<PAGE>
1998
SEMIANNUAL REPORT
April 30, 1998
(Unaudited)
Waterhouse Investors
Dow Jones
Industrial Average(SM)
Index Fund
[TD WATERHOUSE SECURITIES, INC. LOGO]
<PAGE>
WATERHOUSE INVESTORS FAMILY OF FUNDS, INC.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<S> <C> <C>
DIRECTORS EXECUTIVE OFFICERS
GEORGE F. STAUDTER CAROLYN B. LEWIS RICHARD W. INGRAM*
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
<CAPTION>
*Affiliated person of the Distributor
WATERHOUSE ASSET MANAGEMENT, INC.
BOARD OF DIRECTORS AND SENIOR OFFICERS
<S> <C> <C>
DIRECTORS
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 M. BERNARD SIEGEL MICHELE R. TEICHNER
Senior Vice President Senior 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 Management, Inc. National Investor 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 Shereff, Friedman, Hoffman &
Waterhouse Securities, Inc. 90 Washington Street Goodman, LLP
100 Wall Street New York, NY 10286 919 Third Avenue
New York, NY 10005 New York, NY 10022
Customer Service Department DISTRIBUTOR
(800) 934-4410 Funds Distributor, Inc.
60 State Street
Boston, MA 02109
</TABLE>
<PAGE>
2
WATERHOUSE INVESTORS DOW JONES INDUSTRIAL AVERAGE(SM) INDEX FUND
Dear Shareholder:
We are pleased to provide you with the first semiannual report for
the Waterhouse Investors Dow Jones Industrial Average Index Fund (the "Fund")
for the period March 30, 1998 (commencement of operations) to April 30, 1998.
During this initial period, the Dow Jones Industrial Average(SM) ("DJIA"(SM))
increased from 8,782 to 9,063. On a total return basis, which includes
reinvested dividends, the period return for the DJIA was 3.25%. Your Fund had a
total return for the same period of 3.25%, after expenses*. Since our objective
is to match the performance of the DJIA before Fund expenses, these results were
excellent. 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.
The price performance of each of the DJIA stocks during the Fund's
initial period of operation is shown in the chart below. There were no changes
to the components in the index during this period, such as stock
splits or substitutions.
<TABLE>
<S> <C> <C> <C>
19.3% Hewlett-Packard 0.7% Minnesota Mining & Mfg.
17.7% Disney (Walt) 0.3% Wal-Mart Stores
13.6% Aluminum Co. of America -0.2% General Electric
12.8% Eastman Kodak -0.5% Chevron
12.3% IBM -0.5% Johnson & Johnson
12.1% American Express -0.9% Boeing Co.
8.3% United Technologies -0.9% J.P. Morgan
7.3% Exxon Corp. -1.3% General Motors
7.1% International Paper -2.5% Union Carbide
5.9% Sears -3.0% Coca-Cola
5.9% DuPont (E.I.) -3.7% Procter & Gamble
5.6% AlliedSignal -4.9% Merck & Co.
4.3% McDonalds -5.3% Goodyear Tire
3.5% Caterpillar -10.3% AT&T Corp.
1.1% Travelers Group -13.5% Philip Morris Cos.
</TABLE>
The stock market continues to perform well as close to ideal economic
conditions prevail. The economy has maintained a consistent 3% to 5% growth
rate while inflation has remained muted. Concerns about economic events in
Asia have caused stock market volatility but their lasting impact on corporate
profits remains unclear. With the DJIA recently reaching record levels, we
expect a moderate degree of market volatility from time to time.
Looking forward to the next six months, the market's direction will
likely be affected by corporate profits, inflationary trends, money investment
flows, outcome of the events in Asia 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 should provide a solid investment foundation for long-term
growth of our shareholders' investments.
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
3
<PAGE>
WATERHOUSE INVESTORS DOW JONES INDUSTRIAL AVERAGE(SM) INDEX FUND
investments, past performance is no guarantee of future results. You may
contact Waterhouse Securities' mutual funds service department at 800-934-4443
or your local branch office for more information.
Sincerely,
/s/ Lawrence M. Waterhouse, Jr.
- -------------------------------
Lawrence M. Waterhouse, Jr.
Chairman
Waterhouse Investors Services, Inc.
