TD WATERHOUSE FAMILY OF FUNDS INC
485BPOS, 2000-12-28
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   As filed with the Securities and Exchange Commission on December 28, 2000
                                             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. 10                              [X]


                                     and/or


REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940       [ ]
         Amendment No. 12                                             [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
405 Lexington Avenue
New York, New York, 10174

It is proposed that this filing will become effective:

         [X]    Immediately upon filing pursuant to paragraph (b)

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

         [ ]    On (date) pursuant to paragraph (b)

         [ ]    On (date) pursuant to paragraph (a) (1)

         [ ]    75 days after filing pursuant to paragraph (a) (2)

         [ ]    On (date) pursuant to paragraph (a) (2) of rule 485

If appropriate, check the following box:

[ ]  This  post-effective  amendment  designates  a  new  effective  date  for a
previously filed post-effective amendment.

<PAGE>

                       TD WATERHOUSE FAMILY OF FUNDS, INC.


                  Five money market portfolios to choose from:


                             MONEY MARKET PORTFOLIO

                  U.S. GOVERNMENT PORTFOLIO MUNICIPAL PORTFOLIO


                   CALIFORNIA MUNICIPAL MONEY MARKET PORTFOLIO

                    NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO


                                   PROSPECTUS

                                     [LOGO]


                               December 28, 2000



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>





2
<PAGE>

                       TD WATERHOUSE FAMILY OF FUNDS, INC.

                                TABLE OF CONTENTS


RISK AND RETURN SUMMARY ......................................................4
Investment Objectives.........................................................4
Investment Strategies ........................................................4
Principal Risks ..............................................................6
Who May Want to Invest .......................................................6
Past Performance .............................................................7
Expenses .....................................................................8


HOW TO BUY AND SELL SHARES ...................................................9
How to Buy Shares ...........................................................10
How to Sell Shares ..........................................................11
How to Exchange Between Portfolios ..........................................12
Telephone Transactions ......................................................12


SHAREHOLDER INFORMATION .....................................................13
Pricing Your Shares .........................................................13
Dividends ...................................................................13
Taxes .......................................................................13
Statements and Reports to Shareholders ......................................15


PORTFOLIO MANAGEMENT ........................................................16
Investment Manager ..........................................................16
Administrator ...............................................................16
Distributor .................................................................16
Shareholder Servicing .......................................................16


ABOUT CALIFORNIA AND NEW YORK ...............................................17
California ..................................................................17
New York ....................................................................17

FINANCIAL HIGHLIGHTS ........................................................18


FOR MORE INFORMATION ................................................Back cover

                                                                               3

<PAGE>
--------------------------------------------------------------------------------

                       TD WATERHOUSE FAMILY OF FUNDS, INC.


RISK AND RETURN SUMMARY
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVES

Each of the  Money  Market  Portfolio,  the U.S.  Government  Portfolio  and the
Municipal  Portfolio seeks maximum current income to the extent  consistent with
liquidity and preservation of capital and a stable price of $1.00 per share.

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 any Portfolio will be able to maintain a stable share
price.

INVESTMENT STRATEGIES

Each Portfolio is a no-load money market fund.  Each  Portfolio  invests in high
quality money market  securities that the investment  manager  believes  present
minimal credit risk.

Generally,  money market  securities are short-term debt  obligations  issued by
banks,  corporations  or governments.  Money market  securities may be backed by
loans,  receivables  or  other  assets  or may be  unsecured,  and  may  include
repurchase agreements. In a repurchase agreement, a Portfolio acquires ownership
of a  security  from a  financial  institution  that  agrees to  repurchase  the
security  later  at a time  and  price  that  determine  the  yield  during  the
Portfolio's  holding  period.  Particular  types of money market  securities are
described in the Portfolios' Statement of Additional Information.


The MONEY MARKET  PORTFOLIO  has the  flexibility  to invest in a broad range of
high quality money market securities.  The U.S.  GOVERNMENT  PORTFOLIO offers an
added  measure  of safety by  investing  exclusively  in  obligations  issued or
guaranteed  by the U.S.  government,  its  agencies  or  instrumentalities.  The
MUNICIPAL  PORTFOLIO  offers  income  exempt  from  federal  taxes by  investing
primarily in municipal  securities.  The  CALIFORNIA  PORTFOLIO and the NEW YORK
PORTFOLIO  invest  in  high  quality   municipal   obligations   issued  by  its
corresponding state (California or New York), the state's political subdivisions
and other  qualifying  issuers  believed  by the  investment  manager to present
minimal  credit risk.  The  California  Portfolio and the New York Portfolio are
intended solely for California or New York residents, respectively.


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  generally  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

4

<PAGE>

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.

Each  Portfolio may invest in other  investment  companies  consistent  with its
investment  objective  and  strategies.  Any  such  investments,   although  not
currently anticipated, will be made solely in no-load money market funds.

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

U.S. GOVERNMENT PORTFOLIO.  The U.S. Government Portfolio invests exclusively in
U.S. Treasury bills,  notes, bonds and other obligations issued or guaranteed by
the  U.S.  government,   its  agencies  or  instrumentalities,   and  repurchase
agreements  backed  by such  obligations.  A U.S.  government  guarantee  of the
securities  owned by the  Portfolio,  however,  does not guarantee the net asset
value of the Portfolio's shares.


MUNICIPAL PORTFOLIO,  CALIFORNIA PORTFOLIO AND NEW YORK PORTFOLIO. The Municipal
Portfolio  invests  primarily in a  diversified  portfolio of  short-term,  high
quality,  tax-exempt  municipal  obligations.  The Municipal  Portfolio normally
invests at least 80% of its total assets in obligations  issued or guaranteed by
states,  territories  and  possessions  of the United States and the District of
Columbia  and  their  political  subdivisions,  agencies  and  instrumentalities
("municipal  securities").  The income  from  these  securities  is exempt  from
federal income tax, but may be subject to the federal alternative minimum tax.

Each of the California Portfolio and the New York Portfolio will invest at least
80% of its assets in municipal  securities.  These  securities may include those
issued  by  the  Portfolio's   corresponding  state  or  the  state's  political
subdivisions,  authorities or instrumentalities,  or by corporations established
for a public  purpose.  These  securities  also may be issued 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,  each of the  California  Portfolio  and  the New  York
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.

Municipal securities may be either "general obligation" or "revenue" securities;
that is,  they may be secured  by a pledge of the  issuing  municipality's  full
credit or rely only on the  revenues of a  particular  project or other  special
revenue.

Each 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,  each Portfolio may temporarily invest its assets,  without limitation,
in taxable money market investments.  Interest income from temporary investments
is taxable to  shareholders  as  ordinary  income.  The effect of taking  such a
temporary  defensive  position  is  that  the  Portfolio  may  not


                                                                               5

<PAGE>


achieve its investment objective.

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 the Portfolio's risks.

Each  Portfolio  may purchase  municipal  securities  together with the right to
resell them to the seller at a specified price or yield within a certain period.
Such a right, known as a stand-by  commitment,  allows the Portfolio to be fully
invested  in  municipal  securities  while  preserving   liquidity.   Particular
securities  and  techniques,  and their  related  risks,  are  described  in the
Statement of Additional Information.


PRINCIPAL RISKS

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

Although each Portfolio  seeks to preserve the value of your investment at $1.00
per  share,  it is  possible  to lose  money by  investing  in a  Portfolio.  An
investment  in a  Portfolio  is not a deposit of any bank and is not  insured or
guaranteed by the Federal Deposit Insurance  Corporation or any other government
agency.


CALIFORNIA  PORTFOLIO  AND NEW YORK  PORTFOLIO.  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 of the  California  Portfolio  or New  York  Portfolio's  "non-diversified"
status allows it to invest more than 5% of its assets in a single  issuer.  As a
result, these Portfolios are riskier than other types of money market funds that
require greater  diversification among issuers.  Because these Portfolios invest
primarily in securities  issued by a single state and its  municipalities,  they
are more  vulnerable to  unfavorable  developments  within that state than funds
that invest in municipal securities of many states.


WHO MAY WANT TO INVEST

The Portfolios may be appropriate for the following investors:

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

o    Investors looking for a liquid investment that preserves capital.

o    Investors pursuing a short-term investment goal.


In addition:

o    The Municipal Portfolio may be appropriate for investors looking for income
     that is exempt from federal income tax.

o    The California  Portfolio may be appropriate for investors  looking to earn
     income that is exempt from federal and California State income taxes.


6

<PAGE>


o    The New York  Portfolio may be  appropriate  for investors  looking to earn
     income  that is exempt  from  federal  and New York  State and City  income
     taxes.


PAST PERFORMANCE


The following bar chart  illustrates the risks of investing in each of the Money
Market Portfolio,  the U.S. Government  Portfolio and the Municipal Portfolio by
showing changes in each Portfolio's  performance from year to year. The table on
the next page shows average  annual returns of the Money Market  Portfolio,  the
U.S.  Government  Portfolio  and  the  Municipal  Portfolio.   Of  course,  past
performance is not  necessarily an indication of how a Portfolio will perform in
the future.

Because the California  Portfolio and the New York Portfolio are new portfolios,
no performance figures are given.


YEAR-BY-YEAR ANNUAL TOTAL RETURN as of 12/31 each year(1)

                         [GRAPHIC OF BAR CHART OMITTED]

MONEY MARKET PORTFOLIO


1/1 - 12/31/96          4.78%
1/1 - 12/31/97          4.95%
1/1 - 12/31/98          4.97%
1/1 - 12/31/99          4.62%




U.S.  GOVERNMENT PORTFOLIO


1/1 - 12/31/96          4.77%
1/1 - 12/31/97          4.84%
1/1 - 12/31/98          4.82%
1/1 - 12/31/99          4.57%



MUNICIPAL PORTFOLIO


1/1 - 12/31/96          2.98%
1/1 - 12/31/97          3.04%
1/1 - 12/31/98          2.89%
1/1 - 12/31/99          2.68%



For the  periods  covered by the bar chart,  the  highest  and lowest  quarterly
returns were 1.26% (for the quarter  ended  12/31/97) and 1.07% (for the quarter
ended  6/30/99) for the Money  Market  Portfolio,  1.23% (for the quarter  ended
12/31/99)  and 1.06% (for the quarter  ended  6/30/99)  for the U.S.  Government
Portfolio,  and 0.78% (for the quarter ended 6/30/98) and 0.57% (for the quarter
ended 3/31/99) for the Municipal Portfolio, respectively.


                                                                               7

<PAGE>



AVERAGE ANNUAL TOTAL RETURN as of 12/31/99(2)

                                                             SINCE INCEPTION
                                          1 YEAR               (12/20/95)
      Money Market Portfolio               4.62%                   4.82%
      U.S. Government Portfolio            4.57%                   4.73%
      Municipal Portfolio                  2.68%                   2.88%

1  For the period  from  1/1/00  through  9/30/00,  total  returns for the Money
   Market Portfolio,  U.S. Government Portfolio,  and Municipal Portfolio,  were
   4.32%, 4.18%, and 2.59%, respectively.

2  As of 12/31/99, 7-day yields for the Money Market Portfolio,  U.S. Government
   Portfolio,   and  Municipal   Portfolio   were  5.22%,   4.95%,   and  3.79%,
   respectively.  As of 12/31/99,  7-day  effective  yields for the Money Market
   Portfolio,  the U.S.  Government  Portfolio and the Municipal  Portfolio were
   5.35%,  5.06% and 3.85%,  respectively.  As of 12/31/99,  the  tax-equivalent
   7-day  yield for the  Municipal  Portfolio  was 5.92% and the  tax-equivalent
   7-day  effective  yield for the Municipal  Portfolio  was 6.02%.  For current
   yield information, please call 1-800-934-4448.


EXPENSES

This table  describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolios.
<TABLE>
<CAPTION>


                                               MONEY        U.S.
                                              MARKET     GOVERNMENT    MUNICIPAL  CALIFORNIA   NEW YORK
                                             PORTFOLIO    PORTFOLIO    PORTFOLIO   PORTFOLIO   PORFOLIO
<S>                                           <C>           <C>           <C>         <C>         <C>
SHAREHOLDER TRANSACTION FEES
  (fees paid directly from your investment)(1)
Maximum Sales Charge (Load)
  Imposed on Purchases                        None          None          None        None        None
ANNUAL OPERATING EXPENSES (expenses
  deducted from Portfolio assets)
Management Fees/2                             0.35%         0.35%         0.35%       0.35%       0.35%
Distribution (12b-1) Fees                     None          None          None        None        None
Service Fees(2)                               0.25%         0.25%         0.25%       0.25%       0.25%
Other Expenses(2)                             0.32%         0.34%         0.35%       0.55%       0.62%
                                             ------        ------       -------     -------     -------
Total Operating Expenses(2)                   0.92%         0.94%         0.95%       1.15%       1.22%



1    Broker-dealers  that  are  not  affiliates  of the  Portfolios'  investment
     manager may impose  service fees in  connection  with the sale of Portfolio
     shares.


2    The table shows the  expenses  for each  Portfolio's  fiscal  period  ended
     October 31, 2000 before expense  reductions by the  Portfolios'  investment
     manager.  The  investment  manager has agreed (for an indefinite  period of
     time) to reduce  Portfolio  expenses  (by paying  certain  expenses  and/or
     waiving  fees) so that the total  operating  expenses  of the Money  Market
     Portfolio,  the U.S. Government  Portfolio and the Municipal Portfolio will
     not  exceed  0.75%,  0.75%  and  0.74%,  respectively.   In  addition,  the
     investment  manager  agreed to reduce  expenses  of each of the  California
     Portfolio  and the New York  Portfolio  for the first twelve months of each
     Portfolio's operations (September 1, 2000 through August 31, 2001), so that
     each such Portfolio's  total operating  expenses during the period will not
     exceed 0.65%. Unless otherwise  provided,  expense reductions are voluntary
     and may be  reduced or  eliminated  at any time upon  notifying  investors.
     After expense  reductions,  the Portfolios'  actual expenses for the fiscal
     period ended October 31, 2000 were:


</TABLE>

<TABLE>
<CAPTION>


                           Money Market   U.S. Government  Municipal   California     New York
                             Portfolio       Portfolio     Portfolio    Portfolio     Portfolio
<S>                            <C>             <C>           <C>           <C>          <C>
Management Fees                0.27%           0.28%         0.27%         0.15%        0.13%
  Service Fees                 0.23%           0.23%         0.23%         0.19%        0.18%
  Other Expenses               0.25%           0.24%         0.24%         0.30%        0.34%
                              -------         -------       -------       -------      -------
Total Net Operating Expenses   0.75%           0.75%         0.74%        [0.65]%       0.65%
</TABLE>


8

<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          5 YEARS          10 YEARS
                                       ------           -------          --------         ---------
       <S>                             <C>              <C>              <C>              <C>

       Money Market Portfolio*           $94              $293             $509             $1,131
       U.S. Government Portfolio*        $96              $300             $520             $1,155
       Municipal Portfolio*              $97              $303             $525             $1,166
       California Portfolio*            $117              $365              --                --
       New York Portfolio*              $124              $387              --                --
</TABLE>


* Assuming that current expense  reduction  arrangements  continue for one year,
your costs would be:

<TABLE>
<CAPTION>
                                       1 year            3 years          5 years          10 years
                                       ------           -------           ------           -------
      <S>                               <C>              <C>              <C>              <C>

       Money Market Portfolio            $77              $276             $493             $1,116
       U.S. Government Portfolio         $77              $281             $502             $1,137
       Municipal Portfolio               $76              $282             $505             $1,147
       California Portfolio              $66              $316              --                --
       New York Portfolio                $66              $331              --                --
</TABLE>



HOW TO BUY AND SELL SHARES
--------------------------------------------------------------------------------
Investors  may  purchase  shares of the  Portfolios  through an account  with TD
Waterhouse   Investor   Services,   Inc.  ("TD  Waterhouse")  or  certain  other
broker-dealers.


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  brokerage
account by completing  and signing a TD Waterhouse New Account  Application.  To
request  an  application,  please  visit us online at  tdwaterhouse.com  or call
1-800-934-4448  and press  option 4. Mail it,  together  with your  check in the
amount you wish to purchase,  in the postage-paid  envelope provided with the TD
Waterhouse New Account Application.


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


                                                                               9

<PAGE>


already  have a TD  Waterhouse  brokerage  account but it is not set up to sweep
free credit balances automatically,  simply call 1-800-934-4448 and press option
4 and then option 5. 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 Portfolios of TD Waterhouse  Family
of Funds,  Inc. 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 fully protected 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 up to $100,000 covers cash. The remaining
coverage,  which  covers  securities  only,  is provided by a private  insurance
carrier.


INVESTMENT  MINIMUMS.  There is currently no minimum requirement for initial and
subsequent purchases of Portfolio shares. However,  Portfolio shares are subject
to automatic redemption should the 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  are  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

10

<PAGE>

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 any
of the  Portfolios by placing an order  directly  with a TD  Waterhouse  Account
Officer at 1-800-934-4448  and pressing option 2 and then option 3. You also 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 ("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 customers. Shareholders should contact their Selected
Broker for  further  information.  The  Portfolios  may  confirm  purchases  and
redemptions of a Selected  Broker's  customers  directly to the Selected Broker,
which  in turn  will  provide  its  customers  with  confirmation  and  periodic
statements.  The Portfolios are not  responsible for the failure of any Selected
Broker to carry out its obligations to its customer.

HOW TO SELL SHARES

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

PAYMENT. The proceeds of the redemption of your Portfolio shares ordinarily will
be credited to your brokerage  account the following  business day after receipt
by the  Portfolio  of a redemption  request in proper  form,  but not later than
seven calendar days after an order to sell shares is received.  If you purchased
shares by check,  proceeds  may be held in your  brokerage  account to allow for
clearance of the check (which may

                                                                              11

<PAGE>

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
Portfolios 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 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 other Portfolio of the TD
Waterhouse  Family of  Funds,  Inc.  at any time  without  charge.  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 TD
Waterhouse, Northeast Operations Center, P.O. Box 1085, New York, NY 10268-1085.
Your letter should reference your TD Waterhouse  brokerage  account number,  the
Portfolio(s)  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

12

<PAGE>


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 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 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 the  previous  business  day's  last
calculation  of NAV.  All expenses  are accrued  daily and are  deducted  before
declaration of dividends to investors.  Net capital gains, if any, realized by a
Portfolio will be distributed at least annually.

