As filed with the Securities and Exchange Commission on December 23, 1999
1933 Act Registration No. 333-84623
1940 Act Registration No. 811-9519
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 1 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 2 [X]
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TD WATERHOUSE TRUST
(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:
(617) 557-3416
George A. Rio, President
TD Waterhouse Trust
c/o Funds Distributor, 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>
[front cover]
TD Waterhouse Dow 30 Fund
PROSPECTUS
December 23, 1999
As with any mutual fund, the Securities and Exchange Commission (SEC) has not
approved or disapproved the Fund's shares or determined whether this prospectus
is adequate or complete. Any representation to the contrary is a criminal
offense.
[TD Waterhouse logo]
<PAGE>
TD Waterhouse Dow 30 Fund
TABLE OF CONTENTS
ABOUT THE FUND ................................................................3
Investment Objective ..........................................................3
Investment Approach ...........................................................3
Risks .........................................................................3
Who May Want to Invest ........................................................4
Expenses ......................................................................4
ABOUT THE DOW JONES INDUSTRIAL AVERAGE/SM .....................................5
HOW TO BUY AND SELL SHARES ....................................................7
How to Buy Shares .............................................................8
How to Sell Shares ............................................................9
Telephone Transactions .......................................................10
Brokerage Account Requirements ...............................................10
SHAREHOLDER INFORMATION ......................................................11
Pricing Your Shares ..........................................................11
Dividends ....................................................................11
Taxes ........................................................................12
Statements to Shareholders ...................................................12
Year 2000 Information ........................................................12
FUND MANAGEMENT ..............................................................13
Investment Manager ...........................................................13
Administrator ................................................................13
Distributor ..................................................................13
Shareholder Servicing ........................................................13
FINANCIAL HIGHLIGHTS .........................................................14
FOR MORE INFORMATION Back cover
2
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TD WATERHOUSE DOW 30 FUND
ABOUT THE FUND
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INVESTMENT OBJECTIVE
The Fund seeks to track the total return of the Dow Jones Industrial Average
(the "DJIA"/SM) before Fund expenses. There can be no assurance that the Fund
will achieve this objective.
INVESTMENT APPROACH
The Fund is an "index fund" and invests primarily in the equity securities of
the 30 companies comprising the DJIA (known as the "Dow 30"/SM) in the same
proportions that they are represented in the DJIA. The Fund employs a
"passively" managed investment approach.
The DJIA currently consists of 30 of the most widely held and actively traded
stocks in the U.S. stock market. The stocks in the DJIA represent companies that
typically are dominant firms in their respective industries. The Fund will
normally invest substantially all of its total assets in the stocks of the DJIA
and "Equity Equivalents" (described below) that offer participation in the
performance of the stocks in the DJIA. The portion of the Fund's total assets
invested in the stocks in the DJIA will vary from time to time. On occasion, the
Fund may become entitled to receive securities that are not part of the DIJA-for
example, in a spinoff. In such an event, the Fund may engage in a short sale,
that is, sell the securities that it does not yet own prior to receipt, to
continue to reflect the composition of the DJIA.
Equity Equivalents include stock index futures contracts and publicly-traded
index securities (such as DIAMONDS/SM). Investment in stock index futures
contracts allows the Fund to participate in the performance of the DJIA without
the costs of buying the underlying stocks. Instead, the Fund can enter into a
contract by which it either must pay or be paid a sum of money based on changes
in the DJIA. DIAMONDS are shares of a publicly traded unit investment trust that
owns the stocks in the DJIA in approximately the same proportions as represented
in the DJIA. Equity Equivalents may be used for several purposes: to simulate
full investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transaction costs or to
seek higher investment returns where an Equity Equivalent is priced more
attractively than securities in the DJIA.
The Fund attempts to achieve at least a 98% correlation between the Fund's total
return and that of the DJIA before Fund expenses. A correlation of 100%,
indicating perfect correlation, would be achieved if increases or decreases in
the Fund's net asset value, together with any dividend and capital gain
distributions, were to match exactly the total return of the DJIA during the
period. The investment manager monitors correlation with the DJIA. In the
unlikely event that a high correlation is not achieved, the Board of Trustees
will consider appropriate action based on the reasons for the lower than
expected correlation.
RISKS
You could lose money on your investment in the Fund, or the Fund could
underperform other investments, if the value of the DJIA goes down. Unlike other
funds that do not attempt to track an index, the Fund may not use certain
techniques to reduce the risk of loss. For example, the Fund will not keep any
significant portion of its assets in cash. As a result, the Fund may go down in
value more than an actively managed fund
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in the event of a general market decline. In addition, because the Fund has
expenses whereas the DJIA does not, the Fund's performance will tend to
underperform the performance of the DJIA.
The Fund's "non-diversified" status allows it to invest more than 5% of its
assets in the stock of a single company. In addition, although the Fund does not
seek to "concentrate" (in other words, invest 25% or more of its total assets)
in stocks representing any particular industry, the Fund may so concentrate to
the extent consistent with the relative industry weightings of the DJIA. To the
extent the Fund invests a greater percentage of its assets in a single company
or industry, the Fund has greater exposure to the performance and risks of that
company or industry.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
WHO MAY WANT TO INVEST
The Fund may be appropriate for the following investors:
o Investors looking for a convenient way to seek to track the total return of
the DJIA, one of the most widely followed market indicators in the world.
o Investors seeking capital growth over the long term (at least five years).
EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDER TRANSACTION FEES (fees paid directly from your investment)/1
Maximum Sales Charge (Load) Imposed on Purchases None
ANNUAL OPERATING EXPENSES (expenses deducted from Fund assets)
Management Fees2 0.20%
Distribution (12b-1) Fees None
Service Fees/2 0.25%
Other Expenses/2 0.33%
-----
Total Operating Expenses/2 0.78%
<FN>
1 Broker-dealers that are not affiliates of the Fund's investment manager may
impose service fees in connection with the sale of Fund shares.
2 The table shows the Fund's expenses for the Fund's fiscal year ended
October 31, 1999 before expense reductions by the Fund's investment
manager. The investment manager voluntarily agreed to reduce Fund expenses
(by paying certain expenses and/or waiving fees) so that the Fund's total
operating expenses through December 31, 1999 will not exceed 0.25% on an
annual basis through such date. Effective January 1, 2000, the investment
manager has voluntarily agreed to reduce Fund expenses so that total
operating expenses will not exceed 0.45%. These expense reductions are
voluntary and may be reduced or eliminated at any time upon notifying
investors. After expense reductions, the Fund's actual expenses for the
fiscal year ended October 31, 1999 were:
Management Fees 0.00%
Service Fees 0.10%
Other Expenses 0.15%
-----
Total Net Operating Expenses 0.25%
</FN>
</TABLE>
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EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs* would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$80 $249 $432 $966
<FN>
* Assuming that current expense reduction arrangements (to 0.45% of average net
assets) continue for one year, your costs would be:
1 year 3 years 5 years 10 years
- ------ ------- ------- -------
$46 $216 $401 $935
</FN>
</TABLE>
ABOUT THE DOW JONES INDUSTRIAL AVERAGE/SM
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The Dow Jones Industrial Average was introduced to the investing public by
Charles Dow on May 26, 1896 and originally was composed of only 12 stocks. It is
now the oldest continuing stock market index in the world. As of November 1,
1999, the 30 "blue-chip" stocks in the DJIA represented approximately 29% of the
over $12 trillion market value of all U.S. stocks. Many of the companies
represented in the DJIA are household names and leaders in their respective
industries, and their stocks are broadly held by both individual and
institutional investors. Because the DJIA is so well known and its performance
is generally perceived to reflect that of the overall domestic equity market, it
is often used as a benchmark for investments in equities, mutual funds, and
other asset classes.
The DJIA is unique for a market index - it is price-weighted rather than market
capitalization-weighted. In essence, the DJIA consists of one share of each of
the 30 stocks included in the DJIA. As a result, the relative values of the
stocks in the DJIA are affected only by market price changes. In contrast, the
relative values of stocks comprising other indices are affected by changes in
their market capitalization, which is determined by multiplying the market price
of the company's stock by the number of shares outstanding (or, in other words,
available in the market). This distinction stems from the fact that, when
initially created, the DJIA was a simple average (hence the name), and was
computed merely by adding up the prices of the stocks in the index and dividing
that sum by the total number of stocks in the index. Over the years, the divisor
(instead of merely representing the total number of stocks) has been adjusted to
smooth out the effects of stock splits and composition changes to prevent these
events from distorting the level of the index. The divisor, when divided into
the sum of the prices of the stocks in the DJIA, generates the number that is
reported every day in newspapers, on television and radio, and over the
Internet. Because the divisor has been adjusted over time, the DJIA is not
technically an average anymore.
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The DJIA is selected and maintained by the editors of The Wall Street Journal,
which is published by Dow Jones & Company, Inc. ("Dow Jones"/SM), without
consultation with any company whose stock is in the DJIA. Periodically, the
editors review and make changes to the composition of the DJIA. In selecting a
company's stock to be included in the DJIA, the editors generally use the
following criteria: (1) the firm is not a utility or a transportation company
(there are separate Dow Jones indices for these sectors); (2) the company has an
excellent reputation in its field; (3) the company has grown successfully; and
(4) the company has a large individual and institutional investor base. The
inclusion of any particular company in the DJIA does not constitute a prediction
as to the company's future results of operations or stock market performance.
For the sake of historical continuity, composition changes are rare, and
generally have occurred only after corporate acquisitions or other dramatic
shifts in a company's core business. When the editors do decide that a component
stock needs to be changed, they also review the other stocks in the index to
confirm their continued presence. Thus, when a review is completed, multiple
changes often occur. The most recent composition changes, for example, occurred
on November 1, 1999, and resulted in the withdrawal of Chevron Corp., Goodyear
Tire & Rubber Co., Sears, Roebuck and Co. and Union Carbide Corp., and the
addition of The Home Depot, Inc., Intel Corp., Microsoft Corp. and SBC
Communications, Inc.
The DJIA currently consists of the common stock of the following 30 companies:
<TABLE>
<CAPTION>
<S> <C>
AlliedSignal Inc. Intel Corp.
Aluminum Co. of America International Business Machines Corp.
American Express Co. International Paper Co.
AT&T Corp. J.P. Morgan & Co., Inc.
The Boeing Co. Johnson & Johnson
Caterpillar Inc. McDonald's Corp.
Citigroup Inc. Merck & Co., Inc.
The Coca-Cola Company Microsoft Corp.
E.I. du Pont de Nemours and Co. Minnesota Mining & Manufacturing Co.
Eastman Kodak Co. Philip Morris Cos. Inc.
Exxon Corp. The Procter & Gamble Co.
General Electric Co. SBC Communications, Inc.
General Motors Corp. United Technologies Corp.
Hewlett-Packard Co. Wal-Mart Stores, Inc.
The Home Depot, Inc. The Walt Disney Co.
</TABLE>
(C) 1999 Dow Jones & Co., Inc.
The following graph shows information regarding the historical performance of
the DJIA. The information in this Prospectus concerning Dow Jones and the DJIA
has been obtained from sources that the Fund believes to be reliable, but the
Fund takes no responsibility for the accuracy of such information. The Fund's
performance is likely to differ from that of the DJIA because of Fund expenses
and transaction costs. Moreover, past performance is not predictive of future
results.
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HISTORY OF THE DJIA (1897 - NOVEMBER 1999)
[Graph showing cumulative return over period]
Year-by-Year
Return
Year
1897 22.2%
1898 22.5%
1899 9.2%
1900 7.0%
1901 -8.7%
1902 -0.4%
1903 -23.6%
1904 41.7%
1905 38.2%
1906 -1.9%
1907 -37.7%
1908 46.6%
1909 15.0%
1910 -17.9%
1911 0.4%
1912 7.6%
1913 -10.3%
1914 -30.7%
1915 81.7%
1916 -4.2%
1917 -21.7%
1918 10.5%
1919 30.5%
1920 -32.9%
1921 12.7%
1922 21.7%
1923 -3.3%
1924 26.2%
1925 30.0%
1926 0.3%
1927 28.8%
1928 48.2%
1929 -17.2%
1930 -33.8%
1931 -52.7%
1932 -23.1%
1933 66.7%
1934 4.1%
1935 38.5%
1936 24.8%
1937 -32.8%
1938 28.1%
1939 -2.9%
1940 -12.7%
1941 -15.4%
1942 7.6%
1943 13.8%
1944 12.1%
1945 26.6%
1946 -8.1%
1947 2.2%
1948 -2.1%
1949 12.9%
1950 17.6%
1951 14.4%
1952 8.4%
1953 -3.8%
1954 44.0%
1955 20.8%
1956 2.3%
1957 -12.8%
1958 34.0%
1959 16.4%
1960 -9.3%
1961 18.7%
1962 -10.8%
1963 17.0%
1964 14.6%
1965 10.9%
1966 -18.9%
1967 15.2%
1968 4.3%
1969 -15.2%
1970 4.8%
1971 6.1%
1972 14.6%
1973 -16.6%
1974 -27.6%
1975 38.3%
1976 17.9%
1977 -17.3%
1978 -3.1%
1979 4.2%
1980 14.9%
1981 -9.2%
1982 19.6%
1983 20.3%
1984 -3.7%
1985 27.7%
1986 22.6%
1987 2.3%
1988 11.8%
1989 27.0%
1990 -4.3%
1991 20.3%
1992 4.2%
1993 13.7%
1994 2.1%
1995 33.5%
1996 26.0%
1997 22.6%
1998 16.1%
1999* 20.2%
* - through 11/30/99
HOW TO BUY AND SELL SHARES
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Investors may purchase shares of the Fund through an account maintained with TD
Waterhouse Investor Services, Inc. ("TD Waterhouse") or certain other
broker-dealers.
