
owned less than 1% of the outstanding shares of the Portfolios.
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 annual total directors' fees of
approximately $45,000 per year to those directors who are not
designated as interested persons ("Disinterested Directors").
Directors who are interested persons of the Company may be
compensated by the Investment Manager for their services to the
Company.
-24-
<PAGE>
The Company pays its directors an annual retainer and a per meeting
fee and reimburses them for their expenses. The amounts of
compensation that the Company paid to each director for the fiscal
year ended October 31, 1999, are as follows:
<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 (4) Company's Expenses Retirement Paid to Board Members (4)
------ ----------- ------------------ ---------- -------------------------
<S> <C> <C> <C> <C>
Richard W. Dalrymple [ ] $0 $0 [ ]
Carolyn B. Lewis (2) [ ] $0 $0 [ ]
George F. Staudter (3) $0 $0 $0 $0
Lawrence J. Toal [ ] $0 $0 [ ]
</TABLE>
---------------------------------
(1) "Fund Complex" includes the Company, NICM as well as TDWT,
investment companies also advised by the Investment Manager.
(2) Became a director of the Company and NICM on February 26, 1998.
(3) Interested director of the Company.
(4) Amounts do not include reimbursed expenses for attending Board
meetings or compensation from the Investment Manager or its
affiliates.
INVESTMENT MANAGEMENT, DISTRIBUTION AND OTHER SERVICES
INVESTMENT MANAGEMENT
TD 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 an indirect majority-owned subsidiary of
The Toronto-Dominion Bank ("TD Bank"). 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
other mutual funds and to TD Waterhouse Bank, N.A., an affiliate of
the Investment Manager and as of [date] 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, which is dated [date], will
continue in effect with respect to each Portfolio 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 each
Portfolio, and in either case
-25-
<PAGE>
by a majority of Disinterested Directors who have no direct or
indirect financial interest in the Agreement. The Agreement may be
terminated as to a 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 that Portfolio, 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 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 such Portfolio, 0.34% of the next $1 billion, and 0.33% of
assets over $2 billion.
The Investment Manager and its affiliates may, from time to time,
voluntarily waive or reimburse all or a part of a Portfolio's
operating expenses. Expense reimbursements by the Investment Manager
or its affiliates will increase the Portfolio's total return and
yield. The Investment Manager has agreed to assume certain
expenses of each Portfolio (or waive its fees) for the first
twelve months of each Portfolio's operations, so that the
total operating expenses payable by such Portfolio during
the period will not exceed 0.65% of its average daily net assets.
Thereafter, any decreases in expense reductions will be voluntary
and may be reduced or eliminated at any time upon notifing investors.
ADMINISTRATION
Pursuant to an Administration Agreement with the Company, TD
Waterhouse Investor Services, Inc. ("TD Waterhouse"), as
Administrator, provides administrative services to each Portfolio.
Administrative services furnished by TD Waterhouse 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
-26-
<PAGE>
providers. For its services as administrator, TD Waterhouse 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.
TD Waterhouse 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, which is dated [date], will continue in
effect for an initial two-year term as to each Portfolio, 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. Each
Portfolio or TD Waterhouse 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.
The Administration Agreement provides that TD Waterhouse 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 TD Waterhouse's part in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties under such agreement.
The Glass-Steagall Act and other applicable laws generally prohibit
federally chartered or supervised banks from engaging in the business
of underwriting, selling or distributing securities. While the matter
is not free from doubt, TD Waterhouse and the Investment Manager
believe that such laws should not preclude them from acting as
administrator and investment manager, respectively, to the Company.
Accordingly, TD Waterhouse 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 TD Waterhouse or the Investment Manager from continuing to
perform all or a part of their administration or investment
management activities, respectively. If TD Waterhouse 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.
-27-
<PAGE>
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 TD Waterhouse . 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 for an initial
two-year term as to each Portfolio, and thereafter from year to year
so long as such continuation is specifically approved 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.
SHAREHOLDER SERVICING
The Board of Directors 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 an annual rate that 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
TD Waterhouse, TD Waterhouse has agreed to provide shareholder
services to each
-28-
<PAGE>
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 TD Waterhouse 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 TD Waterhouse may terminate the
Shareholder Services Agreement on 60 days' prior written notice
without penalty. Termination by a Portfolio may be by vote of the
Company's Board of Directors, or a majority of the Disinterested
Directors who have no direct or indirect financial interest in the
Agreement. The Agreement terminates automatically in the event of its
"assignment" as defined in the Investment Company Act.
Conflict of interest restrictions may apply to the receipt by
Servicing Agents of compensation from the Company in connection with
the investment of fiduciary assets in Company shares. Servicing
Agents, including banks regulated by the Comptroller of the Currency,
the Federal Reserve Board or the Federal Deposit Insurance
Corporation, and investment advisers and other money managers are
urged to consult their legal advisers before investing such assets in
Company shares.