Dividends  are  declared  daily  and  are  reinvested  monthly.   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.  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


Dividends  derived from  interest and  short-term  capital  gains  generally are
taxable to a shareholder  as ordinary  income even though they are reinvested in
additional  Portfolio  shares.  Distributions of net long-term capital gains, if
any,  realized  by a  Portfolio  are  taxable to  individual  shareholders  of a
Portfolio  at the  maximum  rate of 20%  regardless  of the  length  of time the
shareholder  may  have  held  shares  in  the  Portfolio  at  the


                                                                              13

<PAGE>


time  of  the  distribution.  Due  to  the  nature  of  their  investments,  the
Portfolios' distributions will consist primarily of ordinary income.

U.S. GOVERNMENT  PORTFOLIO.  All or some of the dividends received from the U.S.
Government  Portfolio  may be exempt from  individual  state and/or local income
taxes. You should consult with your tax adviser in this regard.

MUNICIPAL  PORTFOLIO,  CALIFORNIA  PORTFOLIO  AND NEW YORK  PORTFOLIO -- FEDERAL
INCOME TAX. Each of the Municipal  Portfolio,  the California  Portfolio and the
New York  Portfolio  intends to declare  and  distribute  dividends  exempt from
federal income tax.  Shareholders  of any such Portfolio will not be required to
include the  "exempt-interest"  portion of  dividends  paid by the  Portfolio in
their gross income for federal income tax purposes.  However,  shareholders will
be  required  to report  the  receipt  of  exempt-interest  dividends  and other
tax-exempt  interest  on  their  federal  income  tax  returns.  Exempt-interest
dividends  may be  subject  to  state or local  income  taxes or give  rise to a
federal  alternative minimum tax liability.  Exempt-interest  dividends also may
affect the amount of social security benefits subject to federal income tax, may
affect the deductibility of interest on certain  indebtedness of the shareholder
and may have other collateral federal income tax consequences.


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

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


To the extent that  exempt-interest  dividends are derived from certain  private
activity  bonds  (some  of  which  were  formerly   referred  to  as  industrial
development  bonds) issued 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.


The tax exemption of dividends  from a Portfolio for federal income tax purposes
does not  necessarily  result in exemption under the income or other tax laws of
any state or local taxing  authority.  The laws of the several  states and local
taxing  authorities vary with respect to the taxation of such income and you are
advised to consult your own tax adviser as to the status of your dividends under
state and local tax laws.

14

<PAGE>


     CALIFORNIA  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  recognized  market  discount,  or  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  PORTFOLIO  --  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 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 income 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.

MISCELLANEOUS.  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 AND REPORTS TO SHAREHOLDERS

The  Portfolios  do not issue share  certificates  but record  your  holdings in
noncertificated form. Your Portfolio activity is reflected in your TD Waterhouse
brokerage account statement.  The Portfolios provide you with audited annual and
unaudited semi-annual 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.  Moreover,
only one copy of each of the annual and  semi-annual  financial  statements  and
prospectus of the Portfolios,  and any proxy statement or information  statement
relating to the Portfolios, will be sent to a single household without regard to
the number of  shareholders  residing  at


                                                                              15

<PAGE>

such  household,  unless you request  otherwise  by calling  1-800-934-4448  and
pressing  option 4, or by  sending a written  request  to TD  Waterhouse  at the
address  listed on the back cover page of this  prospectus.  TD Waterhouse  will
begin sending  separate  copies to your  household  within 30 days of receipt of
your request.

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 from time
to time may assume certain expenses of the Portfolios (or waive its fees), which
would have the effect of increasing  yield to investors during the period of the
expense reduction.  With respect to California Portfolio and New York Portfolio,
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
(through August 31, 2001), so that the total operating  expenses payable by each
Portfolio  during the  period  will not exceed  0.65% of its  average  daily net
assets.  Unless otherwise provided,  expense reductions are voluntary and may be
reduced or eliminated at any time upon notice to investors.

In  addition to the  Portfolios,  the  investment  manager  currently  serves as
investment  manager to TD Waterhouse Trust,  National  Investors Cash Management
Fund,  Inc. and TD Waterhouse  Bank,  N.A. and as of November 30, 2000 had total
assets under management in excess of $10.4 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 0.25% of
the average  daily net assets of each  Portfolio.  These  services  may include,
among other services,  providing general shareholder liaison services (including
responding to  shareholder

16

<PAGE>


inquiries),  providing information on shareholder investments,  and establishing
and maintaining shareholder accounts and records.


ABOUT CALIFORNIA AND NEW YORK
--------------------------------------------------------------------------------

CALIFORNIA

California's  economy is the largest  among the 50 states and one of the largest
in the  world.  The  State has a  diversified  economy  with  major  sectors  in
manufacturing,   agriculture,   services,   tourism,   international  trade  and
construction.  The State has a  population  of over 34  million,  which has been
growing at a 1-2% annual rate for several  decades.  Gross  domestic  product of
goods and  services  in the State  exceeds  $1  trillion.  Personal  income  was
estimated at $988 billion in 1999. Total employment is over 15 million.

In the early  1990's,  the State  suffered  a severe  recession,  with the worst
economic,  fiscal and budget  conditions  since the 1930's.  The economy started
into recovery in 1994, and has been growing strongly since that time,  outpacing
the national economy.  The California  economy shows continued  strength overall
which has continued  through 2000, but  projections are for slower growth in the
year 2001 and beyond.

The State of California has received  significant  tax revenues in recent years,
deriving  from the strong  economy and stock  market.  General Fund revenues are
estimated at $71.2  billion in fiscal year  1999-00 and $73.9  billion in fiscal
year  2000-01.  A  large  part of the  State's  annual  budget  is  mandated  by
constitutional  guarantees (such as for education  funding and debt service) and
caseload requirements for health and welfare programs.  State General Obligation
bonds are, as of  September,  2000,  rated "Aa2" by Moody's,  "AA" by Standard &
Poor's, and "AA" by Fitch, Inc.

Many local government agencies,  particularly counties,  continue to face budget
constraints due to limited taxing powers and mandated  expenditures  for health,
welfare and public  safety,  among  other  factors.  California  State and local
governments  are limited in their ability to levy and raise  property  taxes and
other forms of taxes,  fees or assessments,  and in their ability to appropriate
their tax revenues,  by a series of constitutional  amendments  enacted by voter
initiative  since  1978.  Individual  local  governments  may  also  have  local
initiatives which affect their fiscal flexibility.

For more information about the State, see "Information  About California" in the
Statement of Additional Information.

NEW YORK

New  York  State is the  third  most  populous  state  in the  nation  and has a
relatively high level of personal wealth. The State's economy is diverse, with a
comparatively  large share of the nation's finance,  insurance,  transportation,
communications and services  employment,  and a very small share of the nation's
farming  and  mining  activity.  The  State's  location  and its  air  transport
facilities and natural  harbors have made it an important link in  international
commerce.  Travel and tourism constitute an important part of the economy.  Like
the rest of the nation,  New York has a declining  proportion  of its  workforce
engaged  in  manufacturing,  and an  increasing  proportion  engaged  in service
industries.

In the calendar years 1987 through 1998, the State's rate of economic growth was
somewhat  slower  than that of the  nation.  In  particular,  during the 1990-91
recession and post recession  period,  the economy of the


                                                                              17


<PAGE>


State, and that of the rest of the Northeast, was more heavily damaged than that
of the nation as a whole and has been slower to recover.  However, the situation
has been improving during recent years. In 1999, for the first time in 13 years,
the  employment  growth rate of the State  surpassed  the national  growth rate.
Although  the State  unemployment  rate has been higher than the  national  rate
since 1991, the gap between them has narrowed in recent years.  State per capita
personal income has  historically  been  significantly  higher than the national
average, although the ratio has varied substantially. Because New York City is a
regional  employment  center for a multi-state  region,  State  personal  income
measured on a residence basis  understates the relative  importance of the State
to the  national  economy  and the  size of the  base to  which  State  taxation
applies.

Employment in New York grew strongly for the first nine months of 2000, with the
service  sector  accounting for the largest  increases.  The State economy added
166,600  new  jobs,  a  growth  rate of 2.0  percent,  of which  private  sector
employment  added 154,100 of the additional  jobs,  growing by 2.2 percent.  New
York's unemployment rate fell to 4.6 percent in September, about one-half of its
July 1992 peak of 8.9 percent.  Total employment is expected to grow 2.1 percent
for all of 2000 and 1.7 percent for 2001, with the largest employment  increases
concentrated  in the services  sector.  Overall  personal  income  growth of 8.0
percent  is  expected  for 2000,  with 5.0  percent  growth in 2001.  Due to the
overall  tightness  in the labor  market  and  strong  growth  in first  quarter
financial  sector  bonuses,  wages are  expected  to increase by 9.4 percent for
2000.  However,  the recent prolonged weakness exhibited by the stock market and
the slowdown  projected  for the national  economy  suggest that the  securities
industry will not repeat its strong current-year performance.

The  State  forecast  is  subject  to the  same  uncertainties  of the  national
forecast,  such as the  effects of the Federal  Reserve  Board's  interest  rate
hikes,  turbulence in the Middle East, higher oil prices and lower-than-expected
corporate profits.  The State forecast is also subject to uncertainties that are
more specific to New York.  For example,  with Wall Street fueling a significant
portion  of the  growth  in the  State's  revenues,  New  York  is  particularly
vulnerable to an unexpectedly poor performance by the financial  markets,  which
could reduce securities industry rates of profit and bonus payment growth.



For more information  about the State,  see "Information  About New York" in the
Statement of Additional Information.

FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial  highlights tables on the following pages are intended to help you
understand  each  Portfolio's  financial  performance  since  inception  of  the
Portfolio's  operations.  Certain  information  reflects financial results for a
single share of each Portfolio. The total return amounts in the tables represent
the rate that an  investor  would have  earned on an  investment  in a Portfolio
(assuming reinvestment of all dividends and distributions). This information has
been  audited by Ernst & Young LLP,  whose  report,  along with the  Portfolios'
financial statements, are included in the annual report, which is available upon
request by calling TD Waterhouse at 1-800-934-4448.



18

<PAGE>
                                                     MONEY MARKET PORTFOLIO
                                                   --------------------------

<TABLE>
<CAPTION>
                                   Year Ended    Year Ended     Year Ended    Year Ended   Period Ended
PER SHARE OPERATING                October 31,   October 31,    October 31,   October 31,   October 31,
PERFORMANCE                           2000          1999           1998          1997          1996*
                                   -----------   -----------    ----------    -----------   -----------
<S>                                  <C>            <C>            <C>          <C>           <C>

Net asset value,
beginning of period                  $1.000         $1.000         $1.000       $1.000        $1.000
                                     -------        ------         ------       -------       -------

Net investment income                 0.056          0.044          0.049        0.048         0.041
                                     -------        ------         ------       -------       -------

Distributions from net
investment income                    (0.056)        (0.044)        (0.049)      (0.048)       (0.041)
                                     -------        ------         ------       -------       -------

Net asset value, end of period       $1.000         $1.000         $1.000       $1.000        $1.000
                                     =======        ======         ======       =======       =======


RATIOS
Ratio of expenses to
average net assets                    0.75%          0.71%        0.75%         0.83%          0.79% (A)

Ratio of net investment income to
average net assets                    5.69%          4.44%        4.92%         4.79%          4.64% (A)

Decrease reflected in above net
expense ratio due to waivers and/or
reimbursements by the investment
manager and its affiliates            0.17%          0.21%          0.15%        0.08%         0.13% (A)


SUPPLEMENTAL DATA

Total investment return (B)           5.74%          4.54%          5.04%        4.89%         4.82% (A)

Net assets, end of period      $6,155,863,489   $4,646,268,591  $2,957,725,894  $1,787,786,777  $1,342,610,086
                               ==============   ==============  ==============  ==============  ==============

Average net assets             $5,519,126,965   $4,035,269,586  $2,302,804,288  $1,592,722,254  $1,104,558,438
                               ==============   ==============  ==============  ==============  ==============



<FN>

*    The Portfolio commenced operations on December 20, 1995.

(A)  Annualized.

(B)  Total investment return is calculated  assuming a purchase of shares on the
     first day and a sale on the last day of the period  reported  and  includes
     reinvestment of dividends.
</FN>

</TABLE>
                                                                              19


<PAGE>


<TABLE>
<CAPTION>

                                                        U.S. GOVERNMENT PORTFOLIO
                                                      -----------------------------



                                   Year Ended    Year Ended     Year Ended    Year Ended   Period Ended
PER SHARE OPERATING                October 31,   October 31,    October 31,   October 31,   October 31,
PERFORMANCE                           2000          1999           1998          1997          1996*
                                   -----------   -----------    ----------    -----------   -----------
<S>                                  <C>            <C>            <C>          <C>           <C>
Net asset value,
beginning of period                  $1.000         $1.000         $1.000       $1.000        $1.000
                                     -------        ------         ------       -------       -------

Net investment income                 0.054          0.044          0.048        0.047         0.041
                                     -------        ------         ------       -------       -------

Distributions from net
investment income                    (0.054)        (0.044)        (0.048)      (0.047)       (0.041)
                                     -------        ------         ------       -------       -------

Net asset value, end of period       $1.000         $1.000         $1.000       $1.000        $1.000
                                     =======        ======         ======       =======       =======


RATIOS
Ratio of expenses to
average net assets                    0.75%          0.75%          0.78%        0.81%         0.73% (A)

Ratio of net investment income to
average net assets                    5.41%          4.40%          4.80%        4.69%         4.64% (A)

Decrease reflected in above net
expense ratio due to waivers and/or
reimbursements by the investment
manager and its affiliates            0.19%          0.19%          0.11%        0.07%         0.18% (A)


SUPPLEMENTAL DATA

Total investment return (B)           5.56%          4.47%          4.91%        4.79%         4.82% (A)

Net assets, end of period         $891,799,338   $880,720,253   $537,403,768  $402,685,311   $371,046,770
                                  ============   ============  =============  ============   ============

Average net assets                $901,031,857   $678,643,185   $457,821,528  $398,635,777   $293,708,330
                                  ============   ============  =============  ============   ============




<FN>

*    The Portfolio commenced operations on December 20, 1995.

(A)  Annualized.

(B)  Total investment return is calculated  assuming a purchase of shares on the
     first day and a sale on the last day of the period  reported  and  includes
     reinvestment of dividends.
</FN>

</TABLE>

20

<PAGE>
                                                           MUNICIPAL PORTFOLIO
                                                          ---------------------

<TABLE>
<CAPTION>


                                   Year Ended    Year Ended     Year Ended    Year Ended   Period Ended
PER SHARE OPERATING                October 31,   October 31,    October 31,   October 31,   October 31,
PERFORMANCE                           2000          1999           1998          1997          1996*
                                   -----------   -----------    ----------    -----------   -----------
<S>                                  <C>            <C>            <C>          <C>           <C>
Net asset value,
beginning of period                  $1.000         $1.000         $1.000       $1.000        $1.000
                                     -------        ------         ------       -------       -------

Net investment income                 0.034          0.026          0.029        0.030         0.026
                                     -------        ------         ------       -------       -------

Distributions from net
investment income                    (0.034)        (0.026)        (0.029)      (0.030)       (0.026)
                                     -------        ------         ------       -------       -------

Net asset value, end of period       $1.000         $1.000         $1.000       $1.000        $1.000
                                     =======        ======         ======       =======       =======


RATIOS
Ratio of expenses to
average net assets                    0.74%          0.74%          0.72%        0.74%         0.62% (A)

Ratio of net investment income to
average net assets                    3.40%          2.56%          2.93%        2.97%         2.90% (A)

Decrease reflected in above net
expense ratio due to waivers and/or
reimbursements by the investment
manager and its affiliates            0.21%          0.21%          0.13%        0.10%         0.23% (A)


SUPPLEMENTAL DATA

Total investment return (B)           3.45%          2.59%          2.98%        3.01%         3.05% (A)

Net assets, end of period         $523,567,900   $487,136,694  $381,090,446  $265,623,696   $226,253,394
                                  ============   ============ =============  ============   ============

Average net assets                $505,599,538   $439,705,095  $312,133,086  $252,444,536   $196,592,413
                                  ============   ============ =============  ============   ============


*    The Portfolio commenced operations on December 20, 1995.

(A)  Annualized.


(B)  Total investment return is calculated  assuming a purchase of shares on the
     first day and a sale on the last day of the period  reported  and  includes
     reinvestment of dividends.




</TABLE>

                                                                              21

<PAGE>

<TABLE>
<CAPTION>


                                                 California                    New York
                                                  Municipal                    Municipal
                                                Money Market                 Money Market
                                                  Portfolio                    Portfolio

                                                   Period                       Period
                                                    Ended                        Ended
PER SHARE OPERATING                              October 31,                  October 31,
PERFORMANCE                                         2000*                        2000*
                                                 -----------                  -----------
<S>                                                 <C>                         <C>
Net asset value, beginning of period                $1.000                      $1.000
                                                    ------                      -------

Net investment income                                0.005                       0.006
                                                    ------                      -------

Distributions from net

investment income                                   (0.005)                     (0.006)
                                                    ------                      -------

Net asset value, end of period                      $1.000                      $1.000
                                                    ======                      =======


RATIOS

Ratio of expenses to average net assets              0.65% (A)                   0.65% (A)

Ratio of net investment income to
average net assets                                   2.95% (A)                   3.53% (A)

Decrease reflected in above net
expense ratio due to waivers and/or
reimbursements by the investment
manager and its affiliates                           0.50% (A)                   0.57% (A)


SUPPLEMENTAL DATA

Total investment return (B)                          2.96% (A)                   3.54% (A)

Net assets, end of period                        $214,545,918                $100,705,806
                                                 ============                ============

Average net assets                               $224,605,169                $101,951,165
                                                 ============                ============


<FN>

*    The Portfolio commenced operations on September 1, 2000.

(A)  Annualized.

(B)  Total investment return is calculated  assuming a purchase of shares on the
     first day and a sale on the last day of the period  reported  and  includes
     reinvestment of dividends.
</FN>
</TABLE>




22

<PAGE>





                       This page intentionally left blank




<PAGE>
                                  TD WATERHOUSE

                              FAMILY OF FUNDS, INC.

