<PAGE>
WATERHOUSE
DOW 30 FUND
PROSPECTUS
DECEMBER 18, 1998
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.
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ABOUT THE FUND
Investment Objective
Investment Approach
Risks
Who May Want to Invest
Expenses
ABOUT THE DOW JONES INDUSTRIAL AVERAGE(Service Mark)
HOW TO BUY AND SELL SHARES
How to Buy Shares
How to Sell Shares
Telephone Transactions
Brokerage Account Requirements
SHAREHOLDER INFORMATION
Pricing Your Shares
Dividends
Taxes
Year 2000 Information
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FUND MANAGEMENT
Investment Manager
Administrator
Distributor
Shareholder Servicing
FINANCIAL HIGHLIGHTS
FOR MORE INFORMATION
ABOUT THE FUND
INVESTMENT OBJECTIVE
The Fund seeks to track the total return of the Dow Jones Industrial
Average (the "DJIA"(Service Mark)) 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"(Service Mark)) in the same proportions that they are
represented in the DJIA. The Fund employs a "passively" managed
investment approach.
The DJIA currently consists of 30 of the most widely held and
actively traded stocks listed on the New York Stock Exchange. The
stocks in the DJIA represent companies that typically are dominant
firms in their respective industries. The Fund will normally invest
substantially all of its total assets in the stocks of the DJIA and
"Equity Equivalents" (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.
Equity Equivalents include stock index futures contracts and
publicly-traded index securities (such as DIAMONDS(Service Mark)).
Stock index futures contracts are agreements whereby two parties
agree to take or make delivery of an amount of cash based on the
value of an index (such as the DJIA) on a specified future date.
Investment in index futures contracts allows an investor to
participate in the performance of the index without the costs of
buying the stocks comprising the index. DIAMONDS represent
proportionate undivided interests in a portfolio of securities
consisting of all of the component common stocks of the DJIA and are
listed on the American Stock Exchange. Equity Equivalents may be
used for several purposes: to simulate full
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investment in the underlying index while retaining a cash balance
for fund management purposes, to facilitate trading, to reduce
transaction costs or to seek higher investment returns where an
Equity Equivalent is priced more attractively than securities in the
DJIA.
The Fund will attempt to achieve a correlation between the total
return performance of its portfolio and that of the total return of
the DJIA of at least .98 before expenses. A correlation of 1.00
would indicate perfect correlation, which would be achieved when the
Fund's net asset value, including the value of its dividend and
capital gain distributions, increases or decreases in exact
proportion to changes in the total return of the DJIA. The
investment manager monitors the correlation of the performance of
the Fund in relation to the DJIA under the supervision of the Board
of Directors. In the unlikely event that a high correlation is not
achieved, the Board of Directors will take appropriate steps based
on the reasons for the lower than expected correlation.
RISKS
You could lose money on your investment in the Fund, or the Fund
could underperform other investments, if the value of the DJIA goes
down. Unlike other funds that do not attempt to track an index, the
Fund may not use certain techniques to reduce the risk of loss. For
example, the Fund will not keep any significant portion of its
assets in cash. As a result, the Fund may go down in value more than
an actively managed fund in the event of a general market decline.
In addition, because the Fund has expenses whereas the DJIA does
not, the Fund's performance will tend to underperform the
performance of the DJIA.
The Fund's "non-diversified" status allows it to invest more than 5%
of its assets in the stock of a single company. To the extent the
Fund invests a greater percentage of its assets in a single company,
the Fund has greater exposure to the performance and risks of the
stock of that company.
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:
. 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.
. Investors seeking capital growth over the long term (at least
five years).
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EXPENSES
As a shareholder, you may pay certain fees and expenses in
connection with the Fund, which are described in the table below.
Fund operating expenses are paid out of Fund assets, so their effect
is included in the share price.
