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1998
ANNUAL REPORT
October 31, 1998
WATERHOUSE
DOW 30
FUND
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[Logo]
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WATERHOUSE INVESTORS FAMILY OF FUNDS, INC.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
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DIRECTORS EXECUTIVE OFFICERS
<S> <C> <C>
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.
*Affiliated person of the Distributor
<CAPTION>
WATERHOUSE ASSET MANAGEMENT, INC.
BOARD OF DIRECTORS AND SENIOR OFFICERS
DIRECTORS
<S> <C> <C>
LAWRENCE M. WATERHOUSE, JR. FRANK J. PETRILLI RICHARD H. NEIMAN
Chairman President and Chief Executive Officer Executive Vice President
Waterhouse Investor Services, Inc. Waterhouse Investor Services, Inc. General Counsel and Secretary
Waterhouse Investor Services, Inc.
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
<CAPTION>
SERVICE PROVIDERS
<S> <C> <C>
INVESTMENT MANAGER TRANSFER AGENT INDEPENDENT AUDITORS
Waterhouse Asset National Investor Services Ernst & Young LLP
Management, Inc. Corp. 787 Seventh Avenue
100 Wall Street 55 Water Street New York, NY 10019
New York, New York 10005 New York, NY 10041
ADMINISTRATOR & CUSTODIAN LEGAL COUNSEL
SHAREHOLDER SERVICING The Bank of New York Swidler Berlin
Waterhouse Securities, 90 Washington Street Shereff Friedman, LLP
Inc. New York, NY 10286 919 Third Avenue
100 Wall Street New York, NY 10022
New York, NY 10005
Customer Service Department DISTRIBUTOR
(800) 934-4410 Funds Distributor, Inc.
60 State Street
Boston, MA 02109
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WATERHOUSE DOW 30 FUND
DEAR SHAREHOLDER:
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We are pleased to provide you with the annual report for the Waterhouse Dow 30
Fund (the "Fund") for the period March 30, 1998 (commencement of operations) to
October 31, 1998. During this period, the Dow Jones Industrial
Average(ServiceMark) ("DJIA"(ServiceMark)) was quite volatile, rising from 8,782
on March 30, 1998 to a record high of 9,338, then falling nearly 20% to 7,539,
and finally recovering strongly to 8,592 on October 31,1998. On a total return
basis, which includes reinvested dividends, the period return for the DJIA was
- -1.26%. Your Fund had a total return for the same period of -1.19%, after
expenses. Since the investment objective of the Fund is to match the performance
of the DJIA before Fund expenses, these results were right on target. We intend
to work diligently to provide to our shareholders not only the first but the
best mutual fund structured to closely emulate the performance of the DJIA.
[CHART]
Note: 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 price performance of each of the DJIA stocks during the period of 3/30/98
through 10/31/98 is shown in the chart below. There were a couple of changes
involving two of the components in the index during this period--Walt Disney
executed a three-for-one stock split and Travelers Group merged with Citicorp
and changed its name to Citigroup Inc.
43.9% IBM -4.7% International Paper
36.8% Wal-Mart Stores -6.2% AlliedSignal
21.1% Eastman Kodak -7.0% AT&T Corp.
18.6% Philip Morris Cos. -7.6% General Motors
16.1% Aluminum Co. of America -13.5% Coca-Cola
13.4% Johnson & Johnson -14.7% Minnesota Mining & Mfg.
12.8% McDonalds -16.4% DuPont (E.I.)
6.8% Merck & Co. -18.2% Caterpillar
4.8% Exxon Corp. -19.8% Sears
4.7% United Technologies -22.2% Citigroup
4.1% Procter & Gamble -22.6% Union Carbide
2.6% General Electric -23.5% Disney (Walt)
-1.9% Chevron -25.7% Boeing Co.
-2.9% American Express -27.1% Goodyear Tire
-4.7% Hewlett-Packard -28.8% J.P. Morgan
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Considering the global economic turmoil and market volatility, the U.S. stock
market performed relatively well over the most recent six-month period. The
economy has slowed only moderately and remains on track to post GDP growth of
roughly 2% or slightly higher for the remainder of the year. Inflation continues
to be well-behaved and is expected to stay below 3% for the near-term. As we
touched upon in our last report, the ultimate fallout from events in Asia and
other emerging markets remains unclear, creating uncertainty and bouts of
volatility in the marketplace.