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:  1-800-934-4448
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  information  about each  Portfolio,  including the
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  20549-0102  or by  electronic  request  at
[email protected].  For more information about these services,  call the SEC at
1-202-942-8090.

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

                                  TD WATERHOUSE
                                    FAMILY OF
                                   FUNDS, INC.


                                Five money market
                           portfolios to choose from:

                             MONEY MARKET PORTFOLIO

                            U.S. GOVERNMENT PORTFOLIO
                               MUNICIPAL PORTFOLIO

                              CALIFORNIA MUNICIPAL
                             MONEY MARKET PORTFOLIO

                               NEW YORK MUNICIPAL
                             MONEY MARKET PORTFOLIO


                                   PROSPECTUS


                               December 28, 2000


                                     [LOGO]

<PAGE>
                                  TD WATERHOUSE
                              FAMILY OF FUNDS, INC.

                    100 Wall Street, New York, New York 10005
                TD Waterhouse, Customer Service - 1-800-934-4448

                       STATEMENT OF ADDITIONAL INFORMATION


                               December 28, 2000

This  Statement of Additional  Information  (the "SAI") is not a prospectus.  It
should be read in conjunction  with the prospectus dated December 28, 2000 (the
"Prospectus") for the Money Market Portfolio, the U.S. Government Portfolio, the
Municipal  Portfolio,  the  California  Municipal  Money Market and the New York
Municipal  Money  Market  Portfolio,  each a series of TD  Waterhouse  Family of
Funds,  Inc. (the  "Company").  The Prospectus is incorporated by reference into
this Statement of Additional Information.

Each Portfolio's  financial  statements and financial  highlights for the fiscal
year ended October 31, 2000, including the independent auditors' report thereon,
are included in the  Portfolio's  Annual Report and are  incorporated  herein by
reference.


To obtain a free copy of the  Prospectus  or Annual  Report,  please write to TD
Waterhouse  Investor Services,  Inc.,  Customer Service, at 100 Wall Street, New
York, New York 10005, or call 1-800-934-4448.

                                TABLE OF CONTENTS


                                                                           PAGE

GENERAL INFORMATION ABOUT THE COMPANY.......................................   2

INVESTMENT POLICIES AND RESTRICTIONS .......................................   2

INFORMATION ABOUT CALIFORNIA ...............................................  21

INFORMATION ABOUT NEW YORK..................................................  26

PORTFOLIO TRANSACTIONS .....................................................  34

DIRECTORS AND EXECUTIVE OFFICERS ...........................................  36

INVESTMENT MANAGEMENT, DISTRIBUTION

AND OTHER SERVICES .........................................................  38

DIVIDENDS AND TAXES ........................................................  45

SHARE PRICE CALCULATION ....................................................  48

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION .............................  49

PERFORMANCE ................................................................  50

SHAREHOLDER INFORMATION ....................................................  53

ANNEX - RATINGS OF INVESTMENTS .............................................  55





                                       1
<PAGE>


                                  TD WATERHOUSE
                              FAMILY OF FUNDS, INC.
--------------------------------------------------------------------------------

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, it is known as a "series company." This SAI pertains
to the Money Market  Portfolio,  the U.S.  Government  Portfolio,  the Municipal
Portfolio,  the California  Municipal  Money Market  Portfolio (the  "California
Portfolio")  and the New York  Municipal  Money Market  Portfolio (the "New York
Portfolio").

Each of the  Money  Market  Portfolio,  the U.S.  Government  Portfolio  and the
Municipal  Portfolio are "diversified" as that term is defined in the Investment
Company Act. The California  Municipal  Money Market  Portfolio and the New York
Municipal Money Market Portfolio are  "non-diversified"  as that term is defined
in the Investment Company Act.

"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  present or  represented  by proxy at a
meeting  where more than 50% of the  outstanding  shares of the  Company or such
Portfolio  are  present or  represented  by proxy,  or (ii) more than 50% of the
outstanding shares of the Company or such Portfolio.

The  following  policies  and  restrictions  supplement  those  set forth in the
Prospectus.  Each Portfolio's investments must be consistent with its investment
objective  and  policies.  Accordingly,  not  all  of  the  security  types  and
investment  techniques  discussed below are eligible investments for each of the
Portfolios.

Unless otherwise  noted,  whenever an investment  policy or limitation  states a
maximum  percentage of a Portfolio's assets that may be invested in any security
or other  assets,  or sets  forth a policy  regarding  quality  standards,  such
standard or percentage limitation will be determined  immediately after and as a
result  of  the  Portfolio's  acquisition  of  such  security  or  other  asset.
Accordingly, any subsequent change in values, net assets,



                                       2
<PAGE>

or other  circumstances  will not be  considered  when  determining  whether the
investment complies with the Portfolio's investment policies and restrictions.

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

ASSET-BACKED SECURITIES


Each  Portfolio  may invest in securities  backed by pools of mortgages,  loans,
receivables  or other  assets.  Payment of principal and interest may be largely
dependent upon the cash flows  generated by the assets  backing the  securities,
and, in certain cases,  supported by letters of credit,  surety bonds,  or other
credit enhancements.  The value of asset-backed  securities may also be affected
by the  creditworthiness  of the servicing agent for the pool, the originator of
the loans or receivables,  or the financial  institution(s) providing the credit
support.  The U.S. Government  Portfolio will invest in asset-backed  securities
only to the extent that such securities are considered  government securities as
described below.


BANK OBLIGATIONS

Investments may be made in U.S.  dollar-denominated time deposits,  certificates
of deposit,  and bankers'  acceptances of U.S. banks and their branches  located
outside of the United States, U.S. savings and loan institutions,  U.S. branches
of foreign banks, and foreign branches of foreign banks.

Time deposits are non-negotiable deposits with a banking institution that earn a
specified  interest  rate over a given period.  A  certificate  of deposit is an
interest-bearing negotiable certificate issued by a bank against funds deposited
in the bank. A bankers'  acceptance is a short-term  draft drawn on a commercial
bank by a  borrower,  usually in  connection  with an  international  commercial
transaction.  Although the borrower is liable for payment of the draft, the bank
unconditionally  guarantees  to pay the draft at its face value on the  maturity
date. Certificates of deposit and fixed time deposits,  which are payable at the
stated  maturity  date  and  bear a fixed  rate of  interest,  generally  may be
withdrawn  on demand  by a  Portfolio  but may be  subject  to early  withdrawal
penalties which vary depending upon market conditions and the remaining maturity
of the obligation and could reduce the Portfolio's  yield.  Although  fixed-time
deposits do not in all cases have a secondary  market,  there are no contractual
restrictions  on 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.

                                       3
<PAGE>

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

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.


CERTIFICATES OF PARTICIPATION


Each of the  Municipal  Portfolio,  the  California  Portfolio  and the New York
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.

                                       4
<PAGE>


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.

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."


CREDIT ENHANCEMENT FEATURES

Each  Portfolio may invest in  securities  subject to letters of credit or other
credit enhancement features.  Such letters of credit or other credit enhancement
features are not subject to federal deposit insurance, and changes in the credit
quality of the  issuers of such  letters of credit or other  credit  enhancement
features could cause losses to a Portfolio and affect its share price.

FOREIGN SECURITIES


Each Portfolio may invest 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. Each Portfolio also may
invest in U.S.  dollar-denominated  securities  issued or  guaranteed by foreign
issuers, including U.S.




                                       5
<PAGE>


and foreign corporations or other business  organizations,  foreign governments,
foreign  government  agencies  or   instrumentalities,   and  foreign  financial
institutions.

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

Obligations of foreign issuers involve certain additional risks. These risks may
include  future  unfavorable  political and economic  developments,  withholding
taxes,  increased  taxation,  seizures of foreign deposits,  currency  controls,
interest  limitations,  or other  governmental  restrictions  that might  affect
payment  of  principal  or  interest.  Additionally,  there  may be less  public
information  available about foreign banks and their  branches.  Foreign issuers
may be  subject  to less  governmental  regulation  and  supervision  than  U.S.
issuers.  Foreign  issuers also  generally are not bound by uniform  accounting,
auditing, and financial reporting requirements comparable to those applicable to
U.S. issuers.

FUNDING AGREEMENTS

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

Funding  agreements  are typically  issued with a one year final  maturity and a
variable  interest rate, which may adjust weekly,  monthly,  or quarterly.  Some
agreements  carry a seven-day  put  feature.  A funding  agreement  without this
feature is considered illiquid by the Portfolio.

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

GOVERNMENT SECURITIES

Each  Portfolio  may  invest  in  government  securities.  The term  "government
securities"  for this purpose  includes  marketable  securities and  instruments
issued  or   guaranteed   by  the  U.S.   government   or  by  its  agencies  or
instrumentalities,  and repurchase  agreements with respect to such obligations.
Direct   obligations  are  issued  by  the  U.S.  Treasury  and  include  bills,
certificates of indebtedness,  notes and bonds.  Obligations of U.S.  government
agencies and instrumentalities  ("Agencies") are issued by  government-sponsored
agencies  and  enterprises   acting  under   authority  of  Congress.   Although
obligations of federal agencies and  instrumentalities are not debts of the U.S.
Treasury, in some cases payment of interest and principal on such obligations is
guaranteed by


                                       6
<PAGE>


the U.S. government,  including,  but not limited to, obligations of the Federal
Housing  Administration,  the Export-Import Bank of the United States, the Small
Business  Administration,  the Government  National  Mortgage  Association,  the
General Services Administration and the Maritime Administration. In other cases,
payment of interest and principal is not  guaranteed,  e.g.,  obligations of the
Student Loan  Marketing  Association,  Federal  National  Mortgage  Association,
Federal Home Loan Mortgage Corporation, Tennessee Valley Authority, Federal Home
Loan Bank, and the Federal Farm Credit Bank. There is no guarantee that the U.S.
government  will  support  securities  not backed by its full faith and  credit.
Accordingly, although these securities historically have involved little risk of
loss of  principal  if  held to  maturity,  they  may  involve  more  risk  than
securities backed by the U.S. government's full faith and credit.

ILLIQUID SECURITIES


Each  Portfolio  may invest up to 10% of its net assets in illiquid  securities.
The term "illiquid  securities" for this purpose means securities that cannot be
disposed  of  within  seven  days  in  the   ordinary   course  of  business  at
approximately  the amount at which the Portfolio has valued the  securities.  In
determining the liquidity of a Portfolio's  investments,  the Investment Manager
may consider  various  factors,  including  (i) the  unregistered  nature of the
security;  (ii) the frequency of trades and quotations  for the security,  (iii)
the number of dealers willing to purchase the security, (iv) dealer undertakings
to make a market in the security, (v) the nature of trading in the security, (v)
the trading and markets for the security,  and (vi) the nature of trading in the
marketplace, including the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer.


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 general
credit quality of the municipality  including,  in the case of unrated municipal
lease  obligations,  an analysis of such factors as (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



                                       7
<PAGE>



the property is no longer deemed essential to the operations of the municipality
(e.g.,  the  potential  for an event  of  nonappropriation);  and (v) the  legal
recourse in the event of failure to appropriate; and any other factors unique to
municipal lease obligations as determined by the Investment Manager.


INVESTMENT COMPANY SECURITIES


Each 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  portion of the other
investment company's expenses,  including advisory fees. These expenses would be
in addition to the advisory and other  expenses that a Portfolio  bears directly
in connection with its own operations.  Such  investments will be made solely in
other no-load money market funds.


MUNICIPAL SECURITIES


Each Portfolio,  except the U.S. Government  Portfolio,  may invest in municipal
securities.  The Municipal Portfolio,  the California Portfolio and the New York
Portfolio  invest  primarily  in  municipal  securities.   Municipal  securities
include, without limitation, debt obligations issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as airports,  bridges, highways,  housing,  hospitals, mass transportation,
public  utilities,  schools,  streets,  and water and sewer works.  Other public
purposes  for  which  municipal  securities  may  be  issued  include  refunding
outstanding  obligations,  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 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.


                                       8
<PAGE>


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

Municipal bonds include tax-exempt  industrial  development bonds, which in most
cases are revenue  bonds and  generally  do not have the pledge of the credit of
the  municipality.  The payment of the  principal and interest on these bonds is
dependent  solely  on the  ability  of an  initial  or  subsequent  user  of the
facilities  financed  by the  bonds to meet its  financial  obligations  and the
pledge,  if any, of real and personal  property so financed as security for such
payment.  Such obligations,  which may include lease arrangements,  are included
within the term "municipal securities" if the interest paid thereon qualifies as
exempt from federal income tax (other than the Alternative Minimum Tax (AMT)).

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



                                       9
<PAGE>


bonds are also used to finance public facilities such as airports,  mass transit
systems and ports.  The payment of the  principal  and interest on such bonds is
dependent  solely on the  ability  of the  facility's  owner or user to meet its
financial  obligations and the pledge,  if any, of real and personal property as
security for such payment.


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  property and equipment
without meeting their constitutional and statutory requirements for the issuance
of debt. Many leases and contracts include "non-appropriation clauses"


                                       10
<PAGE>


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.


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.

TAXABLE  INVESTMENTS  (Muncipal  Portfolio,  California  Portfolio  and New York
Portfolio). 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.


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, in
the  case  of the  California  Portfolio  and  the New  York  Portfolio,  either
California  state or New York  state (or city)  income  tax,  respectively.  For
example, a Portfolio may invest in obligations whose interest is taxable pending
the investment or reinvestment in municipal securities of proceeds from the sale
of its  shares  or  sales of  portfolio  securities,  or,  with  respect  to the
California  Portfolio and the New York  Portfolio,  when suitable state specific
tax-exempt  securities  are  unavailable.  Should a 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.

ADDITIONAL RISK CONSIDERATIONS.  The federal bankruptcy statutes relating to the
adjustments of debts of political  subdivisions and authorities of states of the
United



                                       11
<PAGE>


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.

NON-DIVERSIFICATION AND CONCENTRATION

Each of the  California  Portfolio  and New  York  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.

Generally, each Portfolio may not "concentrate" its assets in securities related
to a particular industry.  Concentration,  as the term is used in the Investment
Company Act, means that at least 25% of the Portfolio's assets would be invested
in the securities of issuers  within the same  industry.  Each of the California
Portfolio and the New York Portfolio 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,  although  each
Portfolio does not currently  intend to do so on a regular basis.  Investment in
municipal securities repayable from related revenue streams further concentrates
a Portfolio's risks.


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



                                       12
<PAGE>

is  available  and whether the bank may be subject to  unfavorable  political or
economic developments,  currency controls, or other government restrictions that
might affect the bank's ability to honor its credit commitment. Demand features,
standby commitments, and tender options are types of put features.

REPURCHASE AGREEMENTS

Each Portfolio may enter into repurchase agreements, which are instruments under
which a Portfolio  acquires ownership of a security from a broker-dealer or bank
that agrees to repurchase the security at a mutually  agreed upon time and price
(which price is higher than the purchase price),  thereby  determining the yield
during the  Portfolio's  holding period.  Repurchase  agreements are, in effect,
loans  collateralized by the underlying  securities.  Maturity of the securities
subject to repurchase may exceed one year. It is each Portfolio's current policy
to   engage  in   repurchase   agreement   transactions   with   parties   whose
creditworthiness  has been  reviewed and found  satisfactory  by the  Investment
Manager,  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.

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



                                       13
<PAGE>

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 S&P) or unrated  securities  deemed to
be comparable in quality,  government  securities and securities issued by other
money market funds.  Second tier  securities  are generally  those in the second
highest rating category (e.g.,  A-2 by S&P) 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.

Except to the limited  extent  permitted by Rule 2a-7 and except for  government
securities,  each of the Money Market Portfolio,  the U.S. Government  Portfolio
and the  Municipal  Portfolio may not invest more than 5% of its total assets in
the securities of any one issuer.  With respect to 75% of its total assets, each
of the California  Portfolio and the New York Portfolio may not invest more than
5% of its total assets in the securities of any one issuer.

Each  Portfolio  is limited with respect to the extent to which it can invest in
second tier securities.  For example,  the Money Market Portfolio may not invest
more than 1% of its total  assets or $1 million  (whichever  is  greater) in the
second tier securities of a single issuer. Each of the Municipal Portfolio,  the
California  Portfolio and the New York Portfolio must limit investment in second
tier  "conduit  securities"  (as defined in Rule 2a-7) to 5% of its 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, except the U.S. Government 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




                                       14
<PAGE>


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
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 of the  Municipal  Portfolio,  the  California  Portfolio  and the New York
Portfolio may acquire standby  commitments.  Standby commitments are put options
that entitle  holders to same day  settlement at an exercise  price equal to the
amortized cost of the underlying security plus accrued interest,  if any, at the
time of exercise.  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.


STRIPPED GOVERNMENT SECURITIES


Each Portfolio, except the Municipal Portfolio, the California Portfolio and the
New York  Portfolio,  may purchase U.S.  Treasury  STRIPS  (Separate  Trading of
Registered  Interest and  Principal of  Securities),  which are created when the
coupon  payments  and the  principal  payment are stripped  from an  outstanding
Treasury bond by the Federal  Reserve Bank.  These  instruments  are issued at a
discount to their "face value" and may



                                       15
<PAGE>


exhibit greater price  volatility  than ordinary debt securities  because of the
manner in which their  principal and interest are returned to  investors.  Bonds
issued by the Resolution Funding  Corporation  (REFCORP) can also be stripped in
this  fashion.  REFCORP  Strips are  eligible  investments  for the Money Market
Portfolio  and the U.S.  Government  Portfolio.  The Money Market  Portfolio can
purchase  privately  stripped  government  securities,  which are created when a
dealer deposits a Treasury  security or federal agency security with a custodian
for safekeeping  and then sells the coupon  payments and principal  payment that
will be generated by this security.  Proprietary receipts,  such as Certificates
of Accrual on Treasury  Securities (CATS),  Treasury  Investment Growth Receipts
(TIGRs),  and generic  Treasury  Receipts  (TRs),  are  stripped  U.S.  Treasury
securities  that are separated into their component parts through trusts created
by their broker sponsors.  Bonds issued by the Financing  Corporation (FICO) can
also be stripped in this  fashion.  Because of the view of the SEC on  privately
stripped government securities, the Money Market Portfolio must evaluate them as
it would non-government  securities pursuant to regulatory guidelines applicable
to all money market funds.