*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.
This return is based on a constant investment throughout the period,
includes reinvestment of dividends and reflects a net return to the
shareholder after all expenses, inclusive of fee waivers. Without
this waiver, the Fund's total return would have been lower.
4
<PAGE>
TABLE OF CONTENTS
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
5
<PAGE>
WATERHOUSE INVESTORS DOW JONES INDUSTRIAL AVERAGE(SM) INDEX FUND
SCHEDULE OF INVESTMENTS
April 30, 1998 (Unaudited)
- -----------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------
COMMON STOCKS - 99.99%
AlliedSignal Inc. 451 $ 19,759
Aluminum Co. of America 451 34,952
American Express Co. 451 46,002
AT&T Corp. 451 27,088
The Boeing Co. 451 22,578
Caterpillar Inc. 451 25,679
Chevron Corp. 451 37,292
The Coca-Cola Company 451 34,220
E.I. du Pont de Nemours and Co. 451 32,838
Eastman Kodak Co. 451 32,557
Exxon Corp. 451 32,895
General Electric Co. 451 38,391
General Motors Corp. 451 30,386
The Goodyear Tire & Rubber Co. 451 31,570
Hewlett-Packard Co. 451 33,966
International Business Machines Corp. 451 52,260
International Paper Co. 451 23,537
J.P. Morgan & Co., Inc. 451 59,194
Johnson & Johnson 451 32,190
McDonald's Corp. 451 27,906
Merck & Co., Inc. 451 54,345
Minnesota Mining & Manufacturing Co. 451 42,563
Philip Morris Cos. Inc. 451 16,828
The Proctor & Gamble Co. 451 37,067
Sears, Roebuck and Co. 451 26,750
Travelers Group Inc. 451 27,596
Union Carbide Corp. 451 21,873
United Technologies Corp. 451 44,395
Wal-Mart Stores, Inc. 451 22,804
The Walt Disney Co. 451 56,065
-----------------
TOTAL COMMON STOCKS (cost $ 995,719) - 99.95% 1,025,546
OTHER (cost $ 457)-0.04%
Diamonds(SM) Trust, Series 1 5 454
-----------------
TOTAL INVESTMENTS-99.99% 1,026,000
ASSETS AND LIABILITIES, NET - 0.01% 117
-----------------
NET ASSETS - 100.0% $ 1,026,117
=================
PLEASE SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
WATERHOUSE INVESTORS DOW JONES INDUSTRIAL AVERAGE(SM) INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
April 30,1998 (Unaudited)
ASSETS
Investments in securities, at value (cost $996,176) $ 1,026,000
Dividends receivable 455
Due from Investment Manager (Note 3) 2,372
------------------
TOTAL ASSETS 1,028,827
LIABILITIES
Bank overdraft 135
Accrued expenses and other liabilities 2,575
------------------
TOTAL LIABILITIES 2,710
NET ASSETS $ 1,026,117
==================
Net assets consist of:
Paid-in capital $ 996,293
Net unrealized appreciation on investments 29,824
------------------
Net assets, at value 1,026,117
==================
Shares outstanding ($.0001 par value
common stock, 10 billion shares authorized) 113,215
==================
Net asset value, redemption price and
offering price per share (Note 2) $ 9.06
==================
PLEASE SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
WATERHOUSE INVESTORS DOW JONES INDUSTRIAL AVERAGE(SM) INDEX FUND
STATEMENT OF OPERATIONS
For the Period Ended April 30, 1998* (Unaudited)
INVESTMENT INCOME
Dividend income $ 455
Interest income 302
------------------
Total Investment Income 757
------------------
EXPENSES
Shareholder servicing fees 203
Investment management fees 81
Transfer agent fees 41
Professional fees 1,600
Custody fees 300
Registration fees 300
Other expenses 375
------------------
TOTAL EXPENSES 2,900
Fees waived / expenses reimbursed by the
Investment Manager and its affiliates
(Note 3) (2,697)
------------------
NET EXPENSES 203
------------------
NET INVESTMENT INCOME 554
------------------
NET UNREALIZED APPRECIATION ON INVESTMENTS 29,824
------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 30,378
==================
* The Fund commenced operations on March 31, 1998.
