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1999
ANNUAL REPORT
October 31, 1999
TD Waterhouse
Dow 30
Fund
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TD WATERHOUSE TRUST
BOARD OF TRUSTEES AND EXECUTIVE OFFICERS
<S> <C> <C>
TRUSTEES EXECUTIVE OFFICERS
GEORGE F. STAUDTER CAROLYN B. LEWIS GEORGE A. RIO*
Director of Koger Equity, Inc. President of President, Treasurer
Independent Financial Consultant The CBL Group and Chief Financial Officer
RICHARD W. DALRYMPLE LAWRENCE J. TOAL CHRISTOPHER J. KELLEY*
President of Teamwork Mgmt., Inc. Chairman/President/CEO of Vice President and Secretary
Dime Bancorp, Inc.
<FN>
*Affiliated person of the Distributor
</FN>
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TD WATERHOUSE ASSET MANAGEMENT, INC.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
<S> <C> <C>
DIRECTORS
LAWRENCE M. WATERHOUSE, JR. FRANK J. PETRILLI RICHARD H. NEIMAN
Chairman Chairman, President and Executive Vice President,
TD Waterhouse Holdings, Inc. Chief Executive Officer General Counsel and Secretary
SENIOR OFFICERS
DAVID A. HARTMAN B. KEVIN STERNS MICHELE R. TEICHNER
Senior Vice President Executive Vice President Senior Vice President
Chief Investment Officer Chief Financial Officer & Treasurer Operations & Compliance
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SERVICE PROVIDERS
<S> <C> <C>
INVESTMENT MANAGER TRANSFER AGENT INDEPENDENT AUDITORS
TD Waterhouse Asset Management, Inc. National Investors Services Corp. Ernst & Young LLP
100 Wall Street 55 Water Street 787 Seventh Avenue
New York, NY 10005 New York, NY 10041 New York, NY 10019
ADMINISTRATOR & CUSTODIAN LEGAL COUNSEL
SHAREHOLDER SERVICING The Bank of New York Swidler Berlin Shereff
TD Waterhouse Investor Services, Inc. 100 Church Street Friedman, LLP
100 Wall Street New York, NY 10286 405 Lexington Avenue
New York, NY 10005 New York, NY 10174
Customer Service Department DISTRIBUTOR
1-800-934-4448 Funds Distributor, Inc.
60 State Street
Boston, MA 02109
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TD WATERHOUSE DOW 30 FUND
DEAR SHAREHOLDER:
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We are pleased to provide you with the annual report for the TD Waterhouse Dow
30 Fund (the "Fund") for the fiscal year ended October 31, 1999. The Dow Jones
Industrial Average/SM ("DJIA"/SM) rose from 8,592.10 on October 31, 1998 to
10,729.86 on October 31, 1999. The DJIA roared past the 9,000 and 10,000
barriers for the first time ever, and even crossed above 11,000 several times,
peaking at 11,325 in late August before bottoming at 10,020 in mid-October. On a
total return basis, which includes reinvested dividends, the annual return for
the DJIA was +26.97%. Your Fund had a total return for the same period of
+26.72%, after expenses. Since the investment objective of the Fund is to match
the performance of the DJIA before Fund expenses, we are pleased with these
results. As with any investment, past performance is no guarantee of future
results and there is no guarantee that the Fund's investment objective will be
achieved in the future. We will continue to work diligently seeking to achieve
the objective of the Fund and to provide our shareholders with an investment
vehicle designed to closely emulate the performance of the DJIA.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
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<S> <C> <C> <C> <C> <C> <C> <C>
3/30/98 4/30/98 5/31/98 6/30/98 7/31/98 8/31/98 9/30/98
Dow 30 Fund $10,000.00 $10,324.82 $10,162.94 $10,234.98 $10,161.24 $ 8,646.34 $ 9,008.32
DIJA Index $10,000.00 $10,328.48 $10,170.18 $10,245.24 $10,171.23 $ 8,652.88 $ 9,014.46
10/31/98 11/30/98 12/31/98 1/31/99 2/28/99 3/31/99 4/30/99
Dow 30 Fund $9,874.30 $10,503.96 $10,592.72 $10,802.14 $10,768.08 $ 11,338.80 $12,505.09
DIJA Index $9,879.56 $10,507.42 $10,594.84 $10,803.44 $10,767.91 $ 11,336.26 $12,500.03
5/31/99 6/30/99 7/31/99 8/31/99 9/30/99 10/31/99
Dow 30 Fund $12,267.22 $12,759.93 $12,399.21 $12,631.30 $12,072.40 $ 12,537.48
DIJA Index $12,255.08 $12,747.73 $12,384.68 $12,614.08 $12,052.36 $ 12,517.46
---------------------------------------------------
Dow 30 Fund Average Annual Return as of 10/31/99:
One Year: 26.72%
Since Inception (3/30/98): 15.25%
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<FN>
Note: Performance data quoted represents past performance. As with all
investments, past performance is no guarantee of future results. The
return is based on a constant investment throughout the period, includes
reinvestment of dividends and reflects a net return to the shareholders
after all expenses, inclusive of fee waivers. Without these waivers, the
Fund's total return would have been lower. The returns shown for the DJIA
reflect the reinvestment of dividends, but do not include any expenses,
since an index has none. It is not possible to invest in an index.