SHAREHOLDER TRANSACTION FEES (fees paid directly from your
investment)/1/
Maximum Sales Charge (Load) Imposed on
Purchases None
ANNUAL OPERATING EXPENSES (expenses deducted from Fund assets)
Management Fees/2/ 0.20%
Distribution (12b-1) Fees None
Service Fees/2/ 0.25%
Other Expenses/2/ 0.36%
-----
Total Operating Expenses/2/ 0.81%
1Broker-dealers that are not affiliates of the Fund's investment
manager may impose service fees in connection with the sale of Fund
shares, no part of which may be received by the Fund, the investment
manager or affiliates of the investment manager. These fees may
differ according to the type of account held by the investor. 2The
table shows the Fund's expenses for the Fund's first fiscal period
before expense reductions by the Fund's investment manager. The
investment manager agreed to reduce expenses of the Fund (through
paying certain expenses and waiving fees) for the first twelve
months of the Fund's operations (March 31, 1998 through March 31,
1999), so that the Fund's total operating expenses during the period
would not exceed 0.25%. Thereafter, any expense reductions will be
voluntary and may be changed or eliminated at any time without
notifying investors. After expense reductions, actual Fund expenses
were:
Management Fees 0.00%
Service Fees 0.03%
Other Expenses 0.22%
-----
Total Operating Expenses 0.25%
The amounts in this footnote reflect current expenses. However, the
investment manager currently anticipates that it will limit overall
expense ratios to no more than the amounts indicated in this
footnote indefinitely.
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
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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:
1 3 5 10
YEARS YEARS YEARS YEARS
----- ----- ----- -----
$83 $259 $450 $1002
* Assuming current expense reduction arrangements that limit the
Fund's operating expenses to 0.25%, your costs would be:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$26 $80 $141 $318
The amounts in this footnote reflect current expenses. However, the
investment manager currently anticipates that it will limit overall
expense ratios to no more than the amounts indicated in this
footnote indefinitely.
ABOUT THE DOW JONES INDUSTRIAL AVERAGE(Service Mark)
The Dow Jones Industrial Average was introduced to the investing
public by Charles Dow on May 26, 1896 and originally was composed of
only 12 stocks. It has since become one of the most well known and
widely followed indicators of the U.S. stock market and is the
oldest continuing stock market index in the world. As of September
30, 1998, the 30 "blue-chip" stocks in the DJIA represented
approximately 19% of the over $10 trillion market value of all U.S.
stocks and about 21% of the market value of all stocks listed on the
New York Stock Exchange. Many of the companies represented in the
DJIA are household names and leaders in their respective industries,
and their stocks are broadly held by both individual and
institutional investors. Because the DJIA is so well known and its
performance is generally perceived to reflect that of the overall
domestic equity market, it is often used as a benchmark for
investments in equities, mutual funds, and other asset classes.
The DJIA is unique for a market index -- it is price-weighted rather
than market capitalization-weighted. In essence, the DJIA consists
of one share of each of the 30 stocks included in the DJIA. As a
result, the relative value of the stocks in the DJIA are affected
only by market price changes. In contrast, the relative value of
stocks comprising other indices are affected by changes in market
capitalization. The market capitalization of a company is determined
by multiplying the market price of its 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
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was a simple average (hence the name), and was computed merely by
adding up the prices of the stocks in the index and dividing that
sum by the total number of stocks in the index. However, it
eventually became clear that a method was needed to smooth out the
effects of stock splits and composition changes to prevent these
events from distorting the level of the index. Therefore, a divisor
was created that has been periodically adjusted over time. This
divisor, when divided into the sum of the prices of the stocks in
the DJIA, generates the number that is reported every day in
newspapers, on television and radio, and over the Internet. With the
incorporation of the divisor, the DJIA is not technically an average
anymore.
