TD WATERHOUSE
FAMILY OF FUNDS, INC.
Three money market portfolios to choose from:
MONEY MARKET PORTFOLIO
U.S. GOVERNMENT PORTFOLIO
MUNICIPAL PORTFOLIO
PROSPECTUS
[TD Waterhouse logo]
December 23, 1999
As with any mutual fund, the Securities and Exchange Commission (SEC) has not
approved or disapproved any Portfolio's shares or determined whether this
prospectus is adequate or complete. Any representation to the contrary is a
criminal offense.
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TD WATERHOUSE FAMILY OF FUNDS, INC.
TABLE OF CONTENTS
RISK AND RETURN SUMMARY........................................................4
Investment Objective...........................................................4
Investment Strategies..........................................................4
Principal Risks................................................................4
Who May Want to Invest.........................................................5
Past Performance...............................................................5
Expenses.......................................................................6
HOW TO BUY AND SELL SHARES.....................................................7
How to Buy Shares..............................................................7
How to Sell Shares.............................................................8
How to Exchange Between Portfolios.............................................8
Telephone Transactions.........................................................9
SHAREHOLDER INFORMATION........................................................9
Pricing Your Shares............................................................9
Dividends......................................................................9
Taxes..........................................................................9
Statements to Shareholders....................................................10
Year 2000 Information.........................................................10
PORTFOLIO MANAGEMENT..........................................................10
Investment Manager............................................................10
Administrator.................................................................10
Distributor...................................................................10
Shareholder Servicing.........................................................11
FINANCIAL HIGHLIGHTS..........................................................11
FOR MORE INFORMATION..........................................................12
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TD WATERHOUSE FAMILY OF FUNDS, INC.
RISK AND RETURN SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
Each Portfolio seeks maximum current income to the extent consistent with
liquidity and preservation of capital and a stable price of $1.00 per share.
There is no guarantee that any Portfolio will be able to maintain a stable share
price.
INVESTMENT STRATEGIES
Each Portfolio is a no-load money market fund. Each Portfolio invests in high
quality money market securities that the investment manager believes present
minimal credit risk.
Generally, money market securities are short-term debt obligations issued by
banks, corporations or governments. Money market securities may be backed by
loans, receivables or other assets or may be unsecured, and may include
repurchase agreements. In a repurchase agreement, a Portfolio acquires ownership
of a security from a financial institution that agrees to repurchase the
security later at a time and price that determine the yield during the
Portfolio's holding period. Particular types of money market securities are
described in the Portfolios' Statement of Additional Information.
The MONEY MARKET PORTFOLIO has the flexibility to invest in a broad range of
high quality money market securities. The U.S. GOVERNMENT PORTFOLIO offers an
added measure of safety by investing exclusively in obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities. The
MUNICIPAL PORTFOLIO offers income exempt from federal taxes by investing
primarily in municipal securities.
As money market funds, the Portfolios comply with a range of federal regulations
relating to quality, maturity, liquidity and diversification that are designed
to promote price stability. Under the maturity standards, each Portfolio
maintains an average portfolio maturity of 90 days or less (weighted by the
relative values of its holdings), and generally does not invest in any
securities with a remaining maturity of more than 397 days (approximately 13
months). Under the quality standards, each Portfolio invests only in securities
that at the time of purchase are in the two highest short-term rating categories
or are of equivalent quality in the judgment of the investment manager.
Each Portfolio may invest in other investment companies consistent with its
investment objective and strategies. Any such investments, although not
currently anticipated, will be made solely in no-load money market funds.
MONEY MARKET PORTFOLIO. The Money Market Portfolio invests in a broad spectrum
of high quality U.S. dollar-denominated money market instruments. The
Portfolio's investments may include obligations issued by, or guaranteed by,
U.S. or foreign governments, their agencies or instrumentalities, bank
obligations, and corporate debt obligations of U.S. and foreign issuers, as well
as repurchase agreements and asset-backed securities and other money market
instruments.
U.S. GOVERNMENT PORTFOLIO. The U.S. Government Portfolio invests exclusively in
U.S. Treasury bills, notes, bonds and other obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities, and repurchase
agreements backed by such obligations. A U.S. government guarantee of the
securities owned by the Portfolio, however, does not guarantee the net asset
value of the Portfolio's shares.