If you would like to purchase shares of the Fund through TD Waterhouse and you
are not already a customer, you need to open a TD Waterhouse account by
completing and signing a TD Waterhouse New Account Application. To request a TD
Waterhouse Dow 30 Fund application, please call 1-800-934-4448. Mail it,
together with your check in the amount you wish to purchase, in the
self-addressed stamped envelope provided with the TD Waterhouse New Account
Application.
Existing TD Waterhouse customers must have funds in their TD Waterhouse account
to buy shares of the Fund.
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 Fund, are protected up to $150 million for loss of
securities (not including loss due to market fluctuations of securities or
economic conditions). The first
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$500,000 is provided by Securities Investor Protection Corporation (known as
"SIPC") of which $100,000 covers cash. The remaining $149.5 million, which
covers securities only, is provided by a private insurance carrier.
INVESTMENT MINIMUMS. There is a $1,000 minimum for initial purchases and a $100
minimum for subsequent purchases of shares of the Fund. The Fund may waive the
investment minimums for existing customers of TD Waterhouse and otherwise may
waive these minimums in its discretion. Initial investment minimums do not apply
to investments made through a periodic investment program for investors who make
a monthly investment of $100 or more or a quarterly investment of $300 or more
or to TD Waterhouse IRA accounts.
HOW TO BUY SHARES
Shares are purchased at the next net asset value (NAV) per share calculated
after an order and payment is received by the Fund. There is no sales charge to
buy shares of the Fund.
The Fund reserves the right to suspend the offering of shares for a period of
time and to reject any specific purchase order, including purchase orders that,
in the reasonable belief of the Fund, have been made by market timers or
short-term traders.
CUSTOMERS OF TD WATERHOUSE
TD Waterhouse brokerage customers may purchase shares of the Fund by mail or by
placing an order directly with a TD Waterhouse Account Officer by telephone at
1-800-934-4448. TD Waterhouse also allows the purchase of Fund shares by
electronic means for customers with TD WATERHOUSE WEBBROKER.
Whether by mail, telephone or electronically, please indicate your wish to buy
shares of the TD Waterhouse Dow 30 Fund and provide the following information:
o your TD Waterhouse account number
o the dollar or share amount you wish to invest
o the dividend and distribution option you have selected, either:
(a) reinvest dividends and any capital gain distributions; or
(b) pay both dividends and any capital gain distributions in cash; or
(c) reinvest dividends and pay any capital gain distributions in cash; or
(d) reinvest any capital gain distributions and pay dividends in cash.
BY MAIL. You may buy shares of the Fund by mailing a letter of instruction with
the information requested above, signed by one of the registered account holders
in the exact form specified on the account with a check to TD Waterhouse
Investor Services, Inc., Northeast Operations Center, 48 Water Street, New York,
NY 10275. Checks should be made payable to "TD Waterhouse Investor Services,
Inc." and you should write your TD Waterhouse account number on the check. Once
you mail your letter, you may not modify or cancel your instructions.
BY TELEPHONE. You may purchase shares of the Fund by calling a TD Waterhouse
Account Officer at 1-800-934-4448.
8
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ELECTRONICALLY. Please refer to product and services information regarding TD
Waterhouse webBroker and TradeDirect(R) (touch-tone trading). The World Wide Web
address for TD Waterhouse is http://www.tdwaterhouse.com.
THROUGH PERIODIC INVESTMENT. You may authorize monthly or quarterly amounts of
$100 or more to be withdrawn automatically from your TD Waterhouse brokerage
account and invested in the Fund. You may sign up for this service when you open
your account at TD Waterhouse or at another time by calling a TD Waterhouse
Account Officer at 1-800-934-4448.
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
Fund's distributor ("Selected Brokers"). Affiliates of TD Waterhouse, including
National Investor Services Corp., may be Selected Brokers. Selected Brokers may
receive payments as a processing agent from the Transfer Agent. In addition,
Selected Brokers may charge their customers a fee for their services, no part of
which is received by the Fund or 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 the Fund. Investors should acquaint
themselves with their Selected Broker's procedures and should read this
prospectus in conjunction with any material and information provided by their
Selected Broker. Investors who purchase the Fund's shares though a Selected
Broker may or may not be the shareholder of record. Selected Brokers are
responsible for promptly transmitting purchase, redemption and other requests to
the Fund.
Certain shareholder services, such as periodic investment programs, may not be
available to customers of Selected Brokers or may differ in scope from programs
available to TD Waterhouse customers. Shareholders should contact their Selected
Broker for further information. The Fund may confirm purchases and redemptions
of a Selected Broker's customers directly to the Selected Broker, which in turn
will provide its customers with confirmation and periodic statements. The Fund
is not responsible for the failure of any Selected Broker to carry out its
obligations to its customer.
HOW TO SELL SHARES
To sell (redeem) shares of the Fund, you may use any of the methods outlined
below. Shareholders who have invested through a Selected Broker should redeem
their shares through the Selected Broker. Shares of the Fund are redeemed at the
next NAV calculated after receipt by the Fund of a redemption request in proper
form.
BY MAIL. You may sell shares by mailing a letter of instruction with the
information below, signed by one of the registered account holders in the exact
form specified on the account to TD Waterhouse Investor Services, Inc.,
Northeast Operations Center, 48 Water Street, New York, NY 10275. Once you mail
your letter, you may not modify or cancel your instructions.
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BY TELEPHONE. You may sell shares of a Fund by calling a TD Waterhouse Account
Officer at 1-800-934-4448.
ELECTRONICALLY. Please refer to product and services information regarding TD
Waterhouse webBrokerTM and TD TradeDirect(R) (touch tone trading). The World
Wide Web address for TD Waterhouse is http://www.tdwaterhouse.com.
With every request to sell shares, you will need to include the following
information:
o your TD Waterhouse account number
o your wish to sell shares of the Fund
o the dollar or share amount you wish to sell
PAYMENT. The proceeds of the redemption of your Fund shares ordinarily will be
credited to your brokerage account the following business day after receipt by
the Fund of a redemption request in proper form, but not later than seven
calendar days after an order to sell shares is received. If you purchased shares
by check, proceeds may be held in your brokerage account to allow for clearance
of the check (which may take up to ten calendar days). The Fund reserves the
right to make redemption payments in whole or in part in securities or other
property, valued for this purpose as they are valued in computing the Fund's NAV
per share.
TELEPHONE TRANSACTIONS
Customers of TD Waterhouse automatically have the privilege of purchasing or
redeeming Fund shares by telephone. TD Waterhouse and the Fund will employ
reasonable procedures to verify the genuineness of telephone redemption
requests. These procedures involve requiring certain personal identification
information. If such procedures are not followed, TD Waterhouse and the Fund may
be liable for any losses due to unauthorized or fraudulent instructions. Neither
TD Waterhouse nor the Fund will be liable for following instructions
communicated by telephone that are reasonably believed to be genuine. You should
verify the accuracy of your account statements immediately after you receive
them and contact your TD Waterhouse Account Officer if you question any activity
in the account.
The Fund reserves the right to refuse to honor requests made by telephone if the
Fund believes them not to be genuine. The Fund also may limit the amount
involved or the number of such requests. During periods of drastic economic or
market change, telephone redemption privileges may be difficult to implement.
The Fund reserves the right to terminate or modify this privilege at any time.
BROKERAGE ACCOUNT REQUIREMENTS
Currently, only customers of TD Waterhouse and Selected Brokers are eligible to
purchase shares of the Fund. Fund shares may be redeemed automatically should
the brokerage account in which they are held be closed.
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SHAREHOLDER INFORMATION
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PRICING YOUR SHARES
The price of a Fund share on any given day is its NAV. The Fund calculates its
NAV per share each day as of the close of the regular session of trading on the
New York Stock Exchange (normally 4:00 p.m. Eastern time). Shares are not priced
on days when either the New York Stock Exchange or the Fund's custodian is
closed. Securities owned by the Fund for which market quotations are readily
available are valued at current market value or, in the absence of readily
available market quotations, at fair value as determined by the Board of
Trustees pursuant to procedures approved by the Board. The Fund's shares are
sold at the next NAV per share calculated after an order and payment are
accepted by the Fund in the manner described under "How to Buy and Sell Shares."
The Fund will not accept electronic (Internet or touch-tone) orders to purchase
or sell its shares after 2:00 p.m. (Eastern time) or telephone orders to
purchase or sell its shares after 2:20 p.m. (Eastern time). Thus, if you plan to
purchase or sell shares of the Fund electronically or by telephone, you must
complete your Internet or touch-tone transmission or place your telephone order
by 2:00 or 2:20 p.m. (Eastern time), as the case may be, to effect a same day
purchase or sale.
RELATIONSHIP TO THE VALUE OF THE DJIA. The Fund intends to conduct its
operations so that its NAV per share on any given day will approximate .001 (or
1/1000) of the closing value of the DJIA (the "Ratio"). There can be no
assurance, however, that the Fund will be able to maintain the NAV per share at
or near the Ratio. For example, as with most mutual funds, each capital gain
distribution will cause a reduction of the NAV per share to the extent of the
amount distributed. In order to maintain the Fund's NAV per share at or near the
Ratio, the Fund may employ certain techniques, including declaring a share
split, share dividend or reverse share split. Share splits and dividends
increase the number of shares outstanding, resulting in a corresponding decrease
in the NAV per share. For example, a 2-for-1 split would double the number of
shares outstanding, thereby halving the NAV per share. Conversely, reverse
splits reduce the number of shares outstanding. For example, a 1-for-2 reverse
share split would halve the number of shares outstanding, thereby doubling the
NAV per share. These examples are given to illustrate the principles relating to
these techniques; the Fund's use of these techniques is expected to have a more
limited impact on the Fund's NAV per share. The use of any of these techniques
will not change the absolute dollar value of a shareholder's investment in the
Fund (although the number of shares and the NAV per share would change) or
result in any additional tax burden to shareholders. While it is the Fund's
current intention to maintain the Fund's NAV per share at or near the Ratio and
to utilize the techniques described in this paragraph for this purpose, the
Board of Trustees may in the future determine to change this policy. In the
event that the Board of Trustees changes this policy, shareholders will be
notified.
DIVIDENDS
It is currently contemplated that dividends of the Fund's net investment income
will be declared daily and paid monthly. No dividend will be declared on any day
on which the Fund does not receive dividend or interest income from the
securities in its portfolio. In addition, any dividends declared will be net of
Fund expenses accrued to date. Dividends are declared to shareholders of record
as of the close of the previous business day. In the event that the Board of
Trustees changes the daily dividend policy, shareholders will be
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notified. Net capital gain, if any, realized by the Fund will be distributed at
least annually. Unless a shareholder elects payment in cash, all dividends and
distributions of the Fund are automatically reinvested in additional full and
fractional shares of the Fund at the NAV per share as of the payment date of the
dividend or distribution.
TAXES
Dividends derived from the Fund's net investment income and short-term capital
gains are generally taxable to a shareholder as ordinary income, even when
reinvested in additional Fund shares. Due to the nature of its investments, the
Fund's distributions will consist primarily of ordinary income. Distributions of
net capital gain, if any, realized by the Fund are taxable to shareholders of
the Fund as a long-term capital gain (taxable, in the case of an individual
shareholder, at the maximum rate of 20%), regardless of the length of time the
shareholder may have held shares in the Fund at the time of distribution.
Required tax information will be provided annually. You are encouraged to retain
copies of your account statements or year-end statements for tax reporting
purposes. However, if you have incomplete records, you may obtain historical
account transaction information at a reasonable fee.
You should consult your tax adviser regarding specific questions as to federal,
state and local taxes.
STATEMENTS TO SHAREHOLDERS
The Fund does not issue share certificates but records your holdings in
noncertificated form. Your Fund activity is reflected in your TD Waterhouse
brokerage account statement. The Fund provides you with annual audited and
semi-annual unaudited financial statements. Unless you request otherwise, only
one copy of each of the annual audited financial statements and semi-annual
unaudited financial statements and prospectus of the Fund will be sent to a
single household without regard to the number of shareholders residing at such
household.
YEAR 2000 INFORMATION
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). Like other investment companies and
financial and business organizations, the Fund could be adversely affected if
the computer systems used by the investment manager or other Fund service
providers do not properly address this problem prior to January 1, 2000. The
investment manager and its affiliates have established a dedicated group to
analyze these issues and to implement any systems modifications necessary to
prepare for the Year 2000. Currently, the investment manager does not anticipate
that the transition to the Year 2000 will have any material impact on its
ability to continue to service the Fund at current levels. In addition, the
investment manager has sought assurances from the Fund's other service providers
that they are taking all necessary steps to ensure that their computer systems
will accurately reflect the Year 2000, and the investment manager will continue
to monitor the situation. At this time, however, no assurance can be given that
the Fund or its service providers have anticipated every step necessary to avoid
any adverse effect on the Fund attributable to the Year 2000 Problem or that
interaction with other non-complying computer systems will not impact their
services. In addition, the Fund may be subject to similar risks with respect to
issuers of securities in which it invests.
12
<PAGE>
- --------------------------------------------------------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
TD Waterhouse Asset Management, Inc., 100 Wall Street, New York, NY 10005, is
the Fund's investment manager. The investment manager oversees the Fund's
investment program, places orders for the Fund's purchases and sales of
portfolio securities and maintains records relating to such purchases and sales.