The investment return and principal value of an investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
</FN>
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The price performance of each of the DJIA stocks during the twelve months ended
October 31, 1999 is shown in the chart on the following page. Partially
reflective of strong share price performances, eight companies in the index
executed stock splits during this period. Additionally, General Motors Corp.
executed a spin-off of its Delphi Automotive unit.
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<CAPTION>
Price Price
Appreciation* DJIA Component Appreciation* DJIA Component
<S> <C> <C> <C>
74.3% American Express Co. 22.8% Caterpillar Inc.
72.5% Citigroup Inc. 18.8% Minnesota Mining & Mfg Co.
64.3% Wal-Mart Stores, Inc. 18.0% The Proctor & Gamble Co.
58.4% Union Carbide Corp. 17.7% Merck & Co., Inc.
54.9% General Electric Co. 13.3% International Paper Co.
53.3% Alcoa Inc. 12.7% AT&T Corp.
46.2% AlliedSignal Inc. 12.1% E.I. du Pont de Nemours and Co.
38.9% J.P. Morgan & Co., Inc. 12.0% Chevron Corp.
34.8% General Motors Corp. 3.9% Exxon Corp.
32.5% Int'l Business Machines Corp. -2.1% The Walt Disney Co.
28.5% Johnson & Johnson -11.0% Eastman Kodak Co.
27.0% United Technologies Corp. -12.8% The Coca-Cola Company
23.4% McDonald's Corp. -23.3% The Goodyear Tire & Rubber Co.
23.1% Hewlett-Packard Co. -37.3% Sears, Roebuck and Co.
22.8% The Boeing Co. -50.7% Philip Morris Cos. Inc.
(C) 1999 Dow Jones & Company
<FN>
Notes: *Percentages reflect each stock's price appreciation only. They do not
include reinvested dividends. The stocks are listed from the best
performer to the worst over the most recent twelve month period.
Performance quoted represents past performance and is not a guarantee of
future results. The Fund sold the common stock of Chevron Corp., The
Goodyear Tire & Rubber Co., Sears, Roebuck and Co., and Union Carbide
Corp. on the last day of the fiscal year to coincide with their deletion
from the DJIA effective November 1, 1999. The Fund purchased the common
stock of Home Depot, Intel Corp., Microsoft Corp., and SBC Communications
Inc. on the last day of the fiscal year to coincide with their addition
to the DJIA effective November 1, 1999. Thus, the price appreciation for
these stocks is not included here.
</FN>
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The U.S. stock market's performance over the Fund's most recent fiscal year was
influenced by several factors. On the positive side, the stock market was buoyed
by the overall strength of the economy and corporate earnings. The expansion of
the U.S. economy continued to roll along, as gross domestic product ("GDP")
posted growth of roughly 4.0% throughout the first nine months of 1999 on a
year-over-year basis. On the negative side, tight labor markets created fears of
inflationary pressures. The Federal Reserve reacted by boosting its target Fed
Funds rate three times in 1999 in an effort to slow the economy and diminish the
potential of a wage-related bout of inflation. Long-term interest rates rose
dramatically over the period reflecting these concerns as well. Although
inflation generally remains in check, it has quietly risen from 1.6% in the
beginning of 1999 to roughly 2.5% recently.
Looking forward to the next twelve months, the market's direction will likely be
primarily affected by interest rates, inflationary trends, corporate profits,
potential Y2K issues and money investment flows. Additionally, although last
year's turmoil in Asia, Latin America and other emerging markets seems to have
settled down, another round of disruptions from these areas cannot be ruled out.
In light of today's economic and market environments, we believe the overall
quality and underlying financial strength of the companies comprising the DJIA
can provide a solid investment foundation for our shareholders' investments in
the Fund.