MUNICIPAL PORTFOLIO. The Municipal Portfolio seeks maximum current income that
is exempt from federal income taxes to the extent consistent with preservation
of capital and liquidity. The Portfolio invests primarily in a diversified
portfolio of short-term, high quality, tax-exempt municipal obligations. The
Municipal Portfolio normally invests at least 80% of its total assets in
obligations issued or guaranteed by states, territories and possessions of the
United States and the District of Columbia and their political subdivisions,
agencies and instrumentalities ("municipal securities"). The income from these
securities is exempt from federal income tax, but may be subject to the federal
alternative minimum tax.
The Portfolio may deviate from its investment policies and may adopt temporary
defensive measures when significant adverse market, economic, political or other
circumstances require immediate action in order to avoid losses. During such
periods, the Portfolio may temporarily invest its assets, without limitation, in
taxable money market investments. Interest income from temporary investments is
taxable to shareholders as ordinary income.
Moreover, although the Portfolio does not currently intend to do so on a regular
basis, it may invest more than 25% of its assets in municipal securities that
are repayable out of revenue streams generated from economically related
projects or facilities. Investment in municipal securities repayable from
related revenue streams further concentrates the Portfolio's risks.
PRINCIPAL RISKS
The income from each Portfolio will vary with changes in prevailing interest
rates. In addition, each Portfolio's investments are subject to "credit risk,"
which is the risk that an issuer will be unable, or will be perceived to be
unable, to repay its obligations at maturity. Funds that invest primarily in
high quality securities are subject to less credit risk than funds that invest
in lower quality securities. The U.S. Government Portfolio
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reduces credit risk by investing exclusively in U.S. government and agency
securities.
Although each Portfolio seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in a Portfolio. An
investment in a Portfolio 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 Portfolios may be appropriate for the following investors:
o Investors looking to earn income at current money market rates from a high
quality portfolio.
o Investors looking for a liquid investment that preserves capital.
o Investors pursuing a short-term investment goal.
In addition, the Municipal Portfolio may be appropriate for investors looking
for income that is exempt from federal income tax.
PAST PERFORMANCE
The following bar chart illustrates the risks of investing in the Portfolios by
showing changes in the Portfolios' performance from year to year. The table
below shows the Portfolios' average annual returns. Of course, past performance
is not necessarily an indication of how a Portfolio will perform in the future.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR(1)
MONEY MARKET PORTFOLIO
1/1 - 12/31/96: 4.78%
1/1 - 12/31/97: 4.95%
1/1 - 12/31/98: 4.97%
- --------------- -----
U.S. GOVERNMENT PORTFOLIO
1/1 - 12/31/96: 4.77%
1/1 - 12/31/97: 4.84%
1/1 - 12/31/98: 4.82%
- --------------- -----
MUNICIPAL PORTFOLIO
1/1 - 12/31/96: 2.98%
1/1 - 12/31/97: 3.04%
1/1 - 12/31/98: 2.89%
- --------------- -----
For the periods covered by the bar chart, the highest and lowest quarterly
returns were 1.26% (for the quarter ended 12/31/97) and 1.15% (for the quarter
ended 3/31/97) for the Money Market Portfolio, 1.23% (for the quarter ended
12/31/97) and 1.10% (for the quarter ended 12/31/98) for the U.S. Government
Portfolio, and 0.78% (for the quarter ended 12/31/97) and 0.24% (for the quarter
ended 6/30/98) for the Municipal Portfolio, respectively.
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98(2)
SINCE
INCEPTION
1 YEAR (12/20/95)
------ ----------
Money Market Portfolio 4.97% 5.06%
U.S. Government Portfolio 4.82% 4.97%
Municipal Portfolio 2.89% 3.14%
1 For the period from 1/1/99 through 9/30/99, total returns for the Money
Market Portfolio, U.S. Government Portfolio, and Municipal Portfolio, were
3.32%, 3.30%, and 1.90%, respectively.
2 As of 12/31/98, 7-day yields for the Money Market Portfolio, U.S.
Government Portfolio, and Municipal Portfolio were 4.61%, 4.28%, and 2.93%,
respectively. As of the same date, the tax-equivalent 7-day yield for the
Municipal Portfolio was 4.58%. For current yield information, please call
1-800-934-4448.
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EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolios.