For its services, the investment manager receives an annual fee of 0.20% of the
Fund's average daily net assets. The investment manager has voluntarily agreed
to reduce Fund expenses (by paying certain expenses and/or waiving fees) so that
the Fund's total operating expenses will not exceed 0.45%. These expense
reductions are voluntary and may be reduced or eliminated at any time upon
notifying investors.
In addition to the Fund, the investment manager currently serves as investment
manager to TD Waterhouse Family of Funds, Inc. and National Investors Cash
Management Fund, Inc. and to TD Waterhouse Bank, N.A. (of which it is an
affiliate), and as of November 30, 1999 had total assets under management in
excess of $12.7 billion.
ADMINISTRATOR
As administrator, TD Waterhouse, an affiliate of the investment manager,
provides certain administrative and management services to the Fund. The
investment manager (and not the Fund) compensates TD Waterhouse for providing
these services. TD Waterhouse has entered into an agreement with Funds
Distributor, Inc. ("FDI") whereby FDI performs certain administrative services
for the Fund. TD Waterhouse pays FDI's fees for providing these services.
DISTRIBUTOR
FDI acts as distributor of the Fund's shares for no compensation.
SHAREHOLDER SERVICING
The Fund's Shareholder Servicing Plan permits the Fund to pay banks,
broker-dealers or other financial institutions (including TD Waterhouse and its
affiliates) for shareholder support services they provide, at a rate of 0.25% of
the average daily net assets of the Fund. These services may include, among
other services, providing general shareholder liaison services (including
responding to shareholder inquiries), providing information on shareholder
investments, and establishing and maintaining shareholder accounts and records.
13
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total return amount in the table
represents the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). Prior to
November 5, 1999, the Fund operated as a series of a different investment
company. This information has been audited by Ernst & Young LLP, whose report,
along with the Fund's financial statements, are included in the annual report,
which is available upon request by calling Customer Service at 1-800-934-4448.
<TABLE>
<CAPTION>
Year Ended Period Ended
October 31, 1999 October 31, 1998*
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.................. $ 8.59 $8.78
------- -----
INVESTMENT OPERATIONS
Net investment income................................. 0.14 0.08
Net realized and unrealized gains (losses) on investments 2.14 (0.19)
---- -----
TOTAL FROM INVESTMENT OPERATIONS...................... 2.28 (0.11)
Distributions from net investment income.............. (0.14) (0.08)
------ ------
Net asset value, end of period........................ $10.73 $8.59
====== =====
RATIOS
Ratio of net expenses to average net assets........... 0.25% 0.25% (A)
Ratio of net investment income to average net assets.. 1.37% 1.48% (A)
Decrease reflected in above expense ratios due to
waivers/reimbursements by the investment manager
and its affiliates.................................... 0.43% 0.55% (A)
SUPPLEMENTAL DATA
Portfolio turnover rate............................... 47% 8% (A)
Total investment return............................... 26.72% (B) (1.19%) (B)
Net assets, end of period............................. $175,311,445 $62,211,054
============ ===========
Average net assets.................................... $118,399,466 $28,460,853
============ ===========
<FN>
* The Fund commenced operations on March 31, 1998.
(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>
14
<PAGE>
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"Dow Jones," "Dow Jones Industrial Average,"/SM "DJIA"/SM and "DIAMONDS"/SM are
service marks of Dow Jones & Company, Inc. Dow Jones has no relationship to TD
Waterhouse Asset Management, Inc. (the "Investment Manager") other than the
licensing of the Dow Jones Industrial Average (DJIA) and its service marks for
use in connection with the Fund.
Dow Jones does not:
o sponsor, endorse, sell or promote the Fund;
o recommend that any person invest in the Fund or any other securities;
o have any responsibility or liability for or make any decisions about the
timing, amount or pricing of the Fund;
o have any responsibility or liability for the administration, management or
marketing of the Fund;
o consider the needs of the Investment Manager or the shareholders of the
Fund in determining, composing or calculating the DJIA or have any
obligation to do so.
Dow Jones will not have any liability in connection with the Fund. Specifically,
o Dow Jones does not make any warranty, express or implied, and Dow Jones
disclaims any warranty about:
o the results to be obtained by the Investment Manager, the shareholders
of the Fund or any other person in connection with the use of the DJIA
and the data included in the DJIA;
o the accuracy or completeness of the DJIA and its data;
o the merchantability and the fitness for a particular purpose or use of
the DJIA and its data;
o Dow Jones will have no liability for any errors, omissions or interruptions
in the DJIA or its data;
o Under no circumstances will Dow Jones be liable for any lost profits or
indirect, punitive, special or consequential damages or losses, even if Dow
Jones knows that they might occur.
The licensing agreement between the Investment Manager and Dow Jones is solely
for their benefit and not for the benefit of the shareholders of the Fund or any
other third parties.
15
<PAGE>
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TD WATERHOUSE DOW 30 FUND
FOR MORE INFORMATION
More information on the Fund is available upon request, including the following:
SHAREHOLDER REPORTS. Additional information about the Fund's investments is
available in the Fund's annual and semi-annual reports to shareholders. In the
Fund's annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI). The SAI includes more information
about the Fund and its policies. The SAI is on file with the Securities and
Exchange Commission (SEC) and is incorporated by reference into (is legally
considered a part of) this prospectus.
You may request free copies of these materials, along with other information
about the Fund and make shareholder inquiries by contacting:
TD Waterhouse Investor Services, Inc.
Mutual Fund Services
100 Wall Street
New York, New York 10005
Telephone: 1-800-457-6516
Hearing impaired: TTY 1-800-933-0555
Internet site: http://www.tdwaterhouse.com
Text-only versions of the Fund's prospectus can be viewed online or downloaded
from TD Waterhouse (http://www.tdwaterhouse.com). The Fund's prospectus and
other documents pertaining to the Fund also can be viewed online or downloaded
from the SEC (http://www.sec.gov).
You also can review and copy information about the Fund, 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 to 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 Fund's investment company registration number is [smaller font:] 811-9519.
[next column]
TD WATERHOUSE
DOW 30 FUND
PROSPECTUS
[TD Waterhouse logo]
<PAGE>
TD WATERHOUSE DOW 30 FUND
100 WALL STREET, NEW YORK, NEW YORK 10005
TD WATERHOUSE, CUSTOMER SERVICE - 1-800-934-4448
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 23, 1999
This Statement of Additional Information (the "SAI") is not a prospectus. It
should be read in conjunction with the prospectus dated December 23, 1999 (the
"Prospectus") for the TD Waterhouse Dow 30 Fund (the "Fund"), a series of TD
Waterhouse Trust (the "Trust").
The Fund's financial statements and financial highlights for the fiscal year
ended October 31, 1999, including the independent auditors' report thereon, are
included in the Fund's Annual Report and are incorporated herein by reference.
The Prospectus also is incorporated by reference herein.
To obtain a free copy of the Prospectus or Annual Report, please write to TD
Waterhouse Investor Services, Inc. ("TD Waterhouse"), 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 FUND.............................................3
INVESTMENT POLICIES AND RESTRICTIONS ..........................................3
PORTFOLIO TRANSACTIONS .......................................................11
TRUSTEES AND EXECUTIVE OFFICERS ..............................................13
INVESTMENT MANAGEMENT, DISTRIBUTION
AND OTHER SERVICES ...........................................................15
DIVIDENDS AND TAXES ..........................................................20
SHARE PRICE CALCULATION ......................................................22
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION ...............................23
PERFORMANCE ..................................................................24
SHAREHOLDER INFORMATION ......................................................29
<PAGE>
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"Dow Jones,"/SM "Dow Jones Industrial Average," SM "DJIA"/SM and "DIAMONDS"/SM
are service marks of Dow Jones & Company, Inc. Dow Jones has no relationship to
TD Waterhouse Asset Management, Inc. (the "Investment Manager") other than the
licensing of the Dow Jones Industrial Average (DJIA) and its service marks for
use in connection with the Fund.
The Dow Jones does not:
o sponsor, endorse, sell or promote the Fund;
o recommend that any person invest in the Fund or any other securities;
o have any responsibility or liability for or make any decisions about the
timing, amount or pricing of the Fund;
o have any responsibility or liability for the administration, management or
marketing of the Fund;
o consider the needs of the Investment Manager or the shareholders of the
Fund in determining, composing or calculating the DJIA or have any
obligation to do so.
Dow Jones will not have any liability in connection with the Fund. Specifically,
o Dow Jones does not make any warranty, express or implied, and Dow Jones
disclaims any warranty about:
o the results to be obtained by the Investment Manager, the shareholders
of the Fund or any other person in connection with the use of the DJIA
and the data included in the DJIA;
o the accuracy or completeness of the DJIA and its data;
o the merchantability and the fitness for a particular purpose or use of
the DJIA and its data;
o Dow Jones will have no liability for any errors, omissions or interruptions
in the DJIA or its data;
o Under no circumstances will Dow Jones be liable for any lost profits or
indirect, punitive, special or consequential damages or losses, even if Dow
Jones knows that they might occur.
The licensing agreement between the Investment Manager and Dow Jones is solely
for their benefit and not for the benefit of the shareholders or any third
parties.
-2-
<PAGE>
TD WATERHOUSE DOW 30 FUND
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
The investment objective of the Fund is to track the total return of the Dow
Jones Industrial Average/SM ("DJIA"/SM) before Fund expenses. The investment
manager of the Fund is TD Waterhouse Asset Management, Inc. (the "Investment
Manager").
The Trust is registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), as an open-end management investment company.
The Fund is currently the only series of the Trust. Effective September 20,
1999, the Fund's name was changed from "Waterhouse Dow 30 Fund" to its present
name. The Fund was originally a series of TD Waterhouse Family of Funds, Inc., a
Maryland corporation. On November 5, 1999, the Fund was reorganized as the
initial series of TD Waterhouse Trust, a Delaware business trust.
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objective, and its investment policies and restrictions
that are designated as fundamental, may not be changed without approval by
holders of a "majority of the outstanding voting securities" of the Fund. Except
as otherwise indicated, however, the Fund's investment policies are not
fundamental and may be changed without shareholder approval. As defined in the
Investment Company Act, and as used herein, the term "majority of the
outstanding voting securities" of the Company, or of the Fund, means,
respectively, the vote of the holders of the lesser of (i) 67% of the shares of
the Company or of the Fund or represented by proxy at a meeting where more than
50% of the outstanding shares of the Company or the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Company or of the Fund.
The following policies and restrictions supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of the Fund's assets that may be invested in any
security or other assets, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Fund's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets, or other circumstances
will not be considered when determining whether the investment complies with the
Fund's investment policies and restrictions.
COMMON STOCK
The Fund will invest primarily in the common stock of the 30 companies
comprising the DJIA. Common stockholders are the owners of the company issuing
the stock and, accordingly, vote on various corporate governance matters such as
mergers. They are not creditors of the company, but rather, upon liquidation of
the company are entitled to
-3-
<PAGE>
their pro rata share of the company's assets after creditors (including fixed
income security holders) and, if applicable, preferred stockholders, are paid.
CASH AND CASH EQUIVALENTS
The Fund will hold from time to time a certain portion of its assets in cash or
cash equivalents to retain flexibility in meeting redemptions, paying expenses,
and timing of new investments. Cash equivalents may include (i) short-term
obligations issued or guaranteed by the United States government, its agencies
or instrumentalities ("U.S. Government Securities"), (ii) certificates of
deposit, bankers' acceptances and interest-bearing savings deposits of
commercial banks doing business in the United States that have a minimum rating
of A-1 from Standard & Poor's ("S&P") or P-1 from Moody's Investors Service
("Moody's") or a comparable rating from another nationally recognized
statistical rating organization ("NRSRO") or unrated securities of comparable
quality, (iii) commercial paper rated at least A-1 by S&P or P-1 by Moody's or a
comparable rating from another NRSRO or unrated securities of comparable
quality, (iv) repurchase agreements covering any of the securities in which the
Fund may invest directly, and (v) money market mutual funds. The Fund will not
invest in cash or cash equivalents as part of a temporary defensive strategy to
protect against potential stock market declines.
DIAMONDS/SM AND OTHER INDEX SECURITIES
The Fund may invest in publicly-traded index securities, including DIAMONDS.
DIAMONDS are shares of a publicly-traded unit investment trust that owns the
stocks in the DJIA in approximately the same proportions as represented in the
DJIA. DIAMONDS trade on the American Stock Exchange (the "AMEX") at
approximately .01 (or 1/100) of the value of the DJIA. Because DIAMONDS
replicate the DJIA, any price movement away from the value of the underlying
stocks is generally quickly eliminated by professional traders. In light of the
structural features of DIAMONDS, the Investment Manager believes that the
movement of DIAMONDS share prices should closely track the movement of the DJIA.
The DIAMONDS program bears operational expenses, which are deducted from the
dividends paid to DIAMONDS investors. To the extent the Fund invests in these
securities, the Fund must bear these expenses in addition to the expenses of its
own operation. The Fund also may invest in Standard & Poor's Depositary
Receipts, index securities similar to DIAMONDS that are based on the Standard &
Poor's 500 Index and also are traded on the AMEX. Investment in these securities
is subject to restrictions regarding investment company securities.