PLEASE SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
WATERHOUSE INVESTORS DOW JONES INDUSTRIAL AVERAGE(SM) INDEX FUND
STATEMENT OF CHANGES IN NET ASSETS
Period Ended April 30, 1998* (Unaudited)
OPERATIONS:
Net investment income $ 554
Net change in unrealized appreciation
on investments 29,824
------------------
Net increase in net assets from operations 30,378
------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (554)
------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 995,739
Reinvestment of dividends 554
------------------
Net increase in net assets from capital
share transactions 996,293
------------------
TOTAL INCREASE IN NET ASSETS 1,026,117
NET ASSETS:
Beginning of period ----
------------------
End of period $ 1,026,117
==================
CAPITAL STOCK TRANSACTIONS:
Shares sold 113,153
Shares issued for dividends reinvested 62
------------------
Net increase in shares outstanding 113,215
Beginning of period ----
------------------
End of period 113,215
==================
* The Fund commenced operations on March 31, 1998.
PLEASE SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
WATERHOUSE INVESTORS DOW JONES INDUSTRIAL AVERAGE(SM) INDEX FUND
FINANCIAL HIGHLIGHTS
For the Period Ended April 30, 1998* (Unaudited)
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.
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 8.78
INVESTMENT OPERATIONS
Net investment income 0.01
Net unrealized gains on investments 0.28
------------------
TOTAL INVESTMENT OPERATIONS 0.29
Distributions from net investment income (0.01)
------------------
Net asset value, end of period $ 9.06
==================
RATIOS
Ratio of net expenses to average net assets ** 0.25% (A)
Ratio of net investment income to average net assets** 0.66% (A)
Decrease reflected in above expense ratio due to
waivers/reimbursements by the Investment Manager
and its affiliates (Note 3) 3.30% (A)
SUPPLEMENTAL DATA
Average commission rate paid (Note 3) $ 0.00
Portfolio turnover rate 0%
Total investment return (B) 3.25%
Net assets, end of period $ 1,026,117
==================
* The Fund commenced operations on March 31, 1998.
** The average net assets for the period was $990,016.
(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.
10
<PAGE>
WATERHOUSE INVESTORS DOW JONES INDUSTRIAL AVERAGE(SM) INDEX FUND
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 1998 (UNAUDITED)
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 Investors Dow Jones Industrial Average Index Fund (the "Fund"), the
Money Market Portfolio, the U.S. Government Portfolio, and the Municipal
Portfolio (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(SM) before Fund
expenses. The Fund commenced operations on March 31, 1998.
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 Funds 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.
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.
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 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.
11
<PAGE>
WATERHOUSE INVESTORS DOW JONES INDUSTRIAL AVERAGE(SM) INDEX FUND
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 1998 (UNAUDITED)
(CONTINUED)
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 gain (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 currently intends to limit the total
operating expenses of the Fund to .25 of 1% of its average daily net assets;
accordingly, for the period ended April 30, 1998 the Investment Manager
voluntarily waived its entire investment management fee of $81 and reimbursed
the Fund for $2,372 of 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 April 30, 1998, Waterhouse
Securities voluntarily waived $203 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 period ended April 30, 1998, the Transfer Agent
voluntarily waived $41 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 paid by 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.
12
<PAGE>
WATERHOUSE INVESTORS DOW JONES INDUSTRIAL AVERAGE(SM) INDEX FUND
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 1998 (UNAUDITED)
(CONTINUED)
NOTE 4 -- INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of investment securities,
other than short-term investments, amounted to $996,176 and $0 respectively,
for the period ended April 30, 1998.
At April 30, 1998, net unrealized appreciation for Federal income tax purposes
aggregated $29,824, consisting of $46,679 gross unrealized appreciation and
$16,855 gross unrealized depreciation.
NOTE 5 -- FEDERAL TAX INFORMATION
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.
13
<PAGE>
WATERHOUSE SECURITIES, INC.
Where Investors Who Expect Value Feel Right At Home
Member New York Stock Exchange o SPIC
National Headquarters o 100 Wall Street o New York, NY
Over 125 Branches Nationwide
[TD WATERHOUSE SECURITIES, INC. LOGO]
TD WATERHOUSE SECURITIES, INC. IS A SUBSIDIARY OF THE TORONTO-DOMINION BANK
14