<TABLE>
<CAPTION>
MONEY MARKET U.S. GOVERNMENT MUNICIPAL
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION FEES (fees paid directly
from your investment)1
Maximum Sales Charge (Load) Imposed on Purchases None None None
ANNUAL OPERATING EXPENSES (expenses deducted
from Portfolio assets)
Management Fees 2 0.35% 0.35% 0.35%
Distribution (12b-1) Fees None None None
Service Fees 2 0.25% 0.25% 0.25%
Other Expenses 2 0.32% 0.34% 0.35%
----- ----- -----
Total Operating Expenses 2 0.92% 0.94% 0.95%
1 Broker-dealers that are not affiliates of the Portfolios' investment
manager may impose service fees in connection with the sale of Portfolio
shares.
2 The table shows the expenses for each Portfolio's fiscal year ended October
31, 1999 before expense reductions by the Portfolios' investment manager.
The investment manager voluntarily agreed to reduce the Portfolios'
expenses (by paying certain expenses and/or waiving fees) so that the total
operating expenses of the Money Market Portfolio, the U.S. Government
Portfolio and the Municipal Portfolio will not exceed 0.75%, 0.75% and
0.74%, respectively. These expense reductions are voluntary and may be
reduced or eliminated at any time upon notifying investors. After expense
reductions, the Portfolios' actual expenses for the fiscal year ended
October 31, 1999 were:
</TABLE>
<TABLE>
<CAPTION>
Money U.S.
Market Government Municipal
Portfolio Portfolio Portfolio
--------- --------- ---------
<S> <C> <C> <C>
Management Fees 0.34% 0.35% 0.25%
Service Fees 0.05% 0.06% 0.14%
Other Expenses 0.32% 0.34% 0.35%
----- ----- -----
Total Net Operating Expenses 0.71% 0.75% 0.74%
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in a
Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in a Portfolio for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Portfolio's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs* would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Portfolio $92 $293 $509 $1,131
U.S. Government Portfolio $96 $300 $520 $1,155
Municipal Portfolio $97 $303 $525 $1,166
<FN>
* Assuming that current expense reduction arrangements continue for one year,
your costs would be:
</FN>
</TABLE>
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Portfolio $77 $276 $492 $1,114
U.S. Government Portfolio $77 $280 $501 $1,135
Municipal Portfolio $75 $281 $504 $1,145
</TABLE>
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HOW TO BUY AND SELL SHARES
Investors may purchase shares of the Portfolios through an account with TD
Waterhouse Investor Services, Inc. ("TD Waterhouse") or certain other
broker-dealers.
If you would like to purchase shares of a Portfolio through TD Waterhouse and
you are not already a customer, you need to open a TD Waterhouse brokerage
account by completing and signing a TD Waterhouse New Account Application. To
request an application, please call 1-800-934-4448. Mail it, together with your
check in the amount you wish to purchase, in the postage-paid envelope provided
with the TD Waterhouse New Account Application.
AUTOMATIC SWEEP. By setting up your TD Waterhouse brokerage account for
automatic sweep, free credit balances in your brokerage account will be invested
or "swept" automatically each business day into the Portfolio you have selected
("Sweep Portfolio"). This feature keeps your money working for you while it is
not invested in other securities. "Free credit balances" refers to any settled
or cleared funds in your TD Waterhouse brokerage account that are available for
payment or investment.
To set up your TD Waterhouse brokerage account for automatic sweep, you should
select one of the money market sweep portfolios in the appropriate section of
the TD Waterhouse New Account Application. If you already have a TD Waterhouse
brokerage account but it is not set up to sweep free credit balances
automatically, simply call the TD Waterhouse office handling your account. In
most cases, a TD Waterhouse Account Officer will set up your account for
automatic sweep while you are on the phone.
While you may purchase shares of any of the Portfolios of TD Waterhouse Family
of Funds, Inc. at any time, only one such fund (including a Portfolio) may be
designated as your Sweep Portfolio. The sweep feature is subject to the terms
and conditions of your TD Waterhouse brokerage account agreement.
ACCOUNT PROTECTION. Within your TD Waterhouse brokerage account, you have access
to other investments available at TD Waterhouse such as stocks, bonds, options,
and other mutual funds. The securities in your TD Waterhouse brokerage account,
including shares of the Portfolios, are protected up to $150 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 $149.5 million, which covers securities only, is provided by a private
insurance carrier.