TRANSFER AGENT AND CUSTODIAN
National Investor Services Corp. (also referred to as the "Transfer
Agent"), 55 Water Street, New York, NY 10041, an affiliate of the
Investment Manager, serves as transfer and dividend disbursing agent
for each Portfolio. For the services provided under the Transfer
Agency and Dividend Disbursing Agency Agreement, which include
furnishing periodic and year-end shareholder statements and
confirmations of purchases and sales, reporting share ownership,
aggregating, processing and recording purchases and redemptions of
shares, processing dividend and distribution payments, forwarding
shareholder communications such as proxies, shareholder reports,
dividend notices and prospectuses to beneficial owners, receiving,
tabulating and transmitting proxies executed by beneficial owners and
sending year-end tax reporting to shareholders and the Internal
Revenue Service, the Transfer Agent 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
-29-
<PAGE>
compensation may not increase the aggregate amount of payments by the
Portfolios to the Transfer Agent.
Pursuant to a Custodian Agreement, The Bank of New York (the
"Custodian"), 100 Church Street, 10th Floor, 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
(including 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.
-30-
<PAGE>
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.
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
Each Portfolio 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
either 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 either involve governmental supervision
of management or investment practices or policies.
Each Portfolio is treated as a separate entity from the other
investment portfolios of the Company for tax purposes.
The Prospectus describes generally the tax treatment of distributions
by the Portfolios. This section of the Statement of Additional
Information includes additional information concerning federal and
state taxes. Each of the California Portfolio and the New York
Portfolio intends to invest primarily in obligations the interest on
which is exempt from either California or New York personal income
tax, respectively. Distributions from net investment income and net
realized capital gains, if any, including exempt-interest dividends,
may be subject to state taxes in other states.
FEDERAL INCOME TAX ISSUES. Distributions from a Portfolio will
constitute exempt-interest dividends to the extent of such
Portfolio's tax-exempt interest income (net of expenses and amortized
bond premium). Exempt-interest dividends distributed to shareholders
of a 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 a Portfolio of any investment
company taxable income (which includes any short-term capital gains
and market discount) will be taxable to shareholders as ordinary
income.
-31-
<PAGE>
Dividend distributions resulting from a recharacterization of gain
from the sale of bonds purchased with market discount are not
considered income for purposes of each Portfolio's policy of
investing so that at least 80% of its income is free from federal
income tax and either California or New York state personal income
taxes, respectively.
AMT is imposed in addition to, but only to the extent it exceeds, the
regular tax and is computed at a maximum marginal rate of 28% for
noncorporate taxpayers and 20% for corporate taxpayers on the excess
of the taxpayer's alternative minimum taxable income ("AMTI") over an
exemption amount. Exempt-interest dividends derived from certain
"private activity" municipal obligations issued after August 7, 1986
will generally constitute an item of tax preference includable in
AMTI for both corporate and noncorporate taxpayers. Corporate
investors should note that 75% of the amount by which adjusted
current earnings (which includes all tax-exempt interest) exceeds the
AMTI of the corporation constitutes an upward adjustment for purposes
of the corporate AMT. Shareholders are advised to consult their tax
advisers with respect to alternative minimum tax consequences of an
investment in the 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 Portfolios may not be appropriate investments
for (i) persons who are "substantial users" of facilities financed by
industrial development bonds held by a 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 with respect to the
consequences of this tax.
Each 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.
-32-
<PAGE>
Each Portfolio 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.
CALIFORNIA INCOME TAX ISSUES. As long as the California Portfolio
continues to qualify as a regulated investment company under the
Code, it will incur no California income or franchise tax liability
on income and capital gains distributed to its shareholders.
California personal income tax law provides that exempt-interest
dividends paid by a regulated investment company, or series thereof,
from interest on obligations that are exempt from California personal
income tax are excludable from gross income. For the Portfolio to
qualify to pay exempt-interest dividends under California law, at
least 50% of the value of its assets must consist of such obligations
at the close of each quarter of its fiscal year. For purposes of
California personal income taxation, distributions to individual
shareholders derived from interest on other types of obligations or
from capital gains will be subject to tax. Interest on indebtedness
incurred or continued by a shareholder in connection with the
purchase of shares of the Portfolio will not be deductible for
California personal income tax purposes.
California has an alternative minimum tax similar to the federal AMT
described above. However, the California AMT does not include
interest from private activity municipal obligations as an item of
tax preference.
Dividends and distributions from the Portfolio are not exempt from
California state corporate income or franchise taxes.