Thank you for voting on the proposal to reorganize the Fund as a Delaware
business trust. We appreciate your support and are pleased to let you know that
this reorganization was completed on November 5, 1999. There has been no change
in the day-to-day operations of the Fund.
We welcome additional investments into the Fund, and provide a number of
attractive ways to invest or add to current positions. The minimum initial
investment is $1,000 and $100 for subsequent purchases, although these minimums
may be waived for existing customers of TD Waterhouse Investor Services, Inc.
("TD Waterhouse"). For TD Waterhouse IRA accounts, there are no minimum or
subsequent investment requirements. A periodic investment plan is also available
which requires a minimum investment of $100 monthly or $300 quarterly. Keep in
mind, however, that periodic investing neither guarantees a profit nor protects
against a loss in a declining market. You may contact TD Waterhouse's mutual
funds service department at 1-800-457-6516 or your local branch office for more
information.
Sincerely,
/s/Frank J. Petrilli
Frank J. Petrilli
President and Chief Operating Officer
TD Waterhouse Group, Inc.
December 8, 1999
An investment in the Fund is neither FDIC-insured nor guaranteed by the U. S.
Government and is not a deposit or obligation guaranteed by any bank and is
subject to investment risk, including possible loss of the principal amount
invested.
Distributor: Funds Distributor, Inc.
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TABLE OF CONTENTS
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Schedule of Investments ......................................................6
Statement of Assets and Liabilities ..........................................7
Statement of Operations ......................................................8
Statement of Changes in Net Assets ...........................................9
Financial Highlights ........................................................10
Notes to Financial Statements ...............................................11
Report of Independent Auditors ..............................................15
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TD WATERHOUSE DOW 30 FUND
SCHEDULE OF INVESTMENTS
October 31, 1999
NUMBER OF
SHARES VALUE
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<S> <C> <C>
COMMON STOCKS
Alcoa Inc. 79,450 $ 4,826,587
AlliedSignal Inc. 79,450 4,523,684
American Express Co. 79,450 12,235,300
AT&T Corp. 79,450 3,714,288
The Boeing Co. 79,450 3,659,666
Caterpillar Inc. 79,450 4,389,612
Citigroup Inc. 79,450 4,300,231
The Coca-Cola Company 79,450 4,687,550
E.I. du Pont de Nemours and Co. 79,450 5,119,559
Eastman Kodak Co. 79,450 5,477,084
Exxon Corp. 79,450 5,884,266
General Electric Co. 79,450 10,770,441
General Motors Corp. 79,450 5,581,362
Hewlett-Packard Co. 79,450 5,884,266
Home Depot Inc. 79,450 5,998,475
Intel Corp. 79,450 6,152,409
International Business Machines Corp. 79,450 7,815,894
International Paper Co. 79,450 4,181,056
J.P. Morgan & Co., Inc. 79,450 10,398,019
Johnson & Johnson 79,450 8,322,388
McDonald's Corp. 79,450 3,277,312
Merck & Co., Inc. 79,450 6,321,241
Microsoft Corp.(A) 79,450 7,354,091
Minnesota Mining & Manufacturing Co. 79,450 7,552,716
Philip Morris Cos. Inc. 79,450 2,001,147
The Proctor & Gamble Co. 79,450 8,332,319
SBC Communications Inc. 79,450 4,046,984
United Technologies Corp. 79,450 4,806,725
Wal-Mart Stores, Inc. 79,450 4,538,581
The Walt Disney Co. 79,450 2,095,494
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TOTAL COMMON STOCKS (cost $157,172,333)--99.4% 174,248,747
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OTHER (cost $1,207,321)-- 0.7%
Diamonds/SM Trust, Series 1 11,860 1,275,506
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REPURCHASE AGREEMENTS--0.2%
ABN AMRO Inc. (Par Value & Cost $279,000)
~dated 10/29/99, due 11/1/99, 5.32%, in the amount of $279,123
~fully collateralized by $305,699 FNMA mortgage backed bond,
6.00%,
due 10/1/29, value $284,580 279,000
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TOTAL INVESTMENTS (cost $158,658,654)--100.3% 175,803,253
OTHER ASSETS AND LIABILITIES, NET--(0.3%) (491,808)
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NET ASSETS--100.0% $175,311,445
============
<FN>
(A) Non-income producing security
</FN>
Please see accompanying notes to financial statements.