INVESTMENT MINIMUMS. There is currently no minimum requirement for initial and
subsequent purchases of Portfolio shares. However, Portfolio shares are subject
to automatic redemption should the TD Waterhouse brokerage account in which they
are held be closed or if TD Waterhouse imposes certain requirements with respect
to its brokerage accounts and eligibility for sweep arrangements, including
requirements relating to minimum account balances. Any minimum balance
requirement will not apply to TD Waterhouse IRA accounts.
TD WATERHOUSE INVESTORS MONEY MANAGEMENT ACCOUNTS. For those TD Waterhouse
customers who qualify, a TD Waterhouse Investors Money Management Account
provides additional services over that of a brokerage account. In addition to
having free credit balances in your brokerage account swept automatically each
business day into your Sweep Portfolio, you can access your investment in the
Portfolio by writing checks or using an ATM/VISA Debit Card. You should contact
a TD Waterhouse Account Officer for more details. To set up your TD Waterhouse
Investors Money Management Account, you should complete the appropriate section
of the TD Waterhouse New Account Application.
HOW TO BUY SHARES
Shares are purchased at the next net asset value (NAV) per share calculated
after an order and payment are received by the Portfolio. There is no sales
charge to buy shares of a Portfolio.
Each Portfolio reserves the right to suspend the offering of shares for a period
of time and to reject any specific purchase order, including certain purchase
orders by exchange.
CUSTOMERS OF TD WATERHOUSE
You may purchase shares of a Portfolio either through the automatic sweep
feature or by way of a direct purchase as set forth below.
BY AUTOMATIC SWEEP. Free credit balances in your TD Waterhouse brokerage account
will be automatically invested each business day in the Sweep Portfolio you have
selected. Checks deposited to your TD Waterhouse brokerage account will be
automatically invested in the Sweep Portfolio after allowing three business days
for clearance. Net proceeds from securities transactions in your brokerage
account will be automatically invested on the business day following settlement.
Dividends and interest payments from investments in your brokerage account will
be automatically invested in the Sweep Portfolio on the day they are credited to
your account.
DIRECT PURCHASES. A TD Waterhouse brokerage customer may purchase shares of any
of the Portfolios by placing an order directly with a TD Waterhouse Account
Officer at 1-800-934-4448. You may buy shares by mailing or bringing your check
to any TD Waterhouse office. Checks should be made payable to "TD Waterhouse
Investor Services, Inc." and you should write your TD Waterhouse account number
on the check. The check will be deposited to your TD Waterhouse brokerage
account. TD Waterhouse allows three business days for clearance and shares of a
Portfolio will be purchased on the third business day.
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CUSTOMERS OF SELECTED BROKER-DEALERS
Shares may be purchased and redeemed through certain authorized broker-dealers
other than TD Waterhouse that have entered into a selling agreement with the
Portfolios' distributor ("Selected Brokers"). Affiliates of TD Waterhouse 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 a Portfolio
or TD Waterhouse.
Investors who purchase shares through a Selected Broker will be subject to the
procedures of their Selected Broker, which may include charges, limitations,
investment minimums, cutoff times and restrictions in addition to, or different
from, those generally applicable to TD Waterhouse customers. Any such charges
would reduce the return on an investment in a Portfolio. 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 Portfolio 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 Portfolios.
Certain shareholder services, such as periodic investment programs, may not be
available to customers of Selected Brokers or may differ in scope from programs
available to TD Waterhouse customers. Shareholders should contact their Selected
Broker for further information. The Portfolios 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 Portfolios are 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 a Portfolio, you may use any of the methods outlined
above under "How to Buy Shares." Portfolio shares are redeemed at the next NAV
calculated after receipt by the Portfolio of a redemption request in proper
form.
PAYMENT. The proceeds of the redemption of your Portfolio shares ordinarily will
be credited to your brokerage account the following business day after receipt
by the Portfolio 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). Each Portfolio
reserves the right to make redemption payments in whole or in part in securities
or other property, valued for this purpose as they are valued in computing the
Portfolio's NAV per share.