TEMPORARY DEFENSIVE POSITION


When market or business conditions warrant, each of the Municipal Portfolio, the
California Portfolio and the New York Portfolio may assume a temporary defensive
position and invest without limit in cash or cash equivalents, which may include
taxable  investments.  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, in the case of the California Portfolio and the New York Portfolio,
to California  state or New York state (or city) income taxes (as applicable) on
a greater portion of their income dividends received from the Portfolio.


TENDER OPTION BONDS


Each of the  Municipal  Portfolio,  the  California  Portfolio  and the New York
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




                                       16
<PAGE>



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
obligations in accordance with Rule 2a-7, which allows the Portfolio to consider
certain of such instruments as having maturities  shorter than the maturity date
on the face of the instrument.

WHEN-ISSUED AND DELAYED DELIVERY BASIS SECURITIES

Each Portfolio may invest in when-issued and delayed delivery basis  securities.
Typically, no interest accrues to the purchaser until the security is delivered.
When  purchasing  securities  on a  when-issued  or delayed  delivery  basis,  a
Portfolio assumes the rights and risks of ownership, including the risk of price
and yield  fluctuations.  A security purchased on a when-issued basis is subject
to changes in market value based upon changes in the level of interest rates and
investors'  perceptions of the  creditworthiness  of the issuer.  Generally such
securities  will appreciate in value when interest rates decline and decrease in
value when interest  rates rise.  Because a Portfolio is not required to pay for
securities  until the  delivery  date,  these risks are in addition to the risks
associated  with each  Portfolio's  other  investments.  If a Portfolio  remains
substantially  fully  invested at a time when  when-issued  or delayed  delivery
purchases are  outstanding,  the purchases may result in a form of leverage.  At
the time of delivery of the  securities,  the value may be more or less than the
purchase  price and an  increase in the  percentage  of the  Portfolio's  assets
committed to the purchase of  securities on a  when-issued  or delayed  delivery
basis may increase the volatility of the Portfolio's net asset value.


When a Portfolio has sold a security on a delayed  delivery basis, the Portfolio
does not participate in further gains or losses with respect to the security. If
the other party to a delayed  delivery  transaction  fails to deliver or pay for
the securities,  a Portfolio could miss a favorable price or yield  opportunity,
or could suffer a loss.  Each Portfolio may  renegotiate  when-issued or delayed
delivery  transactions  after they are  entered  into,  and may sell  underlying
securities  before  they are  delivered,  which may result in  capital  gains or
losses. The sale of such securities by the Municipal  Portfolio,  the California
Portfolio or the New York Portfolio may result in the  realization of gains that
are not exempt from federal income tax.


                                       17
<PAGE>



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.


ZERO COUPON BONDS

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

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


FUTURE DEVELOPMENTS

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


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

(1) (with respect to the Money Market Portfolio,  the U.S. Government  Portfolio
and the  Municipal  Portfolio  only) with  respect  to 75% of its total  assets,
purchase  the  securities  of  any  issuer  (other  than  securities  issued  or
guaranteed by the U.S. government,  or any of its agencies or instrumentalities)
if, as a result thereof,  (a) more than 5% of the Portfolio's total assets would
be invested in the  securities of that issuer,  or (b) the Portfolio  would hold
more than 10% of the outstanding voting securities of that issuer;

(2) (with respect to the Municipal Portfolio only) normally invest less than 80%
of its total assets in obligations  issued or guaranteed by states,  territories
and  possessions  of the United  States and the  District of Columbia  and their
political subdivisions, agencies and instrumentalities, the income from which is
exempt  from  federal  income  tax,  but may be subject  to federal  alternative
minimum tax liability;

(3) (with respect to the California  Portfolio  only) 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,  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;


                                       18
<PAGE>



(4) (with respect to the New York Portfolio  only) 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;

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

(6) 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);

(7) borrow money, except that each Portfolio may: (i) borrow money for temporary
defensive or emergency purposes (not for leveraging or investment),  (ii) engage
in reverse repurchase agreements for any purpose, and (iii) pledge its assets in
connection  with such borrowing to the extent  necessary;  provided that (i) and
(ii) in  combination  do not  exceed  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;

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

(9) (with respect to the Money Market Portfolio,  the U.S. Government  Portfolio
and the Municipal  Portfolio  only) purchase the securities of any issuer (other
than  securities  issued  or  guaranteed  by the U.S.  government  or any of its
agencies  or  instrumentalities;  or,  in the case of the  Municipal  Portfolio,
tax-exempt obligations issued or guaranteed by a U.S. territory or possession or
a  state  or  local   government,   or  a  political   subdivision,   agency  or
instrumentality  of any of the foregoing) if, as a result,  more than 25% of the
Portfolio's  total assets would be invested in the securities of companies whose
principal  business  activities are in the same industry,  except that the Money
Market  Portfolio  may invest more than 25% of its total assets in the financial
services  industry and the  Municipal  Portfolio may invest more than 25% of its
total assets in industrial  development bonds related to a single industry.  The
Money Market Portfolio  specifically  reserves the right to invest up to 100% of
its assets in  certificates  of deposit or bankers'  acceptances  issued by U.S.
banks including their foreign  branches,  and U.S. branches of foreign banks, in
accordance with its investment objectives and policies;

(10) (with respect to the California  Portfolio and the New York Portfolio only)
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




                                       19
<PAGE>



instrumentality  of any of the  foregoing,  or invest more than 25% of its total
assets in industrial development bonds related to a single industry;

(11)  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);

(12) buy or sell  commodities  or  commodity  (futures)  contracts,  except  for
financial futures and options thereon. This limitation does not apply to options
attached to, or acquired or traded together with, their  underlying  securities,
and does not apply to securities that incorporate features similar to options or
futures contracts;

(13) 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

(14) 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 (UNLESS NOTED OTHERWISE) DOES NOT
CURRENTLY INTEND TO:

(i) (with respect to the Money Market Portfolio,  the U.S. Government  Portfolio
and the Municipal  Portfolio  only)  purchase a security  (other than a security
issued  or  guaranteed  by  the  U.S.  government  or any  of  its  agencies  or
instrumentalities,   or  a  security  subject  to  a  "guarantee   issued  by  a
non-controlled  person," as defined in Rule 2a-7) if, as a result,  more than 5%
of its total  assets  would be invested in the  securities  of a single  issuer,
provided  that a Portfolio may invest up to 25% of its total assets in the first
tier securities of a single issuer for up to three business days;

(ii)  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"),  securities  eligible for resale  pursuant to Rule 144A
under the Securities Act of 1933 ("Rule 144A securities"), and other securities,
that are determined to be liquid pursuant to procedures adopted by the Company's
Board of Directors; or

(iii) invest in financial futures and options thereon.



                                       20

<PAGE>



INFORMATION ABOUT CALIFORNIA

Following  is a brief  summary  of some  of the  factors  that  may  affect  the
financial  condition of the state of California 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  California  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 California  could have an adverse
impact on the financial  condition of the state of California  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 California 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.

GENERAL

California's  economy is the largest  among the 50 states and one of the largest
in the world. The State's population of over 34 million represents about 12 1/2%
of the total United States  population  and grew by 26% in the 1980s,  more than
double the national rate.  Population  growth slowed to less than 1% annually in
1994 and 1995, but rose to almost 2% in the final years of the 1990s. During the
early 1990s,  net  population  growth in the State was due to births and foreign
immigration,  but in  recent  years,  in-migration  from the  other  states  has
increased and once more represents net positive growth. Total personal income in
the State, at an estimated $988 billion in 1999,  accounts for almost 13% of all
personal income in the nation. Total employment is over 15 million, the majority
of which is in the service, trade and manufacturing sectors.

From  mid-1990  to late  1993,  the State  suffered a  recession  with the worst
economic, fiscal and budget conditions since the 1930s. Economic indicators show
a steady and strong  recovery  underway in  California  since the start of 1994.
International  economic  problems starting in 1997 had some moderating impact on
California's  economy,  but current forecasts predict continued strong growth of
the State's  economy  through  2000,  with slower  growth  predicted in 2001 and
beyond. Any delay or reversal of the recovery may create new shortfalls in State
revenues.

CONSTITUTIONAL LIMITATIONS ON TAXES, OTHER CHARGES AND APPROPRIATIONS

LIMITATION ON PROPERTY TAXES.  Certain California  municipal  obligations may be
obligations  of issuers which rely in whole or in part,  directly or indirectly,
on ad  valorem  property  taxes as a source of  revenue.  The  taxing  powers of
California  local  governments and districts are limited by Article XIIIA of the
California  Constitution,  enacted by the voters in 1978 and  commonly  known as
"Proposition 13." Briefly,  Article XIIIA limits to 1% of full cash value of the
rate of ad valorem  property taxes on real property and generally  restricts the
reassessment of property to 2% per year, except under new construction or change
of ownership (subject to a number of exemptions).



                                       21

<PAGE>


Taxing entities may,  however,  raise ad valorem taxes above the 1% limit to pay
debt service on voter-approved bonded indebtedness.

LIMITATIONS ON OTHER TAXES, FEES AND CHARGES. On November 5, 1996, the voters of
the State  approved  Proposition  218,  called the "Right to Vote on Taxes Act."
Proposition 218 added Articles XIIIC and XIIID to the State Constitution,  which
contain a number of provisions  affecting the ability of local  agencies to levy
and collect both existing and future taxes, assessments, fees and charges.

Article XIIIC requires that all new or increased local taxes be submitted to the
electorate before they become effective. Taxes for general governmental purposes
require a majority  vote and taxes for  specific  purposes  require a two-thirds
vote.

Article XIIID contains several new provisions making it generally more difficult
for local agencies to levy and maintain "assessments" for municipal services and
programs.  Article XIIID also contains  several new provisions  affecting "fees"
and "charges"  imposed upon a parcel or upon a person as an incident of property
ownership.  All new and existing  property related fees and charges must conform
to requirements prohibiting, among other things, fees and charges which generate
revenues exceeding the funds required to provide the property related service or
are used for unrelated purposes.  With certain  exceptions,  no property related
fee or charge may be imposed  or  increased  without  majority  approval  by the
property  owners  subject  to the fee or charge  or, at the  option of the local
agency,  two-thirds  voter approval by the  electorate  residing in the affected
area.

In addition to the provisions described above, Article XIIIC removes limitations
on the  initiative  power in  matters  of  local  taxes,  assessments,  fees and
charges. Consequently,  local voters could, by future initiative, repeal, reduce
or prohibit the future imposition or increase of any local tax, assessment,  fee
or charge. It is unclear how this right of local initiative may be used in cases
where taxes or charges have been or will be specifically  pledged to secure debt
issues.

APPROPRIATIONS  LIMITS.  The State and its local  governments  are subject to an
annual  "appropriations  limit"  imposed  by  Article  XIIIB  of the  California
Constitution.  Article XIIIB prohibits the State or any covered local government
from  spending   "appropriations   subject  to  limitation"  in  excess  of  the
appropriations  limit  imposed.   "Appropriations  subject  to  limitation"  are
authorizations to spend "proceeds of taxes," including  proceeds from regulatory
licenses,  user charges or other fees, to the extent that such  proceeds  exceed
the cost of providing the product or service,  but  "proceeds of taxes"  exclude
most State subventions to local governments. Among the expenditures not included
in the Article XIIIB appropriations limit are (1) the debt service cost of bonds
issued or authorized prior to January 1, 1979, or subsequently authorized by the
voters,  (2)  appropriations  arising from certain  emergencies  declared by the
Governor,   (3)  appropriations   for  certain  capital  outlay  projects,   (4)
appropriations by the State of post-1989 increases in gasoline taxes and vehicle
weight fees,  and (5)  appropriations  made in certain cases of  emergency.  The
appropriations  limit for each year is adjusted  annually to reflect  changes in
cost of living and  population,  and any  transfers of service  responsibilities
between  government units. The definitions for such adjustments were liberalized
in 1990 to follow more closely growth in the State's economy.



                                       22

<PAGE>



"Excess"  revenues are measured over a two year cycle.  Local  governments  must
return any excess to taxpayers by rate reductions.  The State must refund 50% of
any excess, with the other 50% paid to schools and community colleges. With more
liberal  annual  adjustment  factors since 1988,  and depressed  revenues in the
early 1990s because of the recession,  few governments  have been operating near
their  spending  limits,   but  this  condition  may  change  over  time.  Local
governments  may by voter approval  exceed their spending  limits for up to four
years.  For the last ten years,  appropriations  subject to limitation have been
under the State's limit.  However,  because of extraordinary revenue receipts in
fiscal year 1999-2000,  the State  appropriations  were estimated to be close to
the  limit.  The State  Department  of  Finance  estimates  the State will be $6
billion below its appropriation limit in fiscal year 2000-01.

Because of the complex nature of Articles XIIIA,  XIIIB,  XIIIC and XIIID of the
California  Constitution,  the ambiguities and possible inconsistencies in their
terms, and the impossibility of predicting  future  appropriations or changes in
population  and  cost  of  living,  and  the  probability  of  continuing  legal
challenges,  it is not currently possible to determine fully the impact of these
Articles on California  municipal  obligations or on the ability of the State or
local governments to pay debt service on such California municipal obligations.

OBLIGATIONS OF THE STATE OF CALIFORNIA

Under  the  California   Constitution,   debt  service  on  outstanding  general
obligation  bonds is the second  charge to the General Fund after support of the
public school system and public institutions of higher education. As of November
1, 2000,  the State had  outstanding  approximately  $21.5  billion of long-term
general obligation bonds, plus $1 billion of general obligation commercial paper
which will be refunded by  long-term  bonds in the future,  and $6.6  billion of
lease-purchase  debt  supported by the State  General  Fund.  The State also had
about $16.3  billion of authorized  and unissued  long-term  general  obligation
bonds and lease-purchase debt. In fiscal year 1999-2000, debt service on general
obligation bonds and lease purchase debt was approximately  3.7% of General Fund
revenues.

RECENT BUDGETS

The State  maintains a Special Fund for  Economic  Uncertainties  (the  "SFEU"),
derived  from  General  Fund  revenues,  as a reserve  to meet cash needs of the
General  Fund,  but which is required to be  replenished  as soon as  sufficient
revenues are available. Year-end balances in the SFEU are included for financial
reporting  purposes in the General  Fund  balance.  The State  suffered a severe
economic  recession from 1990-94 during which the State experienced  substantial
revenue shortfalls and accumulated a budget deficit of about $2.8 billion.  With
the  economic  recovery  which began in 1994,  the State's  financial  condition
improved markedly in the years from 1995-96 onward, with a combination of better
than  expected  revenues,  slowdown in growth of social  welfare  programs,  and
continued spending restraint.

The economy grew strongly during the second half of the 1990s,  and as a result,
the General Fund took in substantially greater tax revenues (around $2.2 billion
in 1995-96,  $1.6 billion in 1996-97,  $2.1 billion in 1997-98,  $1.6 billion in
1998-99 and $8.2  billion in  1999-2000)  than were  initially  planned when the
budgets were enacted.  The  accumulated  budget deficit from the recession years
was finally  eliminated.  The



                                       23

<PAGE>


Department  of Finance  estimates  that the State's  budget  reserve  (the SFEU)
totaled $7.2 billion at June 30, 2000.

FISCAL YEAR 1998-99  BUDGET.  One of the most important  elements of the 1998-99
Budget Act was  agreement on  substantial  tax cuts.  The largest of these was a
phased-in  cut in the  Vehicle  License  Fee (an annual tax on the value of cars
registered  in the  State,  the  "VLF").  The  total  cost of all tax  cuts  was
estimated at $1.4 billion for fiscal year 1998-99.

FISCAL YEAR 1999-00 BUDGET.  The 1999-00 Budget Act was signed on June 29, 1999.
The final  spending  plan  called  for  about  $63.7  billion  of  General  Fund
expenditures,  $16.1 billion of Special Fund  expenditures,  and $1.5 billion in
bond funded  expenditures  with General Fund revenues  estimated at $63 billion.
The Governor's  final budget actions left the SFEU with an estimated  balance of
$881 million at June 30, 2000.

The final Budget Act generally  provided  increased  funding for a wide range of
programs,  such as  education  (over $2.3  billion  above  1998-99),  health and
welfare,  natural resources and capital outlay. The budget also provided several
hundred million dollars in direct new aid to cities and counties.

By the spring of 2000, as the fiscal year 2000-01 budget was being enacted,  the
Governor's  Administration  released updated revenue and expenditure projections
for  1999-2000  and  2000-01.  These  reports  showed that the  State's  economy
remained  very  strong;  1999  had  the  greatest  growth  since  the end of the
recession in 1994. This growth,  together with the strong stock market, resulted
in  extraordinary  growth in revenues,  particular  personal  income taxes.  The
Administration  revised  its revenue  estimates  for  1999-2000  upward to $71.2
billion,  an increase of $8.2 billion  above the original  Budget Act  estimate.
Expenditures   were   projected  to  increase  to  about  $67.2   billion.   The
Administration's  projected  balance in the SFEU at June 30, 2000 increased from
about $880 million at the time of the original  Budget Act to over $7.2 billion.
Much of this balance will be spent in fiscal year 2000-01.

FISCAL YEAR 2000-01 BUDGET.  As noted above, the continuation of strong economic
growth in the State  resulted in  substantial  additional  resources for General
Fund expenditures for fiscal year 2000-01.  The 2000-01 Budget Act was signed on
June 30, 2000. The spending plan assumes  General Fund revenues and transfers of
$73.9 billion,  and appropriates  $78.8 billion (the difference  coming from the
SFEU surplus  generated in fiscal year 1999-2000).  To avoid pressures on future
budgets,  the  Administration  devoted about $7.0 billion of the new spending on
one-time expenditures and investments.

The  Administration  estimated  that the SFEU  would  have a  balance  of $1.781
billion  at June 30,  2001.  The  Governor  also  held back  $500  million  as a
set-aside for litigation  costs; if this amount is not fully spent during fiscal
year 2000-01, the balance would be added to the SFEU.

The  programs  in the 2000-01  Budget Act include aid to K-12 school  districts,
funding  for the public  higher  education  systems  and for health and  welfare
programs,  investments for capital outlay and tax relief. The 2000-01 Budget Act
also includes a




                                       24
<PAGE>


$200 million  unrestricted  grant to cities and counties,  as well as about $200
million in funding to support various local law enforcement programs.