NEW YORK INCOME TAX ISSUES. Individual shareholders of the New York
Portfolio resident in New York state will not be subject to state
income tax on distributions received from the New York Portfolio to
the extent such distributions are attributable to interest on
tax-exempt obligations of the state of New York and its political
subdivisions, and obligations of the Governments of Puerto Rico, the
Virgin Islands and Guam, provided that such interest is exempt from
federal income tax pursuant to Section 103(a) of the Internal Revenue
Code, and that the New York Portfolio qualifies as a regulated
investment company and satisfies the requirements of the Internal
Revenue Code necessary to pay exempt-interest dividends, including
the requirement that at least 50% of the value of its assets at the
close of each quarter of its taxable year be invested in state,
municipal or other obligations the interest on which is excluded from
gross income for federal income tax purposes under Section 103(a) of
the Internal Revenue Code. Individual shareholders who reside in New
York City will be able to exclude such distributions for city income
tax purposes. Other distributions from the New York Portfolio,
including those related to market discount and capital gains,
generally will not be exempt from state or city income tax.
Distributions from the New
-33-
<PAGE>
York Portfolio will not be excluded from net income and shares of the
New York Portfolio will not be excluded from investment capital in
determining state or city franchise and corporation taxes for
corporate shareholders. Shares of the New York Portfolio will not be
subject to any state or city property tax. Shareholders of the New
York Portfolio should consult their advisers about other state and
local tax consequences of their investments in the Portfolio.
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 may be 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 from investment
company taxable income (which includes any short-term capital gains
and market discount) 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 shares may be subject to state and local personal
property taxes. Investors should consult their tax advisers to
determine whether a Portfolio is suitable to their particular tax
situation.
Foreign shareholders should consult their tax advisers regarding
foreign tax consequences applicable to their purchase of Company
shares.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS
The Company's independent auditors, Ernst & Young, LLP, 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.
-34-
<PAGE>
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. In addition to the holidays on which the NYSE is closed,
the Custodian generally is also closed on Veteran's Day and Columbus
Day.
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.
-35-
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
For additional information regarding purchasing and selling shares of
the Portfolios, see "How to Buy and Sell Shares" in the Prospectus.
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, TD Waterhouse or any of its subsidiaries.
The Company normally calculates the NAV of each Portfolio as of 12:00
noon and as of the close of regular trading on the NYSE, generally
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 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," "tax equivalent yield" and
"tax equivalent effective yield." These various measures of
performance are described below.
-36-
<PAGE>
Each Portfolio's yield is computed in accordance with a standardized
method prescribed by rules of the SEC. Under that method, the yield
quotation is based on a seven-day period and is computed for each
Portfolio as follows: the first calculation is net investment income
per share for the period, which is accrued interest on portfolio
securities, plus or minus amortized discount or premium (excluding
market discount), less accrued expenses. This number is then divided
by the price per share (expected to remain constant at $1.00) at the
beginning of the period ("base period return"). The result is then
divided by 7 and multiplied by 365 and the resulting yield figure is
carried to the nearest one-hundredth of one percent. Realized capital
gains or losses and unrealized appreciation or depreciation of
investments are not included in the calculation.
Each Portfolio's effective yield is determined by taking the base
period return (computed as described above) and calculating the
effect of assumed compounding. The formula for effective yield is:
[(base period return + 1) 365/7] - 1.
The tax equivalent yield of a Portfolio is computed by dividing that
portion of the yield of the Portfolio (computed as described above)
that is tax-exempt by an amount equal to one minus the stated federal
income tax rate (normally assumed to be the maximum applicable
marginal tax bracket rate) and adding the result to that portion, if
any, of the yield of the Portfolio that is not tax-exempt.
Tax equivalent effective yield is computed in the same manner as tax
equivalent yield, except that effective yield is substituted for
yield in the calculation.
Each Portfolio's yield fluctuates, and the publication of an
annualized yield quotation is not a representation as to what an
investment in that Portfolio will actually yield for any given future
period. Actual yields will depend not only on changes in interest
rates on money market instruments during the period in which the
investment in the Portfolio is held, but also on such matters as
expenses of that Portfolio.
The performance of the 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.
-37-
<PAGE>
As reported by Money Fund Report, all investment results represent
total return (annualized results for the period net of management
fees and expenses) and one year investment results are effective
annual yields assuming reinvestment of dividends.
BANK RATE MONITOR(Trademark), N. Palm Beach, Florida 33408, a
financial reporting service which each week publishes average rates
of bank and thrift institution money market deposit accounts and
interest bearing checking accounts, reports results for the BANK RATE
MONITOR National Index. The rates published by the BANK RATE MONITOR
National Index are averages of the personal account rates offered on
the Wednesday prior to the date of publication by 100 of the leading
bank and thrift institutions in the ten largest Consolidated
Metropolitan Statistical Areas. Account minimums range upward from
$2,000 in each institution and compounding methods vary. Interest
bearing checking accounts generally offer unlimited checking while
money market deposit accounts generally restrict the number of checks
that may be written. If more than one rate is offered, the lowest
rate is used. Rates are determined by the financial institution and
are subject to change at any time specified by the institution. Bank
products represent a taxable alternative income producing product.