The DJIA is selected and maintained by the editors of The Wall
Street Journal (without consultation with any company that comprises
the DJIA), which is published by Dow Jones & Company, Inc. ("Dow
Jones"(Service Mark)). Periodically, the editors review and make
changes to the composition of the DJIA. In selecting a company's
stock to be included in the DJIA, the following criteria are
generally used: (1) the firm is not a utility or a transportation
company (there are separate Dow Jones indices for these sectors);
(2) the company has an excellent reputation in its field; (3) the
company has grown successfully; and (4) the company has a large
individual and institutional investor base. All of the 30 stocks
currently included in the DJIA are listed on the New York Stock
Exchange, although this is not a criterion for selection. The
inclusion of any particular company in the DJIA does not constitute
a prediction as to the company's future results of operations or
stock market performance. For the sake of historical continuity,
composition changes are rare, and generally have occurred only after
corporate acquisitions or other dramatic shifts in a company's core
business. When the editors do decide that a component stock needs to
be changed, they also review the other stocks in the index to
confirm their continued presence. Thus, when a review is completed,
multiple changes often occur. The most recent composition changes,
for example, occurred on March 17, 1997, and resulted in the
withdrawal of Bethlehem Steel Corp., Texaco Inc., Westinghouse
Electric Corp. (now CBS Corp.), and Woolworth Corp., and the
addition of Hewlett-Packard Co., Johnson & Johnson, Travelers Group
Inc. (now Citigroup Inc.), and Wal-Mart Stores Inc.
The DJIA currently consists of the common stock of the following 30
companies:
AlliedSignal Inc.
Aluminum Co. of America
American Express Co.
AT&T Corp.
The Boeing Co.
Caterpillar Inc.
Chevron Corp.
Citigroup Inc.
The Coca-Cola Company
E.I. du Pont de Nemours and Co.
Eastman Kodak Co.
Exxon Corp.
General Electric Co.
General Motors Corp.
The Goodyear Tire & Rubber Co.
Hewlett-Packard Co.
International Business Machines Corp.
International Paper Co.
J.P. Morgan & Co., Inc.
Johnson & Johnson
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McDonald's Corp.
Merck & Co., Inc.
Minnesota Mining & Manufacturing Co.
Philip Morris Cos. Inc.
The Procter & Gamble Co.
Sears, Roebuck and Co.
Union Carbide Corp.
United Technologies Corp.
Wal-Mart Stores, Inc.
The Walt Disney Co.
(C) 1998 Dow Jones & Co., Inc
The following graph shows information regarding the historical
performance of the DJIA. The information in this Prospectus
concerning Dow Jones and the DJIA has been obtained from sources
that the Fund believes to be reliable, but the Fund takes no
responsibility for the accuracy of such information. The Fund's
performance is likely to differ from that of the DJIA because of
Fund expenses and transaction costs. Moreover, past performance is
not predictive of future results.
HISTORY OF THE DJIA (1897 - SEPTEMBER 1998)
[THE FOLLOWING TABLE REPRESENTS A BAR GRAPH CHART]
YEAR
ENDED ANNUAL RETURN YEAR-END DIVIDEND YIELD
----- ------------- -----------------------
1896 NA
1897 22.2%
1898 22.5%
1899 9.2%
1900 7.0%
1901 -8.7%
1902 -0.4%
1903 -23.6%
1904 41.7%
1905 38.2%
1906 -1.9%
1907 -37.7%
1908 46.6%
1909 15.0%
1910 -17.9%
1911 0.4%