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TD WATERHOUSE DOW 30 FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
<S> <C>
ASSETS
Investments in securities, at value (cost $158,658,654) $175,803,253
Cash 31,042
Receivable for investment securities sold 24,297,515
Receivable for capital shares sold 575,298
Dividends and interest receivable 99,518
Due from Investment Manager (Note 3) 14,084
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TOTAL ASSETS 200,820,710
LIABILITIES
Payable for investment securities purchased 24,905,817
Payable for capital shares redeemed 512,148
Other accrued expenses 91,300
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TOTAL LIABILITIES 25,509,265
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NET ASSETS $175,311,445
============
Net assets consist of:
Paid-in capital $155,692,173
Accumulated net realized gains from security transactions 2,474,673
Net unrealized appreciation on investments 17,144,599
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Net assets, at value $175,311,445
============
Shares outstanding ($.0001 par value shares of beneficial interest,
10 billion shares authorized) 16,340,850
============
Net asset value, redemption price and offering price per share (Note 2) $ 10.73
============
Please see accompanying notes to financial statements.
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TD WATERHOUSE DOW 30 FUND
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1999
<S> <C>
INVESTMENT INCOME
Dividend income $ 1,889,583
Interest income 28,304
------------
TOTAL INVESTMENT INCOME 1,917,887
------------
EXPENSES
Shareholder servicing fees (Note 3) 295,229
Investment management fees (Note 3) 236,182
Transfer agent fees (Note 3) 59,048
Registration fees 71,601
Professional fees 50,392
Shareholder reports and mailing 41,131
Custody fees (Note 2) 29,409
Trustees' fees and expenses 11,355
Other expenses 16,408
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TOTAL EXPENSES 810,755
Fees waived/expenses reimbursed by the Investment Manager
and its affiliates (Note 3) (515,324)
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NET EXPENSES 295,431
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NET INVESTMENT INCOME 1,622,456
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REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions 2,545,555
Net change in unrealized appreciation/depreciation on investments 17,310,316
------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 19,855,871
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 21,478,327
============
Please see accompanying notes to financial statements.
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TD WATERHOUSE DOW 30 FUND
STATEMENT OF CHANGES IN NET ASSETS
Year Period
Ended Ended
October 31, October 31,
1999 1998*
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,622,456 $ 247,604
Net realized gains (losses) from security transactions 2,545,555 (68,158)
Net change in unrealized appreciation/depreciation on investments 17,310,316 (165,717)
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Net increase in net assets from operations 21,478,327 13,729
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DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1,622,456) (247,604)
In excess of net investment income (2,724) (739)
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Total distributions to shareholders (1,625,180) (248,343)
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CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 155,677,326 70,986,821
Shares issued in reinvestment of dividends 1,625,180 248,343
Payments for shares redeemed (64,055,262) (8,789,496)
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Net increase in net assets from capital share transactions 93,247,244 62,445,668
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TOTAL INCREASE IN NET ASSETS 113,100,391 62,211,054
NET ASSETS:
Beginning of period 62,211,054 --
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End of period $ 175,311,445 $ 62,211,054
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CAPITAL STOCK TRANSACTIONS:
Shares sold 15,233,177 8,264,395
Shares issued for dividends reinvested 159,759 30,046
Shares redeemed (6,294,226) (1,052,301)
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Net increase in shares outstanding 9,098,710 7,242,140
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<FN>
*The Fund commenced operations on March 31, 1998.
</FN>
Please see accompanying notes to financial statements.
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TD WATERHOUSE DOW 30 FUND
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of beneficial interest outstanding, total
investment return, ratios to average net assets and other supplemental data for the periods indicated. This
information has been derived from the Fund's financial statements.
Year Period
Ended Ended
October 31, October 31,
1999 1998*
<S> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $8.59 $8.78
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Investment Operations
Net investment income 0.14 0.08
Net realized and unrealized gains (losses) on investments 2.14 (0.19)
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TOTAL FROM INVESTMENT OPERATIONS 2.28 (0.11)
Distributions from net investment income (0.14) (0.08)
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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 ratio due to
waivers/reimbursements by the Investment Manager
and its affiliates (Note 3) 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>
Please see accompanying notes to financial statements.