AUTOMATIC SWEEP REDEMPTIONS. Shares of your Sweep Portfolio may be sold
automatically to satisfy a debit balance in your TD Waterhouse brokerage
account. To the extent that there are not a sufficient number of shares of your
Sweep Portfolio to satisfy any such debit, shares that you own of the other
Portfolios or any other fund of the TD Waterhouse Family of Funds, Inc. may be
sold. In addition, shares will be sold to settle securities transactions in your
TD Waterhouse brokerage account if on the day before settlement there is
insufficient cash in the account to settle the net transactions. Your brokerage
account, as of the close of business each business day, will be scanned for
debits and pending securities settlements, and after application of any free
credit balance in the account to the debits, a sufficient number of shares will
be sold the following business day to satisfy any remaining debits. Shares may
also be sold automatically to provide the cash collateral necessary to meet your
margin obligations to TD Waterhouse.
If you have a TD Waterhouse Investors Money Management Account and you withdraw
cash from your TD Waterhouse brokerage account by way of a check or ATM/VISA
Debit Card, shares of your Sweep Portfolio will automatically be sold to satisfy
any resulting debit balance. Holders of the ATM/VISA Debit Card will not be
liable for unauthorized withdrawals resulting in redemptions of Portfolio shares
that occur after TD Waterhouse is notified of the loss, theft or unauthorized
use of the Card. Further information regarding the rights of holders of the
ATM/VISA Debit Card is set forth in the TD Waterhouse Investors Money Management
Agreement provided to each customer who opens a TD Waterhouse Investors Money
Management Account. ATM cash withdrawals may be made through participating
financial institutions. Although TD Waterhouse does not charge for ATM
withdrawals, institutions may charge a fee in connection with their services.
HOW TO EXCHANGE BETWEEN PORTFOLIOS
You may change your designated Sweep Portfolio to any other Portfolio of the TD
Waterhouse Family of Funds, Inc. at any time without charge. You may also
exchange shares of a Portfolio for shares of another Portfolio of the TD
Waterhouse Family of Funds, Inc. To effect an exchange, call a TD Waterhouse
Account Officer with instructions to move your money from one Portfolio to
another, or you may mail written instructions to your local TD Waterhouse
office. Your letter should reference your TD Waterhouse brokerage account
number, the Portfolio from which you are exchanging and the Portfolio(s) into
which you are exchanging. At least one registered account holder should sign
this letter.
An exchange involves the redemption of Portfolio shares and the purchase of
shares of another Portfolio at their respective NAVs after receipt of an
exchange request in proper form. Each Portfolio reserves the right to reject
specific exchange orders and, on 60 days' prior written notice, to suspend,
modify or terminate exchange privileges.
TELEPHONE TRANSACTIONS
As a customer of TD Waterhouse you automatically have the privilege of
purchasing, exchanging or redeeming Portfolio
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shares by telephone. TD Waterhouse and the Portfolios will employ reasonable
procedures to verify the genuineness of telephone redemption requests. These
procedures involve requiring certain personal identification information. If
such procedures are not followed, TD Waterhouse and the Portfolios may be liable
for any losses due to unauthorized or fraudulent instructions. Neither TD
Waterhouse nor the Portfolios 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 a TD Waterhouse Account Officer if you question any activity in
the account.
Each Portfolio reserves the right to refuse to honor requests made by telephone
if the Portfolio believes them not to be genuine. The Portfolios 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 Portfolios reserve the right to terminate or modify this
privilege at any time.
SHAREHOLDER INFORMATION
PRICING YOUR SHARES
The price of a Portfolio share on any given day is its NAV. Each Portfolio
calculates its NAV per share each day as of 12:00 noon and as of the close of
regular trading on the New York Stock Exchange, generally 4:00 p.m. (Eastern
time), except on days when either the New York Stock Exchange or the Portfolios'
custodian is closed. Each Portfolio's shares are purchased and sold at the next
NAV per share calculated after an order and, in the case of purchase orders,
payment are received by the Portfolio in the manner described under "How to Buy
and Sell Shares."
Like most money market funds, each Portfolio values its portfolio securities at
amortized cost, which means that they are valued at their acquisition cost (as
adjusted for amortization of premium or discount) rather than at current market
value. This method of valuation minimizes the effect of changes in a security's
market value and helps each Portfolio to maintain a stable $1.00 share price.
The Board of Directors has adopted procedures pursuant to which the NAV of a
Portfolio, as determined under the amortized cost method, is monitored in
relation to the market value of the Portfolio.