INVESTMENT COMPANY SECURITIES
The Fund may invest in securities issued by other investment companies (or
series thereof) to the extent that such investments are consistent with the
Fund's investment objectives and policies and are permissible under the
Investment Company Act. Under one of the Investment Company Act's limitations,
the Fund may invest in shares of investment companies to the extent the Fund and
its affiliated persons do not own more than 3% of the outstanding securities of
any one issuer of these securities, provided that the issuer is not obligated to
redeem securities representing more than 1% of the issuer's total outstanding
securities during any period of less than 30 days. A separate limitation of the
Investment Company Act may limit the Fund from (i) investing more
-4-
<PAGE>
than 10% of its assets in shares of investment companies; (ii) investing more
than 5% of its assets in any one investment company; or (iii) acquiring more
than 3% of the voting stock of an acquired investment company. As a shareholder
of another investment company, the Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that the Fund bears directly in connection with its own
operations. Investment company securities include shares of registered unit
investment trusts, including DIAMONDS and Standard & Poor's Depositary Receipts.
FUTURES CONTRACTS
The Fund may invest in stock index futures contracts. A futures contract is a
bilateral agreement wherein one party agrees to accept, and the other party
agrees to make, delivery of cash, an underlying debt security or the currency as
called for in the contract at a specified future date and at a specified price.
For futures contracts with respect to an index, delivery is of an amount of cash
equal to a specified dollar amount times the difference between the index value
at the time of the contract and the close of trading of the contract. Use of
futures contracts is subject to regulation by the several futures exchanges upon
which futures are traded and the Commodity Futures Trading Commission (the
"CFTC").
The Fund may purchase index futures contracts for several reasons: to simulate
full investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transactions costs, or to
seek higher investment returns when a futures contract is priced more
attractively than securities in the index.
As required by applicable regulatory guidelines, the Fund will set aside cash or
other appropriate liquid assets in a segregated account in the prescribed
manner. Any assets held in a segregated account cannot be sold or closed out
while the futures contract is outstanding, unless they are replaced with similar
assets. As a result, there is a possibility that the use of segregation
involving a large percentage of the Fund's assets could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES TRADING. No price is paid upon
entering into futures contracts; rather, the Fund is required to deposit an
amount of cash or U.S. Government securities generally equal to 5% or less of
the contract value. This amount is known as initial margin. Subsequent payments,
called variation margin, to and from the broker, would be made on a daily basis
as the value of the futures position varies. The initial margin in futures
transactions is in the nature of a performance bond or good-faith deposit on the
contract that is returned to the Fund upon termination of the contract, assuming
all contractual obligations have been satisfied.
Holders of futures contracts can enter into offsetting closing transactions by
selling a futures contract with the same terms as the position held. Positions
in futures contracts may be closed only on an exchange or board of trade
providing a secondary market for such futures contracts.
-5-
<PAGE>
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract may vary either up or down from the
previous day's settlement price. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that
limit. Prices could move to the daily limit for several consecutive trading days
with little or no trading and thereby prevent prompt liquidation of positions.
In such event, it may not be possible for the Fund to close a position, and in
the event of adverse price movements, the Fund would have to make daily cash
payments of variation margin. In addition:
(1) Successful use of futures contracts will require different skills and
techniques than investing in individual securities. Moreover, futures contracts
relate not to the current level of the underlying instrument but to the
anticipated levels at some point in the future; thus, for example, trading of
stock index futures contracts may not reflect the trading of the securities that
are used to formulate an index or even actual fluctuations in the index itself.
(2) The price of index futures contracts may not correlate perfectly with
movement in the index due to price distortions in the futures market or
otherwise. There may be several reasons unrelated to the value of the underlying
securities that cause this situation to occur.
(3) There is no assurance that a liquid secondary market will exist for any
particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of variation
margin.
(4) The Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.
CFTC REQUIREMENTS. The Fund will invest in futures contracts that are subject to
the jurisdiction of the CFTC subject to the requirements of Section 4.5 of the
rules of the CFTC. Under that section the Fund is permitted to purchase such
futures or options contracts only for bona fide hedging purposes within the
meaning of the rules of the CFTC; provided, however, that in addition, with
respect to positions in commodity futures contracts not for bona fide hedging
purposes, the Fund will limit the aggregate initial margin and premiums required
to establish these positions (subject to certain exclusions) to no more than 5%
of the liquidation value of the Fund's assets after taking into account
unrealized profits and losses on any such contract into which the Fund has
entered.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements, which are instruments under which
the Fund acquires ownership of a security from a broker-dealer or bank that
agrees to repurchase the security at a mutually agreed upon time and price
(which price is higher than the Fund's purchase price), thereby determining the
yield during the Fund's holding period. Repurchase agreements are, in effect,
loans collateralized by the underlying securities. In the event of a bankruptcy
or other default of a seller of a
-6-
<PAGE>
repurchase agreement, the Fund might have expenses in enforcing its rights to
the proceeds of the repurchase agreement or collateral thereunder, and could
experience losses, including a decline in the value of the underlying security
and loss of income.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which the Fund sells a
security and simultaneously commits to repurchase that security from the buyer
at an agreed-upon price on an agreed-upon future date. The resale price in a
reverse repurchase agreement reflects a market rate of interest that is not
related to the coupon rate or maturity of the sold security. For certain demand
agreements, there is no agreed-upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase rate.
Generally, a reverse repurchase agreement enables the Fund to recover for the
term of the reverse repurchase agreement all or most of the cash invested in the
portfolio securities sold and to keep the interest income associated with those
portfolio securities. Such transactions are advantageous only if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost of
obtaining the cash otherwise. In addition, interest costs on the money received
in a reverse repurchase agreement may exceed the return received on the
investments made by the Fund with those monies. The use of reverse repurchase
agreement proceeds to make investments may be considered to be a speculative
technique.
While a reverse repurchase agreement is outstanding, the Fund will maintain
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. The Fund will enter into reverse repurchase
agreements only with parties whose creditworthiness has been found satisfactory
by the Investment Manager.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities. The term
"illiquid securities" for this purpose means securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount at which the Fund has valued the securities and includes, among other
things, repurchase agreements maturing in more than seven days.
The Board of Trustees has the ultimate responsibility for determining whether
specific securities are liquid or illiquid. The Board has delegated the function
of making day-to-day determinations of liquidity to the Investment Manager,
pursuant to guidelines approved by the Board. The Investment Manager takes into
account a number of factors in reaching liquidity determinations, including but
not limited to: (1) the frequency of trades and quotations for the security; (2)
the number of dealers willing to purchase or sell the security and the number of
other potential buyers; (3) the willingness of dealers to undertake to make a
market in the security; and (4) the nature of trading in the marketplace,
including the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer. The Investment Manager monitors the
liquidity of the securities in the Fund's portfolio and reports periodically on
such decisions to the Board.
-7-
<PAGE>
SHORT SALES The Fund may sell a security the Fund does not own, or in an amount
greater than the Fund owns (i.e., make short sales). Such transactions will be
used only in an effort to adjust the weightings of a particular stock to better
reflect such stock's weighting in the DJIA. The Fund will not employ short sales
in reflection of the Investment Manager's outlook for the securities markets or
for the performance of the stock sold short. Generally, to complete a short sale
transaction, the Fund will borrow the security to make delivery to the buyer.
The Fund is then obligated to replace the security borrowed. The price at the
time of replacement may be more or less than the price at which the security was
sold by the Fund. Until the security is replaced, the Fund is required to pay to
the lender any interest or dividends that accrue during the period of the loan.
To borrow the security, the Fund may be required to pay a premium that would
increase the cost of the security sold. The proceeds of the short sale will be
retained by the broker to the extent necessary to meet margin requirements until
the short position is closed out. Until the Fund replaces the borrowed security,
it will (a) maintain in a segregated account with its custodian appropriate
liquid securities at such a level that the amount deposited in the account plus
the amount deposited with the broker as collateral will equal the current market
value of the security sold short or (b) otherwise cover its short position.
SECURITIES LENDING
The Fund may lend portfolio securities in amounts up to 33 1/3% of its total
assets to brokers, dealers and other financial institutions, provided such loans
are callable at any time by the Fund and are at all times secured by cash or by
equivalent collateral. By lending its portfolio securities, the Fund will
receive income while retaining the securities' potential for capital
appreciation. As with any extensions of credit, there are risks of delay in
recovery and, in some cases, even loss of rights in the collateral should the
borrower of the securities fail financially. However, such loans of securities
will only be made to firms deemed to be creditworthy by the Investment Manager.
BORROWING
The Fund may borrow from banks and engage in reverse repurchase agreements. As a
matter of fundamental policy, the Fund will limit borrowings (including any
reverse repurchase agreements) to amounts not in excess of 33 1/3% of the value
of the Fund's total assets less liabilities (other than borrowings). As a
non-fundamental policy, the Fund will borrow money only as a temporary measure
for defensive or emergency purposes, in order to meet redemption requests
without immediately selling any portfolio securities.
DIVERSIFICATION AND CONCENTRATION
The Fund is classified as "non-diversified" for purposes of the Investment
Company Act, which means that the Fund is not limited by the Investment Company
Act with regard to the portion of its assets that may be invested in the
securities of a single issuer. To the extent the Fund makes investments in
excess of 5% of its assets in the securities of a particular issuer, its
exposure to the risks associated with that issuer is increased. Because the Fund
invests in a limited number of issuers, the performance of particular securities
may adversely affect the performance of the Fund or subject the
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Fund to greater price volatility than that experienced by diversified investment
companies.
The Fund will not concentrate its assets in the securities of issuers in any
industry. As a fundamental policy, except as set forth below, the Fund may not
purchase securities if, immediately after the purchase, more than 25% of the
value of the Fund's total assets would be invested in the securities of issuers
conducting their principal business activities in the same industry. This
limitation does not apply to investments in U.S. Government Securities,
repurchase agreements covering U.S. Government Securities and shares of other
investment companies, including unit investment trusts and mutual funds. The
Fund's investments in issuers representing particular industries reflects the
composition of the DJIA which, by design, reflects a range of industries;
however, in the event that the DJIA includes concentration in a particular
industry, the Fund's holdings will reflect a comparable level of concentration.
Historically, emphasis by the DJIA in particular industries has been minimized
through periodic recomposition.
PORTFOLIO TURNOVER
The frequency of portfolio transactions of the Fund (the portfolio turnover
rate) will vary from year to year depending on many factors. An annual portfolio
turnover rate of 100% would occur if all of the securities in the Fund were
replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to the Fund and a possible increase in
short-term capital gains or losses.
Because the Fund, in seeking to track the total return of the DJIA, invests
primarily in the stocks in the DJIA in the same proportions as they are
represented in the DJIA, the Fund's turnover rate will reflect any changes to
the stocks in the DJIA during the period. The changes include changes in the
composition of the DJIA as well any event relating to one of the stocks in the
DJIA, such a stock split, that would cause the Fund to sell or buy a particular
stock or stocks. For example, when a stock splits, the Fund typically must
"rebalance" the Fund by selling any shares acquired as a result of the split and
using the proceeds to buy the stocks in the DJIA in their appropriate
proportions. The change in portfolio turnover rates for the Fund from fiscal
1998 to fiscal 1999 was due in part to several of these types of events in
fiscal 1999: eight stock splits, the spin-off of a subsidiary by a company whose
stock is included in the DJIA into a stock not included in the DJIA, and the
replacement of four stocks in the DJIA by four new stocks.
INVESTMENT RESTRICTIONS. THE FOLLOWING ARE THE FUNDAMENTAL INVESTMENT
RESTRICTIONS OF THE FUND. THE FUND MAY NOT (UNLESS NOTED OTHERWISE):
(1) issue senior securities, except as permitted under the Investment Company
Act;
(2) make short sales of securities, except as may be described in the Prospectus
and SAI from time to time, or purchase securities on margin (but the Fund may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities);
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(3) borrow money, except as permitted under the Investment Company Act;
(4) act as an underwriter (except as it may be deemed such in a sale of
restricted securities);
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities,
repurchase agreements with respect to these securities, and shares of investment
companies and series thereof) if, as a result, more than 25% of the Fund's total
assets would be invested in the securities of companies whose principal business
activities are in the same industry; provided, however, that this restriction
does not apply to the extent that more than 25% of the DJIA is represented by
securities of companies whose principal business activities are in any one
industry;
(6) purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business);
(7) buy or sell physical commodities or physical commodity (futures) contracts,
which do not include financial futures and options thereon as described in the
Prospectus and SAI from time to time; or
(8) lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets would be loaned to other parties, but this limit does not
apply to purchases of debt securities or to repurchase agreements.
THE FOLLOWING INVESTMENT RESTRICTIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED BY
VOTE OF THE BOARD OF TRUSTEES WITHOUT SHAREHOLDER APPROVAL. THE FUND MAY NOT:
(i) purchase or hold any security if, as a result, more than 15% of its net
assets would be invested in securities that are deemed to be illiquid because
they are subject to legal or contractual restrictions on resale or because they
cannot be sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued, including repurchase
agreements not entitling the holder to payment of principal and interest within
seven days upon notice and securities restricted as to disposition under federal
securities laws, except for commercial paper issued in reliance on the "private
placement" exemption afforded by Section 4(2) of the Securities Act of 1933,
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 and other securities, that are determined to be liquid pursuant to
procedures adopted by the Trust's Board of Trustees; or
(ii) purchase securities of other investment companies, except to the extent
permitted by the Investment Company Act; however, the Fund may, notwithstanding
any other
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fundamental investment policy or limitation, invest all of its assets in the
securities of a single open-end management investment company with substantially
the same fundamental investment objectives, policies, and restrictions as the
Fund.