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TD WATERHOUSE DOW 30 FUND
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 1999
NOTE 1 -- ORGANIZATION
TD Waterhouse Trust (the "Trust") was organized as a Delaware business trust on
August 6, 1999. Formerly, TD Waterhouse Dow 30 Fund (the "Fund") was a portfolio
of TD Waterhouse Family of Funds, Inc. and reorganized as portfolio of the Trust
on November 5, 1999. The Trust is registered as an open-end management
investment company with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "Act"). Shares of beneficial
interest of the Trust are registered under the Securities Act of 1933, as
amended. On September 20, 1999, the Fund changed its name from Waterhouse Dow 30
Fund to its present name. The investment objective of the Fund is to seek to
track the total return of the Dow Jones Industrial Average/SM before Fund
expenses. The Fund commenced operations on March 31, 1998. It is a
non-diversified portfolio.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Fund's significant accounting policies:
Share Valuation -- The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding. The offering price and redemption price per share
are equal to the net asset value per share.
Securities Valuation -- The Fund's portfolio securities are valued as of the
close of business of the regular session of the New York Stock Exchange
(normally 4:00 p.m., Eastern Time). Securities which are traded over-the-counter
are valued at the last sales price, if available, otherwise, at the last quoted
bid price. Securities traded on a national stock exchange are valued based upon
the closing price on the principal exchange where the security is traded.
Repurchase Agreements -- The Fund may enter into repurchase agreements with
financial institutions deemed to be creditworthy by the Fund's Investment
Manager, subject to the seller's agreement to repurchase and the Fund's
agreement to resell such securities at a mutually agreed upon price. Securities
purchased subject to repurchase agreements are deposited with the Fund's
custodian and, pursuant to the terms of the repurchase agreement, must have an
aggregate market value greater than or equal to the repurchase price plus
accrued interest at all times. If the value of the underlying securities falls
below the value of the repurchase price plus accrued interest, the Fund will
require the seller to deposit additional collateral by the next business day. If
the request for additional collateral is not met, or the seller defaults on its
repurchase obligation, the Fund maintains the right to sell the underlying
securities at market value and may claim any resulting loss against the seller.
Investment Income -- Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date. Under the terms of the custody agreement, the
Fund receives net earnings credits based on available cash balances left on
deposit. Income earned under this arrangement is included in interest income.
Distributions to Shareholders -- Dividends arising from net investment income,
if any, are declared daily and paid monthly. Net realized short-term capital
gains, if any, may be distributed during the year and net realized long-term
capital gains, if any, are distributed at least once each year. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations.
Securities Transactions -- Securities transactions are accounted for on the
trade date. Realized gain and loss from securities transactions are recorded on
a specific identification basis.
Expenses -- Expenses directly attributable to the Fund are charged to the Fund's
operations. Allocation of Trust and, formerly TD Waterhouse Family of Funds,
Inc. expenses are made on a pro rata basis for expenses incurred on behalf of
all portfolios.
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TD WATERHOUSE DOW 30 FUND
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 1999
(CONTINUED)
Use of Estimates -- The Fund's financial statements are prepared in accordance
with generally accepted accounting principles, which may require the use of
management estimates and assumptions. Actual results could differ from these
estimates.
Federal Income Taxes -- It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code available to regulated investment
companies. As provided therein, in any fiscal year in which the Fund so
qualifies, and distributes at least 90% of its taxable net income, the Fund (not
the shareholders) will be relieved of Federal income tax on the income
distributed. Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
Reclassification of Capital Components -- As of October 31, 1999, the following
reclassification was made to increase (decrease) such accounts with offsetting
adjustments made to paid-in capital:
Accumulated Accumulated Net
Undistributed Net Realized Gain/(Loss)
Investment Income on Investments
-------------------- ----------------------
$3,463 $(2,724)
NOTE 3 -- INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES OF
THE INVESTMENT MANAGER
Under the terms of an Investment Management Agreement with TD Waterhouse Asset
Management, Inc. (the "Investment Manager"), a majority-owned subsidiary of The
Toronto-Dominion Bank, for the investment management services furnished to the
Fund, the Fund pays the Investment Manager an annual investment management fee,
equal to .20 of 1% of the average daily net assets of the Fund. The Investment
Manager currently anticipates that it will limit the Fund's overall expense
ratio to no more than 0.25%. For the year ended October 31, 1999, the Investment
Manager voluntarily waived its entire investment management fee of $236,182 and
reimbursed the Fund $56,405 for other operating expenses.
TD Waterhouse Investor Services, Inc. ("TD Waterhouse"), an affiliate of the
Investment Manager, has been retained under an Administration Agreement to
perform certain administrative services for the Fund. For the administrative
services rendered to the Fund, the Investment Manager (not the Fund) pays TD
Waterhouse a monthly fee at an annual rate of .10 of 1% of the Fund's average
daily net assets.