Bank and thrift institution account deposits may be insured.
Shareholder accounts in the Company are not insured. Bank savings
accounts compete with money market mutual fund products with respect
to certain liquidity features but may not offer all of the features
available from a money market mutual fund, such as check writing.
Bank checking accounts normally do not pay interest but compete with
money market mutual fund products with respect to certain liquidity
features (e.g., the ability to write checks against the account).
Bank certificates of deposit may offer fixed or variable rates for a
set term. (Normally, a variety of terms are available.) Withdrawal of
these deposits prior to maturity will normally be subject to a
penalty. In contrast, shares of each 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.
-38-
<PAGE>
OTHER ADVERTISEMENT MATTERS
The Portfolios may advertise the benefits of investing in municipal
securities and the various effects of investing in municipal
securities. For instance, a Portfolio's advertisements may note that
municipal bonds have historically offered higher after tax yields
than comparable taxable alternatives for those persons in the higher
tax brackets, that municipal bond yields may tend to outpace
inflation and that changes in tax law have eliminated many of the tax
advantages of other investments. The combined federal and state
income tax rates for a particular state may also be described and
advertisements may indicate equivalent taxable and tax-free yields at
various approximate combined marginal federal and state tax bracket
rates. All yields so advertised are for illustration only and are not
necessarily representative of a Portfolio's yield.
In connection with its advertisements, a Portfolio may provide
information about its Investment Manager, TD Waterhouse or any of the
Portfolio's other service providers, including information relating
to policies, business practices or services. For instance, a
Portfolio may provide information about TD Waterhouse in its
advertisements, including the difference between commissions paid on
stock trades executed by TD Waterhouse compared to full-price and
discount brokers (as illustrated below) and a description of services
available through TD Waterhouse. This example is for illustrative
purposes only; investors should contact the Customer Service
Department at TD Waterhouse at 1-800-934-4410 for information about
services and commissions.
<TABLE>
<CAPTION>
Compare
our price 1,000 shares @ $10 2,000 shares @ $14 3,000 shares @ $12
------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
MERRILL LYNCH
On-Line (Wrap Accounts Only*) (Wrap Accounts Only*) (Wrap Accounts Only*)
Touch-Tone No Touch-Tone Trading No Touch-Tone Trading No Touch-Tone Trading
Live Broker $264.60 $513.00 $622.65
SCHWAB
On-Line $29.95 $59.95 $89.95
Touch-Tone $99.00 $145.44 $161.28
Live Broker $110.00 $161.60 $179.20
FIDELITY
On-Line $25.00 $45.00 $65.00
Touch-Tone $107.25 $136.00 $130.00
Live Broker $165.00 $210.00 $200.00
TD WATERHOUSE
WEBBROKER
ON-LINE $12.00 $12.00 $12.00
TOUCH-TONE $35.00 $35.00 $35.00
ACCOUNT OFFICER $45.00 $45.00 $45.00
</TABLE>
- ----------
[FN]
Survey date 8/20/99. Commission rates surveyed are for stocks and may
vary for other products. Services vary by firm. Minimum commissions:
on-line - $12.00, touch-tone - $35.00, Account Officer - $45.00. As a
customer of TD Waterhouse webBroker, you must place the majority of
your trades via a personal computer to receive the flat-fee
commission schedule. Trades over 5,000 shares will incur a 1
</FN>
-39-
<PAGE>
cent per share charge for the entire trade. *Merrill Wrap Accounts
charge customers a yearly fee based on assets. 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, shareholders 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.
The Board of Directors may authorize the issuance of additional
shares, and may, from time to time, classify or reclassify issued or
any unissued shares to create one or more new classes or series in
addition to those already authorized by setting or changing in any
one or more respects the designations, preferences, conversion or
other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption, of
such shares; provided, however, that any such classification or
reclassification shall not substantially adversely affect the rights
of holders of issued shares. Any such classification or
reclassification will comply with the provisions of the Investment
Company Act.
The Articles of Incorporation permit the directors to issue the
following number of full and fractional shares, par value $.0001, of
the investment portfolios: 50 billion shares of the Money Market
Portfolio; 20 billion shares of the U.S. Government Portfolio; 10
billion shares of the Municipal Portfolio; 5 billion shares of the
California Municipal Money Market Portfolio; and 5 billion shares of
the New York Municipal Money Market Portfolio. 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
-40-
<PAGE>
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.
As of [date], 1999, FDI Distribution Services, Inc. ("FDISI"), a
Delaware corporation with its principal business address at 60 State
Street, Suite 1300, Boston, Massachusetts 02109, owned of record and
beneficially all of each Portfolio's outstanding shares and was
presumed to control (as that term is defined in the Investment
Company Act) that Portfolio. FDISI, an affiliate of FDI, is a
wholly-owned subsidiary of FDI Holdings, Inc., which in turn is a
wholly-owned subsidiary of Boston Institutional Group, Inc. Following
the commencement of each Portfolio's public offering of its shares,
it is anticipated that FDISI will own less than 25% of such
Portfolio's shares and therefore cease to be a controlling person of
that Portfolio.