Looking forward to the next six months, the market's direction will likely be
affected by corporate profits, inflationary trends, money investment flows and
global monetary concerns, including any indications of a change in interest rate
policy by the Federal Reserve. Although these are difficult times to project
what may happen in the near-term, the quality and underlying financial strength
of the companies comprising the DJIA are expected to provide a solid investment
foundation for long-term growth of our shareholders' investments in 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. For Waterhouse IRA
accounts, there is 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.
As with all investments, past performance is no guarantee of future results. You
may contact Waterhouse Securities' mutual funds service department at
800-457-6516 or your local branch office for more information.
Sincerely,
/s/ Lawrence M. Waterhouse
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Lawrence M. Waterhouse, Jr.
Chairman
Waterhouse Investors Services, Inc.
December 4, 1998
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 market risk including possible loss of principal.
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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.............................14
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WATERHOUSE DOW 30 FUND
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
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<S> <C> <C>
COMMON STOCKS
AlliedSignal Inc. 29,703 $ 1,156,561
Aluminum Co. of America 29,703 2,353,963
American Express Co. 29,703 2,625,003
AT&T Corp. 29,703 1,849,012
The Boeing Co. 29,703 1,113,863
Caterpillar Inc. 29,703 1,336,635
Chevron Corp. 29,703 2,420,794
Citigroup Inc. 29,703 1,397,897
The Coca-Cola Company 29,703 2,008,665
E.I. du Pont de Nemours and Co. 29,703 1,707,922
Eastman Kodak Co. 29,703 2,301,982
Exxon Corp. 29,703 2,116,339
General Electric Co. 29,703 2,599,013
General Motors Corp. 29,703 1,873,145
The Goodyear Tire & Rubber Co. 29,703 1,600,249
Hewlett-Packard Co. 29,703 1,787,749
International Business Machines Corp. 29,703 4,409,039
International Paper Co. 29,703 1,379,333
J.P. Morgan & Co., Inc. 29,703 2,799,508
Johnson & Johnson 29,703 2,420,795
McDonald's Corp. 29,703 1,986,388
Merck & Co., Inc. 29,703 4,017,331
Minnesota Mining & Manufacturing Co. 29,703 2,376,240
Philip Morris Cos. Inc. 29,703 1,518,566
The Proctor & Gamble Co. 29,703 2,639,854
Sears, Roebuck and Co. 29,703 1,334,778
Union Carbide Corp. 29,703 1,143,565
United Technologies Corp. 29,703 2,829,211
Wal-Mart Stores, Inc. 29,703 2,049,507
The Walt Disney Co. 29,703 800,125
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TOTAL COMMON STOCKS (cost $62,140,232)--99.60% 61,953,032
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OTHER (cost $248,581)--0.40%
Diamonds(ServiceMark) Trust, Series 1 3,138 270,064
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REPURCHASE AGREEMENTS
--0.6% ABN Amro, Inc.
-dated 10/30/98, due 11/2/98, in the amount of $340,159
-fully collateralized by $358,978 U.S. Government Agency
securities, value $346,801 340,000
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TOTAL INVESTMENTS (cost $62,728,813)--100.6% 62,563,096
OTHER ASSETS AND LIABILITIES, NET--(0.6%) (352,042)
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NET ASSETS--100.0% $62,211,054
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</TABLE>
Please see accompanying notes to financial statements.