DIVIDENDS
On each day that the NAV of a Portfolio is determined, such Portfolio's net
investment income will be declared at 4:00 p.m. (Eastern time) as a daily
dividend to shareholders of record as of the previous business day's last
calculation of NAV. All expenses are accrued daily and are deducted before
declaration of dividends to investors.
Dividends and distributions from a Portfolio will be reinvested in additional
full and fractional shares of the same Portfolio at the NAV next determined
after their payable date. Dividends are declared daily and are reinvested
monthly. You may elect to receive any monthly dividend in cash by submitting a
written election to TD Waterhouse by the tenth day of the specific month to
which the election to receive cash relates.
TAXES
Dividends derived from interest and short-term capital gains generally are
taxable to a shareholder as ordinary income even though they are reinvested in
additional Portfolio shares. Distributions of net capital gain, if any, realized
by a Portfolio are taxable to shareholders of a Portfolio as a long-term capital
gain (taxable, in the case of individuals, at the maximum rate of 20%),
regardless of the length of time the shareholder may have held shares in the
Portfolio at the time of distribution. Due to the nature of their investments,
the Portfolios' distributions will consist primarily of ordinary income.
All or some of the dividends received from the U.S. Government Portfolio may be
exempt from individual state and/or local income taxes. You should consult with
your tax adviser in this regard.
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.
MUNICIPAL PORTFOLIO. The Municipal Portfolio intends to declare and distribute
tax-exempt interest dividends. Shareholders of the Portfolio will not be
required to include the "exempt-interest" portion of dividends paid by the
Portfolio in their gross income for federal income tax purposes. However,
shareholders will be required to report the receipt of exempt-interest dividends
and other tax-exempt interest on their federal income tax returns.
Exempt-interest dividends may be subject to state income taxes or give rise to a
federal alternative minimum tax liability. Exempt-interest dividends also may
affect the amount of social security benefits subject to federal income tax, may
affect the deductibility of interest on certain indebtedness of the shareholder
and may have other collateral federal income tax consequences.
Dividends representing taxable net investment income (such as net interest
income from temporary investments in obligations of the U.S. government, and any
net short-term capital gains), are taxable to shareholders as ordinary income.
Market discount recognized on taxable and tax-exempt securities is also taxable
as ordinary income and is not treated as excludable income.
To the extent that exempt-interest dividends are derived from certain private
activity bonds (some of which were formerly
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referred to as industrial development bonds) issued after August 7, 1986, they
will be treated as an item of tax preference and may, therefore, be subject to
both the individual and corporate alternative minimum tax. All exempt-interest
dividends will be included in determining a corporate shareholder's adjusted
current earnings. Seventy-five percent of the excess, if any, of "adjusted
current earnings" over the corporate shareholder's alternative minimum taxable
income, with certain adjustments, will be an upward adjustment for purposes of
the corporate alternative minimum tax. The percentage of dividends which
constitutes exempt-interest dividends, and the percentage thereof (if any) which
constitutes an item of tax preference, will be determined annually and will be
applied uniformly to all dividends of the Portfolio declared during that year.
These percentages may differ from the actual percentages for any particular day.
Shareholders are advised to consult their tax advisers with respect to
alternative minimum tax consequences of an investment in the Portfolio.
The tax exemption of dividends from the Portfolio for federal income tax
purposes does not necessarily result in exemption under the income or other tax
laws of any state or local taxing authority. The laws of the several states and
local taxing authorities vary with respect to the taxation of such income and
you are advised to consult your own tax adviser as to the status of your
dividends under state and local tax laws.
STATEMENTS TO SHAREHOLDERS
The Portfolios do not issue share certificates but record your holdings in
noncertificated form. Your Portfolio activity is reflected in your TD Waterhouse
brokerage account statement. The Portfolios provide you with audited annual and
unaudited semi-annual financial statements. To reduce expenses, only one copy of
most financial reports is mailed to you if you hold shares of more than one
Portfolio under the same account name and tax identification number. Moreover,
unless you request otherwise, only one copy of each of the annual and
semi-annual financial statements and prospectus of the Portfolios will be sent
to a single household without regard to the number of shareholders residing at
such household.
YEAR 2000 INFORMATION
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). Like other investment companies and
financial and business organizations, each Portfolio could be adversely affected
if the computer systems used by the investment manager or other Portfolio
service providers do not properly address this problem prior to January 1, 2000.