LICENSE AGREEMENT
The Investment Manager is a party to the License Agreement with Dow Jones that
grants to the Investment Manager and to the Fund a non-exclusive license to use
the DJIA, the proprietary data contained therein, and related trademarks and
service marks solely in connection with the operations of the Fund. As the
licensee, the Investment Manager pays Dow Jones a licensing fee. Accordingly,
the DJIA and Dow Jones related marks are not assets of the Fund and can be
withdrawn from the Fund. Currently, the License Agreement is scheduled to expire
five years from the commencement date of initial issuance of the Fund and is
subject to a renewal term of three years (the "Renewal Term") after which the
license is automatically extended for successive additional terms of one year
each (each, an "Additional Term") unless either Dow Jones or the Investment
Manager gives written notice to the other that the License Agreement will not be
extended at least 90 days before the expiration of the Renewal Term or such
Additional Term. As a condition to the Renewal Term, the assets of the Fund must
be at least $250 million. The parties thereto may extend the term of the License
Agreement beyond its final expiration date without the consent of any of the
shareholders of the Fund.
PORTFOLIO TRANSACTIONS
The Investment Manager places orders for the purchase and sale of assets with
brokers and dealers selected by and in the discretion of the Investment Manager.
In placing orders for the Fund's portfolio transactions, the Investment Manager
seeks "best execution" (i.e., prompt and efficient execution at the most
favorable prices).
Consistent with the policy of "best execution," orders for portfolio
transactions are placed with broker-dealer firms giving consideration to the
quality, quantity and nature of the firms' professional services which include
execution, clearance procedures, reliability and other factors. In selecting
among the firms believed to meet the criteria for handling a particular
transaction, the Investment Manager may give consideration to those firms that
provide market, statistical and other research information to the Fund and the
Investment Manager. In addition, the Fund may pay higher than the lowest
available commission rates when the Investment Manager believes it is reasonable
to do so in light of the value of the brokerage and research services provided
by the broker effecting the transaction, viewed in terms of either the
particular transaction or the Investment Manager's overall responsibilities with
respect to accounts as to which it exercises investment discretion. Any research
benefits derived from such services are available for all clients of the
Investment Manager and may not be used in connection with the Fund. 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
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the Investment Manager receive brokerage commissions in recognition of research
services provided to the Investment Manager.
The Investment Manager intends to employ broker-dealer affiliates of the
Investment Manager (collectively "Affiliated Brokers") to effect portfolio
transactions for the Fund, provided certain conditions are satisfied. Payment of
brokerage commissions to Affiliated Brokers is subject to Section 17(e) of the
Investment Company Act and Rule 17e-1 thereunder, which require, among other
things, that commissions for transactions on securities exchanges paid by a
registered investment company to a broker which is an affiliated person of such
investment company, or an affiliated person of another person so affiliated, not
exceed the usual and customary brokers' commissions for such transactions. The
Board of Trustees, including a majority of the trustees who are not "interested
persons" of the Trust within the meaning of such term as defined in the
Investment Company Act ("Disinterested Trustees"), has adopted procedures to
ensure that commissions paid to affiliates of the Investment Manager by the Fund
satisfy the standards of Section 17(e) and Rule 17e-1. Certain transactions may
be effected for the Fund by a broker-dealer affiliate of the Investment Manager
at no net cost to the Fund; however, the broker-dealer may be compensated by
another broker-dealer in connection with such transaction for the order flow to
the second broker-dealer. Receipt of such compensation will be subject to the
Fund's procedures pursuant to Section 17(e) and Rule 17e-1.
The investment decisions for the Fund will be reached independently from those
for other accounts, if any, managed by the Investment Manager. On occasions when
the Investment Manager deems the purchase or sale of securities to be in the
best interest of one or more clients of the Investment Manager, the Investment
Manager, to the extent permitted by applicable laws and regulations, may, but
shall be under no obligation to, aggregate the securities to be so sold or
purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Investment Manager in accordance with its policy for aggregation
of orders, as in effect from time to time. In some cases this procedure may
affect the size or price of the position obtainable for the Fund.
Purchases and sales of equity securities on exchanges are generally effected
through brokers who charge commissions. In transactions on stock exchanges in
the United States, these commissions generally are negotiated. In all cases, the
Fund will attempt to negotiate best execution.
Purchases and sales of fixed income portfolio securities are generally effected
as principal transactions. These securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. There
usually are no brokerage commissions paid for such purchases. Purchases from
underwriters of portfolio securities include a commission or concession paid by
the issuer to the underwriter, and purchases from dealers serving as market
makers include the spread between the bid and ask prices. In the case of
securities traded in the over-the-counter
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markets, there is generally no stated commission, but the price usually includes
an undisclosed commission or markup.
For the fiscal period ended October 31, 1998 and the fiscal year ended October
31, 1999, the Fund paid no brokerage commissions.
TRUSTEES AND EXECUTIVE OFFICERS
Responsibility for overall management of the Fund rests with the Board of
Trustees of the Trust in accordance with Delaware law.
The trustees and executive officers of the Trust, 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 Fund's distributor,
are listed below.
RICHARD W. DALRYMPLE, Trustee. Mr. Dalrymple has served as a Trustee of the
Trust since its inception. Mr. Dalrymple has served as a Director of each of TD
Waterhouse Family of Funds, Inc. ("TD WFF") and National Investors Cash
Management Fund, Inc. ("NICM") since December 12, 1995 and February 26, 1998,
respectively. Mr. Dalrymple has been the President of Teamwork Management, Inc.
since January 1997. Mr. Dalrymple has served as a Director of Dime Bancorp, Inc.
since 1990. Mr. Dalrymple has been a Trustee of The Shannon McCormack Foundation
since 1988, the Kevin Scott Dalrymple Foundation since 1993 and a Director of
National Center for Disability Services since 1983. From 1990 through 1995, Mr.
Dalrymple served as President and Chief Operating Officer of Anchor Bank. From
1985 through 1990, Mr. Dalrymple worked for the Bank of Boston. During this
time, Mr. Dalrymple served as the President of Massachusetts Banking and the
Southern New England Region, and as Department Executive of Banking Services. He
is 56 years old. Mr. Dalrymple's address is 70 West Red Oak Lane, White Plains,
NY 10604.
CAROLYN B. LEWIS, Trustee. Ms. Lewis has served as a Trustee of the Trust since
its inception. Ms. Lewis has served as a Director of each of TD WFF and NICM
since February 26, 1998. Since March 1997, Ms. Lewis has served as President of
The CBL Group providing professional services to clients in the securities and
healthcare industries. Ms. Lewis spent over 30 years at the United States
Securities and Exchange Commission (SEC) in various positions including Senior
Financial Analyst, Branch Chief and Assistant Director. In September 1997, Ms.
Lewis was appointed a member of the Board of Governors of the Philadelphia Stock
Exchange. Presently, Ms. Lewis is a member of the Board of Directors of the
Metropolitan Washington Airports Authority and a director on various healthcare
and hospital Boards, including Chairman of the Board of Trustees of the American
Hospital Association. She is 63 years old. Ms. Lewis' address is 2920 W Street
Southeast, Washington, DC 20020.
GEORGE F. STAUDTER*, Trustee. Mr. Staudter has served as Chairman of the Board
of Trustees of the Trust since its inception. Mr. Staudter has served as
Chairman of the Board of Directors of TD WFF since December 12, 1995. Mr.
Staudter is a
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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 68 years old. Mr. Staudter's address is 9637 Preston
Trail West, Ponte Vedra, FL 32082.
LAWRENCE J. TOAL, Trustee. Mr. Toal has served as a Trustee of the Trust since
its inception. Mr. Toal has served as a Director of TD WFF since December 12,
1995. Mr. Toal is Chairman, 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 62 years old. Mr. Toal's address is 589 Fifth Avenue, 3rd Floor, New York,
NY 10017.
GEORGE A. RIO**, President, Treasurer and Chief Financial Officer. Mr. Rio is
Executive Vice President and Director of Client Services of FDI since April
1998. From June 1995 to March 1998, Mr. Rio was Senior Vice President and Senior
Key Account Manager for Putnam Mutual Funds. From May 1994 to June 1995, Mr. Rio
was Director of Business Development for First Data Corporation. He is 44 years
old.
CHRISTOPHER J. KELLEY**, Vice President and Secretary. Mr. Kelley is Vice
President and Senior Associate General Counsel of FDI, and an officer of certain
investment companies distributed by FDI or its affiliates. From April 1994 to
July 1996, Mr. Kelley was Assistant Counsel at Forum Financial Group. He is 34
years old.
* THIS TRUSTEE IS AN "INTERESTED PERSON" OF THE TRUST.
** ADDRESS: 60 STATE STREET, SUITE 1300, BOSTON, MA 02109
On November 30, 1999, the officers and trustees of the Trust, as a group, owned
less than 1% of the outstanding shares of the Fund.
Officers and trustees who are interested persons of the Investment Manager or
FDI receive no compensation from the Fund. Each trustee who is not an interested
person serving on the board of a company in the "Fund Complex" (which also
includes TD WFF and NICM, other investment companies advised by the Investment
Manager) receives a (i) complex-wide annual retainer of $12,000, (ii) a
supplemental annual retainer of $5,000 if serving on the board of more than one
fund in the Fund Complex (the Trust and TD WFF are treated as one fund for
purposes of calculating this fee), and (iii) a meeting fee of $2,000 for each
meeting attended. Trustees who are not interested persons also will be
reimbursed for their expenses by the Trust. Trustees who are
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interested persons of the Trust may be compensated by the Investment Manager or
its affiliates for their services to the Trust.
The amounts of compensation that the Trust (and Fund Complex) paid to each
trustee (or director, as the case may be) for the fiscal year ended October 31,
1999, is contained in the table below. Amounts for the Fund are based on amounts
paid by TD WFF for the period that were attributable to the Fund as a series of
TD WFF.
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Estimated
Compensation Benefits Accrued Annual Total Compensation
Name of Board from as Part of Fund's Benefits Upon from Fund Complex (1)
Member Trust (3) Expenses Retirement Paid to Board Members (3)
------ --------- -------- ---------- -------------------------
<S> <C> <C> <C> <C>
Richard W. Dalrymple $3,125 $0 $0 $25,000
Carolyn B. Lewis $3,125 $0 $0 $25,000
George F. Staudter (2) $0 $0 $0 $0
Lawrence J. Toal $5,000 $0 $0 $20,000
- ---------------------------------
(1) "Fund Complex" includes the Trust, TD WFF and NICM, investment companies
also advised by the Investment Manager.
(2) Interested trustee of the Trust.
(3) Amounts do not include reimbursed expenses for attending Board meetings or
compensation from the Investment Manager or its affiliates.
</TABLE>
INVESTMENT MANAGEMENT, DISTRIBUTION AND OTHER SERVICES
INVESTMENT MANAGEMENT
TD Waterhouse Asset Management, Inc., a Delaware corporation, is the Investment
Manager of the Fund. Pursuant to the Investment Management Agreement with the
Trust, the Investment Manager manages the Fund's investments in accordance with
its stated policies and restrictions, subject to oversight by the Fund's Board
of Trustees. 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, 1999 had total assets under management in excess of
$12.7 billion. Personnel of the Investment Manager may invest in securities for
their own account pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the Trust, establishes procedures for
personal investing and restricts certain transactions.
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The Investment Management Agreement will continue in effect for an initial
two-year term, and thereafter from year to year so long as continuation is
specifically approved at least annually by a vote of the Board of Trustees or by
vote of the shareholders of the Fund, and in either case by a majority of
Disinterested Trustees who have no direct or indirect financial interest in the
Investment Management Agreement. The Investment Management Agreement may be
terminated at any time upon 60 days' prior written notice, without penalty, by
either party, or by a majority vote of the outstanding shares of the Fund, and
will terminate automatically upon assignment.
The Investment Management Agreement provides that the Investment Manager will
not be liable for any error of judgment or of law, or for any loss suffered by
the Fund in connection with the matters to which such agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
Investment Manager's part in the performance of its obligations and duties, or
by reason of its reckless disregard of its obligations and duties under such
agreement. The services of the Investment Manager to the Fund under the
Investment Management Agreement are not exclusive and it is free to render
similar services to others.
For the investment management services furnished to the Fund, the Fund pays the
Investment Manager an annual investment management fee, accrued daily and
payable monthly, of 0.20% of the Fund's average daily net assets.
The Investment Manager and its affiliates may, from time to time, voluntarily
waive or reimburse all or a part of the Fund's operating expenses. Expense
reimbursements by the Investment Manager or its affiliates will increase the
Fund's total return. The Investment Manager has voluntarily agreed to reduce
Fund expenses (by paying certain expenses and/or waiving fees) so that the
Fund's total operating expenses will not exceed 0.45%. These expense reductions
are voluntary and may be reduced or eliminated at any time upon notifying
investors.
For the fiscal period ended October 31, 1998, the Investment Manager waived its
entire investment management fee of $33,188, and reimbursed the Fund $14,245 for
other operating expenses. For the fiscal year ended October 31, 1999, the
Investment Manager waived its entire investment management fee of $236,182, and
reimbursed the Fund $56,405 for other operating expenses.
ADMINISTRATION
Pursuant to an Administration Agreement with the Trust and the Investment
Manager, TD Waterhouse, as Administrator, provides administrative services to
the Fund. Administrative services furnished by TD Waterhouse include, among
other services, maintaining and preserving the records of the Fund, including
financial and corporate records, computing net asset value, dividends,
performance data and financial information regarding the Fund, preparing
reports, overseeing the preparation and filing with the 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,
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providing routine accounting services, providing office facilities and clerical
support as well as providing general oversight of other service providers. The
Investment Manager (and not the Fund) compensates TD Waterhouse for providing
services under the Administration Agreement at the annual rate of 0.10% of the
Fund's average daily net assets.