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WATERHOUSE DOW 30 FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $62,728,813) $62,563,096
Cash 948
Receivable for capital shares sold 263,218
Receivable for securities sold 852
Dividends and interest receivable 39,647
Other assets 283
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TOTAL ASSETS 62,868,044
LIABILITIES
Payable for capital shares redeemed 226,244
Payable for securities purchased 399,341
Payable to affiliates (Note 3) 4,585
Other accrued expenses 26,820
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TOTAL LIABILITIES 656,990
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NET ASSETS $62,211,054
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Net assets consist of:
Paid-in capital $62,445,668
Accumulated net realized losses from security transactions (68,158)
Distributions in excess of net investment income (739)
Net unrealized depreciation on investments (165,717)
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Net assets, at value $62,211,054
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Shares outstanding ($.0001 par value common stock, 10 billion
shares authorized) 7,242,140
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Net asset value, redemption price and offering price per share
(Note 2) $ 8.59
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</TABLE>
Please see accompanying notes to financial statements.
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WATERHOUSE DOW 30 FUND
STATEMENT OF OPERATIONS
For the Period Ended October 31, 1998*
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 262,185
Interest 27,154
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Total Investment Income 289,339
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EXPENSES
Shareholder servicing fees (Note 3) 41,485
Investment management fees (Note 3) 33,188
Transfer agent fees (Note 3) 8,297
Registration fees 20,778
Professional fees 17,618
Directors' fees and expenses 4,890
Custody fees (Note 2) 1,650
Shareholder reports and mailing 495
Other expenses 5,964
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TOTAL EXPENSES 134,365
Fees waived/expenses reimbursed by the
Investment Manager and its affiliates (Note 3) (92,630)
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NET EXPENSES 41,735
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NET INVESTMENT INCOME 247,604
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REALIZED AND UNREALIZED LOSSES ON INVESTMENTS
Net realized losses from security transactions (68,158)
Net change in unrealized appreciation/depreciation on
investments (165,717)
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NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS (233,875)
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NET INCREASE IN NET ASSETS FROM OPERATIONS $ 13,729
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*The Fund commenced operations on March 31, 1998.
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Please see accompanying notes to financial statements.
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WATERHOUSE DOW 30 FUND
STATEMENT OF CHANGES IN NET ASSETS
Period Ended October 31, 1998*
<TABLE>
<S> <C>
FROM OPERATIONS:
Net investment income $ 247,604
Net realized losses from security transactions (68,158)
Net change in unrealized appreciation/depreciation on
investments (165,717)
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Net increase in net assets from operations 13,729
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DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (247,604)
In excess of net investment income (739)
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Total distributions to shareholders (248,343)
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CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 70,986,821
Shares issued in reinvestment of dividends 248,343
Payments for shares redeemed (8,789,496)
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Net increase in net assets from capital share transactions 62,445,668
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TOTAL INCREASE IN NET ASSETS 62,211,054
NET ASSETS:
Beginning of period --
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End of period $62,211,054
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CAPITAL STOCK TRANSACTIONS:
Shares sold 8,264,395
Shares issued for dividends reinvested 30,046
Shares redeemed (1,052,301)
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Net increase in shares outstanding 7,242,140
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*The Fund commenced operations on March 31, 1998.
</TABLE>
Please see accompanying notes to financial statements.
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WATERHOUSE DOW 30 FUND
FINANCIAL HIGHLIGHTS
For the Period Ended October 31, 1998*
Contained below is per share operating performance data for a share
of common stock outstanding, total investment return, ratios to
average net assets and other supplemental data for the period
indicated. This information has been derived from the Fund's
financial statements.
<TABLE>
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 8.78
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INVESTMENT OPERATIONS
Net investment income 0.08
Net realized and unrealized losses on investments (0.19)
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TOTAL FROM INVESTMENT OPERATIONS (0.11)
Distributions from net investment income (0.08)
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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 (Note 3) 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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</TABLE>
* The Fund commenced operations on March 31, 1998.
** 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.
Please see accompanying notes to financial statements.
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WATERHOUSE DOW 30 FUND
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 1998
NOTE 1 -- ORGANIZATION
Waterhouse Investors Family of Funds, Inc. (the "Company") was
organized as a Maryland corporation on August 16, 1995. On December 18,
1997, Waterhouse Investors Cash Management Fund, Inc. changed its name
to Waterhouse Investors Family of Funds, Inc. The Company 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"), and the Securities Act of 1933, as amended. The
Company currently has four investment portfolios: the Waterhouse Dow 30
Fund (the "Fund") (formerly named the "Waterhouse Investors Dow Jones
Industrial Averagesm Index Fund"), the Money Market Portfolio, the U.S.