1912 7.6%
1913 -10.3%
1914 -30.7%
1915 81.7%
1916 -4.2%
1917 -21.7%
1918 10.5%
1919 30.5%
1920 -32.9%
1921 12.7%
1922 21.7%
1923 -3.3%
1924 26.2%
1925 30.0%
1926 0.3%
1927 28.8%
1928 48.2%
1929 -17.2% 5.13%
1930 -33.8% 6.76%
1931 -52.7% 10.78%
1932 -23.1% 7.71%
1933 66.7% 3.40%
1934 4.1% 3.52%
1935 38.5% 3.16%
1936 24.8% 3.92%
1937 -32.8% 7.27%
1938 28.1% 3.22%
1939 -2.9% 4.07%
1940 -12.7% 5.38%
1941 -15.4% 6.84%
1942 7.6% 5.36%
1943 13.8% 4.64%
1944 12.1% 4.31%
1945 26.6% 3.47%
1946 -8.1% 4.23%
1947 2.2% 5.08%
1948 -2.1% 6.49%
1949 12.9% 6.39%
1950 17.6% 6.85%
1951 14.4% 6.07%
1952 8.4% 5.29%
1953 -3.8% 5.74%
1954 44.0% 4.32%
1955 20.8% 4.42%
1956 2.3% 4.60%
1957 -12.8% 4.96%
1958 34.0% 3.43%
1959 16.4% 3.05%
1960 -9.3% 3.47%
1961 18.7% 3.11%
1962 -10.8% 3.57%
1963 17.0% 3.07%
1964 14.6% 3.57%
1965 10.9% 2.95%
1966 -18.9% 4.06%
1967 15.2% 3.34%
1968 4.3% 3.32%
1969 -15.2% 4.24%
1970 4.8% 3.76%
1971 6.1% 3.47%
1972 14.6% 3.16%
1973 -16.6% 4.15%
1974 -27.6% 6.12%
1975 38.3% 4.39%
1976 17.9% 4.12%
1977 -17.3% 5.52%
1978 -3.1% 6.03%
1979 4.2% 6.08%
1980 14.9% 5.64%
1981 -9.2% 6.43%
1982 19.6% 5.17%
1983 20.3% 4.48%
1984 -3.7% 5.00%
1985 27.7% 4.01%
1986 22.6% 3.54%
1987 2.3% 3.67%
1988 11.8% 3.67%
1989 27.0% 3.74%
1990 -4.3% 3.94%
1991 20.3% 3.00%
1992 4.2% 3.05%
1993 13.7% 2.65%
1994 2.1% 2.76%
1995 33.5% 2.28%
1996 26.0% 2.03%
1997 22.6% 1.72%
1998* 0.5% 1.90%
* annualized return (1/1/98 - 9/30/98)
HOW TO BUY AND SELL SHARES
Investors may purchase shares of the Fund through an account
maintained with Waterhouse Securities, Inc. ("Waterhouse
<PAGE>
Securities") or certain other broker-dealers.
If you would like to purchase shares of the Fund through Waterhouse
Securities and you are not already a customer, you need to open a
Waterhouse Securities account by completing and signing a Waterhouse
Securities New Account Application. To request a Waterhouse Dow 30
Fund application, please call 1-800-934-4410. Mail it, together with
your check in the amount you wish to purchase, in the self-addressed
stamped envelope provided with the Waterhouse Securities New Account
Application.
Existing Waterhouse Securities customers must have funds in their
Waterhouse Securities account to buy shares of the Fund.
ACCOUNT PROTECTION. Within your Waterhouse Securities brokerage
account, you have access to other investments available at
Waterhouse Securities such as stocks, bonds, options, and other
mutual funds. The securities in your Waterhouse Securities brokerage
account, including shares of the Fund, are protected up to $75
million for loss of securities (not including loss due to market
fluctuations of securities or economic conditions). The first
$500,000 is provided by Securities Investor Protection Corporation
(known as "SIPC") of which $100,000 covers cash. The remaining $74.5
million, which covers securities only, is provided by a private
insurance carrier.
INVESTMENT MINIMUMS. There is a $1,000 minimum for initial purchases
and a $100 minimum for subsequent purchases of shares of the Fund.
The Fund may waive the investment minimums for existing customers of
Waterhouse Securities 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 Waterhouse Securities IRA accounts.
Shares are purchased at the next net asset value (NAV) per share
calculated after an order and payment is received by the Fund. There
is no sales charge to buy shares of the Fund.