TD Waterhouse has entered into a Subadministration Agreement with FDI pursuant
to which FDI performs certain of the foregoing administrative services for the
Fund. TD Waterhouse pays FDI's fees for providing the services under the
Agreement. 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 for an initial two-year
term, and thereafter from year to year so long as such continuation is
specifically approved at least annually by a vote of the Board of Trustees,
including a majority of Disinterested Trustees who have no direct or indirect
financial interest in the Administration Agreement. The Fund or TD Waterhouse
may terminate the Administration Agreement on 60 days' prior written notice
without penalty. Termination by the Fund may be by vote of the Board of
Trustees, or a majority of the Disinterested Trustees who have no direct or
indirect financial interest in the Administration Agreement, or by a majority of
the outstanding voting securities of the Fund. 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 the Fund in
connection with the matters to which such agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on TD
Waterhouse's part in the performance of its obligations and duties, or by reason
of its reckless disregard of its obligations and duties under such agreement.
DISTRIBUTION
The distributor of the Trust is FDI, 60 State Street, Suite 1300, Boston,
Massachusetts 02109. Pursuant to a Distribution Agreement between the Trust and
FDI, FDI has the exclusive right to distribute shares of the Fund. FDI may enter
into dealer or agency agreements with affiliates of the Investment Manager and
other firms for the sale of Fund shares. FDI has entered into such an agency
agreement with TD Waterhouse. FDI receives no fee from the Trust under the
Distribution Agreement for acting as distributor to the Trust. FDI also acts as
a subadministrator for the Trust. From time to time and out of its own
resources, the Investment Manager or its affiliates may pay fees to
broker-dealers or other persons for distribution or other services related to
the Fund.
The Distribution Agreement will continue in effect only if such continuance is
specifically approved at least annually by a vote of the Board of Trustees,
including a majority of Disinterested Trustees who have no direct or indirect
financial interest in the Distribution Agreement. The Distribution Agreement was
approved by the Board of Trustees, including a majority of Disinterested
Trustees who have no direct or indirect financial interest in
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the Distribution Agreement. The Fund may terminate the Distribution Agreement on
60 days' prior written notice without penalty. Termination by the Fund may be by
vote of a majority of the Board of Trustees, or a majority of the Disinterested
Trustees, or by a majority of the outstanding voting securities of the Fund. The
Distribution Agreement terminates automatically in the event of its "assignment"
as defined in the Investment Company Act.
SHAREHOLDER SERVICING
The Board of Trustees has approved a Shareholder Servicing Plan ("Servicing
Plan") pursuant to which the Fund may pay banks, broker-dealers or other
financial institutions that have entered into a shareholder services agreement
with the Trust ("Servicing Agents") in connection with shareholder support
services that they provide. Payments under the Servicing Plan will be calculated
daily and paid monthly at an annual rate that may not exceed 0.25% of the
average daily net assets of the Fund. The shareholder services provided by the
Servicing Agents pursuant to the Servicing Plan may include, among other
services, providing general shareholder liaison services (including responding
to shareholder inquiries), providing information on shareholder investments,
establishing and maintaining shareholder accounts and records, and providing
such other similar services as may be reasonably requested.
The Servicing Plan was approved by the Board of Trustees, including a majority
of the Disinterested Trustees 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. The Servicing Plan may be terminated by the Trust with respect
to the Fund by a vote of a majority of the Disinterested Trustees who have no
direct or indirect financial interest in the Servicing Plan or any agreements
relating thereto.
Pursuant to a Shareholder Services Agreement between the Trust and TD
Waterhouse, TD Waterhouse has agreed to provide shareholder services to the Fund
pursuant to the Shareholder Servicing Plan. The Trust may enter into similar
agreements with other service organizations, including broker-dealers and banks
whose clients are shareholders of the Fund, to act as Servicing Agents and to
perform shareholder support services with respect to such clients. For the
fiscal period ended October 31, 1998, TD Waterhouse received $4,585 and waived
$36,900 in shareholder servicing fees. For the fiscal year ended October 31,
1999, TD Waterhouse received $123,093 and waived $172,136 in shareholder
servicing fees.
The Shareholder Services Agreement with TD Waterhouse will continue in effect
only if such continuance is specifically approved at least annually by a vote of
the Board of Trustees, including a majority of the Disinterested Trustees who
have no direct or indirect financial interest in the Shareholder Services
Agreement. The Shareholder Services Agreement was approved by the Board of
Trustees, including a majority of the Disinterested Trustees who have no direct
or indirect financial interest in the Shareholder Services Agreement. The Fund
may terminate the Shareholder Services Shareholder Services Agreement on 60
days' prior written notice without penalty. Termination by the Fund may be by
vote of the Board of Trustees, or a majority of the
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Disinterested Trustees who have no direct or indirect financial interest in the
Shareholder Services Agreement. The Shareholder Services Agreement terminates
automatically in the event of its "assignment" as defined in the Investment
Company Act.
Conflict of interest restrictions may apply to the receipt by Servicing Agents
of compensation from the Trust in connection with the investment of fiduciary
assets in Fund shares. Servicing Agents, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers are
urged to consult their legal advisers before investing such assets in Fund
shares.
TRANSFER AGENT AND CUSTODIAN
National Investor Services Corp. (the "Transfer Agent"), 55 Water Street, New
York, an affiliate of the Investment Manager, serves as transfer and dividend
disbursing agent for the Fund. For the services provided under the Transfer
Agency and Dividend Disbursing Agency Agreement, which include furnishing
periodic and year-end shareholder statements and confirmations of purchases and
sales, reporting share ownership, aggregating, processing and recording
purchases and redemptions of shares, processing dividend and distribution
payments, forwarding shareholder communications such as proxies, shareholder
reports, dividend notices and prospectuses to beneficial owners, receiving,
tabulating and transmitting proxies executed by beneficial owners and sending
year-end tax reporting to shareholders and the Internal Revenue Service, the
Transfer Agent receives an annual fee, payable monthly, of 0.05% of the Fund's
average daily net assets. The Transfer Agent is permitted to subcontract any or
all of its functions with respect to all or any portion of the Fund's
shareholders to one or more qualified sub-transfer agents or processing agents,
which may be affiliates of the Transfer Agent, FDI or broker-dealers authorized
to sell shares of the Fund pursuant to a selling agreement with FDI. The
Transfer Agent is permitted to compensate those agents for their services;
however, that compensation may not increase the aggregate amount of payments by
the Fund to the Transfer Agent.
Pursuant to a Custodian Agreement, The Bank of New York (the "Custodian"), 100
Church Street, New York, NY 10286, acts as the custodian of the Fund's assets.
The Custodian, among other things, maintains a custody account or accounts in
the name of the Fund, receives and delivers all assets for the Fund upon
purchase and upon sale or maturity, collects all income and other payments and
distributions with respect to the assets of the Fund, and pays expenses of the
Fund.
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<PAGE>
OTHER EXPENSES
The Fund pays the expenses of its operations, including the costs of shareholder
and board meetings; the fees and expenses of blue sky and pricing services,
independent auditors, counsel, the Custodian and the Transfer Agent; reports and
notices to shareholders; the costs of calculating net asset value; brokerage
commissions or transaction costs; taxes; interest; insurance premiums;
Investment Company Institute dues; and the fees and expenses of qualifying the
Fund and its shares for distribution under federal and state securities laws. In
addition, the Fund pays for typesetting, printing and mailing proxy material,
prospectuses, statements of additional information, notices and reports to
existing shareholders, and the fees of the Disinterested Trustees. The Fund is
also liable for such nonrecurring expenses as may arise, including costs of any
litigation to which the Trust be a party, and any obligation it may have to
indemnify the Trust's officers and trustees with respect to any litigation. The
Trust's expenses generally are allocated among its investment portfolios
(including the Fund) on the basis of relative net assets at the time of
allocation, except that expenses directly attributable to a particular
investment portfolio are charged to that portfolio.
DIVIDENDS AND TAXES
DIVIDENDS
It is currently contemplated that dividends of the Fund's net investment income
will be declared daily and paid monthly. No dividends will be declared on any
day on which the Fund does not receive dividends or interest income from the
securities in its portfolio. In addition, any dividends declared will be net of
Fund expenses accrued to date. In the event the Board of Trustees changes the
daily dividend policy, shareholders will be notified.
CAPITAL GAIN DISTRIBUTIONS
If the Fund realizes any net capital gain, such gain will be distributed at
least once during the year as determined by the Board of Trustees. Short-term
capital gain distributions by the Fund are taxable to shareholders as ordinary
income, not as capital gain. Long-term capital gains realized by non-corporate
taxpayers are subject to a reduced maximum tax rate. Any realized capital loss
to the extent not offset by realized capital gain will be carried forward.
TAX STATUS OF THE TRUST
The Fund intends to continue to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gain, if any, to
shareholders. Accordingly, it is not anticipated that the Fund will be liable
for Federal income or excise taxes to which it would otherwise be subject.
Qualification as a regulated investment company does not, of course, involve
governmental supervision of management or investment practices or policies.
-20-
<PAGE>
The Fund will be treated as a separate entity from any other investment
portfolio of the Trust for tax purposes.
OTHER TAX INFORMATION
The Transfer Agent will send each shareholder a notice in January describing the
tax status of dividend and capital gain distributions (where applicable) for the
prior year.
It is expected that a portion of the Fund's dividends from net investment income
will be eligible for the dividends received deduction for corporate
shareholders. The amount of such dividends eligible for the dividends received
deduction is in general, limited to the amount of qualifying dividends from
domestic corporations received during the Fund's fiscal year. You should consult
with your tax adviser in this regard.
Any dividend or distribution received by a shareholder on shares of the Fund
will have the effect of reducing the NAV of the shares by the amount of the
dividend or distribution. Furthermore, a dividend or distribution made shortly
after the purchase of shares by a shareholder, although in effect a return of
capital to that particular shareholder, would be taxable to the shareholder as
described above.
Dividends declared in October, November or December to shareholders of record
and paid during the following January are treated as paid on December 31 for
federal income and excise tax purposes. The Fund may adjust its schedule for
dividend reinvestment for the month of December to assist in complying with
reporting and minimum distribution requirements contained in the Internal
Revenue Code.
Redemptions of Fund shares are taxable events, and, accordingly, shareholders
may recognize gains or losses on such transactions. Except for dealers, any such
gains or losses will be capital gains or losses, and will be long-term capital
gains or losses if such shares were held for more than 12 months. In the case of
an individual, any such capital gain will be taxable at the maximum rate of 20%.
In the case of a corporation, long-term capital gain is taxable at the same
rates as ordinary income. A loss realized on a redemption of Fund shares will be
disallowed if other Fund shares are acquired (whether through dividend
reinvestment or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date the shares are redeemed. In such case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss. If a
shareholder holds shares for six months or less and during that period receives
a distribution taxable to the shareholder as a capital gain, any loss realized
on the sale of the shares during that six-month period would be a long-term
capital loss to the extent of the distribution.
The Fund generally is required by law to withhold 31% ("back-up withholding") of
certain dividends, distributions of capital gains and redemption proceeds paid
to certain shareholders who do not furnish a correct taxpayer identification
number (in the case of individuals, a social security number and in the case of
entities, an employer identification number) and in certain other circumstances.
Any tax withheld as a result of backup withholding does not constitute an
additional tax imposed on the shareholder of the account, and may be claimed as
a credit on such shareholder's federal income tax
-21-
<PAGE>
return. You should consult your own tax adviser regarding the withholding
requirement. Dividends (but not distributions of long-term capital gain) paid to
foreign investors generally will be subject to a 30% (or lower treaty rate)
withholding tax.
The information above, together with the information set forth in the Prospectus
and this SAI, is only a summary of some of the federal income tax consequences
generally affecting the Fund and its shareholders, and no attempt has been made
to present a detailed explanation of the tax treatment of the Fund or to discuss
individual tax consequences. In addition to federal income taxes, shareholders
may be subject to state and local taxes on Fund distributions and on redemptions
or other dispositions of shares of the Fund, and shares may be subject to state
and local personal property taxes. Investors should consult their tax advisers
regarding specific questions as to federal, state and local taxes or to
determine whether the Fund is suitable to their particular tax situation.
Foreign shareholders should consult their tax advisers regarding foreign tax
consequences applicable to their purchase of Fund shares.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS
The Trust's independent auditors, Ernst & Young LLP, 787 Seventh Avenue, New
York, New York 10019, audit and report on the Fund's annual financial
statements, review certain regulatory reports and the Fund's federal income tax
returns, and perform other professional accounting, auditing, tax and advisory
services when engaged to do so by the Trust. Shareholders will receive annual
audited financial statements and semi-annual unaudited financial statements. The
Fund's October 31, 1999 financial statements and the report thereon of Ernst &
Young LLP from the Fund's October 31, 1999 annual report (as filed with the SEC
on December 21, 1999 pursuant to Section 30(b) of the Investment Company Act and
Rule 30b2-1 thereunder (Accession Number 0001089355-99-000071) are incorporated
herein by reference.
SHARE PRICE CALCULATION
The price of the Fund's shares on any given day is its net asset value ("NAV")
per share. NAV is calculated for the Fund on each day that the New York Stock
Exchange (the "NYSE") and the Custodian are open. Currently, the NYSE is closed
on weekends and New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. In addition to these holidays, the Custodian generally is
closed on Veteran's Day and Columbus Day.