-41-
<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.
-42-
<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.
-43-
<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 (see Note E)
(4) Articles of Amendment to Articles of Incorporation dated July
22, 1998 (filed herewith)
(5) Articles of Amendment to Articles of Incorporation dated March
29, 1999 (filed herewith)
(6) Articles of Amendment to Articles of Incorporation dated
September 20, 1999 (filed herewith)
(7) Articles of Amendment to Articles of Incorporation (see Note
G)
(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(Service Mark) Index Fund) dated February
26, 1998 (see Note E)
(3) Amendment to Investment Management Agreement between
Registrant and TD Waterhouse Asset Management, Inc. relating
to the provision of services to California Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio
(See Note G)
(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(Service Mark) Index
Fund) dated February 26, 1998 (see Note E)
(3) Amendment to Distribution Agreement between Registrant and
Funds Distributor, Inc. relating to the provision of services
to California Municipal Money Market Portfolio and New York
Municipal Money Market Portfolio (See Note G)
(4) Form of Agency Selling Agreement (see Note A)
(5) 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)
<PAGE>
(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 (see Note E)
(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(Service Mark) Index Fund) dated
February 12, 1998 (see Note E)
(4) Amendment to Custody Agreement between Registrant and The Bank
of New York relating to the provision of services to
California Municipal Money Market Portfolio and New York
Municipal Money Market Portfolio (See Note G)
(5) Foreign Custody Manager Agreement between Registrant and The
Bank of New York dated December 10, 1997 (see Note E)
(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(Service Mark) Index
Fund) dated February 26, 1998 (see Note E)
(3) Transfer Agency and Dividend Disbursing Agency Agreement
between Registrant and National Investor Services Corp. on
behalf of Money Market Portfolio, U.S. Government Portfolio
and Municipal Portfolio, dated September 8, 1999 (filed
herewith)
(4) Amendment to Transfer Agency and Dividend Disbursing Agency
Agreement between Registrant and National Investor Services
Corp. relating to the provision of services to California
Municipal Money Market Portfolio and New York Municipal Money
Market Portfolio (See Note G)
(5) 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)
(6) 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
(see Note E)
(7) Form of Shareholder Servicing Plan (see Note A)
(8) Form of Shareholder Services Agreement (see Note A)
(9) Shareholder Services Agreement for Waterhouse Securities Inc.
dated October 15, 1996 (see Note C)
(10) Administration Agreement between Registrant and Waterhouse
Securities, Inc., dated June 11, 1997 (see Note C)
(11) Amendment to Administration Agreement between Registrant and
TD Waterhouse Investor Services, Inc. relating to the
provision of services to California Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio (See
Note G)
(12) Administration Agreement between Registrant and Waterhouse
Securities, Inc. on behalf of Waterhouse Dow 30 Fund (formerly
known as Waterhouse Investors Dow Jones Industrial
Average(Service Mark) Index Fund) dated February 26, 1998 (see
Note E)
(13) 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 C)
<PAGE>
(14) Amendment to Sub-Administration Agreement between Waterhouse
Securities, Inc. and Funds Distributor, 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(Service Mark) Index Fund) dated February
26, 1998 (see Note E)
(15) Amendment Sub-Administration Agreement between TD Waterhouse
Investor Services, Inc. and Funds Distributor, Inc. relating
to the provision of services to California Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio
(See Note G)
(16) 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 C)
(17) 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 (see Note E)
(18) 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(Service Mark) Index Fund) dated
February 26, 1998 (see Note E)
(19) Amendment to Accounting Services Agreement between TD
Waterhouse Investor Services, Inc. and Countrywide Fund
Services, Inc. on behalf of Registrant relating to the
provision of services to California Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio (See
Note G)
(20) State Registration Services Agreement between Registrant and
Clear Sky Corporation dated November 27, 1995 (see Note B)
(21) 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(Service
Mark) Index Fund) dated February 26, 1998 (see Note E)
(22) Amendment to State Registration Services Agreement between
Registrant and Clear Sky Corporation relating to the provision
of services to California Municipal Money Market Portfolio and
New York Municipal Money Market Portfolio (See Note G)
(i) Opinion and Consent of Shereff, Friedman, Hoffman and Goodman,
LLP as to legality of the securities being registered (see
Note A)
(j) Consent of Swidler Berlin Shereff Friedman, LLP (filed
herewith)
(k) Inapplicable
(l) (1) Subscription Agreement between Registrant and FDI Distribution
Services, Inc. dated December 12, 1995 (see Note A)
(2) Subscription Agreement between Registrant and FDI Distribution
Services, Inc. on behalf of Waterhouse Dow 30 Fund (formerly
known as Waterhouse Investors Dow Jones Industrial
Average(Service Mark) Index Fund) dated March 30, 1998 (see
Note E)
(3) Subscription Agreement between Registration and FDI
Distribution Services, Inc. on behalf of California Municipal
Money Market Portfolio and New York Municipal Money Market
Portfolio (See Note G)
(m) Inapplicable
(n) Inapplicable
<PAGE>
Other Exhibits:
Power of Attorney for George F. Staudter, Richard Dalrymple, Anthony J.