Reports  since the 2000-01  Budget Act was enacted show that  revenues have been
significantly  higher than projected through the first four months of the fiscal
year. As a result, the State will reduce its sales tax by 0.25% for at least one
year, starting January 1, 2001. Even with this reduction,  the State Legislative
Analyst's Office has estimated that revenues in fiscal year 2000-01 will be $4.1
billion above the Budget Act projections, and that total resources available for
fiscal year 2001-02 will be more than $10 billion above current levels.

Although the State's  strong economy is producing  record  revenues to the State
government,  the State's budget  continues to be marked by mandated  spending on
education,  a large prison population,  and social needs of a growing population
with many  immigrants.  These factors which limit State spending growth also put
pressure on local governments.  Also, extraordinary gains in the stock market in
recent  years  have  increased  discretionary  income in the  State's  budget by
generating  more tax  revenues.  There can be no  assurances  that,  if economic
conditions  weaken,  or other factors  intercede,  the State will not experience
budget gaps in the future.

BOND RATING

The ratings on California's  long-term general  obligation bonds were reduced in
the early  1990's from "AAA" levels  which had existed  prior to the  recession.
After 1996, the three major rating agencies raised their ratings of California's
general  obligation bonds,  which as of November,  2000 were assigned ratings of
"AA" from Standard & Poor's, "Aa2" from Moody's and "AA" from Fitch.

There can be no assurance that such ratings will be maintained in the future. It
should  be noted  that  the  creditworthiness  of  obligations  issued  by local
California issuers may be unrelated to creditworthiness of obligations issued by
the  State,  and that  there is no  obligation  on the part of the State to make
payment on such local obligations in the event of default.

OBLIGATIONS OF OTHER ISSUERS

OTHER ISSUERS OF CALIFORNIA MUNICIPAL  OBLIGATIONS.  There are a number of State
agencies,  instrumentalities and political  subdivisions of the State that issue
municipal obligations,  some of which may be conduit revenue obligations payable
from  payments  from private  borrowers.  These  entities are subject to various
economic  risks and  uncertainties,  and the credit  quality  of the  securities
issued by them may vary  considerably  from the credit  quality  of  obligations
backed by the full faith and credit of the State.

STATE ASSISTANCE.  Property tax revenues received by local governments  declined
more than 50% following passage of Proposition 13. Subsequently,  the California
Legislature  enacted measures to provide for the  redistribution  of the State's
General  Fund  surplus to local  agencies,  the  reallocation  of certain  State
revenues to local agencies and the assumption of certain governmental  functions
by the  State to  assist  municipal  issuers  to  raise  revenues.  Total  local
assistance  from the State's General



                                       25
<PAGE>



Fund was budgeted at  approximately  75% of General Fund  expenditures in recent
years, including the effect of implementing reductions in certain aid programs.

To  the  extent  the  State  should  be   constrained   by  its  Article   XIIIB
appropriations limit or other fiscal considerations,  the absolute level, or the
rate of growth,  of State  assistance  to local  governments  may continue to be
reduced.  Any such  reductions  in State aid could  compound the serious  fiscal
constraints already experienced by many local governments.

ASSESSMENT  BONDS.   California  municipal  obligations  which  are  secured  by
assessments  or special taxes levied on real property may be adversely  affected
by a general  decline in real estate  values or a slowdown in real estate  sales
activity.  In many cases, such bonds are secured by land which is undeveloped at
the time of issuance but anticipated to be developed  within a few years. In the
event of such reduction or slowdown,  such  development  may not occur or may be
delayed, thereby increasing the risk of a default on the bonds.

CALIFORNIA LONG TERM LEASE  OBLIGATIONS.  Based on a series of court  decisions,
certain long-term lease  obligations,  though typically payable from the General
Fund of the State or a municipality, are not considered "indebtedness" requiring
voter approval.  Such leases,  however,  are subject to "abatement" in the event
the facility being leased is unavailable for beneficial use and occupancy by the
municipality  during the term of the lease. In the event  abatement  occurs with
respect  to a  lease  obligation,  lease  payments  may be  interrupted  (if all
available  insurance  proceeds and reserves are exhausted) and the  certificates
evidencing the lease obligation may not be paid when due.

OTHER CONSIDERATIONS

The repayment of industrial  development securities secured by real property may
be  affected  by  California  laws  limiting  foreclosure  rights of  creditors.
Securities  backed by health  care and  hospital  revenues  may be  affected  by
changes  in State  regulations  governing  cost  reimbursements  to health  care
providers  under  Medi-Cal (the State's  Medicaid  program).  Limitations  on ad
valorem property taxes may particularly  affect "tax allocation" bonds issued by
California redevelopment agencies. Such bonds are secured solely by the increase
in  assessed  valuation  of a  redevelopment  project  area  after  the start of
redevelopment  activity.  In the event that assessed values in the redevelopment
project  decline  (e.g.,  because  of  a  major  natural  disaster  such  as  an
earthquake), the tax increment revenue may be insufficient to make principal and
interest payments on these bonds.

The  effect of these  various  constitutional  and  statutory  changes  upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remains unclear. Furthermore,  other measures affecting the
taxing or spending authority of California or its political  subdivisions may be
approved or enacted in the future.

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



                                       26
<PAGE>


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.

FISCAL YEAR 2000-01

Following the enactment of the budget,  the State  released a Financial  Plan on
May 10, 2000 for the 2000-01  fiscal year (the  "2000-01  Financial  Plan") that
sets forth projected  receipts and  disbursements  based on the actions taken by
the Legislature,  which is updated quarterly.  In the 2000-01 Financial Plan for
the State of New York,  total  General Fund  receipts and  transfers  from other
funds in 2000-01  are  projected  to be $39.72  billion,  an  increase  of $2.32
billion  from the $37.40  billion  recorded in  1999-2000.  This total  includes
$36.35 billion in tax receipts,  $1.34 billion in  miscellaneous  receipts,  and
$2.03 billion in transfers  from other funds.  A transfer of the $3.4 billion in
net  resources  through the tax refund  reserve  account  from  1999-2000 to the
2000-01  fiscal  period  has the  effect  of  exaggerating  the  growth in State
receipts  from  year  to year  by  depressing  reported  1999-2000  figures  and
inflating 2000-01 projections.

In the most  recent  quarterly  update  dated  November  7, 2000 (the  "November
Update"), there were no revisions to its receipts projections, with General Fund
receipts and transfers still projected to total $39.72 billion. Although receipt
results  through the first half of the 2000-01 fiscal year were strong,  several
factors with a potentially  negative impact on future receipts  mitigate against
an upward revision in the receipt estimates.  These factors include, but are not
limited to, a possible  slowdown in national  economic  activity  engineered  by
Federal  Reserve  Board  policy;  an easing of  growth  in equity  markets;  and
continued  uncertainty  with  respect  to  financial  sector  profits  and bonus
payments that determine a significant  portion of year-end  income and corporate
tax receipts.

Personal  income tax  collections  for 2000-01  are  projected  to reach  $24.33
billion,  or  approximately  $4 billion  above the reported  1999-00  collection
total.  Much of this increase is associated  with the $3.4 billion net impact of
the transfer of the surplus from the  1999-2000 to the current year as partially
offset by the diversion of an additional $1.99 billion in income tax receipts to
the STAR Fund.  The STAR  program  was created in 1998 as a  State-funded  local
property  tax relief  program  funded  through  the use of  personal  income tax
receipts.  The most significant  statutory changes made this fiscal year provide
for: an increase, phased in over two years, in the earned income tax credit from
25% to 30% of the  federal  credit;  a  three-year  phased-in  reduction  of the
marriage penalty; a four-year phased-in deduction or credit for college tuition;
and  enhancement  of the child and dependent  care credit  effective  January 1,
2000.

                                       27
<PAGE>


Receipts from user taxes and fees receipts are projected to total $7.02 billion,
a decrease of $583 million from reported  collections  in 1999-2000.  User taxes
and fees are comprised of three quarters of the State four percent sales and use
tax (the  balance,  one percent,  flows to support Local  Government  Assistance
Corporation ("LGAC") debt service  requirements),  cigarette,  tobacco products,
alcoholic  beverage,  auto rental taxes,  and a portion of the motor fuel excise
levies.  Also  included in this  category  are receipts  from the motor  vehicle
registration  fees and alcoholic  beverage  license fees. A portion of the motor
fuel tax and motor vehicle fees and all of the highway use tax are earmarked for
dedicated transportation funds.

The sales tax and cigarette  components  of this category  account for virtually
all of the 2000-01 decline.  Growth in base sales tax yield, after adjusting for
tax law changes and other  factors,  is projected at 4.5 percent.  The projected
decrease in sales tax cash receipts of 3.4 percent reflects,  in large part, the
impact of the permanent  exemption for clothing and footwear items costing under
$110.  Cigarette tax and tobacco  products tax receipts are projected to decline
by $146 million primarily due to reduced taxable consumption associated with the
increase in the cigarette tax of 55 cents per pack imposed on March 1, 2000. The
decline in the motor  fuel  taxes and motor  vehicle  fees in the  General  Fund
largely  reflect  the  increased  dedication  of these  revenue  sources  to the
Dedicated  Highway and Bridge Trust Fund and the Dedicated  Mass  Transportation
Trust  Fund.   Alcoholic  beverage  taxes  are  expected  to  decline  modestly,
consistent with historical trends. Alcoholic beverage license fees are projected
to increase  significantly as 2000-01 is the final year in the transition to the
new license renewal schedule. A modest increase in auto rental tax receipts over
1999-2000 levels is projected.

Total  business tax  collections  in 2000-01 are projected to be $4.23  billion,
$332 million  below  results for the prior fiscal year.  Business  taxes include
receipts   from:   (1)  franchise  tax  levies   imposed  on  general   business
corporations,  banks and insurance companies; (2) gross receipts taxes on energy
and telecommunication  service providers; and (3) a tax imposed at various rates
on petroleum business taxes.

Estate  and gift tax,  the real  property  gains tax and  pari-mutuel  taxes are
projected  to total $766  million,  $341 million  below  1999-2000  levels.  The
primary factors  accounting for this decline are legislation  enacted previously
that  repealed  both  the  real  property  gains  tax  and  the  gift  tax,  and
significantly  reduced  estate tax  rates,  and the  incremental  effects of tax
reductions in the pari-mutuel tax.

Miscellaneous   receipts,   including  investment  income,   abandoned  property
receipts,  medical  provider  assessments,  minor federal grants,  receipts from
public authorities, and certain other license and fee revenues, are projected to
reach $1.34  billion,  down $309 million from the prior year.  This reflects the
absence in 2000-01 of  non-recurring  receipts  received  in  1999-2000  and the
phase-out of the medical  provider  assessments,  completed in January 2000. The
State Comptroller has restated medical provider assessments in the General Fund,
which has the effect of increasing reported  miscellaneous receipts and spending
in grants to local  governments  by $120  million in 1997-98  and $82 million in
1998-99.

Transfers from other funds are projected to total $2.03 billion, or $108 million
less than total  receipts from this category  during  1999-2000.  Transfers from
other funds to the




                                       28
<PAGE>



General  Fund  consist  primarily  of tax  revenues  in excess  of debt  service
requirements, particularly the one percent sales tax used to support payments to
LGAC. Total transfers of sales taxes in excess of LGAC debt service requirements
are  expected  to  decrease  by  $74  million  consistent  with  the  sales  tax
projections  described above,  while transfers from all other funds are expected
to decrease by $34 million.

The 2000-01  Financial  Plan  projected  General Fund  disbursements,  including
transfers  to support  capital  projects,  debt service and other funds to be at
$38.92  billion.  This  represents  an  increase  of $1.75  billion or 4.7% over
1999-2000.  The November  Update has  increased  such  estimates to total $39.55
billion in 2000-01.  The estimated increase is attributable in part to the costs
of new labor  agreements  ratified by State employee  unions and approved by the
Legislature.  The full costs of the labor agreements are expected to be financed
from labor reserves that were set aside in the 2000-01 Financial Plan. Grants to
local  governments  is the largest  category of General Fund  disbursements  and
includes financial aid to local governments and not-for-profit organizations, as
well as entitlement  payments for individuals.  Grants to local  governments are
projected  at $26.83  billion in 2000-01,  an increase of $1.20  billion or 4.7%
over 1999-2000. The 1999-2000 State Financial Plan contains actions that provide
non-recurring resources totaling approximately $36 million, excluding use of the
1999-2000  surplus.  The November  Updates states that the State ended 1999-2000
with an accumulated  General Fund surplus of $3.93 billion, as measured by GAAP,
marking the third  consecutive  fiscal  year that has ended with an  accumulated
surplus.  During  2000-01,  the State  expects to close the fiscal  year with an
accumulated GAAP surplus of $1.84 billion in the General Fund.

The  economic  and  financial  condition of the State may be affected by various
financial,  social,  economic and political  factors.  These factors can be very
complex, may vary from fiscal year to fiscal year, and are frequently the result
of actions  taken not only by the State and its agencies and  instrumentalities,
but also by  entities,  such as the federal  government,  that are not under the
control of the State.  Because of the uncertainty and  unpredictability of these
factors,  their  impact  cannot,  as a  practical  matter,  be  included  in the
assumptions  underlying the State's projections at this time. As a result, there
can be no assurance  that the State economy will not  experience  results in the
current fiscal year that are worse than predicted,  with corresponding  material
and adverse effects on the State's projections of receipts and disbursements.

OUTYEAR PROJECTIONS OF RECEIPTS AND DISBURSEMENTS

State law  requires  the  Governor to propose a balanced  budget each year.  The
State  projects a budget gap in the  2001-02  fiscal  year of  approximately  $2
billion.  In recent years, the State has closed projected budget gaps which have
ranged from $5 billion to less than $1 billion.  Sustained growth in the State's
economy could contribute to closing  potential  budget  imbalances over the next
several years,  both in terms of higher than projected tax receipts and in lower
than expected entitlement spending.  The Division of Budget will formally update
its  projections of receipts and  disbursements  for future years as part of the
Governors'  2001-02 Executive Budget  submission.  The revised  expectations for
these years will reflect updated estimates of receipts and disbursements as well
as new 2001-02 Executive Budget recommendations.



                                       29
<PAGE>


FISCAL YEAR 1999-2000

The State reports its  financial  results on two bases of  accounting:  the cash
basis,  showing  receipts and  disbursements;  and the modified  accrual  basis,
prescribed by Generally Accepted Accounting Principles (GAAP),  showing revenues
and expenditures.

CASH-BASIS  RESULTS.  The State ended its 1999-2000  fiscal year in balance on a
cash basis, with a General Fund cash-basis  surplus of $1.51 billion as reported
by DOB. As in recent years,  strong growth in receipts above forecasted  amounts
produced  most  of the  year-end  surplus.  Spending  was  also  modestly  below
projections, further adding to the surplus.

The State  reported a closing  balance of $1.17  billion in the General Fund, an
increase of $275  million  over the  closing  balance  from the prior year.  The
balance was held in four accounts within the General Fund: the Tax Stabilization
Reserve Fund (TSRF),  the  Contingency  Reserve Fund (CRF),  the Debt  Reduction
Reserve  Fund  (DRRF) and the  Community  Projects  Fund (CPF)  which is used to
finance legislative initiatives. The balance is comprised of $547 million in the
TSRF after a deposit of $74 million in 1999-2000;  $107 million in the CRF; $250
million in the DRRF; and the $263 million in the CPF.

The closing fund balance  excludes  $3.97 billion that the State  deposited into
the tax refund reserve  account at the close of 1999-2000 to pay for tax refunds
in 2000-01 of which $521  million  was made  available  as a result of the Local
Government  Assistance  Corporation (LGAC) financing program and was required to
be on deposit as of March 31, 2000. The tax refund reserve  account  transaction
has the effect of decreasing reported personal income tax receipts in 1999-2000,
while increasing reported receipts in 2000-01.

General Fund receipts and transfers  from other funds (net of tax refund reserve
account  activity)  for the 1999-2000  fiscal year totaled  $37.40  billion,  an
increase of 1.6 percent over 1998-99.  General Fund  disbursements and transfers
to other funds totaled $37.17 billion, an increase of 1.6 percent from the prior
fiscal year.

GAAP-BASIS  RESULTS.  The  State  completed  its  1999-2000  fiscal  year with a
combined  governmental funds operating surplus of $3.03 billion,  which included
operating  surpluses in the General  Fund ($2.23  billion),  in Special  Revenue
Funds  ($665  million),  in Debt  Service  Funds  ($38  million)  and in Capital
Projects  Funds  ($99  million).  The State  reported a General  Fund  operating
surplus of $2.23  billion for the  1999-2000  fiscal year,  as compared to $1.08
billion for the 1998-99 fiscal year. The operating surplus resulted in part from
higher personal income tax receipts, and increases in taxes receivable and other
assets,  and  decreases  in  deferred  revenues,  due to other  funds  and other
liabilities.  These  gains  were  partially  offset  by  decreases  in  accounts
receivable  and money due from  other  funds,  increases  in  payables  to local
governments and accrued liabilities , and an increase in tax refunds payable.

The State reported an  accumulated  fund balance of $3.92 billion in the General
Fund for 1999-2000.  The accumulated  fund balance is $50 million higher after a
restatement by the State Comptroller to reflect the reclassification of the Debt
Reduction Reserve Fund to the General Fund.


                                       30

<PAGE>



General Fund Revenue increased $2.30 billion (6.4 percent) over the prior fiscal
year with  increases  in  personal  income and  consumption  and use taxes,  and
miscellaneous revenues.  Business tax and other tax revenues fell from the prior
fiscal year. Personal income taxes grew $1.98 billion, an increase of nearly 9.7
percent.  The increase in personal income taxes was caused by strong  employment
and wage growth and the continued  strong  performance of the financial  markets
during 1999.  Consumption  and use taxes  increased  $327,  or 4.5  percent,  to
reflect a continuing high level of consumer confidence.  Miscellaneous  revenues
increased  $303 million  (14.1  percent),  primarily due to growth in investment
earnings, fees, licenses,  royalties and rents and reimbursements from regulated
industries,  such as banking and  insurance,  used to fund State  administrative
costs.  These increases were partially offset by decreases in business and other
taxes. Business taxes decreased nearly $301 million, or 6.2 percent,  because of
prior year  refunds and the  application  of credit  carry  forwards  which were
applied  against  current year (1999)  liabilities.  Other taxes  decreased  $12
million, or 1.1 percent.