Securities owned by the Fund for which market quotations are readily available
are valued at current market value. The Fund values its securities as follows. A
security listed or traded on an exchange (for these purposes, including the
National Association of Securities Dealers' Automated Quotation System (NASDAQ))
is valued at its last sale price (prior to the time as of which assets are
valued) on the exchange where it is principally traded. Lacking any such sales
on the day of valuation, the security is
-22-
<PAGE>
valued at the mean of the last bid and asked prices. All other securities for
which over-the-counter market quotations are readily available generally are
valued at the mean of the current bid and asked prices. When market quotations
are not readily available, securities are valued at fair value as determined in
good faith by the Board. Debt securities may be valued on the basis of
valuations furnished by pricing services that utilize electronic data processing
techniques to determine valuations for normal institutional-size trading units
of debt securities, without regard to sale or bid prices, when such valuations
are believed to more accurately reflect the fair market value of such
securities. Debt obligations with remaining maturities of 60 days or less
generally are valued at amortized cost. The amortized cost method involves
valuing a security at its cost and amortizing any discount or premium over the
period until maturity, regardless of the impact of fluctuating interest rates on
the market value of the security.
The Fund intends to conduct its operations so that its NAV per share on any
given day will approximate .001 (or 1/1000) of the closing value of the DJIA
(the "Ratio"). There can be no assurance, however, that the Fund will be able to
maintain the NAV per share at or near the Ratio. For example, as with most
mutual funds, each capital gain distribution will cause a reduction of the NAV
per share to the extent of the amount distributed. In order to maintain the
Fund's NAV per share at or near the Ratio, the Fund may employ certain
techniques, including declaring a share split, share dividend or reverse share
split. Share splits and dividends increase the number of shares outstanding,
resulting in a corresponding decrease in the NAV per share. For example, a
2-for-1 split would double the number of shares outstanding, thereby halving the
NAV per share. Conversely, reverse splits reduce the number of shares
outstanding. For example, a 1-for-2 reverse share split would halve the number
of shares outstanding, thereby doubling the NAV per share. These examples are
given to illustrate the principles relating to these techniques; the Fund's use
of these techniques is expected to have a more moderate impact on the Fund's NAV
per share. The use of any of these techniques will not change the absolute
dollar value of a shareholder's investment in the Fund (although the number of
shares and the NAV per share would change) or result in any additional tax
burden to shareholders. While it is the Fund's current intention to maintain the
Fund's NAV per share at or near the Ratio and to utilize the techniques
described in this paragraph for this purpose, the Board of Trustees may in the
future determine to change this policy. In the event that the Board of Trustees
changes this policy, shareholders will be notified.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
For additional information regarding purchasing and selling shares of the Fund,
see "How to Buy and Sell Shares" in the Prospectus.
Shares of the Fund are sold on a continuous basis by the distributor.
The minimum initial investment in shares of the Fund is $1,000. The minimum
subsequent investment is $100. Minimum requirements may be imposed or changed at
any time and the Fund may waive minimum investment requirements in its
discretion. Initial investment minimums do not apply to investments made through
a periodic
-23-
<PAGE>
investment program for investors who make a monthly investment of $100 or more
or a quarterly investment of $300 or more or to TD Waterhouse IRA accounts.
The NAV per share of the Fund is normally calculated as of the close of the
regular session of trading on the NYSE (normally 4:00 p.m. Eastern time) each
day that the NYSE and the bank which serves as the Custodian are open. To the
extent that portfolio securities are traded in other markets on days when the
NYSE or the Custodian are closed, the Fund's net asset value may be affected on
days when investors do not have access to the Fund to purchase or redeem shares.
In addition, trading in some of the Fund's portfolio securities may not occur on
days when the Trust is open for business.
The Fund will not accept electronic (internet) orders to purchase or sell its
shares between 2:00 and 4:00 p.m. (Eastern time) or telephonic orders to
purchase or sell its shares between 2:20 and 4:00 p.m. (Eastern time). Thus, if
you plan to purchase or sell shares of the Fund through the internet or by
telephone, you must complete your internet transmission or contact your TD
Waterhouse Account Officer by 2:00 or 2:20 p.m. (Eastern time), as the case may
be, in order to effect a same day purchase or sale.
If the Board of Trustees 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 the
Fund's NAV per share. 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 the
Fund's portfolio securities could result in a less diversified portfolio of
investments for the Fund and could affect adversely the liquidity of the Fund's
portfolio.
The Trust 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 the Fund may be shown in the form of
"total return" or "yield." These various measures of performance are described
below.
Quotations of performance may from time to time be used in advertisements, sales
literature, shareholder reports or other communications to shareholders or
prospective investors. All performance information supplied by the Fund is
historical and is not intended to indicate future returns. The Fund's total
return and yield fluctuate in
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<PAGE>
response to market conditions and other factors. The value of the Fund's shares
when redeemed may be more or less than their original cost.
In performance advertising, the Fund may compare its performance information
with data published by independent evaluators such as Morningstar, Inc., Lipper
Analytical Services, Inc., or other companies that track the investment
performance of investment companies ("Fund Tracking Companies"). The Fund may
also compare any of its performance information with the performance of
recognized stock, bond and other indexes, including but not limited to the Dow
Jones Industrial Average, Standard & Poor's 500 Composite Stock Index, Russell
2000 Index, Morgan Stanley - Europe, Australian and Far East Index, Lehman
Brothers Intermediate Government Index, Lehman Brothers Intermediate
Government/Corporate Index, Salomon Brothers Bond Index, Shearson Lehman Bond
Index, U.S. Treasury bonds, bills or notes and changes in the Consumer Price
Index as published by the U.S. Department of Commerce. The Fund may refer to
general market performances over past time periods such as those published by
Ibbotson Associates (for instance, its "Stocks, Bonds, Bills and Inflation
Yearbook"). In addition, the Fund may refer in such materials to mutual fund
performance rankings and other data published by Fund Tracking Companies.
Performance advertising may also refer to discussions of the Fund and
comparative mutual fund data and ratings reported in independent periodicals,
such as newspapers and financial magazines.
TOTAL RETURN CALCULATIONS
Standardized total returns quoted in advertising and sales literature reflect
all aspects of the Fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the Fund's net asset value per
share over the period. Average annual returns are calculated by determining the
growth or decline in value of a hypothetical historical investment in the Fund
over a stated period, and then calculating the annually compounded percentage
rate that would have produced the same result if the rate of growth or decline
in value had been constant over the period. For example, a cumulative return of
100% over ten years would produce an average annual return of 7.18%, which is
the steady annual rate that would equal 100% growth on a compounded basis in ten
years. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the performance is not
constant over time but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the Fund.
-25-
<PAGE>
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the end
of the applicable period, of a hypothetical $1,000 payment
made at the beginning of the applicable period.
The average annual total return of the Fund for the one year period ended
October 31, 1999 and for the period from inception through October 31, 1999 was
as follows. The Fund commenced operations on March 31, 1998.
One Year Since Inception
-------- ---------------
23.72% 15.25%
In addition to average annual returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gain and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Period total return
is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return.
The other definitions are the same as in average annual
total return above.
SEC YIELD CALCULATIONS
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. The yields of the Fund are not fixed or guaranteed, and an
investment in the Fund is not insured or guaranteed. Accordingly, yield
information may not necessarily be used to compare shares of the Fund with
investment alternatives which, like money market instruments or bank accounts,
may provide a fixed rate of interest. Also, it may not be appropriate to compare
the Fund's yield information directly to similar information regarding
investment alternatives which are insured or guaranteed.
-26-
<PAGE>
Standardized yields for the Fund used in advertising are computed by dividing
the Fund's dividend and interest income (in accordance with specific
standardized rules) for a given 30 days or one month period, net of expenses, by
the average number of shares entitled to receive distributions during the
period, dividing this figure by the Fund's NAV per share at the end of the
period and annualizing the result (assuming compounding of income in accordance
with specific standardized rules) in order to arrive at an annual percentage
rate. Capital gain and loss generally are excluded from these calculations.
Income calculated for the purpose of determining the Fund's standardized yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for the Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
OTHER ADVERTISEMENT MATTERS
The Fund may advertise other forms of performance. For example, the Fund may
quote unaveraged or cumulative total returns reflecting the change in the value
of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, and/or a series of
redemptions over any time period.
The Fund may also include various information in its advertisements. Information
included in the Fund's advertisements may include, but is not limited to (i)
portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer, industry or by maturity, (ii) statements or illustrations relating to
the appropriateness of types of securities and/or mutual funds that may be
employed by an investor to meet specific financial goals, such as funding
retirement, paying for children's education and financially supporting aging
parents, (iii) information regarding the effects of automatic investment and
systematic withdrawal plans, including the principle of dollar cost averaging,
(iv) descriptions of the Fund's portfolio manager(s) and the portfolio
management staff of the Investment Manager or summaries of the views of the
portfolio managers with respect to the financial markets, (v) the results of a
hypothetical investment in the Fund or the DJIA over a given number of years,
including the amount that the investment would be at the end of the period, (vi)
the effects of investing in a tax-deferred account, such as an individual
retirement account or Section 401(k) pension plan and (vii) the net asset value,
net assets or number of shareholders of the Fund as of one or more dates.
In connection with its advertisements, the Fund may provide information about
its Investment Manager, TD Waterhouse or any of the Fund's other service
providers, including information relating to policies, business practices or
services. For instance, the Fund may provide information about 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
-27-
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Compare 1,000 shares @ $10 2,000 shares @ $14 3,000 shares @ $12
Our Price
MERRILL LYNCH
On-Line (Wrap Accounts Only*) (Wrap Accounts Only*) (Wrap Accounts Only*)
Touch-Tone No Touch-Tone Trading No Touch-Tone Trading No Touch-Tone Trading
Live Broker $264.60 $513.00 $622.65
SCHWAB
On-Line $29.95 $59.95 $89.95
Touch-Tone $99.00 $145.44 $161.28
Live Broker $110.00 $161.60 $179.20
FIDELITY
On-Line $25.00 $45.00 $65.00
Touch-Tone $107.25 $136.00 $130.00
Live Broker $165.00 $210.00 $200.00
TD WATERHOUSE
WEBBROKER
ON-LINE $12.00 $12.00 $12.00
TOUCH-TONE $35.00 $35.00 $35.00
ACCOUNT OFFICER $45.00 $45.00 $45.00
</TABLE>
- ---------
Survey date 8/20/99. Commission rates surveyed are for stocks and may vary for
other products. Services vary by firm. Minimum commissions: on-line - $12.00,
touch-tone - $35.00, Account Officer - $45.00. As a customer of TD Waterhouse
webBroker, you must place the majority of your trades via a personal computer to
receive the flat-fee commission schedule. Trades over 5,000 shares will incur a
1 cent per share charge for the entire trade. *Merrill Wrap Accounts charge
customers a yearly fee based on assets. This information is subject to change.
The Fund may advertise information regarding the effects of periodic investment,
including the principle of dollar cost averaging. In a dollar cost averaging
program, an investor invests a fixed dollar amount in the Fund at period
intervals, thereby purchasing fewer shares when prices are high and more shares
when prices are low. While such a strategy does not ensure a profit or guard
against a loss in a declining market, the investor's average cost per share can
be lower than if fixed numbers of shares had been purchased at those intervals.
In evaluating such a plan, investors should consider their ability to continue
purchasing shares through periods of low price levels. For example, if an
investor invests $100 a month for a period of six months in the Fund the
following will be the relationship between average cost per share ($14.35 in the
example given) and average price per share:
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<TABLE>
<CAPTION>
Systematic Share Shares
Period Investment Price Purchased
- ------ ---------- ----- ---------
<S> <C> <C> <C>
1 $100 $10 10.000
2 $100 $12 8.333
3 $100 $15 6.666
4 $100 $20 5.000
5 $100 $18 5.555
6 $100 $16 6.250
---- --- -----
Total Invested $600 Avg. Price $15.17 Total Shares 41.804
</TABLE>
SHAREHOLDER INFORMATION
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board of Trustees may divide the authorized shares into an unlimited number
of separate portfolios or series and may divide portfolios or series into
classes of shares without shareholder approval. Currently, the Trust has one
series (the "Fund"). Shares are fully paid and nonassessable when issued, are
transferable without restriction, and have no preemptive or conversion rights.
Shares of the Trust have equal rights with respect to voting, except that the
holders of shares of the Fund will have the exclusive right to vote on matters
affecting only the rights of the holders of the Fund. For example, holders of a
particular investment portfolio will have the exclusive right to vote on any
investment management agreement or investment restriction that relates only to
such investment portfolio. Shareholders of the investment portfolios do not have
cumulative voting rights, and therefore the holders of more than 50% of the
outstanding shares of the Trust voting together for the election of trustees may
elect all of the members of the Board of Trustees. In such event, the remaining
holders cannot elect any members of the Board of Trustees.
The Trust will not normally hold annual shareholders' meetings. Under Delaware
law and the Trust's By-laws, an annual meeting is not required to be held in any
year in which the election of trustees is not required to be acted upon under
the Investment Company Act. The Trust's By-laws provide that special meetings of
shareholders, unless otherwise provided by law or by the Agreement and
Declaration of Trust, may be called for any purpose or purposes by a majority of
the Board of Trustees, the Chairman of the Board, the President, or the written
request of the holders of at least 10% of the outstanding shares of the Fund
entitled to be voted at such meeting to the extent permitted by Delaware law and
the By-laws of the Trust.
Currently, shareholders' voting rights are based on the number of shares that
they own. Under the Declaration of Trust, the Board of Trustees has the
authority to change the voting rights to a dollar-based voting system. Under a
dollar-based voting system, each dollar of net asset value (number of shares of
the Fund owned times its net asset value per share of such series or class, as
applicable) is entitled to one vote on any matter on which those shares are
entitled to vote and each fractional dollar amount is entitled to a
proportionate fractional vote.