The investment manager and its affiliates have established a dedicated group to
analyze these issues and to implement any systems modifications necessary to
prepare for the Year 2000. Currently, the investment manager does not anticipate
that the transition to the Year 2000 will have any material impact on its
ability to continue to service the Portfolios at current levels. In addition,
the investment manager has sought assurances from the Portfolios' 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 Portfolios or their service providers have anticipated every step
necessary to avoid any adverse effect on the Portfolios attributable to the Year
2000 Problem or that interaction with other non-complying computer systems will
not impact their services. In addition, the Portfolios may be subject to similar
risks with respect to the issuers of securities in which they invest.
PORTFOLIO MANAGEMENT
INVESTMENT MANAGER
TD Waterhouse Asset Management, Inc., 100 Wall Street, New York, NY 10005, is
the Portfolios' investment manager. The investment manager formulates guidelines
and lists of approved investments for each Portfolio, makes decisions with
respect to and places orders for that Portfolio's purchases and sales of
portfolio securities and maintains records relating to such purchases and sales.
For its services, the investment manager is entitled to an annual fee, accrued
daily and payable monthly, on a graduated basis equal to 0.35% of the first $1
billion of average daily net assets of each Portfolio, 0.34% of the next $1
billion, and 0.33% of assets over $2 billion. The investment manager from time
to time may assume certain expenses of the Portfolios (or waive its fees), which
would have the effect of increasing yield to investors during the period of the
expense reduction. These expense reductions are voluntary and may be reduced or
eliminated at any time with notice to investors.
In addition to the Portfolios, the investment manager currently serves as
investment manager to TD Waterhouse Trust, National Investors Cash Management
Fund, Inc. and TD Waterhouse Bank, N.A. and as of November 30, 1999 had total
assets under management in excess of $12.7 billion.
ADMINISTRATOR
As administrator, TD Waterhouse, an affiliate of the investment manager,
provides certain administrative services to the Portfolios. For its services as
administrator, TD Waterhouse receives from each Portfolio an annual fee, payable
monthly, of 0.10% of each Portfolio's average daily net assets. TD Waterhouse
has entered into an agreement with Funds Distributor, Inc. ("FDI") whereby FDI
performs certain administrative services for the Portfolios. TD Waterhouse pays
FDI's fees for providing these services.
DISTRIBUTOR
FDI acts as distributor of the Portfolios' shares for no compensation.
10
<PAGE>
SHAREHOLDER SERVICING
The Portfolios' Shareholder Servicing Plan permits each Portfolio to pay banks,
broker-dealers or other financial institutions (including TD Waterhouse and its
affiliates) for shareholder support services they provide, at a rate of 0.25% of
the average daily net assets of each Portfolio. 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 tables on the following pages are intended to help you
understand each Portfolio's financial performance since inception of the
Portfolio's operations. Certain information reflects financial results for a
single share of each Portfolio. The total return amount in the tables represents
the rate that an investor would have earned on an investment in a Portfolio
(assuming reinvestment of all dividends and distributions). This information has
been audited by Ernst & Young LLP, whose report, along with the Portfolios'
financial statements, are included in the annual report, which is available upon
request by calling TD Waterhouse at 1-800-934-4448.
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
PER SHARE OPERATING OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
PERFORMANCE 1999 1998 1997 1996*
---- ---- ---- -----
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------
Net investment income 0.044 0.049 0.048 0.041
------ ------ ------ ------
Distributions from net
investment income (0.044) (0.049) (0.048) (0.041)
------- ------- ------- -------
Net asset value,
end of period $1.000 $1.000 $1.000 $1.000
====== ====== ====== ======
RATIOS
Ratio of expenses to
average net assets 0.71% 0.75% 0.83% 0.79% (A)
Ratio of net investment
income to average net
assets 4.44% 4.92% 4.79% 4.64% (A)
Decrease reflected in above net
expense ratio due to waivers and/or
reimbursements by the investment
manager and its affiliates 0.21% 0.15% 0.08% 0.13% (A)
SUPPLEMENTAL DATA
Total investment
return (B) 4.54% 5.04% 4.89% 4.82% (A)
Net assets, end of period $4,646,268,591 $2,957,725,894 $1,787,786,777 $1,342,610,086
============== ============== ============== ==============
Average net assets $4,035,269,586 $2,302,804,288 $1,592,722,254 $1,104,558,438
============== ============== ============== ==============
* The Portfolio commenced operations on December 20, 1995.