General Fund  expenditures  increased $1.39 billion (3.9 percent) from the prior
fiscal  year,  with the largest  increases  occurring in  education,  health and
environment.  Education  expenditures grew $739 million (6.1 percent) due mainly
to an increase in spending  for support for public  schools,  handicapped  pupil
education  and  municipal  and  community   colleges.   Health  and  environment
expenditures  increased  over $215 million (33.5 percent)  primarily  reflecting
increased  spending for local health programs.  Personal service costs increased
$202  million  (3.3  percent)  principally  as a result of increases in wages as
required  recently  approved  collective  bargaining  agreements.   Non-personal
service costs  increased  $264 million (11.7 percent) due primarily to increased
spending for goods and services.

Net other  financing  sources in the General Fund  increased  $192 million (45.9
percent)  primarily  because transfers of surplus revenues from the Debt Service
Funds increased by nearly $100 million and transfers from the Abandoned Property
Fund and the  Hospital  Bad Debt and Charity  Accounts  increased by nearly $120
million.

PUBLIC ASSISTANCE

Spending on welfare is projected in the 2000-01 fiscal year at $1.20 billion,  a
decline  of $77  million  from the prior  year.  This  decrease  results  from a
projected  caseload decline of approximately  65,000  recipients (or 7.4%) to an
average annual total of  approximately  814,000  recipients in 2000-01.  Welfare
spending also reflects  increased  availability of federal Temporary  Assistance
for Needy Families (TANF) Block Grant funds.

MEDICAID

Medicaid is the second largest program,  after grants to local  governments,  in
the General  Fund.  Payments for Medicaid are  projected to be $5.59  billion in
2000-01.  This reflects  underlying  spending  growth in this program of 4%, and
efforts to maximize  federal  moneys.  In addition,  resources  from the tobacco
settlement revenues are utilized to support overall health care spending.

STATE DEBT

As of March 31,  2000,  the State had $4.6 billion of general  obligation  bonds
outstanding.  The State's  2000-01  borrowing  plan  projects  issuances of $367
million in



                                       31
<PAGE>


general  obligation  bonds  (including  $45  million for  purposes of  redeeming
outstanding  BANs).  The State does not  anticipate  issuing new BANs during the
2000-01 fiscal year. The State is expected to issue $276 million in Certificates
of  Participation  to finance  equipment  purchases  during 2000-01 fiscal year.
Borrowings   by   public    authorities    pursuant   to   lease-purchase    and
contractual-obligation   financings  for  capital  programs  of  the  State  are
projected to total approximately $2.91 billion, including costs of issuance.

THE STATE AUTHORITIES

The fiscal  stability of the State is related in part to the fiscal stability of
its public authorities. Public authorities refer to public benefit corporations,
created pursuant to State law, other than local authorities.  Public authorities
are not subject to the  constitutional  restrictions  on the  incurrence of debt
which apply to the State itself and may issue bonds and notes within the amounts
and restrictions set forth in legislative  authorization.  The State's access to
the  public  credit  markets  could  be  impaired  and the  market  price of its
outstanding  debt may be materially and adversely  affected if any of its public
authorities were to default on their respective obligations,  particularly those
using the financing  techniques  referred to as State-supported or State-related
debt. As of December 31, 1999, there were 17 public authorities with outstanding
debt of $100 million or more,  and the  aggregate  outstanding  debt,  including
refunding bonds, of all State public authorities was $95 billion, only a portion
of which constitutes State-supported or State-related debt.

The  State  has  numerous  public  authorities  with  various  responsibilities,
including those which finance, construct and/or operate revenue producing public
facilities.  Public authorities  generally pay their operating expenses and debt
service costs from  revenues  generated by the projects they finance or operate,
such as tolls charged for the use of highways,  bridges or tunnels,  charges for
public power,  electric and gas utility  services,  rentals  charged for housing
units, and charges for occupancy at medical care facilities.

In addition,  State  legislation  authorizes  several  financing  techniques for
public authorities.  Also there are statutory  arrangements  providing for State
local  assistance  payments  otherwise  payable to  localities  to be made under
certain  circumstances  to  public  authorities.   Although  the  State  has  no
obligation to provide additional assistance to localities whose local assistance
payments  have been paid to public  authorities  under these  arrangements,  the
affected  localities may seek additional  State  assistance if local  assistance
payments  are  diverted.   Some  authorities  also  receive  moneys  from  State
appropriations to pay for the operating costs of certain of their programs.  The
Metropolitan  Transportation  Authority (MTA) receives the bulk of this money in
order to provide  transit and commuter  services.  Beginning  in 1998,  the Long
Island  Power  Authority  (LIPA)  assumed  responsibility  for the  provision of
electric  utility services  previously  provided by Long Island Lighting Company
for Nassau,  Suffolk and a portion of Queen Counties, as part of an estimated $7
billion financing plan.

METROPOLITAN TRANSPORTATION AUTHORITY

Since 1980, the State has enacted  several taxes -- including a surcharge on the
profits of banks, insurance corporations and general business corporations doing
business in the 12 county Metropolitan  Transportation  Region served by the MTA
and a  special  one  quarter  of 1  percent  regional  sales and use tax -- that
provide  revenues for mass transit  purposes,  including  assistance to the MTA.
Since  1987  State law has  required  that the


                                       32
<PAGE>



proceeds of a one quarter of 1 percent  mortgage  recording  tax paid on certain
mortgages in the  Metropolitan  Transportation  Region be deposited in a special
MTA fund for  operating  or capital  expenses.  In 1993,  the State  dedicated a
portion of certain additional  petroleum business tax receipts to fund operating
or capital  assistance to the MTA. The 2000-2001  Enacted Budget  provides State
assistance  to the MTA  totaling  approximately  $1.35  billion and  initiates a
five-year  State  transportation  plan that  includes  nearly  $2.2  billion  in
dedicated revenue support for the MTA's 2000-2004 Capital Program. The currently
approved  2000-2004  Capital  Program  assumes the issuance of an estimated $8.9
billion  in new  money  bonds.  The  remainder  of the plan is  projected  to be
financed through assistance from the State, the federal government, and the City
of New York, and from various other revenues generated from actions taken by the
MTA.


THE CITY OF NEW YORK

The fiscal  health of the State may also be affected by the fiscal health of New
York City  (the  "City"),  which  continues  to  receive  significant  financial
assistance  from the  State.  State aid  contributes  to the  City's  ability to
balance  its  budget  and meet  its cash  requirements.  The  State  may also be
affected by the ability of the City and certain  entities  issuing  debt for the
benefit of the City to market their securities successfully in the public credit
markets.

The City, with a population of  approximately  7.4 million,  is an international
center of business and culture. Its non-manufacturing  economy is broadly based,
with the banking and  securities,  life insurance,  communications,  publishing,
fashion  design,   retailing  and  construction   industries  accounting  for  a
significant portion of the City's total employment earnings.  Additionally,  the
City is a leading  tourist  destination.  Manufacturing  activity in the City is
conducted primarily in apparel and printing.

For the 2000  fiscal  year,  the City  achieved  balanced  operating  results as
measured by the GAAP  standards,  making it the  twentieth  fiscal year that the
City has achieved balanced operating results. On June 15, 2000 the City released
the Financial Plan for the 2001 through 2004 fiscal years,  which relates to the
City and certain  entities which receive funds from the City, and which reflects
changes as a result of the City's  expense and  capital  budgets for fiscal year
2001,  which were adopted on June 6, 2000.  The City's  Financial  Plan projects
revenues and  expenditures  for the 2001 fiscal year balanced in accordance with
GAAP,  and  projects  gaps of $2.6  billion,  $2.7  billion and $2.7 billion for
fiscal  years 2002 though 2004.  The City is  undertaking  gap closing  actions,
which are proposed in the Financial  Plan.   However,  there can be no assurance
that the gap closing  actions can be  successfully  implemented or that the City
will maintain a balanced  budget in future years without  additional  State aid,
revenue increases or expenditure reductions.

The City is the largest  municipal  debt issuer in the nation and is nearing the
constitutionally-permissible  limit on its general  obligation  debt. To provide
for the City's  capital  program,  State  legislation  was enacted in 1997 which
created the Transitional  Finance  Authority  ("TFA"),  the debt of which is not
subject to the general debt limit of the City.  Without TFA or other legislative
relief, new contractual  commitments for the City's general obligation  financed
capital  program would have been virtually  brought to a halt beginning early in
the 1998 fiscal year.  During the 2000  legislative  session,  the State enacted
legislation  that  increased  the borrowing



                                       33
<PAGE>



authority of TFA by $4 billion,  to $11.5  billion,  which the City expects will
provide  sufficient  financing capacity to continue its capital program over the
next four fiscal years. In 1999, the City created TSASC,  Inc., a not-for-profit
corporation,  empowered to issue  tax-exempt  debt backed by tobacco  settlement
revenues.  TSASC is currently  expected to issue  approximately  $2.8 billion of
bonds,  which  will add  another  source of  financing  for the  City's  capital
program.  In addition to general  obligation  debt, the City has other long-term
obligations,  including  capital leases and bond  transactions of public benefit
corporations  that are components of the City or whose debt is guaranteed by the
City.

OTHER LOCALITIES

Certain localities outside New York City have experienced financial problems and
have requested and received  additional State assistance during the last several
State fiscal years.  The potential impact on the State of any future requests by
localities for additional  oversight or financial  assistance is not included in
the projections of the State's receipts and disbursements.

To help resolve  persistent  financial  difficulties in Nassau County, the State
enacted legislation  (Chapter 84 of the Laws of 2000) creating the Nassau County
Interim Finance  Authority.  The Authority is empowered to issued bonds,  backed
solely by diverted  Nassau  County  sales tax  revenues,  to achieve  short-term
budget relief and ensure credit market access for the County.  The Authority may
also  impose  financial  plan  requirements  on  Nassau  County.  The  State has
appropriated  $30  million in  transitional  assistance  to the County for State
fiscal year 2000-01,  and the Governor has proposed  providing up to $75 million
in State  assistance  over the next four State fiscal  years.  Allocation of any
such assistance is contingent  upon the Authority's  approval of Nassau County's
financial plan.

The  State  has   provided   extraordinary   financial   assistance   to  select
municipalities,  primarily  cities,  since the 1996-97 fiscal year.  Funding has
essentially  been continued or increased in each  subsequent  fiscal year.  Such
funding in 2000-01 totals $200.4 million.


PORTFOLIO TRANSACTIONS

Portfolio  transactions  are  undertaken  principally to pursue the objective of
each Portfolio in relation to movements in the general level of interest  rates,
to invest money obtained from the sale of Portfolio shares, to reinvest proceeds
from maturing portfolio  securities and to meet redemptions of Portfolio shares.
This may  increase  or  decrease  the yield of a  Portfolio  depending  upon the
Investment  Manager's  ability to correctly time and execute such  transactions.
Each Portfolio  normally  intends to hold its portfolio  securities to maturity.
The Portfolios do not intend to trade portfolio  securities although they may do
so to take advantage of short-term market movements.

The  Investment  Manager  places orders for the purchase and sale of assets with
brokers and dealers selected by and in the discretion of the Investment Manager.
In placing orders for the  Portfolio's  portfolio  transactions,  the Investment
Manager seeks "best execution" (i.e., prompt and efficient execution at the most
favorable  prices).  Consistent with the policy of "best execution,"  orders for
portfolio  transactions are placed with broker-dealer firms giving consideration
to the quality,  quantity and nature


                                       34
<PAGE>


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 from such services are
available  for all  clients  of the  Investment  Manager  and may not be used 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.  Fixed income portfolio 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 each other and for other accounts,  if any,  managed by the Investment
Manager.  On occasions when the Investment Manager deems the purchase or sale of
securities to be in the best interest of one or more Portfolios as well as other
clients  of the  Investment  Manager,  the  Investment  Manager,  to the  extent
permitted  by  applicable  laws  and  regulations,  may,  but  shall be under no
obligation  to,  aggregate the securities to be so sold or purchased in order to
obtain the most favorable  price or lower  brokerage  commissions  and efficient
execution.  In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the Investment
Manager in accordance  with its policy for  aggregation of orders,  as in effect
from time to time. In some cases this  procedure may affect the size or price of
the position obtainable for a Portfolio.



                                       35
<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 the
Company  since its  inception.  Mr.  Dalrymple  has  served  as a Trustee  of TD
Waterhouse  Trust  ("TDT") and Director of National  Investors  Cash  Management
Fund, Inc. ("NICM") since its inception and February 26, 1998. 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 57 years old. Mr.
Dalrymple's address is 70 West Red Oak Lane, White Plains, NY 10604.


CAROLYN B. LEWIS,  Director.  Ms.  Lewis has served as a Director of the Company
since  February  26,  1998.  Ms.  Lewis has served as a Trustee of TDT since its
inception and a Director of NICM since February 26, 1998.  Since March 1997, Ms.
Lewis has served as President of The CBL Group providing  professional  services
to clients in the securities and healthcare industries.  Ms. Lewis spent over 30
years at the United States  Securities and Exchange  Commission (SEC) in various
positions  including  Senior  Financial  Analyst,  Branch  Chief  and  Assistant
Director.  In September  1997,  Ms. Lewis was appointed a member of the Board of
Governors of the Philadelphia Stock Exchange.  Presently,  Ms. Lewis is a member
of the Board of Directors of the Metropolitan  Washington Airports Authority and
a director on various healthcare and hospital Boards,  including Chairman of the
Board of Trustees of the American Hospital Association. She is 64 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 the Company  since  December 12,  1995.  Mr.  Staudter  also has
served as  Chairman of the Board of  Trustees  of TDT since its  inception.  Mr.
Staudter is a Director of Koger Equity,  Inc. Mr.  Staudter served as a Director
of  Waterhouse  Investor  Services,  Inc.  from 1987 to 1996.  Since  1989,  Mr.
Staudter  has  served  as  a  Managerial  and  Financial  Consultant,  rendering
investment  management,  tax and estate planning services to individual clients,
and strategic planning advice to corporate clients.  From 1993 through 1994, Mr.
Staudter  was the Chief  Executive  Officer and served on the Board of Directors
for Family  Steak  Houses of Florida,  Inc. He is 69 years old.  Mr.  Staudter's
address is 9637 Preston Trail West, Ponte Vedra, FL 32082.



                                       36
<PAGE>



LAWRENCE  J. TOAL,  Director.  Mr.  Toal has served as a Director of the Company
since  December 12, 1995. Mr. Toal also has served as a Trustee of TDT since its
inception.  Mr. Toal is President and Chief  Executive  Officer of Dime Bancorp,
Inc. and its subsidiary, The Dime Savings Bank of New York, FSB (the "Dime"). 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 63 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.  He is 45 years
old.

CHRISTOPHER J. KELLEY**, Vice President and Secretary. Mr. Kelley is Senior Vice
President  and  Deputy  General  Counsel  of  FDI,  and an  officer  of  certain
investment  companies  distributed  by FDI.  From April  1994 to July 1996,  Mr.
Kelley was Assistant Counsel at Forum Financial Group. He is 36 years old.

MICHELE R.  TEICHNER,  Vice  President  and  Assistant  Secretary.  Senior  Vice
President - Compliance,  Administration and Operations of the Investment Manager
(since  August 1996) and TD  Waterhouse  (since June 1997).  From August 1994 to
July  1996,  Ms.  Teichner  served  as  President  of  Mutual  Fund  Training  &
Consulting,  Inc. Ms.  Teichner is 41 years old. Ms.  Teichner's  address is 100
Wall Street, New York, NY 10005.

KAREN JACOPPO-WOOD**, Vice President and Assistant Secretary. Vice President and
Senior Counsel of FDI and an officer of certain investment companies distributed
by FDI. From June 1994 to January 1996,  Ms.  Jacoppo-Wood  was a Manager of SEC
Registration at Scudder, Stevens & Clark, Inc. She is 33 years old.

THOMAS J. TEXTOR,  Vice President and Assistant  Treasurer.  Mr. Textor is Chief
Compliance  Officer at TD  Waterhouse.  From 1995 to 1997, Mr. Textor was a Vice
President and  Administrative  Manager at Prudential  Securities,  Inc. He is 43
years old.

MARY A. NELSON**, Vice President and Assistant Treasurer.  Senior Vice President
and Director of Financial  Services at FDI, since August 1994, and an officer of
certain investment companies distributed by FDI. She is 36 years old.


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


On November 30, 2000,  the  officers and  directors of the Company,  as a group,
owned less than 1% of the outstanding shares of each Portfolio.

Officers and directors who are interested  persons of the Investment  Manager or
FDI  receive no  compensation  from the  Company.  Each  director  who is not an
interested person serving on the board of a company in the "Fund Complex" (which
also includes NICM and TDT, other investment companies advised by the Investment
Manager)




                                       37
<PAGE>



receives (i) a  complex-wide  annual  retainer of $15,000,  (ii) a  supplemental
annual  retainer of $6,000 if serving on the Board of  Directors  of the Company
and the Board of Trustees of TDT,  (iii) a supplemental  annual  retainer in the
amount of $2,500 if serving the Board of Directors of the Company,  the Board of
Trustees of the Trust and the Board of Directors of NICM, and (iv) a meeting fee
of $3,000 for each meeting  attended.  Directors who are not interested  persons
will also be  reimbursed  for their  expenses by the Company.  Directors who are
interested  persons of the Company may be compensated by the Investment  Manager
or its affiliates for their services to the Company.

The amounts of  compensation  that the Company (and Fund  Complex)  paid to each
director (or trustee,  as the case may be) for the fiscal year ended October 31,
2000, 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 (3)     Company's Expenses     Retirement    Paid to Board Members (3)
          ------             --------        ------------------     ----------    -------------------------
<S>                            <C>                   <C>                <C>                <C>

 Richard W. Dalrymple          $13,833               $0                 $0                 $41,500

 Carolyn B. Lewis              $13,833               $0                 $0                 $41,500

 George F. Staudter (2)           $0                 $0                 $0                    $0

 Lawrence J. Toal              $17,250               $0                 $0                 $34,500


</TABLE>

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

(1)  "Fund Complex"  includes the Company,  NICM and TDT,  investment  companies
     also advised by the Investment Manager.
(2)  Interested director of the Company.
(3)  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.  Effective  September
20, 1999,  the  Investment  Manager's  name was changed from  "Waterhouse  Asset
Management, Inc." to its present name.