Government Portfolio and the Municipal Portfolio (collectively, the
"Portfolios"). The assets of each Portfolio are segregated and
accounted for separately. The investment objective of the Fund is to
seek to track the total return of the Dow Jones Industrial
Average(ServiceMark) before Fund expenses. The Fund commenced
operations on March 31, 1998. The Fund changed its name on July 22,
1998. These financial statements relate to the Fund, 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 (currently 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. Securities
maturing within 60 days are valued at amortized cost, which
approximates market value.
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.
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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. Expenses which are applicable to the Fund and
the other Portfolios of the Company are allocated on a pro rata basis.
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.
NOTE 3 -- INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS
WITH AFFILIATES OF THE INVESTMENT MANAGER
Under the terms of an Investment Management Agreement with Waterhouse
Asset Management, Inc. (the "Investment Manager"), an indirect wholly
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 intends to
limit the total operating expenses of the Fund to .25 of 1% of its
average daily net assets through March 31, 1999. Accordingly, for the
period ended October 31, 1998 the Investment Manager voluntarily waived
its entire investment management fee of $33,188 and reimbursed the Fund
$14,245 for other operating expenses.
Waterhouse Securities, Inc. ("Waterhouse Securities"), 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 Waterhouse Securities a monthly fee at an
annual rate of .10 of 1% of the Fund's average daily net assets.
Waterhouse Securities 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 Waterhouse Securities, a monthly fee at an
annual rate of up to .25 of 1% of average daily net assets. For the
period ended October 31, 1998, Waterhouse Securities voluntarily waived
$36,900 of its shareholder servicing fee for the Fund.
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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 period ended October 31, 1998,
the Transfer Agent voluntarily waived $8,297 of its transfer agent fee
for the Fund.
Each Director who is not an "interested person" ("disinterested
Director") as defined in the Act receives from the Company a base
annual retainer of $12,000, payable quarterly. Each disinterested
Director who serves on the Board of Directors of the "Fund Complex"
(which includes the Company and National Investors Cash Management
Fund, Inc.) receives a supplemental annual retainer of $5,000, payable
quarterly. Additionally, each disinterested Director of the Company
receives from the Company a fee of $2,000 for each meeting attended. In
the event that meetings of the Fund Complex are held on the same day or
concurrently, such meeting is considered a single meeting and the
meeting fee is allocated between the Funds in the Fund Complex.
Waterhouse Securities absorbed all organizational expenses of the Fund.
The Fund placed all of its portfolio transactions with Waterhouse
Securities. There were no commissions paid to Waterhouse Securities for
the period ended October 31, 1998.
NOTE 4 -- INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of investment securities, other than
short-term investments, amounted to $63,719,798 and $1,262,827
respectively, for the period ended October 31, 1998.
At October 31, 1998, net unrealized depreciation for Federal income tax
purposes aggregated $165,717, consisting of $3,699,981 gross unrealized
appreciation and $3,865,698 gross unrealized depreciation. At October
31, 1998, the cost of investments for Federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
NOTE 5 -- 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 1998 calendar
year early in 1999.
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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 Directors
Waterhouse Dow 30 Fund
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Waterhouse Dow 30 Fund
(one of the portfolios constituting Waterhouse Investors Family of
Funds, Inc.) as of October 31, 1998, and the related statements of
operations and changes in net assets and financial highlights 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 audit.
We conducted our audit 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, 1998, 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 audit provides 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 Waterhouse Dow 30 Fund at October 31, 1998,
and the results of its operations, the changes in its net assets and
the financial highlights 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 1, 1998
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WATERHOUSE SECURITIES, INC.
----------------------------
WHERE INVESTORS WHO EXPECT VALUE FEEL RIGHT AT HOME
Member New York Stock Exchange o SIPC
National Headquarters o 100 Wall Street o New York, NY
Over 150 Branches Nationwide
[Logo] Waterhouse Securities is a subsidiary of the Toronto-Dominion Bank
whose stock is listed on the New York Stock Exchange (Symbol: TD)
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