The Fund reserves the right to suspend the offering of shares for a
period of time and to reject any specific purchase order, including
purchase orders that, in the reasonable belief of the Fund, have
been made by market timers or short-term traders.
HOW TO BUY SHARES
CUSTOMERS OF WATERHOUSE SECURITIES
Waterhouse Securities brokerage customers may purchase shares of the
Fund by mail or by placing an order directly with a Waterhouse
<PAGE>
Securities Representative by telephone at 1-800-934-4443. Waterhouse
Securities also allows the purchase of Fund shares by electronic
means for customers with WATERHOUSE WEBBROKER or Personal Access for
Windows Accounts.
Whether by mail, telephone or electronically, please indicate your
wish to buy the Waterhouse Dow 30 Fund and provide the following
information:
. your Waterhouse Securities account number
. the dollar or share amount you wish to invest
. 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 Waterhouse Securities, Inc., Processing
Center, 525 Washington Boulevard, P.O. Box 2021, Jersey City, NJ
07303-2021. Checks should be made payable to "Waterhouse Securities,
Inc." and you should write your Waterhouse Securities account number
on the check. Once you mail your letter, you may not modify or
cancel your instructions.
BY TELEPHONE. You may purchase shares of the Fund by calling your
Waterhouse Securities Representative at 1-800-934-4443.
ELECTRONICALLY. Please refer to product and services information
regarding WATERHOUSE WEBBROKER, Personal Access for Windows and
TradeDirect (touch tone trading). The World Wide Web address for
Waterhouse Securities is [hyperlink:]http://www.waterhouse.com.
THROUGH PERIODIC INVESTMENT. You may authorize monthly or quarterly
amounts of $100 or more to be withdrawn automatically from your
Waterhouse Securities brokerage account and invested in the Fund.
You may sign up for this service when you open your account at
Waterhouse Securities or at another time by calling your Waterhouse
Securities Representative at 1-800-934-4443.
CUSTOMERS OF SELECTED BROKER-DEALERS
Shares may be purchased and redeemed through certain authorized
broker-dealers other than Waterhouse Securities that have entered
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into a selling agreement with the Fund's distributor ("Selected
Brokers"). Affiliates of Waterhouse Securities, including National
Investors Services Corp., may be Selected Brokers. Selected Brokers
may receive payments as a processing agent from the Transfer Agent.
In addition, Selected Brokers may charge their customers a fee for
their services, no part of which is received by the Fund or
Waterhouse Securities.
Investors who purchase shares through a Selected Broker will be
subject to the procedures of their Selected Broker, which may
include charges, limitations, investment minimums, cutoff times and
restrictions in addition to, or different from, those generally
applicable to Waterhouse Securities customers. Any such charges
would reduce the return on an investment in the Fund. Investors
should acquaint themselves with their Selected Broker's procedures
and should read this prospectus in conjunction with any material and
information provided by their Selected Broker. Investors who
purchase the Fund's shares though a Selected Broker may or may not
be the shareholder of record. Selected Brokers are responsible for
promptly transmitting purchase, redemption and other requests to the
Fund.
Certain shareholder services, such as periodic investment programs,
may not be available to customers of Selected Brokers or may differ
in scope from programs available to Waterhouse Securities customers.
Shareholders should contact their Selected Broker for further
information. The Fund may confirm purchases and redemptions of a
Selected Broker's customers directly to the Selected Broker, which
in turn will provide its customers with confirmation and periodic
statements. The Fund is not responsible for the failure of any
Selected Broker to carry out its obligations to its customer.
HOW TO SELL SHARES
To sell (redeem) shares of the Fund, you may use any of the methods
outlined above under "How to Buy Shares." Shareholders who have
invested through a Selected Broker should redeem their shares
through the Selected Broker. Shares of the Fund are redeemed at the
next NAV calculated after receipt by the Fund of a redemption
request in proper form.