TD Waterhouse has been retained under a Shareholder Services Agreement to
perform certain shareholder services necessary for the operation of the Fund.
The shareholder service plan adopted by the Fund provides that the Fund pay TD
Waterhouse, a monthly fee at an annual rate of .25 of 1% of average daily net
assets. For the year ended October 31, 1999, TD Waterhouse voluntarily waived
$172,136 of its shareholder servicing fee for the Fund.
The Fund has entered into a Transfer Agency and Dividend Disbursing Agency
Agreement with National Investor Services Corp. (the "Transfer Agent"), an
affiliate of the Investment Manager, to perform transfer and dividend disbursing
agency-related services. For such services, the Fund pays the Transfer Agent a
monthly fee at an annual rate of .05 of 1% of average daily net assets. For the
year ended October 31, 1999, the Transfer Agent voluntarily waived $50,601 of
its transfer agent fee for the Fund.
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TD WATERHOUSE DOW 30 FUND
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 1999
(CONTINUED)
Each Trustee who is not an "interested person" ("independent Trustee") as
defined in the Act, who serves on the Board of Trustees/Directors of one or more
portfolios in the "Fund Complex" (which includes the Trust, TD Waterhouse Family
of Funds, Inc. and National Investors Cash Management Fund, Inc.) receives:
1. a base annual retainer of $12,000, payable quarterly.
2. a supplemental annual retainer of $5,000, if serving on the Board of
Trustees/Directors of more than one company in the Fund Complex, and
3. a meeting fee of $2,000 for each meeting attended.
Compensation is allocated between the companies and among the respective
portfolios.
The Fund placed all of its portfolio transactions with TD Waterhouse. There were
no commissions paid to TD Waterhouse for the year ended October 31, 1999.
NOTE 4 - INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of investment securities, other
than short-term investments, amounted to $148,178,844 and $54,733,558
respectively, for the year ended October 31, 1999.
The cost of portfolio investments for Federal income tax purposes was
$159,238,519 as of October 31, 1999. Accordingly, the Fund had net unrealized
appreciation for Federal income tax purposes aggregating $16,564,734, consisting
of $19,659,714 gross unrealized appreciation and $3,094,980 gross unrealized
depreciation. The difference between the Federal income tax cost of portfolio
investments and the financial statement cost is due to certain timing
differences in the recognition of capital losses under income tax regulations
and generally accepted accounting principles.
NOTE 5 -- SHAREHOLDER MEETING (UNAUDITED)
At a Special Meeting of Shareholders on October 20, 1999, shareholders of the
Fund voted in favor of reorganizing the Fund into a Delaware business trust. A
summary of the resulting votes is presented below.
For Against Abstain Total
---------- --------- --------- ----------
7,404,529 171,745 283,696 7,859,970
The Fund reorganized as a portfolio of the Trust on November 5, 1999.
NOTE 6 -- FEDERAL TAX INFORMATION (UNAUDITED)
As requested by Federal regulations, shareholders will receive notification of
their portion of the Fund's taxable ordinary dividends and capital gains
distributions paid, (if any), for the 1999 calendar year early in 2000.
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13
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TD WATERHOUSE DOW 30 FUND
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 1999
(CONTINUED)
NOTE 7 -- SUBSEQUENT EVENT
On December 3, 1999, the Fund paid a capital gain distribution to shareholders
of record on December 2, 1999 in the amount of $0.18 per share (the short-term
capital gain distribution was $0.08 per share and the long-term capital gain
distribution was $0.10 per share). On the same day, the Fund declared a reverse
share split with a factor of 0.983262 in order to restore the Fund's net asset
value per share to at or near .001 (or 1/1000) of the closing value of the Dow
Jones Industrial Average.
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This Report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus.
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Report of Independent Auditors
Shareholders and Board of Trustees
TD Waterhouse Dow 30 Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the TD Waterhouse Dow 30 Fund (a portfolio of TD
Waterhouse Trust) as of October 31, 1999, and the related statement of
operations for the year then ended, and the statement of changes in net assets
and financial highlights for the year then ended and for the period from March
31, 1998 (commencement of operations) to October 31, 1998. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1999, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the TD
Waterhouse Dow 30 Fund at October 31, 1999, the results of its operations for
the year then ended, and the changes in its net assets and the financial
highlights for the year then ended and for the period from March 31, 1998 to
October 31, 1998, in conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
New York, New York
December 2, 1999
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