Pace, Lawrence Toal and Theodore Rosen dated June 12, 1996 (see Note C)
Power of Attorney for Carolyn B. Lewis dated December 9, 1998 (See Note
F)
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.
Note E: Filed as an exhibit to Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A, File Nos. 33-96132; 811-9086, on
October 13, 1998, and incorporated herein by reference.
Note F: Filed as an exhibit to Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A, File Nos. 33-96132; 811-9086, on
December 14, 1998, and incorporated herein by reference.
Note G: To be filed by amendment.
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
<PAGE>
proceeding was one by or in the right of the corporation, indemnification may
not be made in respect of any proceeding in which the director shall have been
adjudged to be liable to the corporation. A director may not be indemnified
under Section 2-418 in respect of any proceeding charging improper personal
benefit to the director, whether or not involving action in the director's
official capacity, in which the director was adjudged to be liable on the basis
that personal benefit was improperly received.
Unless limited by the Registrant's charter, a director who has been
successful, on the merits or otherwise, in the defense of any proceeding
referred to above shall be indemnified against any reasonable expenses incurred
by the director in connection with the proceeding. Reasonable expenses incurred
by a director who is a party to a proceeding may be paid or reimbursed by the
corporation in advance of the final disposition of the proceeding upon receipt
by the corporation of (i) a written affirmation by the director of the
director's good faith belief that the standard of conduct necessary for
indemnification by the corporation has been met; and (ii) a written undertaking
by or on behalf of the director to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
The indemnification and advancement of expenses provided or authorized
by Section 2-418 may not be deemed exclusive of any other rights, by
indemnification or otherwise, to which a director may be entitled under the
charter, the bylaws, a resolution of stockholders or directors, an agreement or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office.
Under Section 2-418, a corporation may indemnify and advance expenses
to an officer, employee, or agent of the corporation to the same extent that it
may indemnify directors and a corporation, in addition, may indemnify and
advance expenses to an officer, employee, or agent who is not a director to such
further extent, consistent with law, as may be provided by its charter, bylaws,
general or specific action of its board of directors or contract.
Under Section 2-418, a corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or agent of
the corporation, or who, while a director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan against any liability asserted against and incurred by such person
in any such capacity or arising out of such person's position, whether or not
the corporation would have the power to indemnify against liability under the
provisions of such Section. A corporation also may provide similar protection,
including a trust fund, letter of credit, or surety bond, not inconsistent with
the foregoing. The insurance or similar protection may be provided by a
subsidiary or an affiliate of the corporation.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 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.
RICHARD H. NEIMAN*, Director and Secretary. Mr. Neiman has served as
Executive Vice President, General Counsel, Director and Secretary of TD
Waterhouse Holdings, Inc. since July 1994. Mr. Neiman also serves in similar
capacities for TD Waterhouse Investor Services, Inc.
FRANK J. PETRILLI*, Director. Mr. Petrilli has served as Chairman,
President and Chief Executive Officer of TD Waterhouse Asset Management, Inc.
since January 1997. Mr. Petrilli has served as President and Chief Operating
Officer of TD Waterhouse Group, Inc. since June 1999. Mr. Petrilli has served as
Chief Executive Officer of TD Waterhouse Holdings, Inc. since March 1998 and
President since January 1995. He also served as Chief Operating Officer of TD
<PAGE>
Waterhouse Holdings, Inc. from January 1995 to March 1998. Since August 1998,
Mr. Petrilli has served as Director and Vice Chairman of TD Waterhouse Investor
Services, Inc.
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 TD Waterhouse Holdings, Inc. and TD Waterhouse Investor
Services, Inc. since October 1996. Mr. Sterns has served in various positions
with Toronto-Dominion Bank since October 1970 and is currently a Vice President
with the Bank.
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.
LAWRENCE M. WATERHOUSE, Jr.*, Director. Mr. Waterhouse has served as
Chairman of TD Waterhouse Holdings, Inc. since its inception in 1987 and Chief
Executive Officer from August 1989 to March 1998. Mr. Waterhouse is the founder
of TD Waterhouse Investor Services, Inc. and has served as Chief Executive
Officer since its inception in March 1979. Mr. Waterhouse is a Director of TD
Waterhouse Group, Inc. since June 1999. Mr. Waterhouse also serves as Chairman
of TD Waterhouse Bank, N.A. 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.