-29-
<PAGE>
Each trustee serves until the next election of trustees and until the election
and qualification of his or her successor or until such trustee sooner dies,
resigns, retires or is removed by the affirmative vote of a majority of the
outstanding voting securities of the Trust. In accordance with the Investment
Company Act (i) the Trust will hold a shareholder meeting for the election of
trustees at such time as less than a majority of the trustees have been elected
by shareholders, and (ii) if, as a result of a vacancy in the Board of Trustees,
less than two-thirds of the trustees have been elected by the shareholders, that
vacancy will be filled only by a vote of the shareholders.
Delaware law provides that shareholders shall be entitled to the same limitation
of personal liability extended to stockholders of private corporations for
profit. The securities regulators of some states, however, have indicated that
they and the courts in their states may decline to apply Delaware law on this
point. To guard against this risk, the Fund's Agreement and Declaration of Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the Fund and provides for indemnification out of Fund property of any
shareholder held personally liable for obligations of the Fund. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which Delaware law does not apply (or no contractual
limitation of liability was in effect) and the portfolio is unable to meet its
obligation. In light of Delaware law and the nature of the Trust's business, the
Investment Manager believes that the risk of personal liability to shareholders
is extremely remote.
As permitted under Delaware law, the debts, liabilities, obligations and
expenses incurred, contracted for or otherwise existing with respect to a
particular series of the Trust (including the Fund) is enforceable against the
assets of that series only and not against the assets of the Trust generally or
another series of the Trust.
-30-
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits.
(a) (1) Certificate of Trust (See Note A)
(2) Agreement and Declaration of Trust (See Note A)
(b) By-Laws (See Note A)
(c) Instruments Defining Shareholder Rights (incorporated by
reference to Exhibits a and b to the Registration Statement
above)
(d) Form of Investment Management Agreement (See Note B)
(e) (1) Form of Distribution Agreement (See Note B)
(2) Form of Agency Selling Agreement (See Note B)
(f) Inapplicable
(g) (1) Form of Custody Agreement (See Note B)
(2) Form of Foreign Custody Manager Agreement (See Note B)
(h) (1) Form of Transfer Agency and Dividend Disbursing Agency
Agreement (See Note B)
(2) Form of Shareholder Servicing Plan and Related Agreements
(See Note B)
(3) Form of Administration Agreement (See Note B)
(4) Form of Subadministration Agreement (See Note B)
(5) Form of Accounting Services Agreement (See Note B)
(6) Form of State Registration Services Agreement (See Note B)
(i) Opinion and Consent of Swidler Berlin Shereff Friedman, LLP as
to legality of the securities being registered (See Note B)
(j) Consent of Independent Auditors (filed herewith)
(k) Inapplicable
(l) Purchase Agreement (See Note B)
(m) Inapplicable
(n) Financial Data Schedules (filed herewith)
(o) Inapplicable
Other Exhibit:
<PAGE>
Power of Attorney for Richard Dalrymple, Carolyn B. Lewis, George F.
Staudter and Lawrence Toal dated September 8, 1999 (See Note B)
Note A: Filed as an exhibit to Registrant's Registration Statement on Form
N-1A, File Nos. 333-84623; 811-9519, on August 6, 1999, and
incorporated herein by reference.
Note B: Filed as an exhibit to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement, File Nos. 333-84623; 811-9519, on November 5,
1999, and incorporated herein by reference.
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940, as amended (the "Investment Company Act"), and pursuant to Article VII of
the Agreement and Declaration of Trust (Exhibit (a)(2) to the Registration
Statement) and Article XI of the Trust's By-Laws (Exhibit (b) to the
Registration Statement), officers, trustees, employees and agents of the
Registrant will not be liable to the Registrant, any stockholder, officer,
director, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 3817 of the Delaware Business Trust permits indemnification of trustees
who acted in good faith and reasonably believed that the conduct was in the best
interest of the Registrant. As permitted by Section 17(i) of the Investment
Company Act, pursuant to Section 1.9 of the Distribution Agreement (see Item
23(e)(1)), the Distributor of the Registrant may be indemnified against
liabilities which it may incur, except liabilities arising from bad faith, gross
negligence, willful misfeasance or reckless disregard of duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to trustees,
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 Securities and Exchange Commission such indemnification is against public
policy as expressed in the Investment Company 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 trustee, officer or controlling person of the Registrant in connection
with the successful defense of any action, suit or proceeding) is asserted
against the Registrant by such trustee, officer or controlling person in
connection with the shares 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 Investment
Company Act and will be governed by the final adjudication of such issue.
The Registrant has purchased an insurance policy insuring its officers
and trustees against liabilities, and certain costs of defending claims against
such officers and trustees, to the extent such officers and trustees are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and trustees under certain circumstances.
Section 6 of the Investment Management Agreement (see Item 23(d))
limits the liability of the Investment Manager to liabilities arising from
willful misfeasance, bad faith or gross negligence in the performance of its
duties or from reckless disregard by it of its obligations and duties under the
agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and the Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the
Investment Company Act as long as the interpretation of Section 17(h) and 17(i)
of such Act remains in effect and is consistently applied.
<PAGE>
Item 26. Business and Other Connections of Investment Adviser.
The following persons are the directors and officers of the Investment
Manager:
DAVID HARTMAN*, Senior Vice President and Chief Investment Officer. From
February 1995 through August 1995, Mr. Hartman served as Senior Vice President
and Senior Portfolio Manager of Fixed Income Separate Accounts at Mitchell
Hutchins - Paine Webber.
RICHARD H. NEIMAN*, Director, Executive Vice President, General Counsel and
Secretary. Mr. Neiman has served as Executive Vice President, General Counsel,
Director and Secretary of TD Waterhouse Holdings, Inc. since July 1994. Mr.
Neiman also serves in similar capacities for TD Waterhouse Investor Services,
Inc.
FRANK J. PETRILLI*, Director, Chairman, President and Chief Executive
Officer. Mr. Petrilli has served as Chairman, President and Chief Executive
Officer of TD Waterhouse Asset Management, Inc. since January 1997. Mr. Petrilli
has served as President and Chief Operating Officer of TD Waterhouse Group, Inc.
since June 1999. Mr. Petrilli has served as Chief Executive Officer of TD
Waterhouse Holdings, Inc. since March 1998 and President since January 1995. He
also served as Chief Operating Officer of TD Waterhouse Holdings, Inc. from
January 1995 to March 1998. Since August 1998, Mr. Petrilli has served as
Director and Vice Chairman of TD Waterhouse Investor Services, Inc.
B. KEVIN STERNS**, Senior Vice President, Chief Financial Officer and
Treasurer. Mr. Sterns has served as Executive Vice President, Chief Financial
Officer and Treasurer of TD Waterhouse Holdings, Inc. and TD Waterhouse Investor
Services Inc. since October 1996. Prior to that, Mr. Sterns served as Director
of Toronto-Dominion Bank from October 1970 to October 1996.
MICHELE R. TEICHNER*, Senior Vice President Operations and Compliance. Ms.
Teichner has been serving as Senior Vice President of TD Waterhouse Asset
Management, Inc. since August 1996, with responsibility for operations and
compliance.
LAWRENCE M. WATERHOUSE, Jr.*, Director. Mr. Waterhouse has served as
Chairman of TD Waterhouse Holdings, Inc. since its inception in 1987 and Chief
Executive Officer from August 1989 to March 1998. Mr. Waterhouse is the founder
of TD Waterhouse Investor Services, Inc. and has served as Chief Executive
Officer since its inception in March 1979. Mr. Waterhouse has been a Director of
TD Waterhouse Group, Inc. since June 1999. Mr. Waterhouse also serves as
Chairman of TD Waterhouse Bank, N.A. and Director of National Investor Services
Corp. since July 1994 and September 1995, respectively.
* Address: 100 Wall Street, New York, NY 10005
** Address: 55 Water Street, New York, NY 10041
Item 27. Principal Underwriters.
(a) Funds Distributor, Inc. (the "Distributor") acts as principal
underwriter for the following other 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
<PAGE>
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Global Funds, Inc.
Dresdner RCM Investment Funds Inc.
J.P. Morgan Institutional Funds
J.P. Morgan Funds
JPM Series Trust
JPM Series Trust II
LaSalle Partners Funds, Inc.
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
Saratoga Advantage Trust
SG Cowen Funds, Inc.
SG Cowen Income + Growth Fund, Inc.
SG Cowen Standby Reserve Fund, Inc.
SG Cowen Standby Tax-Exempt Reserve Fund, Inc.
SG Cowen Series Funds, Inc.
SoGen Funds, Inc.
SoGen Variable Funds, Inc.
St. Clair Funds, Inc.
The Skyline Funds
TD Waterhouse Family of Funds, Inc.
WEBS Index Fund, Inc.
Funds Distributor is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National Association of
Securities Dealers. Funds Distributor is an indirect wholly-owned subsidiary of
Boston Institutional Group, Inc., a holding company all of whose outstanding
shares are owned by key employees.
(b) The following is a list of the executive officers, directors and
partners of Funds Distributor, Inc.
<TABLE>
<CAPTION>
<S> <C> <C>
Position and Offices with Funds Distributor Name Position and Offices with Fund
Director, President and Chief Executive Officer Marie E. Connolly None
Executive Vice President George A. Rio President, Treasurer and Chief
Financial Officer
Executive Vice President Donald R. Roberson None
Executive Vice President William S. Nichols None
Senior Vice President, General Counsel, Chief Margaret W. Chambers None
Compliance Officer, Secretary and Clerk
Director, Senior Vice President, Treasurer and Joseph F. Tower, III None
Chief Financial Officer
Senior Vice President Paula R. David None
Senior Vice President Gary S. MacDonald None
Senior Vice President Judith K. Benson None
Chairman and Director William J. Nutt None
</TABLE>
(c) Not applicable.
Item 28. Location of Accounts and Records.
All accounts, books and other documents required to be maintained
pursuant to Section 31(a) of the Investment Company Act and the Rules thereunder
are maintained at the offices of the Registrant, the offices of the Registrant's
Investment Adviser 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 and
Dividend Disbursing Agent, National Investor Services Corp., 55 Water Street,
New York, New York 10041; (iii) in the case of records concerning distribution,
administration and certain other functions, at the offices of the Fund's
Distributor and Sub-Administrator, Funds Distributor, Inc., 60 State Street,
Suite 1300, Boston, Massachusetts 02109; and (iv) in the case of records
concerning fund accounting functions, at the offices of the Fund's fund
accountant, Countrywide Fund Services Inc., 312 Walnut Street, Cincinnati, Ohio
45202.
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Boston and Commonwealth of
Massachusetts on the 23rd day of December, 1999.
TD WATERHOUSE TRUST
Registrant
By /s/ Christopher J. Kelley
Christopher J. Kelley
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below on behalf of the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ George A. Rio President, Treasurer December 23, 1999
George A. Rio and Chief Financial
Officer
George F. Staudter* Chairman of the Board
and Trustee
Richard W. Dalrymple* Trustee
Carolyn B. Lewis* Trustee
Lawrence J. Toal* Trustee
*By /s/ Richard H. Neiman December 23, 1999
Richard H. Neiman
Attorney-in-Fact pursuant to a power
of attorney
</TABLE>
<PAGE>
INDEX TO EXHIBITS
(j) Consent of Independent Auditors
(n) Financial Data Schedules
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors and Reports to Shareholders" and to the
use of our report on the TD Waterhouse Dow 30 Fund dated December 2, 1999, which
is incorporated by reference, in this Registration Statement (Form N-1A No.
333-84623) of TD Waterhouse Trust.
ERNST & YOUNG LLP
New York, New York
December 23, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the TD
Waterhouse Trust Annual Report for the period ended October 31, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001092395
<NAME> TD WATERHOUSE TRUST
<SERIES>
<NUMBER> 1
<NAME> TD WATERHOUSE DOW 30 FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<INVESTMENTS-AT-COST> 158,658,654
<INVESTMENTS-AT-VALUE> 175,803,253
<RECEIVABLES> 24,986,415
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 31,042
<TOTAL-ASSETS> 200,820,710
<PAYABLE-FOR-SECURITIES> 24,905,817
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 603,448
<TOTAL-LIABILITIES> 25,509,265
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 155,692,173
<SHARES-COMMON-STOCK> 16,340,850
<SHARES-COMMON-PRIOR> 7,242,140
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,474,673
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,144,599
<NET-ASSETS> 175,311,445
<DIVIDEND-INCOME> 1,889,583
<INTEREST-INCOME> 28,304
<OTHER-INCOME> 0
<EXPENSES-NET> 295,431
<NET-INVESTMENT-INCOME> 1,622,456
<REALIZED-GAINS-CURRENT> 2,545,555
<APPREC-INCREASE-CURRENT> 17,310,316
<NET-CHANGE-FROM-OPS> 21,478,327
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,625,180
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,233,177
<NUMBER-OF-SHARES-REDEEMED> 6,294,226
<SHARES-REINVESTED> 159,759
<NET-CHANGE-IN-ASSETS> 113,100,391
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (68,158)
<OVERDISTRIB-NII-PRIOR> 739
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 236,182
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 810,755
<AVERAGE-NET-ASSETS> 118,399,466
<PER-SHARE-NAV-BEGIN> 8.59
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 2.14
<PER-SHARE-DIVIDEND> 0.14
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.73
<EXPENSE-RATIO> 0.25
</TABLE>