PAYMENT. The proceeds of the redemption of your Fund shares
ordinarily will be credited to your brokerage account the following
business day after receipt by the Fund of a redemption request in
proper form, but not later than seven calendar days after an order
to sell shares is received. If you purchased shares by check,
proceeds may be held in your brokerage account to allow for
clearance of the check (which may take up to ten calendar days). The
Fund reserves the right to make redemption payments in whole or in
part in
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securities or other property, valued for this purpose as they are
valued in computing the Fund's NAV per share.
TELEPHONE TRANSACTIONS
Customers of Waterhouse Securities automatically have the privilege
of purchasing or redeeming Fund shares by telephone. Waterhouse
Securities will employ reasonable procedures to verify the
genuineness of telephone redemption requests. These procedures
involve requiring certain personal identification information. If
such procedures are not followed, Waterhouse Securities may be
liable for any losses due to unauthorized or fraudulent
instructions. Neither Waterhouse Securities nor the Fund will be
liable for following instructions communicated by telephone that are
reasonably believed to be genuine. You should verify the accuracy of
your account statements immediately after you receive them and
contact your Waterhouse Securities 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 Waterhouse Securities and Selected
Brokers are eligible to purchase shares of the Fund. Fund shares may
be redeemed automatically should the brokerage account in which they
are held be closed.
SHAREHOLDER INFORMATION
PRICING YOUR SHARES
The price of a Fund share on any given day is its NAV. The Fund
calculates its NAV per share each day as of the close of the regular
session of trading on the New York Stock Exchange (normally 4:00
p.m. Eastern time). Shares are not priced on days when either the
New York Stock Exchange or the Fund's custodian is closed.
Securities owned by the Fund for which market quotations are readily
available are valued at current market value or, in their absence,
at fair value as determined by the Board of Directors pursuant to
procedures approved by the Board. The Fund's shares are sold at the
next NAV per share calculated after an order and payment are
accepted by the Fund in the manner described under "How to Buy and
Sell Shares."
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
<PAGE>
"Ratio"). There can be no assurance, however, that the Fund will be
able to maintain the NAV per share at or near the Ratio. For
example, as with most mutual funds, each capital gain distribution
will cause a reduction of the NAV per share to the extent of the
amount distributed. In order to maintain the Fund's NAV per share at
or near the Ratio, the Fund may employ certain techniques, including
declaring a share split, share dividend or reverse share split.
Share splits and dividends increase the number of shares
outstanding, resulting in a corresponding decrease in the NAV per
share. For example, a 2-for-1 split would double the number of
shares outstanding, thereby halving the NAV per share. Conversely,
reverse splits reduce the number of shares outstanding. For example,
a 1-for-2 reverse share split would halve the number of shares
outstanding, thereby doubling the NAV per share. These examples are
given to illustrate the principles relating to these techniques; the
Fund's use of these techniques is expected to have a more moderate
impact on the Fund's NAV per share. The use of any of these
techniques will not change the absolute dollar value of a
shareholder's investment in the Fund (although the number of shares
and the NAV per share would change) or result in any additional tax
burden to shareholders. While it is the Fund's current intention to
maintain the Fund's NAV per share at or near the Ratio and to
utilize the techniques described in this paragraph for this purpose,
the Board of Directors may in the future determine to change this
policy. In the event that the Board of Directors changes this
policy, shareholders will be notified.
DIVIDENDS
It is currently contemplated that dividends of the Fund's net
investment income will be declared daily and paid monthly. No
dividend will be declared on any day on which the Fund does not
receive dividend or interest income from the securities in its
portfolio. In addition, any dividends declared will be net of Fund
expenses accrued to date. In the event that the Board of Directors
changes the daily dividend policy, shareholders will be notified.
Net capital gain, if any, realized by the Fund will be distributed
at least annually. Unless a shareholder elects payment in cash, all
dividends and distributions of the Fund are automatically reinvested
in additional full and fractional shares of the Fund at the NAV per
share as of the payment date of the dividend or distribution.