The Investment  Manager is a 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. and as of November 30, 2000 had total assets under  management in excess of
$10.4 billion.


                                       38
<PAGE>



The  Investment  Management  Agreement  will  continue  in  effect  only if such
continuance is specifically approved at least annually by (i) a majority vote of
the directors who are not parties to such agreement or interested persons of any
such party except in their capacity as directors of the Company,  cast in person
at a meeting called for such purpose,  and (ii) by the vote of a majority of the
outstanding  voting  securities of each Portfolio,  or by the Company's Board of
Directors.  The  Investment  Management  Agreement  may be  terminated as to any
Portfolio at any time upon 60 days prior written  notice,  without  penalty,  by
either  party,  or by a majority vote of the  outstanding  shares of a Portfolio
with  respect  to  that  Portfolio,   and  will  terminate   automatically  upon
assignment.  The  Investment  Management  Agreement was approved by the Board of
Directors of the Company,  including a majority of the  Disinterested  Directors
who have no direct or indirect financial  interest in the Investment  Management
Agreement, and by the shareholders of each Portfolio.

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

For  the  investment  management  services  furnished  to each  Portfolio,  such
Portfolio  pays the  Investment  Manager an annual  investment  management  fee,
accrued daily and payable  monthly,  on a graduated  basis equal to 0.35% of the
first $1 billion of average  daily net assets of each such  Portfolio,  0.34% of
the next $1  billion,  and 0.33% of average  daily net assets of each  Portfolio
over $2 billion.  The Investment  Manager and its  affiliates  may, from time to
time, voluntarily waive or reimburse all or a part of each Portfolio's operating
expenses.  The Investment  Manager has agreed to assume certain expenses of each
of the California Portfolio and the New York Portfolio (or waive their fees) for
the first twelve months of each such Portfolio's  operations  (September 1, 2000
through August 31, 2001), so that the total operating  expenses  payable by such
Portfolios  during the period  will not exceed  0.65% of its  average  daily net
assets.  Expense reimbursements by the Investment Manager or its affiliates will
increase each Portfolio's total returns and yield.  These expense reductions are
voluntary and may be changed or eliminated at any time upon notifying investors.

The following  table shows the dollar amount of investment  management fees with
respect to the Portfolios, along with the amount of these fees that were waived,
if any.  The data is for the past  three  fiscal  years or  shorter  period if a
Portfolio has been in operation for a shorter period.

                                         Fee                        Fee Waived
MONEY MARKET PORTFOLIO
Year ended October 31, 2000           $18,520,525                   $3,695,607
Year ended October 31, 1999           $13,614,660                           --
Year ended October 31, 1998            $7,895,374                           --

U.S. GOVERNMENT PORTFOLIO
Year ended October 31, 2000            $3,155,017                     $648,668



                                       39
<PAGE>



Year ended October 31, 1999            $2,374,984                           --
Year ended October 31, 1998            $1,602,146                           --

MUNICIPAL PORTFOLIO
Year ended October 31, 2000            $1,770,389                     $408,638
Year ended October 31, 1999            $1,538,867                     $439,676
Year ended October 31, 1998            $1,092,409                     $312,133

CALIFORNIA MUNICIPAL
MONEY MARKET PORTFOLIO
Period ended October 31, 2000            $131,020                      $73,100

NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
Period ended October 31, 2000             $59,471                      $38,005


ADMINISTRATION

Pursuant to an  Administration  Agreement with the Company,  TD  Waterhouse,  as
Administrator,  provides  administrative  services  to each  of the  Portfolios.
Administrative   services  furnished  by  TD  Waterhouse  include,  among  other
services,  maintaining  and  preserving  the records of the  Company,  including
financial  and  corporate  records,   computing  net  asset  value,   dividends,
performance  data and financial  information  regarding  the Company,  preparing
reports, overseeing the preparation and filing with the SEC and state securities
regulators  of  registration  statements,  notices,  reports and other  material
required  to  be  filed  under  applicable  laws,  developing  and  implementing
procedures for monitoring  compliance  with regulatory  requirements,  providing
routine accounting services, providing office facilities and clerical support as
well as providing general oversight of other service providers. For its services
as  administrator,  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.


The following table shows the dollar amount of administration  fees with respect
to the Portfolios, along with the amount of these fees that were waived, if any.
The data is for the past three fiscal years or shorter period if a Portfolio has
been in operation for a shorter period.

                                        Fee                        Fee Waived
MONEY MARKET PORTFOLIO
Year ended October 31, 2000           $5,521,330                   $1,101,810
Year ended October 31, 1999           $4,034,742                           --
Year ended October 31, 1998           $2,302,554                           --

U.S. GOVERNMENT PORTFOLIO
Year ended October 31, 2000             $901,433                     $185,334
Year ended October 31, 1999             $678,567                           --
Year ended October 31, 1998             $457,756                           --

MUNICIPAL PORTFOLIO
Year ended October 31, 2000             $505,825                     $116,754



                                       40
<PAGE>



Year ended October 31, 1999             $439,676                           --
Year ended October 31, 1998             $312,090                       $1,788

CALIFORNIA MUNICIPAL
MONEY MARKET PORTFOLIO
Period ended October 31, 2000            $37,434                      $20,886

NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
Period ended October 31, 2000            $16,992                      $10,859


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 Subadministration  Agreement,  TD Waterhouse pays FDI's fees
for  providing  such  services.  In  addition,  TD  Waterhouse  may  enter  into
subadministration  agreements  with other  persons to perform such services from
time to time.

The Administration Agreement will continue in effect only if such continuance is
specifically  approved at least  annually  by a vote of the Board of  Directors,
including a majority of  Disinterested  Directors who have no direct or indirect
financial interest in the Administration Agreement. The Administration Agreement
was approved by the Board of  Directors of the Company,  including a majority of
the  Disinterested  Directors  of the  Company  who have no direct  or  indirect
financial  interest  in  the  Administration  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 by a  majority  of the  outstanding  voting
securities  of  such  Portfolio.   The   Administration   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 duties, or by reason of its reckless
disregard of its obligations and duties under such agreement.

DISTRIBUTION

The distributor of the Company is FDI, 60 State Street,  Suite 1300,  Boston, MA
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 only if such continuance is
specifically  approved at least  annually  by a vote of the Board of  Directors,
including a majority of  Disinterested  Directors who have no direct or indirect
financial interest in the Distribution Agreement. The Distribution Agreement was
approved  by the Board



                                       41
<PAGE>


of Directors of the Company, including a majority of Disinterested Directors who
have no direct or indirect  financial  interest in the  Distribution  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  by a  majority  of  the
outstanding  voting  securities of such Portfolio.  The  Distribution  Agreement
terminates  automatically  in the event of its  "assignment"  as  defined in the
Investment Company Act.

SHAREHOLDER SERVICING


The Board of Directors of the Company has approved a Shareholder  Servicing Plan
("Servicing   Plan")   pursuant   to  which  each   Portfolio   may  pay  banks,
broker-dealers  or  other  financial  institutions  that  have  entered  into  a
shareholder  services agreement (a "Shareholder  Servicing  Agreement") with the
Company  ("Servicing  Agents") in connection with  shareholder  support services
that they provide.  Payments under the Servicing  Plan will be calculated  daily
and paid  monthly  at a rate set from  time to time by the  Board of  Directors,
provided  that the annual  rate may not exceed  0.25% of the  average  daily net
assets of each  Portfolio.  The shareholder  services  provided by the Servicing
Agents  pursuant  to the  Servicing  Plan may  include,  among  other  services,
providing  general  shareholder   liaison  services  (including   responding  to
shareholder  inquiries),   providing  information  on  shareholder  investments,
establishing  and maintaining  shareholder  accounts and records,  and providing
such other similar services as may be reasonably requested.

The Servicing Plan was approved by the Board of Directors,  including a majority
of the Disinterested Directors who have no direct or indirect financial interest
in the Servicing Plan or the Shareholder Services Agreement.  The Servicing Plan
continues in effect as long as such  continuance is  specifically so 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
operation of the  Servicing  Plan or any  Shareholder  Services  Agreement.  The
Servicing Plan may be terminated by the Company with respect to any Portfolio by
a vote of a majority of such Disinterested Directors.

Pursuant  to a  Shareholder  Services  Agreement  between  the  Company  and  TD
Waterhouse (the "TD Waterhouse Agreement"),  TD Waterhouse has agreed to provide
shareholder  services to each Portfolio  pursuant to the  Shareholder  Servicing
Plan.  The  Company  may  enter  into  similar  agreements  with  other  service
organizations, including broker-dealers and banks whose clients are shareholders
of the Company,  to act as Servicing Agents and to perform  shareholder  support
services with respect to such clients.

The TD Waterhouse  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 TD Waterhouse Agreement.  The TD
Waterhouse  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 TD Waterhouse Agreement. Each Portfolio or TD
Waterhouse  may terminate the TD Waterhouse  Agreement on 15 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




                                       42
<PAGE>



in  the  TD  Waterhouse  Agreement.   The  TD  Waterhouse  Agreement  terminates
automatically  in the event of its  "assignment"  as defined  in the  Investment
Company Act.

The following  table shows the dollar amount of shareholder  servicing fees with
respect to the  Portfolios  under the  Shareholder  Services  Agreement  with TD
Waterhouse,  along with the amount of these fees that were  waived,  if any. The
data is for the past three  fiscal  years or shorter  period if a Portfolio  has
been in operation for a shorter period.


                                         Fee                     Fee Waived
MONEY MARKET PORTFOLIO
Year ended October 31, 2000            $13,803,324                  $2,446,017
Year ended October 31, 1999            $10,124,166                  $8,273,493
Year ended October 31, 1998             $4,668,165                  $3,308,557

U.S. GOVERNMENT PORTFOLIO
Year ended October 31, 2000             $2,253,584                    $463,335
Year ended October 31, 1999             $1,696,417                  $1,322,234
Year ended October 31, 1998               $796,798                    $502,792

MUNICIPAL PORTFOLIO
Year ended October 31, 2000             $1,264,563                    $291,885
Year ended October 31, 1999             $1,106,078                    $469,563
Year ended October 31, 1998               $366,257                     $74,948

CALIFORNIA MUNICIPAL
Money Market Portfolio
Period ended October 31, 2000              $93,586                     $52,214

NEW YORK MUNICIPAL
Money Market Portfolio
Period ended October 31, 2000              $42,480                     $27,147

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, New York 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




                                       43
<PAGE>


monthly,  of  0.20% of each  Portfolio's  average  daily  net  assets.  Prior to
September 8, 1999, the Company had retained TD Waterhouse Bank, N.A. to serve as
transfer and dividend  disbursing  agent, for which it received an annual fee of
0.20% of each  Portfolio's  average daily net assets,  and the current  Transfer
Agent had been retained as sub-transfer and dividend disbursing agent.

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

Pursuant to a Custodian Agreement,  The Bank of New York (the "Custodian"),  100
Church  Street,  New York, NY 10286,  acts as the custodian of each  Portfolio's
assets.  The  Custodian,  among other  things,  maintains  a custody  account or
accounts in the name of each Portfolio, receives and delivers all assets for the
Portfolio upon purchase and upon sale or maturity, collects all income and other
payments and distributions with respect to the assets of the Portfolio, and pays
expenses of the Portfolio.

OTHER EXPENSES


Each  Portfolio  pays the  expenses of its  operations,  including  the costs of
shareholder  and board  meetings,  the fees and expenses of blue sky and pricing
services,  independent auditors,  counsel, the Custodian and the Transfer Agent,
reports and notices to  shareholders,  the costs of calculating net asset value,
brokerage commissions or transaction costs, taxes, interest, insurance premiums,
Investment  Company  Institute  dues and the fees and expenses of qualifying the
Portfolio and its shares for  distribution  under  federal and state  securities
laws. In addition,  each  Portfolio pays for  typesetting,  printing and mailing
proxy material, prospectuses,  statements of additional information, notices and
reports to existing shareholders,  and the fees of the Disinterested  Directors.
Each  Portfolio  is also  liable for such  nonrecurring  expenses  as may arise,
including  costs of any litigation to which the Company may be a party,  and any
obligation it may have to indemnify the  Company's  officers and directors  with
respect to any litigation.  The Company's expenses generally are allocated among
the  Portfolios  on the basis of relative net assets at the time of  allocation,
except that expenses directly attributable to a particular Portfolio are charged
to that Portfolio.


CODES OF ETHICS


Each of the Company,  the Investment  Manager and the  Distributor has adopted a
code of ethics  pursuant  to Rule 17j-1  under the  Investment  Company Act with
respect to certain of its  personnel.  These  codes are  designed to protect the
interests  of  Portfolio  shareholders.   While  the  code  contains  provisions
reasonably  necessary to prevent  personnel subject to the code from engaging in
unlawful  conduct,  it does  not  prohibit  such  personnel  from  investing  in
securities,   including  securities  that  may  be  purchased  or  held  by  the
Portfolios,  so  long  as such  investments  are  made  pursuant  to the  code's
requirements.  Each code is on file with the SEC and is  available  through  the
SEC's EDGAR system.



                                       44
<PAGE>


DIVIDENDS AND TAXES

DIVIDENDS

On each day that the net asset value ("NAV") of a Portfolio is determined,  such
Portfolio's net investment  income will be declared at 4:00 p.m.  (Eastern time)
as a daily dividend to shareholders of record as of such day's last  calculation
of NAV.

Each  Portfolio  calculates  its  dividends  based on its daily  net  investment
income.  For this purpose,  the net investment income of a Portfolio consists of
accrued  interest  income  plus or minus  amortized  discount  or premium  minus
accrued expenses. Expenses of each Portfolio are accrued each day.

Because each Portfolio's  income is entirely derived from interest or gains from
the sale of debt  instruments,  dividends  from a Portfolio will not qualify for
the dividends received deduction available to corporate shareholders.

Distributions  of income  realized with respect to market discount will be made,
at least  annually,  as determined  by the Board of Directors,  to maintain each
Portfolio's NAV at $1.00 per share.

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 PORTFOLIOS

Each  Portfolio  is  treated  as a  separate  entity  from the other  investment
portfolios  of the Company  for  federal  income tax  purposes.  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 any Portfolio will be liable for federal income or excise taxes
to which it would otherwise be subject.  Qualification as a regulated investment
company  does not either  involve  governmental  supervision  of  management  or
investment practices or policies.

STATE AND LOCAL TAX  ISSUES.  Shareholders  are urged to consult  with their tax
advisers  as to  whether  any of the  dividends  paid  by  the  U.S.  Government
Portfolio are exempt from state and local taxation. The exemption from state and
local income taxation does not preclude states from assessing other taxes on the
ownership  of U.S.  government  securities  whether  such  securities  are  held
directly or through the Company.


FEDERAL  INCOME TAX ISSUES - MUNICIPAL  PORTFOLIO,  CALIFORNIA  MUNICIPAL  MONEY
MARKET  PORTFOLIO AND NEW YORK MUNICIPAL MONEY MARKET  PORTFOLIO.  Distributions
from the Municipal  Portfolio,  California  Municipal Money Market Portfolio and
New York  Municipal  Money  Market  Portfolio  will  constitute  exempt-interest
dividends to the extent of the  Portfolio's  tax-exempt  interest income (net of
expenses and amortized




                                       45
<PAGE>



bond premium).  Exempt-interest  dividends  distributed to  shareholders  of the
Municipal  Portfolio  are  excluded  from gross  income for  federal  income tax
purposes.  However,  shareholders  required to file a federal  income tax return
will be  required to report the receipt of  exempt-interest  dividends  on their
returns.  Moreover,  while  exempt-interest  dividends  are excluded  from gross
income for  federal  income  tax  purposes,  they may be subject to  alternative
minimum tax ("AMT") in certain  circumstances  and may have other collateral tax
consequences  as  discussed  below.  Distributions  by  each  portfolio  of  any
investment  company  taxable income (which include any short-term  capital gains
and market discount) will be taxable to shareholders as ordinary income.


Dividend distributions resulting from the ordinary income treatment of gain from
the sale of bonds purchased with market  discount are not considered  income for
purposes of the Municipal  Portfolio's  policy of investing so that at least 80%
of its income is free from federal income tax.

AMT is imposed 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 Municipal Portfolio.

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


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

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.

CALIFORNIA INCOME TAX ISSUES - CALIFORNIA  PORTFOLIO.  As long as the California
Portfolio continues to qualify as a regulated investment company under the Code,
it



                                       46
<PAGE>



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 - NEW YORK PORTFOLIO.  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 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

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


                                       47
<PAGE>


payment.  Accordingly,  it may be necessary  for a Portfolio to dispose of other
assets in order to satisfy such distribution requirements.

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, NY 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.   The
Portfolios'  October 31, 2000  financial  statements  and the report  thereon of
Ernst & Young LLP from the Portfolios'  October 31, 2000 annual report (as filed
with the SEC on December 27, 2000  pursuant to Section  30(b) of the  Investment
Company Act and Rule 30b2-1 thereunder (Accession Number  0001089355-00-000603))
are incorporated herein by reference.


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


                                       48
<PAGE>


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.

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.

                                       49
<PAGE>


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" and, for the Municipal  Portfolio,  the California
Portfolio  and the New York  Portfolio  only,  "tax  equivalent  yield" and "tax
equivalent effective yield." These various measures of performance are described
below.


Each  Portfolio's  yield is computed in accordance  with a  standardized  method
prescribed by rules of the SEC. Under that method,  the yield quotation is based
on a seven-day  period and is computed for each Portfolio as follows:  the first
calculation is net investment income per share for the period,  which is accrued
interest on portfolio  securities,  plus or minus amortized  discount or premium
(excluding market discount for the Municipal Portfolio),  less accrued expenses.
This number is then divided by the price per share  (expected to remain constant
at $1.00) at the beginning of the period ("base period  return").  The result is
then  divided  by 7 and  multiplied  by 365 and the  resulting  yield  figure is
carried to the nearest  one-hundredth of one percent.  Realized capital gains or
losses and  unrealized  appreciation  or  depreciation  of  investments  are not
included in the calculation.