The Brinson Funds
CDC MPT+ Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
Dresdner RCM Investment Funds Inc.
J.P. Morgan Institutional Funds
J.P. Morgan Funds
JPM Series Trust
JPM Series Trust II
LaSalle Partners Funds, Inc.
Kobrick Investment Trust
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.
<PAGE>
National Investors Cash Management Fund, Inc.
Nomura Pacific Basin Fund, Inc.
Orbitex Group of Funds
Saratoga Advantage Trust
SG Cowen Funds, Inc.
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.
SoGen Funds, Inc.
SoGen Variable Funds, Inc.
St. Clair Funds, Inc.
The Skyline Funds
TD Waterhouse Family of Funds, Inc.
TD Waterhouse Trust
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 located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109. 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.
<TABLE>
<CAPTION>
Position and Offices with Funds Distributor Name Position and Offices with Fund
------------------------------------------- ---- ------------------------------
<S> <C> <C> <C>
Director, President and Chief Executive Officer Marie E. Connolly None
Executive Vice President George A. Rio President, Treasurer and Chief
Financial Officer
Executive Vice President Donald R. Roberson None
Executive Vice President William S. Nichols None
Senior Vice President, General Counsel, Chief Margaret W. Chambers None
Compliance Officer, Secretary and Clerk
Director, Senior Vice President, Treasurer and Joseph F. Tower, III None
Chief Financial Officer
Senior Vice President Paula R. David None
Senior Vice President Gary S. MacDonald None
Senior Vice President Judith K. Benson None
Chairman and Director William J. Nutt None
</TABLE>
(c) Not applicable.
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 Manager and Administrator, TD Waterhouse Asset Management, Inc. and
TD Waterhouse Investor Services, Inc., respectively, 100 Wall Street, New York,
New York 10005, or (i) in the case of records concerning custodial functions, at
the offices of the Registrant's Custodian, The Bank of New York, 48 Wall Street,
New York, New York 10286; (ii) in the case of records concerning transfer agency
functions, at the offices of the Registrant's Transfer Agent, National Investor
Services Corp., 55 Water Street, New York, New York 10041; (iii) in the case of
records concerning distribution, administration and certain other functions, at
the offices of the 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.
<PAGE>
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 15th day of October, 1999.
TD WATERHOUSE FAMILY OF FUNDS, INC.
Registrant
By /s/ Christopher J. Kelley
Christopher J. Kelley
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below on behalf of the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ George A. Rio President, Treasurer October 15, 1999
George A. Rio and Chief Financial
Officer
George F. Staudter* Chairman of the Board
and Director
Richard W. Dalrymple* Director
Carolyn B. Lewis* Director
Lawrence J. Toal* Director
*By /s/ Richard H. Neiman October 15, 1999
Richard H. Neiman
Attorney-in-Fact pursuant to a power
of attorney
</TABLE>
<PAGE>
INDEX TO EXHIBITS
(a)(4) Articles of Amendment to Articles of Incorporation dated July
22, 1998
(a)(5) Articles of Amendment to Articles of Incorporation dated March
29, 1999
(a)(6) Articles of Amendment to Articles of Incorporation dated
September 20, 1999
(h)(3) Transfer Agency and Dividend Disbursing Agency Agreement dated
September 8, 1999
(j) Consent of Swidler Berlin Shereff Friedman, LLP
<PAGE>
Exhibit 99.(a)(4)
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: The charter of the Corporation is hereby amended by these
Articles of Incorporation as follows:
In each instance in which the words "Waterhouse Investors Dow Jones
Industrial Average(SM) Index Fund" appear in the Articles of
Incorporation, the words "Waterhouse Investors Dow Jones Industrial
Average(SM) Index Fund" shall be deleted and the words "Waterhouse
Dow 30 Fund" shall be substituted therefor.
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.
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 22nd day of July, 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 99.(a)(5)
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 five separate series to be known as "Money Market
Portfolio," "U.S. Government Portfolio," "Municipal Portfolio,"
"Waterhouse Dow 30 Fund" and the "Waterhouse S&P Leaders Fund." Each
such series shall be divided as follows: the Money Market Portfolio
shall consist of fifty billion (50,000,000,000) 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, the Waterhouse Dow 30 Fund shall consist of
ten billion (10,000,000,000) shares and the Waterhouse S&P Leaders 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.
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 29th day of March, 1999.
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 99.(a)(6)
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: The Second Article of the Corporation's charter is hereby
amended in its entirety to read as follows:
The name of the corporation is TD Waterhouse Family of Funds, Inc.
(herein called the "Corporation").