TAXES
Dividends derived from the Fund's net investment income and
short-term capital gains are generally taxable to a shareholder as
ordinary income, even when reinvested in additional Fund shares. Due
to the nature of its investments, the Fund's distributions will
consist primarily of ordinary income. Distributions of net capital
gain, if any, realized by the Fund are taxable to shareholders of
the Fund as a long-term capital gain (at different rates depending
on how long the Fund held its assets and when such assets were sold
by the Fund), regardless
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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.
YEAR 2000 INFORMATION
Many computer systems were designed using only two digits to
designate years. These systems may not be able to distinguish the
Year 2000 from the Year 1900 (commonly known as the "Year 2000
Problem"). Like other investment companies and financial and
business organizations, the Fund could be adversely affected if the
computer systems used by the investment manager or other Fund
service providers do not properly address this problem prior to
January 1, 2000. The investment manager and its affiliates have
established a dedicated group to analyze these issues and to
implement any systems modifications necessary to prepare for the
Year 2000. Currently, the investment manager does not anticipate
that the transition to the 21st century will have any material
impact on its ability to continue to service the Fund at current
levels. In addition, the investment manager has sought assurances
from the Fund's other service providers that they are taking all
necessary steps to ensure that their computer systems will
accurately reflect the Year 2000, and the investment manager will
continue to monitor the situation. At this time, however, no
assurance can be given that the Fund or its service providers have
anticipated every step necessary to avoid any adverse effect on the
Fund attributable to the Year 2000 Problem or that interaction with
other non-complying computer systems will not impact their services.
FUND MANAGEMENT
INVESTMENT MANAGER
Waterhouse Asset Management, Inc., 100 Wall Street, New York, NY
10005, is the Fund's investment manager. The investment manager
oversees the Fund's investment program, places orders for the Fund's
purchases and sales of portfolio securities and maintains records
relating to such purchases and sales.
For its services, the investment manager receives an annual fee of
0.20% of the Fund's average daily net assets. The investment manager
has agreed to assume certain expenses of the Fund (or waive its
fees) for the first twelve months of the Fund's operations, so that
the total operating expenses payable by the Fund during the period
will not exceed 0.25% of its average daily net assets. Thereafter,
any expense reductions will be voluntary and may be changed or
eliminated at any time without further notice to investors.
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In addition to the Fund and the other investment portfolios in the
Waterhouse Investors Family of Funds, the investment manager
currently serves as investment manager to Waterhouse National Bank
(of which it is a subsidiary) and as of December 3, 1998, had total
assets under management in excess of $7 billion.
ADMINISTRATOR
As administrator, Waterhouse Securities, an affiliate of the
investment manager, provides certain administrative and management
services to the Fund. The investment manager (and not the Fund)
compensates Waterhouse Securities for providing these services.
Waterhouse Securities has entered into an agreement with Funds
Distributor, Inc. ("FDI") whereby FDI performs certain
administrative services for the Portfolios. Waterhouse Securities
pays FDI's fees for providing these services.
DISTRIBUTOR
FDI acts as distributor of the Fund's shares for no compensation.
SHAREHOLDER SERVICING
The Fund's Shareholder Servicing Plan permits the Fund to pay banks,
broker-dealers or other financial institutions (including Waterhouse
Securities and its affiliates) for shareholder support services they
provide, at a rate of up to 0.25% of the average daily net assets of
the Fund. These services may include, among other services,
providing general shareholder liaison services (including responding
to shareholder inquiries), providing information on shareholder
investments, and establishing and maintaining shareholder accounts
and records.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand
the Fund's financial performance for the fiscal period from March
31, 1998 (commencement of operations) through October 31, 1998.
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 lost on an investment in the Fund (assuming
reinvestment of all dividends and distributions). 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
1-800-934-4410.