The yield for each Portfolio for the seven day period ended October 31, 2000 was
6.00% for the Money Market Portfolio,  5.87% for the U.S. Government  Portfolio,
3.67% for the Municipal Portfolio,  3.09% for the California Portfolio and 3.50%
for the New York Portfolio.


                                       50
<PAGE>


Each Portfolio's  effective yield is determined by taking the base period return
(computed as described above) and calculating the effect of assumed compounding.
The formula for effective yield is:

                      [(base period return + 1) 365/7] -1.


The  effective  yield for each  Portfolio for the seven day period ended October
31, 2000 was 6.17% for the Money Market Portfolio, 6.03% for the U.S. Government
Portfolio,  3.73%  for the  Municipal  Portfolio,  3.14%  for  the  California
Portfolio and 3.56% for the New York Portfolio.

The  tax  equivalent  yield  of the  shares  of  the  Municipal  Portfolio,  the
California  Portfolio  and the New York  Portfolio is computed by dividing  that
portion of the yield of the  Portfolio  (computed  as  described  above) that is
tax-exempt  by an amount equal to one minus the stated  federal  income tax rate
(normally  assumed to be the maximum  applicable  marginal tax bracket rate) and
adding the result to that portion, if any, of the yield of the Portfolio that is
not tax-exempt.

The tax  equivalent  yield for each of the Municipal  Portfolio,  the California
Portfolio and the New York  Portfolio for the seven day period ended October 31,
2000 was 5.73%,  4.83% and 5.47%,  respectively.  The assumed federal income tax
rate is 36%.

Tax equivalent  effective yield is computed in the same manner as tax equivalent
yield, except that effective yield is substituted for yield in the calculation.

The tax  equivalent  effective  yield for each of the Municipal  Portfolio,  the
California  Portfolio and the New York  Portfolio for the seven day period ended
October 31, 2000 was 5.83%, 4.91% and 5.56%,  respectively.  The assumed federal
income tax rate is 36%.


Each Portfolio's  yield  fluctuates,  and the publication of an annualized yield
quotation is not a  representation  as to what an investment  in that  Portfolio
will actually yield for any given future  period.  Actual yields will depend not
only on changes in interest rates on money market  instruments during the period
in which the  investment in the  Portfolio is held,  but also on such matters as
expenses of that Portfolio.

The  performance of the Portfolios may be compared to that of other money market
mutual funds tracked by Lipper Analytical Services,  Inc.  ("Lipper"),  a widely
used independent  research firm that ranks mutual funds by overall  performance,
investment  objectives and assets.  Lipper performance  calculations include the
reinvestment of all capital gain and income dividends for the periods covered by
the calculations.  A Portfolio's performance also may be compared to other money
market funds as reported by  IBC/Donoghue's  Money Fund  Report(R),  a reporting
service on money market funds. As reported by Money Fund Report,  all investment
results  represent  total  return  (annualized  results  for the  period  net of
management  fees and  expenses)  and one year  investment  results are effective
annual yields assuming reinvestment of dividends.

BANK RATE  MONITOR(TM),  N. Palm Beach,  Florida  33408,  a financial  reporting
service which each week publishes  average rates of bank and thrift  institution
money


                                       51
<PAGE>


market deposit accounts and interest bearing checking accounts,  reports results
for the BANK RATE MONITOR  National Index.  The rates published by the BANK RATE
MONITOR National Index are averages of the personal account rates offered on the
Wednesday prior to the date of publication by 100 of the leading bank and thrift
institutions in the ten largest  Consolidated  Metropolitan  Statistical  Areas.
Account  minimums range upward from $2,000 in each  institution  and compounding
methods vary.  Interest  bearing  checking  accounts  generally  offer unlimited
checking while money market deposit  accounts  generally  restrict the number of
checks that may be written. If more than one rate is offered, the lowest rate is
used.  Rates are  determined  by the  financial  institution  and are subject to
change at any time  specified  by the  institution.  Bank  products  represent a
taxable  alternative  income  producing  product.  Bank and  thrift  institution
account  deposits  may be insured.  Shareholder  accounts in the Company are not
insured.  Bank savings  accounts  compete with money market mutual fund products
with respect to certain liquidity features but may not offer all of the features
available from a money market mutual fund, such as check writing.  Bank checking
accounts  normally do not pay interest but compete with money market mutual fund
products with respect to certain liquidity  features (e.g., the ability to write
checks  against the account).  Bank  certificates  of deposit may offer fixed or
variable  rates for a set term.  (Normally,  a variety of terms are  available.)
Withdrawal  of these  deposits  prior to maturity  will normally be subject to a
penalty.  In  contrast,  shares of a Portfolio  are  redeemable  at the NAV next
determined  (normally,  $1.00 per  share)  after a request is  received  without
charge.

Investors  may also want to compare a  Portfolio's  performance  to that of U.S.
Treasury Bills or Notes because such instruments  represent  alternative  income
producing products.  Treasury obligations are issued in selected  denominations.
Rates of Treasury  obligations  are fixed at the time of issuance and payment of
principal  and  interest  is  backed by the full  faith  and  credit of the U.S.
Treasury.  The  market  value  of  such  instruments  will  generally  fluctuate
inversely  with  interest  rates prior to  maturity  and will equal par value at
maturity.  Generally,  the values of obligations  with shorter  maturities  will
fluctuate  less than those with  longer  maturities.  A  Portfolio's  yield will
fluctuate.

TAX-EXEMPT  VERSUS  TAXABLE  YIELD.   Investors  may  want  to  determine  which
investment - tax-exempt or taxable - will provide a higher after-tax  return. To
determine the tax equivalent yield,  simply divide the yield from the tax-exempt
investment by an amount equal to 1 minus the investor's  marginal federal income
tax rate.

OTHER ADVERTISEMENT MATTERS

In connection with its  advertisements,  the Portfolios may provide  information
about their  Investment  Manager,  TD  Waterhouse  or any of their 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 1-800-934-4448  for
information about services and commissions.


                                       52
<PAGE>


<TABLE>
<CAPTION>

Compare               1,000 shares @ $10          2,000 shares @ $14         3,000 shares @ $12
Our Price
<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                      $60.00                     $90.00
  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                     $210.10                    $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>


Survey date 5/9/00.  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.  Trades over 5,000 shares will
incur a 1 cent per share  charge  for the  entire  trade.  This  information  is
subject to change.


SHAREHOLDER INFORMATION


Each  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  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



                                       53
<PAGE>


holders of issued  shares.  Any such  classification  or  reclassification  will
comply with the provisions of the Investment Company Act.


The Articles of Incorporation permit the directors to issue the following number
of full and fractional shares,  par value $.0001, of the Portfolios:  50 billion
shares of the Money Market Portfolio;  20 billion shares of the U.S.  Government
Portfolio;  10 billion shares of the Municipal  Portfolio;  10 billion shares of
the California  Portfolio and 10 billion shares of the New York Portfolio.  Each
Portfolio  share  is  entitled  to  participate  pro rata in the  dividends  and
distributions from that Portfolio.

The Company will not normally hold annual shareholders' meetings. Under Maryland
law and the Company's  By-laws,  an annual meeting is not required to be held in
any year in which the  election of  directors  is not  required to be acted upon
under the  Investment  Company Act. The Company's  By-Laws  provide that special
meetings of shareholders, unless otherwise provided by law or by the Articles of
Incorporation,  may be called for any  purpose or  purposes by a majority of the
Board of Directors,  the Chairman of the Board,  the  President,  or the written
request  of the  holders  of at least 10% of the  outstanding  shares of capital
stock  of the  Company  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.


                                       54
<PAGE>

ANNEX -- RATINGS OF INVESTMENTS

STANDARD AND POOR'S AND MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATINGS

Commercial   paper  rated  by  Standard  &  Poor's  ("S&P")  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 S&P to a debt  obligation  and
indicates an extremely strong capacity to pay principal and interest.

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

                                       55
<PAGE>


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.

                                       56
<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
          (see Note G)

     (5)  Articles of  Amendment  to Articles of  Incorporation  dated March 29,
          1999 (see Note G)

     (6)  Articles of Amendment to Articles of Incorporation dated September 20,
          1999 (see Note G)


     (7)  Articles of Amendment to Articles of  Incorporation  dated November 8,
          1999 (see Note H)


(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)  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 (filed herewith)


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


     (2)  Amendment  to  Distribution  Agreement  between  Registrant  and Funds
          Distributor,  Inc. relating to the provision of services to California
          Municipal  Money Market  Portfolio and New York Municipal Money Market
          Portfolio (see Note I)

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

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


(f)       Inapplicable

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

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


     (3)  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,
          dated August 1, 2000 (filed herewith)

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




<PAGE>


(h)  (1)  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 (see Note G)

     (2)  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  (filed
          herewith)

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

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

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

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

     (7)  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 (filed herewith)

     (8)  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)

     (9)  Amendment  to  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 I)

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

     (11) 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 I)

     (12) Accounting Services Agreement between TD Waterhouse Investor Services,
          Inc. and SEI Investments Mutual Funds Services dated September 1, 2000
          (filed herewith)

(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 Independent Auditors (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  Registration  and  FDI  Distribution
          Services,   Inc.  on  behalf  of  California  Municipal  Money  Market
          Portfolio and New York Municipal Money Market Portfolio (see Note I)

(m)      Inapplicable

(n)      Inapplicable

(p)  (1)  Code of Ethics of Registrant and Investment Manager (filed herewith)

     (2)  Code of Ethics of Principal Underwriter (filed herewith)

         Other Exhibits:



<PAGE>

          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:   Filed as an exhibit to Post-Effective  Amendment No. 8 to Registrant's
          Registration Statement on Form N-1A, File Nos. 33-96132;  811-9086, on
          October 15, 1999, and incorporated herein by reference.


Note H:   Filed as an exhibit to Post-Effective  Amendment No. 9 to Registrant's
          Registration Statement on Form N-1A, File Nos. 33-96132;  811-9086, on
          December 23, 1999, and incorporated herein by reference.

Note I:   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,

<PAGE>

settlements,  and  reasonable  expenses  actually  incurred  by the  director in
connection with the proceeding;  however, if the proceeding was one by or in the
right of the  corporation,  indemnification  may not be made in  respect  of any
proceeding  in which the director  shall have been  adjudged to be liable to the
corporation. A director may not be indemnified under Section 2-418 in respect of
any proceeding  charging improper  personal benefit to the director,  whether or
not involving action in the director's official capacity,  in which the director
was  adjudged to be liable on the basis that  personal  benefit  was  improperly
received.

         Unless  limited by the  Registrant's  charter,  a director who has been
successful,  on the  merits  or  otherwise,  in the  defense  of any  proceeding
referred to above shall be indemnified  against any reasonable expenses incurred
by the director in connection with the proceeding.  Reasonable expenses incurred
by a director who is a party to a proceeding  may be paid or  reimbursed  by the
corporation in advance of the final  disposition of the proceeding  upon receipt
by  the  corporation  of  (i) a  written  affirmation  by  the  director  of the
director's  good  faith  belief  that the  standard  of  conduct  necessary  for
indemnification by the corporation has been met; and (ii) a written  undertaking
by or on behalf of the  director to repay the amount if it shall  ultimately  be
determined that the standard of conduct has not been met.

         The  indemnification and advancement of expenses provided or authorized
by  Section  2-418  may  not  be  deemed  exclusive  of  any  other  rights,  by
indemnification  or  otherwise,  to which a director  may be entitled  under the
charter, the bylaws, a resolution of stockholders or directors,  an agreement or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office.

         Under Section 2-418, a corporation  may indemnify and advance  expenses
to an officer,  employee, or agent of the corporation to the same extent that it
may  indemnify  directors  and a  corporation,  in addition,  may  indemnify and
advance expenses to an officer, employee, or agent who is not a director to such
further extent,  consistent with law, as may be provided by its charter, bylaws,
general or specific action of its board of directors or contract.

         Under Section 2-418, a corporation may purchase and maintain  insurance
on behalf of any person who is or was a director, officer, employee, or agent of
the corporation,  or who, while a director,  officer,  employee, or agent of the
corporation,  is or was serving at the request of the corporation as a director,
officer,  partner,  trustee,  employee,  or agent of another foreign or domestic
corporation,  partnership,  joint venture, trust, other enterprise,  or employee
benefit plan against any liability  asserted against and incurred by such person
in any such  capacity or arising out of such person's  position,  whether or not
the corporation  would have the power to indemnify  against  liability under the
provisions of such Section.  A corporation also may provide similar  protection,
including a trust fund,  letter of credit, or surety bond, not inconsistent with
the  foregoing.  The  insurance  or  similar  protection  may be  provided  by a
subsidiary or an affiliate of the corporation.

         Insofar as  indemnification  for liability arising under the Securities
Act of 1933 may be permitted to directors,  officers, and controlling persons of
the  Registrant  pursuant  to  the  foregoing  provisions,   or  otherwise,  the
Registrant   has  been  advised   that,   in  the  opinion  of  the  SEC,   such
indemnification  is  against  public  policy  as  expressed  in the  Act and is,
therefore,  unenforceable. In the event that a claim for indemnification against
such liabilities  (other than the payment by the Registrant of expenses incurred
or paid by a director,  officer or  controlling  person of the Registrant in the
successful  defense of any  action,  suit or  proceeding)  is  asserted  by such
director,  officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been  settled by  controlling  precedent,  submit to a court of  appropriate
jurisdiction the question whether such  indemnification  by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

Item 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 of
the Investment Manager since 1995.

         RICHARD H. NEIMAN*,  Director and Secretary of the Investment  Manager.
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 of the Investment  Manager.  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.  Since August  1998,  Mr.
Petrilli  has served as Director  and Vice  Chairman of TD  Waterhouse  Investor
Services, Inc.




<PAGE>


         B. KEVIN STERNS*,  Senior Vice President,  Chief Financial  Officer and
Treasurer of the  Investment  Manager.  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   -   Compliance,
Administration and Operations of the Investment  Manager.  Ms. Teichner has been
serving as Senior Vice President of TD Waterhouse Asset  Management,  Inc. since
August 1996, with responsibility for compliance, administration and operations.

         LAWRENCE M. WATERHOUSE,  Jr.*, Director of the Investment Manager.  Mr.
Waterhouse  has served as Chairman of TD  Waterhouse  Holdings,  Inc.  since its
inception  in 1987.  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 served as Chairman of TD Waterhouse  Bank, N.A. from
September  1995 to June 2000 and  presently  serves as  Chairman  Emeritus of TD
Waterhouse  Bank,  N.A.  since  July 2000.  Mr.  Waterhouse  has also  served as
Director of National Investor Services Corp. since September 1995.


         *        Address: 100 Wall Street, New York, NY 10005

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 Global Funds, Inc.
Dresdner RCM Investment Funds Inc.
GMO Trust
J.P. Morgan Institutional Funds
J.P. Morgan Funds
JPM Series Trust
JPM Series Trust II
LaSalle Partners Funds, Inc.
Merrimac Series
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds I
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
National Investors Cash Management Fund, Inc.
Nomura Pacific Basin Fund, Inc.
Orbitex Group of Funds
The Saratoga Advantage Trust
SG Cowen Funds, Inc.
SG Cowen Income + Growth Fund, Inc.



<PAGE>


SG Cowen Standby Reserve Fund, Inc.
SG Cowen Standby Tax-Exempt Reserve Fund, Inc.
SG Cowen Series Funds, Inc.
The Skyline Funds
St. Clair Funds, Inc.
TD Waterhouse Family of Funds, Inc.
TD Waterhouse Trust


         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.  and their  position  or office  with the
Registrant.
<TABLE>
<CAPTION>

         Position with Distributor                          Name                        Position with Registrant
         -------------------------                          ----                        ------------------------
        <S>                                                <C>                         <C>
         Director, President and Chief Executive Officer    - Marie E. Connolly         --
         Director and Executive Vice President              - George A. Rio             President, Treasurer and
                                                                                        Chief Financial Officer

         Executive Vice President and Chief                 - Gary S. MacDonald         --
             Administrative Officer
         Executive Vice President                           - William S. Nichols        --
         Executive Vice President                           - W. Charles Carr           --
         Executive Vice President, General Counsel, Chief   - Margaret W. Chambers      --
             Compliance Officer, Secretary and Clerk
         Senior Vice President and Treasurer                - Joseph F. Tower III       --
         Senior Vice President and Chief Financial Officer  - William J. Stetter        --
         Senior Vice President, Deputy General Counsel      - Christopher J. Kelley     Vice President and
                                                                                        Secretary
         Senior Vice President                              - Mary A. Nelson            Vice President and
                                                                                        Assistant Treasurer
         Senior Vice President                              - Eric A. Liik              --
         Chairman and Director                              - William J. Nutt           --
</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,  100 Church
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,  SEI  Investments  Mutual  Funds
Services, One Freedom Valley Drive, Oaks, Pennsylvania 19456-1100.


Item 29.  Management Services.

          Not applicable.

Item 30.  Undertakings.

          Not applicable.


<PAGE>

                                   SIGNATURES


         Pursuant  to the  requirements  of the  Securities  Act of 1933 and the
Investment  Company Act of 1940, the  Registrant  certifies that it meets all of
the  requirements  for  effectiveness  of  this  amendment  to its  Registration
Statement  pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its  Registration  Statement to be signed on its behalf
by the  undersigned,  thereto  duly  authorized,  in the City of Boston  and The
Commonwealth of Massachusetts on the 28th day of December, 2000.

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 by or on behalf of
the following persons in the capacities and on the dates indicated.

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


/s/ George A. Rio           President, Treasurer             December 28, 2000
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                                December 28, 2000
         Richard H. Neiman
         Attorney-in-Fact pursuant to a power
         of attorney







<PAGE>


                                INDEX TO EXHIBITS

        99.(d)(2)     Amendment to Investment  Management Agreement dated August
                      31, 2000

        99.(g)(3)     Amendment to Custody Agreement dated August 1, 2000

        99.(h)(2)     Amendment  to  Transfer  Agency  and  Dividend  Disbursing
                      Agreement dated August 31, 2000

        99.(h)(7)     Amendment  to  Administration  Agreement  dated August 31,
                      2000

        99.(h)(12)    Accounting Services Agreement dated September 1, 2000

        99.(j)        Consent of Independent Auditors

        99.(p)(1)     Code of Ethics of Registrant and Investment Manager

        99.(p)(2)     Code of Ethics of Principal Underwriter




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