(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.
</TABLE>
U.S. GOVERNMENT PORTFOLIO
-------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
PER SHARE OPERATING OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
PERFORMANCE 1999 1998 1997 1996*
---- ---- ---- -----
<S> <C> <C> <C> <C>
Net asset
value, beginning of period $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------
Net investment income 0.044 0.048 0.047 0.041
------ ------ ------ ------
Distributions from net
investment income (0.044) (0.048) (0.047) (0.041)
-------- ------- ------- ------
Net asset value,
end of period $1.000 $1.000 $1.000 $1.000
====== ====== ====== ======
RATIOS
Ratio of expenses to
average net assets 0.75% 0.78% 0.81% 0.73% (A)
Ratio of net investment
income to average net
assets 4.40% 4.80% 4.69% 4.64% (A)
Decrease reflected in above net
expense ratio due to waivers and/or
reimbursements by the investment
manager and its affiliates 0.19% 0.11% 0.07% 0.18% (A)
SUPPLEMENTAL DATA
Total investment
return (B) 4.47% 4.91% 4.79% 4.82% (A)
Net assets, end of period $880,720,253 $537,403,768 $402,685,311 $371,046,770
============ ============ ============ ============
Average net assets $678,643,185 $457,821,528 $398,635,777 $293,708,330
============ ============ ============ ============
<FN>
* The Portfolio commenced operations on December 20, 1995.
(A) Annualized.
(B) Total investment return is calculated assuming a purchase of shares on
the first day and a sale on the last day of the period reported and
includes reinvestment of dividends.
</FN>
</TABLE>
MUNICIPAL PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
PER SHARE OPERATING OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
PERFORMANCE 1999 1998 1997 1996*
---- ---- ---- -----
<S> <C> <C> <C> <C>
Net asset
value, beginning of period $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------
Net investment income 0.026 0.029 0.030 0.026
------ ------ ------ ------
Distributions from net
investment income (0.026) (0.029) (0.030) (0.026)
------- ------- ------- -------
Net asset value,
end of period $1.000 $1.000 $1.000 $1.000
====== ====== ====== ======
RATIOS
Ratio of expenses to
average net assets 0.74% 0.72% 0.74% 0.62% (A)
Ratio of net investment
income to average net
assets 2.56% 2.93% 2.97% 2.90% (A)
Decrease reflected in above net
expense ratio due to waivers
and/or reimbursements by the
investment manager and its
affiliates 0.21% 0.13% 0.10% 0.23% (A)
SUPPLEMENTAL DATA
Total investment
return (B) 2.59% 2.98% 3.01% 3.05% (A)
Net assets, end of period $487,136,694 $381,090,446 $265,623,696 $226,253,394
============ ============ ============ ============
Average net assets $439,705,095 $312,133,086 $252,444,536 $196,592,413
============ ============ ============ ============
* The Portfolio commenced operations on December 20, 1995.
(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.
</TABLE>
11
<PAGE>
FOR MORE INFORMATION
More information on the Portfolios is available upon request, including the
following:
SHAREHOLDER REPORTS. Additional information about the Portfolios' investments is
available in the Portfolios' annual and semi-annual reports to shareholders.
STATEMENT OF ADDITIONAL INFORMATION (SAI). The SAI includes more information
about each Portfolio 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 Portfolios, and make shareholder inquiries by contacting:
TD Waterhouse Investor Services, Inc.
Customer Service
100 Wall Street
New York, New York 10005
Telephone: 1-800-934-4448
Hearing impaired: TTY 800-933-0555
Internet Site: http://www.tdwaterhouse.com
Text-only versions of the Portfolios' prospectus and other documents pertaining
to the Portfolios can be viewed online or downloaded from the SEC
(http://www.sec.gov).
You also can review and copy information about each Portfolio, including the
SAI, at the SEC's public reference room in Washington, DC. For a duplicating
fee, you may obtain copies of this information by writing the SEC's Public
Reference Section, Washington, DC 20549-0102 or by electronic request at
[email protected]. For more information about these services, call the SEC at
1-202-942-8090.
The Portfolios are series of TD Waterhouse Family of Funds, Inc. whose
investment company registration number is 811-9086.
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