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $8.78
INVESTMENT OPERATIONS
Net investment income 0.08
Net realized and unrealized losses on
investments (0.19)
TOTAL FROM INVESTMENT OPERATIONS (0.11)
Distributions from net investment income (0.08)
Net asset value, end of period $8.59
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RATIOS
Ratio of net expenses to average net assets* 0.25%(A)
Ratio of net investment income to average net
assets* 1.48%(A)
Decrease reflected in above expense ratio
due to waivers/reimbursements by the Investment
Manager and its affiliates 0.55%(A)
SUPPLEMENTAL DATA
Portfolio turnover rate 8%(A)
Total investment return (1.19%)(B)
Net assets, end of period $62,211,054
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* The average net assets for the period was $28,460,853.
(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.
DOW JONES & COMPANY, INC. ("DOW JONES"(SM)) DOES NOT GUARANTEE THE
ACCURACY AND/OR THE COMPLETENESS OF THE DOW JONES INDUSTRIAL
AVERAGE(SM) OR ANY DATA INCLUDED THEREIN AND DOW JONES SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. DOW
JONES MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE
OBTAINED BY WATERHOUSE ASSET MANAGEMENT, INC. (THE "INVESTMENT
MANAGER"), SHAREHOLDERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE DJIA OR ANY DATA INCLUDED THEREIN. DOW JONES
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE DJIA OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL DOW JONES
HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE,
SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSSES, EVEN IF
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NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY
BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN DOW JONES,
THE INVESTMENT MANAGER AND THE FUND.
"Dow Jones(SM)," "Dow Jones Industrial Average(SM)," "DJIA(SM)" and
"DIAMONDS(SM)" are service marks of Dow Jones & Company, Inc. and
have been licensed by the investment manager in connection with the
operation of the Fund. The Fund is not sponsored, endorsed, sold or
promoted by Dow Jones or any corporation that is included in the
DJIA. Dow Jones makes no representation or warranty, express or
implied, to the shareholders of the Fund or any member of the public
regarding the advisability of investing in securities generally or
in the Fund particularly. Dow Jones' only relationship to the
investment manager is the licensing of certain trademarks and trade
names of Dow Jones and of the DJIA, which is determined, composed
and calculated by Dow Jones without regard to the investment manager
or the Fund. Dow Jones has no obligation to take the needs of the
investment manager or the shareholders of the Fund into
consideration in determining, composing or calculating the DJIA. Dow
Jones is not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of Fund
shares to be issued or in the determination or calculation of the
equation by which Fund shares are to be converted into cash. Dow
Jones has no obligation or liability in connection with the
administration, marketing or offering of the Fund.
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FOR MORE INFORMATION
More information on the Fund is available upon request, including
the following:
SHAREHOLDER REPORTS. Additional information about the Fund's
investments is available in the Fund's annual and semi-annual
reports to shareholders. In the Fund's annual report, you will find
a discussion of the market conditions that significantly affected
the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI). The SAI includes more
information about the Fund and its policies. The SAI is on file with
the Securities and Exchange Commission (SEC) and is incorporated by
reference into (is legally considered a part of) this prospectus.
You may request free copies of these materials, along with other
information about the Fund and make shareholder inquiries by
contacting:
Waterhouse Securities, Inc.
Mutual Fund Services
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100 Wall Street
New York, New York 10005
Telephone: 1-800-457-6516
Hearing impaired: TTY 1-800-933-0555
Email: [hyperlink:] http://www.waterhouse.com
Text-only versions of the Fund's prospectus can be viewed online or
downloaded from Waterhouse Securities [hyperlink:]
http://www.waterhouse.com. Other documents pertaining to the Fund
can be viewed online or downloaded from the SEC [hyperlink:]
http://www.sec.gov.
You also can review the Fund's reports and SAI at the SEC's public
reference room in Washington, DC. For a fee, you may obtain this
information by writing the SEC's Public Reference Section,
Washington, DC 20549-6009. For more information about these
services, call 1-800-SEC-0330.
The Fund is a series of Waterhouse Investors Family of Funds, Inc.,
whose investment company registration number is: 811-9086.
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