SECOND: The charter of the Corporation is hereby amended by these
Articles of Incorporation as follows:
In each instance in which the words "Waterhouse Dow 30 Fund" appear in
the Articles of Incorporation, the words "Waterhouse Dow 30 Fund" shall
be deleted and the words "TD Waterhouse Dow 30 Fund" shall be
substituted therefor.
THIRD: 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.
FOURTH: Except as amended hereby, the Corporation's charter shall
remain in full force and effect.
FIFTH: The authorized capital stock of the Corporation has not
been increased by these Articles of Amendment.
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 20th day of September,
1999.
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 99.(h)(3)
TRANSFER AGENCY AND DIVIDEND
DISBURSING AGENCY AGREEMENT
AGREEMENT made as of the 8th day of September, 1999 by and
between WATERHOUSE INVESTORS FAMILY OF FUNDS, INC., a Maryland corporation (the
"Company"), on its own behalf and on behalf of its Money Market Portfolio, U.S.
Government Portfolio and Municipal Portfolio (each, a "Portfolio"), and NATIONAL
INVESTOR SERVICES CORP., a Delaware 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 each Portfolio 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
covenants 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 each Portfolio 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 each Portfolio, and agrees to act as such upon,
and subject to, the terms and provisions of this Agreement.
2. Definitions. In this Agreement:
(1) The term "Act" means the Investment Company Act of
1940, as amended, and any rule or regulation thereunder;
(2) The term "Account" means any account of a
Shareholder, or, if the shares are held in an account in the name of TD
Waterhouse 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 any two of the following: the President, any Vice President, the
Secretary or the Treasurer of the Company 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; and
(8) The term "Shares" means shares of stock of the
Company, irrespective of Portfolio.
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 each Portfolio: (i) processing the issuance, transfer
and redemption of Shares, and recording the same in the appropriate Accounts;
(ii) opening, maintaining, servicing and closing Accounts; (iii) acting as agent
for the Shareholders and/or customers of TD Waterhouse or other broker-dealer in
connection with Plan Accounts, upon the terms and subject to the conditions
contained in the Prospectus and application relating to the specific Plan
Account; (iv) exchanging the investment of an investor into or from the Shares
of one or more Portfolios of the Company if and to the extent permitted by the
Prospectus at the direction of such investor; (v) examining and approving legal
transfers; (vi) replacing lost, stolen or destroyed certificates, if any,
representing Shares, in accordance with, and subject to, procedures and
conditions adopted by the Company; (vii)
<PAGE>
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 Company, 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 Company 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 Company or one or more of its
Portfolios, as appropriate) as of such date, in such form and containing such
information as may be required by the 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.
(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 each Portfolio 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 Company, 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, each Portfolio shall pay NISC on the first business
day of each calendar month a fee for the previous month at an annual rate equal
to .20 of 1% of such Portfolio's average daily net assets. The value of each
Portfolio's net assets shall be computed at the times and in the manner
specified in the Company's registration statement on Form N-1A, as amended from
time to time (the "Registration Statement"). Compensation by each Portfolio to
NISC shall commence on the date of the first receipt by such Portfolio of the
proceeds of the sale of its Shares as described in the Registration Statement,
and the fee for the period from the date such Portfolio shall first receive the
proceeds of the sale of its Shares as aforesaid to the end of the month during
which such proceeds are so received, shall be pro-rated according to the
proportion that such period bears to the full monthly period. Upon termination
of this Agreement before the end of a month, the fee for such part of that month
shall be pro-rated according to the proportion that such period bears to the
full monthly period and shall be payable within seven (7) days after the date of
termination of this Agreement.
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 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
<PAGE>
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 any Portfolio
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, a Portfolio, 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 each Portfolio, 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 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 all Shareholder records, books, stock ledgers,
instruments and other documents (including computer or other electronically
<PAGE>
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 Investor Services 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).
14. Separate Portfolios. This Agreement shall be construed to be made
by the Company as a separate agreement with respect to each Portfolio, and under
no circumstances shall the rights, obligations or remedies with respect to a
particular Portfolio be deemed to constitute a right, obligation or remedy
applicable to any other Portfolio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers as of the day and year above
written.
WATERHOUSE INVESTORS FAMILY
OF FUNDS, INC.
By: /s/ George A. Rio
Name: George A. Rio
Title: President
NATIONAL INVESTOR SERVICES CORP.
By: /s/ Joseph Barra
Name: Joseph Barra
<PAGE>
Exhibit 99.(j)
CONSENT OF SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
We hereby consent to the reference to our firm included in the
prospectus and statement of additional information of TD Waterhouse Family of
Funds, Inc. filed as part of Registration Statement No. 33-96132 and to the use
of our opinion of counsel, incorporated by reference to Exhibit 10 to
Pre-Effective Amendment No. 2 to the Registration Statement on Form N-1A (File
No. 33-96132).
Swidler Berlin Shereff Friedman, LLP
New York, New York
October 13, 1999
